Mastering Private Credit: Overcoming Challenges in Real Estate Investing

John Harcar (00:01.076)
Alright, hey guys, welcome back to our show. I’m your host John Harcar and I’m here today with Jeff Ervick and We’re gonna talk about his real estate journey, but also talk about private credit Remember guys at investor fuel we help real estate investors service providers I mean all real estate entrepreneurs 2 to 5x their business by providing tools and resources to build the business they want to build which in turn helps them live that life that they’ve always dreamed of Jeff, welcome to our show

Jeff Ervick (00:28.051)
Don, I appreciate having you, man. Thank you so much.

John Harcar (00:30.658)
Yeah, definitely. I’m super excited to talk about, you know, using private credit and your journey, you know. But before we get into all that, why don’t you give our audience a little bit, you know, background on you, kind of, you know, what your journey’s been, what got you into real estate and what got you here?

Jeff Ervick (00:43.987)
Yeah, no, I appreciate that. Yeah. yeah, Jeff Irvick based out of Maryland. I’ve been in real estate since 2017. Actually, I even joke actually, it’s probably even before that. My wife and I bought our first house in 2009, right after the crash, right? So we bought a really good time and, and we fixed it up and we sold it, you know, in in a short amount of period of time and then move into a bigger one. So basically house hacked without even knowing we were house hacking.

John Harcar (01:00.526)
Mmm. Yeah.

John Harcar (01:12.182)
I was gonna say that’s the intro to house hacking.

Jeff Ervick (01:13.779)
Wow. Exactly. Back a long time ago. But ultimately after that, decided to, really I wanted to get into real estate investment back in 2017. I met up a couple of buddies. We went to a couple of meetups learning about how to invest in real estate here locally in the Maryland area. I bought a couple of rental properties. I fixed and flipped a few rental properties and I still own a handful of those rental properties as well. also have short-term rentals.

And I also got into private lending, right? Which is kind of what speared me into this private credit we all want to talk about here soon, but private lending was more for residential real estate. But that’s my real estate journey. My background is I’m actually in tech sales. I’m a W-2 employee. I still work in a full-time job while I do real estate. So my biggest journey now is telling people, you don’t have to quit your job to be an investor in real estate, right? You can invest in real estate and work a W-2 job. In fact, I…

promote that because I want people to be able to use their W2 job as their fuel in their investor journey. I mean, hey, there you go. That’s a good little tagline for you guys. Yeah, but ultimately, yeah, so I’ve been in tech sales for just over 20 years. I’ve only worked for two different companies my entire life. I’m a very loyal guy when it comes to that. And I’m also loyal to my customers. So building relationships to me is key. And I think that kind of carries forward

John Harcar (02:19.842)
Yeah, there you go. I love it.

Jeff Ervick (02:38.941)
big into the real estate side. I cover all investor relations for our company and then being able to do that. So again, I’m married, I got three kids, a beautiful wife, and I love coaching baseball and I’m a big car guy too. So there you go, right there. That’s me.

John Harcar (02:55.628)
awesome. Right on. OK. So being in Maryland, so what are you a Boston Boston fan?

Jeff Ervick (03:01.167)
No, not even close. No, I’m actually, grew up in New Jersey, so I’m actually a Mets fan. Yep, I’m a Mets and Giants fan, but proximity wise, you know, I’m also an Orioles and Ravens fan too. yep.

John Harcar (03:05.729)
Mets Fan. Okay.

John Harcar (03:13.038)
Yeah, that’s right, Baltimore. Awesome. So let’s kind of go back a little bit, right? So you bought this first house and you did a little house hack. mean, did you have prior to that any type of influence, any type of, know, anybody in your life that was in real estate that did flips or anything like that? Or is just this something that you and your wife just said, hey, let’s flip this house and start moving on.

Jeff Ervick (03:34.929)
Yeah, back then, no, I didn’t have anybody that I knew that was in real estate. You know, I’ve always loved, you know, back in the day watching the HDTV shows and those kinds of things, right? So that’s probably what kind of speared my, my, my interest in it. But, but for some reason I’ve always just had this knack for love of real estate. So that’s when we bought that first first townhouse. We did that. And then we bought another single family home. And then at that time I moved up to Maryland, that was in Virginia. And at that time I moved up to Maryland. So, so we’ve been here for a little over 12 years.

John Harcar (03:42.382)
Right.

John Harcar (04:04.398)
Okay. Okay. So you did this house hack, right? And then you start getting into real estate and you’re still working a full-time W-2. What were some of the challenges that you’ve came across, you know, when working your W-2 trying to start this part of your life or part of your journey?

Jeff Ervick (04:20.979)
Yeah, I mean, so to talk about that very, very open and honestly too is the, when I first got into real estate, I was buying single family rental properties, right? And so I was going to the auctions in person. was, know, know, raising my hand up to buy the auctions route in front of the property or in front of the courthouse. And then once I got the property, then I’d have to go hire a property manager or hire a construction team.

manage the rehab process, be up there for, for inspections and so forth. And, you know, it just, got to be a lot that I, um, that it was tough to be able to manage, you know, that flipping or that, that rehab burr business, so to speak, right. In a single family world. Um, and, uh, with my W2 job. So I kind of like had to take a step back and think, Hey, what else can I do, um, to be able to earn passive income in real estate? Right. Well, so I had a friend of mine who

you know, taught me about private lending, right? So I ended up getting a self-directed IRA. this is back in 2000, I think 2018 and, and started lending my, my IRA out, to other real estate investors. And I was earning a really good 12 % return on that 10 % return. and that was easy. was like, that makes sense. I can do that and it’s tax free. Why not? so yeah, so that that’s kind of my, you know, the start of that. And, and as I, as I kind of moved into.

you know, looking to scale certain, you know, certain real estate portfolios. I realized that also I can’t do it in a single family realm. Now, not to say that single family investing is a bad way because you can make good cash flow. You can make good equity. You can make a good appreciation with the properties and you have to scale up to 20, 30, 40, 50 properties in order to be able to really make good cash flow on it. Right. And I didn’t have the time to be able to do that. So

John Harcar (06:12.311)
Right.

Jeff Ervick (06:12.915)
So I started investigating into, you know, how can I scale bigger and better and faster? And that’s, you know, where I found multifamily real estate investments.

John Harcar (06:23.086)
Okay, and what type of mindset shift did you have to have when growing up in an asset class?

Jeff Ervick (06:23.271)
So yeah.

Jeff Ervick (06:32.496)
Yeah, I think a lot of people get caught in the, it’s too big for me. Right. I can’t do this, right. It’s how, how can I go ahead and buy a $10 million property working at? Where am I going to be able to find that kind of money or capital or how am going to be able to do this? And, they kind of have a limiting belief mindset, right? When I was kind of in the opposite, said, you know what? I’m to do whatever it takes to find the way to get into that opportunity. Cause I want to be that, that person that goes out and buys that apartment.

I want to be a part of that. And the I did that is I joined a mastermind program similar to what you guys have, right? And Investor Fuel. And I learned that it’s not necessarily an individual sport. Single family renting or single family rentals is an individual sport. You do it yourself, it’s your portfolio. You might have a partner, maybe one, but that usually minimizes the amount of cash flow. If you make $250 cash flow on one property, you guys each take a buck 25.

Okay, that’s cool. Right. You know, when I found the multifamily world, right, buying an apartment complex, I realized it’s a team sport. Like there’s not just one person that has to do this. You’ve got a team of about 10 or 15 people, right, who can handle different aspects of that business, right, for you and with you. And I don’t have to be on site at the properties every single day. You know, I’m still, I’m passively investing in our own deals because I want to

John Harcar (07:32.675)
Right?

John Harcar (07:53.688)
Mm-hmm.

Jeff Ervick (07:59.005)
build my own portfolio. And that’s another reason why I got into it is that what can I do to scale my own portfolio and make multiple different streams of income while I’m still working at W2Job. So I even wrote a book about that. I’ve got an ebook on my web page about that too. But yes. Yeah.

John Harcar (08:12.794)
cool.

Nice. Okay. And why was it important for you when going up into this new class to join a mastermind to be around those like-minded people? What I mean, cause I mean, with so much information out there nowadays, I mean, people can learn it on their own. Why was it important for you to join a mastermind or a group?

Jeff Ervick (08:33.639)
Yeah, so you’re right. mean, you can go on YouTube, you can watch a whole bunch of videos of how to do this and what to expect, right, in getting into that. I think the most important thing is the network, right? Whenever you join a program, a mastermind, a group or anything, it’s that network, right? It’s being around like-minded individuals, right? Who all see that there is no limiting belief to what you can do, right? You can really…

you know, the sky’s the limit if you put your mind to it, right? And you’ve got that positive mentality of I’m going to do this, right? This is going to be my, you know, they call what the bags, right? The big audacious, hairy goals, right? You know, so, so I’m, I’m in that kind of same, same mindset where I’m like, I need to find a group of people, right? That think this way so I can up my game better and be a part of that team. Right. And that’s exactly what I did. I actually didn’t even

John Harcar (09:13.39)
Yep, yep, yep, yep.

Jeff Ervick (09:29.777)
watch one single video on how to buy an apartment complex. That was, for me, I joined the program, like joining a country club. You join a country club because you want to be around different people and network and you want to perfect your golf game. So I the same thing. I joined a network to meet different people in the network and also perfect my real estate game. And that’s exactly what I did.

John Harcar (09:43.342)
Mm-hmm. Right?

John Harcar (09:51.918)
Smart, smart. Well, and you know, they say your network is your net worth, right? And it’s 100 % true. So as far as the technical aspects of it, know, the underwriting, you know, the deal finding and all those specific things, what challenges were there versus your single family type of underwriting marketing type of thing? What challenges were there for you, if any?

Jeff Ervick (09:55.965)
Very true.

Jeff Ervick (10:15.091)
Yeah, sure. I mean, there are definitely challenges, right? Because, you know, how do you underwrite a 150, you know, $10 million property that is in Florida when you live in Maryland and you don’t even know how to, you you haven’t done it before, right? So, yes. So, again, part of that network, right, that I specifically went to go find are people who are like me, right, have the same mindset, the same skill set, or not same skill set, same mindset, same…

ability to, to that want to grow the same opportunities like that, but have a different skillset, right? That’s what I meant earlier, right? To have different skillsets. So I found my partners in there and one of my key partners, Claudio Sanchez, right? He is a master where it comes down to underwriting, acquisitions, and everything in the business realm of it. Right. But when you go down to it you look at, you know, the underwriting, right. it’s, it’s a lot you need to learn.

John Harcar (10:51.288)
Got it.

Jeff Ervick (11:13.083)
Right. And so I’m, think I’ve become a pretty, pretty decent, very professional underwriter and my own, my own game, because I’ve been through it so many times and now I see like, okay, Hey, you need to know the market very well that you’re trying to invest in. Right. You need to know financial brokers. need to know insurance brokers. You need to know property managers. You need to know construction teams. Like you need to know all these specifics about that market in order to make sure your numbers in your, in your underwriting match.

you know, is reality and what’s going to happen. And also everyone says they do conservative underwriting, but you’ve seen some people who are still putting six or still putting, you know, a five cap rate on an exit in two years in a tertiary market, which is just not good. Right. So, yeah.

John Harcar (11:57.086)
Yeah, not gonna work. Well, I mean it sounds like you’ve had some great success. So tell me what your business looks like now

Jeff Ervick (12:04.209)
Yeah, sure. So we cut our teeth on value add, right? And that is still going to be the core of our business moving forward no matter what. We have a bunch of heavy value add in our property. We realized, you know what? We’re probably looking towards scaling it into more of like a medium type of medium light value add properties, right? So a little bit newer age in the 2000s versus in the 60s and 70s and 80s, right? So that’s kind of where we started.

We also do ground up development, right? So we’re also building some class A buildings down in St. Petersburg, Florida. We got three lots down there that are cumulative of 374 units in class A space down there, which I’m very excited about. And then we also own 72 acres out in San Antonio, Texas as well too that we’re going to be developing 815 units. We also own a bunch of other apartment complexes in the Southeast and Midwest, right? And then…

transversely, we also own some industrial properties, right? We had our first exit, we sold an industrial property just about a month ago and returned excellent returns back to our investors and moved there. So that’s where we are now. What we’re doing now in the future, right, is we kind of looked at the writing the wall, we said, hey, listen, a lot of these properties are excellent because they’re good equity. If you want equity, and you want to be able to earn 20, 25, 30 % IARs, you should probably invest in value-added businesses, right?

We’ve seen it as where they’re also not cash flowing. A lot of investors today in today’s market also want to have some type of cash flow opportunity. So we’ve developed a private credit fund. Now private credit fund is just that. Like I mentioned earlier, I’ve done private lending my entire career. Now that’s residential. We’re doing private lending or private, our private credit fund is a private lending towards multifamily businesses. So we look for specific class A properties that are

cash flowing currently, meeting their debt service, right? Not in trouble or not behind on interest payments for their debt service. Able to refinance or have a refinance in process and have some strategy to be able to reduce expenses while not needing to increase rents, right? Which is basically like a tax abatement program or reducing the insurance costs or something like that. So we target those properties.

Jeff Ervick (14:24.649)
our fund invests in that we get a, we get a, we get written into the contract, right? So we have a contract with that property where, we’re, we’re sitting in a position that’s subordinate to the senior debt, right? So we’re right in between the senior debt and the equity portion, right? So we’re, we’re, we’re in a monthly distribution, With the, with the resident comes in and pays, pays the senior debt. also get paid as well. And then we also accrue an interest for the backend, right? So.

So we’re able to produce up to 14 % returns for our investors and pay cash distributions month one after they invest in the fund.

John Harcar (15:02.83)
How are you finding these properties? you using commercial brokers? you, mean, how do you find these properties that, I mean, because if it’s got good cash flow, right, and there’s the owners in a good position, why would they want to sell?

Jeff Ervick (15:16.307)
Well, they’re not selling, they’re restructuring their debt. Yeah, so they have, cause they, know, a lot of these properties were purchased in, you know, between 20 and 22, right? And 2020, 2022, right? So, so they’ve got debt that is kind of spiraled, right? And got them into a position where they’re not really able to pay investor returns right now. So they have to do something in order to be able to pay their current investors, right? So what we need to do is we need to restructure the debt, right? So.

John Harcar (15:18.807)
or restructuring it.

John Harcar (15:32.92)
Mm-hmm.

John Harcar (15:41.688)
Right.

Jeff Ervick (15:45.201)
We come in and we help them restructure the debt. Our team comes a part of the partnership of the property as well too. So we have a very good opportunity to sit there, understand the property, understand the returns, understand the operations of it. And that’s where again, my business partner who’s really good at what he does, right? He’s able to help provide different business measures, different business opportunities to pull different levers, right? And make sure that we’re getting the returns that we should get and we’re-

Operating the property as efficiently as possible. We use a lot of different technology different AI models right for Building out property management building out leasing opportunities building out this but we’re not the property managers We just basically make sure they do their job very well, right? Yeah

John Harcar (16:29.452)
Right, okay. Can anybody invest with you guys or do have to be accredited?

Jeff Ervick (16:33.627)
It’s accredited investors only. So, so we do have that limitation. So unfortunately we cannot accept sophisticated investors.

John Harcar (16:40.45)
Got it. Okay. Tell me a little bit more about private credit. Let’s talk a little bit more about that. I mean, just for folks that maybe that are on here that don’t know what is it.

Jeff Ervick (16:47.155)
Yeah, sure. So private credit is a private loan, right? That’s offered to a business, right? That needs a little bit of additional capital, right? And doesn’t necessarily or can’t get that from their senior debt, right? So usually there’s a senior loan chunk that is a, let’s call it like 65 % of an LTV, right? We’ll come in at that 5 % above. So maybe right at a threshold of 70%. We’re not gonna go really above 70 % loan value.

That’s just part of our underwriting part of our way we vet the sponsors of the deals. So we’re kind of like added in that that mezzanine spot, right? And that’s the private credit. And so our goal, right, for every one of our deals or every one of our properties in our fund is we’re written into the operating agreement that we will get paid in succession to the senior debt, but before any equity or a pref equity even gets paid. Right. So it’s important to know that as well, But yeah, ultimately, think of a

Think of a hard money loan, right, to a residential property, but this is a private loan to a commercial property.

John Harcar (17:48.6)
Mm-hmm.

John Harcar (17:52.462)
property. What kind of trends are you seeing in the commercial world right now?

Jeff Ervick (17:57.757)
There’s, we’re seeing good deals that are, especially in the newer vintages, right? We’re seeing deals that are not really in the position to cashflow, right? And they’re struggling to meet that service. And really, I think it’s about the operator themselves, right? Because if the operator is not managing the property or managing the property manager correctly,

then you’re going to see them get into kind of situations where they’re not able to meet the debt service or they’re not getting the occupancy where they should be or they’re just putting people in place just to get the occupancy up when really it’s not a cashflow position. So that’s always been what I see in the market right now. And then also on the value outside, it’s been tough. It’s been tough to find and make deals pencil, right? mean,

even, even this market and, investors, investors are kind of weary right now. Right. I mean, you know, I, I’d be too, right. If, if, if I just lost a bunch of my 401k, right. And it’s been all over the place. tried to, know, again, I, I’m, heavily invested in the stock market also. So I’m not one, I’m not a real estate person that tells you, you know, pull all your money out of the stock market and put it in real estate. I am, I’m very much a diversified portfolio. Right. And that’s what I love about it. Right. Is I’ve got, I’ve got stock market. I got some bonds. got.

John Harcar (19:09.239)
Right, right.

Jeff Ervick (19:18.747)
I got a bunch of cash in accounts and I’ve got private credit. got, I still do private lending. I’m actually an investor in a private lending and a hard money lending fund. And then I do all commercial real estate and I do my own real. So I’m able to kind of, you know, hedge my, my portfolio as, as these market swings happen. And I think that’s why we said, you know what? We need to create this private credit fund to help other people hedge the market swings and the market trends by providing a current pay.

and providing that in a monthly distribution, right? So think about it, instead of putting your money into a savings account and then, or even going into a property directly, right? If you can provide something that produces a monthly return, right? And then you take that month of return and you use that to go either fund your kids 529s, or you use that to go fund your whole life insurance policy, or you could use that to go fund your pay for your car payment or something like that, right?

That’s where you should put money in a place first that works well and then able to be able to take on some of your debt or help you make just extra cash flow too.

John Harcar (20:28.046)
Yeah, got it. Cool. What do you attribute to or what key things do you attribute your success to?

Jeff Ervick (20:36.305)
Yeah, I would say it’s, it’s, it’s, it’s passion, right? Perseverance. And I think the biggest one is authenticity, right? If you’re not authentic in what you do, people will see through that and read through that. I’m the same person today on a podcast as I am. If I meet you on the golf course, if I meet you at the beach, if I meet you in a conference, if I meet you for coffee, I mean, if I, you know, as I’m hanging out with my family and friends, like

Like I’m the same person every day all day long, right? And my customers, my clients, even my, for my W2 business, same thing. Like if I’m not authentic and I’m not trustworthy, then nobody’s going to want to do business with me, right? So I’m as first and foremost, we have to be trustworthy. Secondly, we have to be authentic. So it’s a whole homage of, you know, no like and trust. You’re that big triangle, right? So if you know the person and you like the person and you trust the person, then that’s really what’s going to make you successful, right?

John Harcar (21:31.278)
then you’ll be do business with that type of person for sure. So for anybody that might be wanting to get into real estate, whether if it’s just basic single family, maybe it’s someone who has been experienced in single family, they want to make a jump up in class asset class. What kind of advice would you give there? What type of resources would you recommend?

Jeff Ervick (21:48.743)
Yeah, I guess it depends on how to start, right? And if you’re trying to get into, if you want to own a rental property, that’s what you want to do. And I tell people all day long, if you want to own a rental property, go buy a rental property, right? But you have to find a good deal, and it’s hard to find good deals, right? So you got to work with your wholesalers, local wholesalers. You got to work with your hard money lenders to be able to buy. I never buy a property with your own cash. I always buy it with some other people’s money, right?

And that way you can keep that as your reserves if you need to, right? But I think you should be going after certain resources of that asset that you want to get into, right? So whether it’s single family or whether it’s a short-term rental or whether it’s a multifamily thing, wholesaling, right? I mean, there are programs and there are people out there who are experts in all those fields. And I think that’s the best thing. Now, I love…

helping other people as well too. I love adding value to people, right? So my calendar is always open. I have a link out there on our website that says, if you want to go talk to Jeff and ask him questions and just meet him and have a conversation, click the link and you can schedule a calendar and we’ll have a zoom call and we’ll have an introduction. And even I found excellent partners that way too. I’ve had people that have clicked on that link that I had no idea who they were, but they saw me on a podcast or.

John Harcar (23:05.238)
Hmm. Okay, good. Yeah. Well, and since we’re on that, since we’re on that topic.

Jeff Ervick (23:10.611)
It’s always a.

John Harcar (23:16.261)
Right, right. Okay, well, since we’re on that topic, how do people that are listening to this get ahold of you? If they want to talk about your journey, maybe they have questions on how to get started or however it might be, I how do they reach out?

Jeff Ervick (23:27.131)
Yeah, the best way to reach out is either our website, right? So it’s velouriscapitalpartners.com. It’s V-A-L-O-R-I-S, capitalpartners.com. Go to the About Me page and you can find a way to contact me directly. And I’m very active on LinkedIn as well too, right? So linkedin.com slash Jeff, I think it’s Jeff dash Irvik, right? E-R-V-I-C-K are the two best ways to get ahold of me.

John Harcar (23:54.03)
Okay, cool. And we have the contact information that you had sent over to us. So we’ll put that in the show notes. Jeff, man, I appreciate you coming on and sharing all this. you know, guys, I hope those listening out there kind of picked up of some very good nuggets, right? Find people that are where you want to go, you know, and talk with them and build those relationships. Be authentic, can be yourself. Jeff, thank you again, folks. I hope you had a great show. We’ll look forward to seeing you on the next one. Cheers.

Jeff Ervick (24:20.475)
Awesome, thanks John, I appreciate the time.