Private Lending Uncovered: 6 Game-Changing Tips for Real Estate Investors

John Harcar (00:00.842)
All right, hey guys, welcome back to our show. I’m your host, John Harcar, and I’m here today with Tommy Nigro. And what we’re going to talk about is how him and his company really helped people get to their goals. Guys, remember here at Investor Fuel, we help real estate investors, service providers, I mean, all real estate entrepreneurs, two to five X their business. We provide the tools and training to help build the business they’ve always wanted to have, which in turn helps them live the life that they’ve always dreamed of. Tommy, welcome to our show.

Tommy Nigro (00:29.122)
Yeah, thanks for having me, John. I’m excited to be here. And your value alignment with Investor Fuel really aligns a lot with what we try to do. So I love the concept of trying to help other entrepreneurs build their business. And we all learn together. Business is such a multifaceted endeavor that it’s just so beneficial to have a wide range of support. love it. Yes, sir.

John Harcar (00:37.26)
awesome.

John Harcar (00:46.773)
Yup.

John Harcar (00:50.954)
Rising tide raises all ships, my friend. Before we jump into kind of our topic for the day, tell us a little bit about your background, how you got into real estate, what prompted you to get into real estate, and kind of what got you here where we are today.

Tommy Nigro (01:07.874)
Yeah, so my background was actually in construction management for years. So I was in that industry for about six or seven years. I’ve now been in the private lending space for eight years. I found my way here actually through

that my brother was dating a girl in high school. They dated for eight years. They ended up getting married and I’m sitting at a high school football game. My brother was the quarterback and I’m sitting next to his girlfriend’s dad and we’re chatting about business and different books and he recommended some books and I said, hey, you know, I’ve, I’ve read that book and then he recommended another one of my, yeah, that’s another one of my favorites. And we really just hit it off. And so we got to talking about business and he said, man, if you ever wanted to switch what you’re doing,

I’ve got this guy Bernie, he’s in his 70s and he’s been doing fix and flip loans. And so he does private banking deals and I’ve been one of his investors. So he’s telling me about the private banking business and long story short, about a year later, I came back to the table with him and decided to fold up the construction company that was just a lot of work and little profit margin. And so eight years ago we came in, partnered with Bernie.

and began to take what was a paper-based process that Bernie had been doing for decades. And Bernie is still with us. He’s like an encyclopedia of real estate. Yeah, I mean, you could ask him any particular issue that you might have, title work, contract, realtors, all of these different things. He’s seen it all multiple times.

John Harcar (02:27.691)
One of those guys

Tommy Nigro (02:41.504)
And so that was ground zero is to take it off of a paper based system that Bernie was running and then to kind of try to automate things. And so now we have a REIT. We’ve pooled our investment capital with a bunch of investor partners. We pull it in a REIT. We have money in a first loss position. We pay our investors between eight and nine and a half percent. They get distributions monthly and then our job is to go in and safely deploy those funds. And we do that with fix and flip deals. So we’ll finance the purchase.

and the repairs and we manage that construction phase.

John Harcar (03:15.871)
Awesome, okay, well, let’s go back. I like the backstory. I’m a backstory type of dude. what did you do before construction or when did you start your construction career?

Tommy Nigro (03:20.652)
Yeah.

Tommy Nigro (03:24.674)
Well, I actually I dropped out of college, went to MU for two years at the University of Missouri and I wanted to start a business. And so I quit school. It was two years there there and started the construction company.

And I come from a long line of entrepreneurs. So I was eight years old working in businesses for my parents, my grandpa, my uncles. That was just my background. No, no, they were all retail. So my grandpa had a fast food restaurant that he ended up franchising. He ended up with 25 to 30 franchises. It was a chain called Texas Toms.

John Harcar (03:55.286)
Were any of them real estate or related to real estate?

Tommy Nigro (04:12.766)
and it started in Kansas City and he ended up franchising and years later he sold the business. My parents were in the floral business. My dad was in the gun business and had a gun shop and a shooting range and so I was just surrounded with it. My uncle actually was in real estate. He did some incredible real estate deals but that was my background.

John Harcar (04:39.147)
So how did you find construction or why did you choose construction?

Tommy Nigro (04:43.554)
Well, that was my job growing up. So in the summers, I mean, I had a lawn company as an, know, probably by the time I was 10, I had two or three lawns that I was mowing in the summer. And by the time, you know, 14, 15, I had a friend with a truck and a trailer and we had, you know, 20, 30 lawns that we would cut in the summer.

Then I got a job working construction. So just over the summer between school, I would work construction and I learned a lot of the trades and I figured, hey, shelter is right behind food and it’s a necessity and it’s attached to real estate and I know that there’s a lot there to learn about, but understanding the concept of what the structure consists of seemed like a good place to start.

John Harcar (05:31.285)
What were a lot of the struggles you started with when you got into construction? Like what are some challenges that you ran into?

Tommy Nigro (05:38.734)
managing people 100%, not getting taken advantage of on the clock, trying to do right by your guys, and then it’s a two-way street. So you can’t try to do right with everyone and then people take advantage of that because you end up bleeding cash on jobs. And the truth is, never at that time,

I never beat that challenge. That was just a challenge that if we could have been more efficient with labor, we had a thriving business. Referral work was through the roof. We were booked for months always. Just couldn’t consistently bring the job in on time. Big challenge.

John Harcar (06:22.507)
Okay. And then how did you overcome a lot of those things? Did you hire out? Did you just do more studying? Did you get a mentor? I mean, what type of specific growth tools did you use?

Tommy Nigro (06:32.418)
Well, really the growth tool was pivoting, pivoting into something that was easier to manage. And some big construction companies have figured out how to manage that. But generally they’re working with large unions and it’s difficult to do well in the construction industry if you’re not.

big. And I wasn’t sure that I wanted to go through the aches and pains of getting to that size to be able to have the economies of scale that necessary. And so the pivot was bringing the construction experience to the real estate game and the real estate game. There’s there mortgages, deeds of trust, promissory notes, there’s structure, there’s collateral, there’s security instruments, there’s ways to protect yourself that

lend themselves much better to managing a business.

John Harcar (07:27.691)
Okay, so you’re successful as construction and then you meet Bernie is his name. what kind of just, what was the biggest like mindset shift you made in that regards going from the construction to the lending part?

Tommy Nigro (07:45.73)
There was an epiphany moment when I realized, wow, this is how the banks make money. They are not gambling. They’re not hoping. They get an appraisal.

they lend a reduced percentage of that value. They secure it with a mortgage that they can force the take back of the asset and force a sale. And they structure their agreement so that even if some things go wrong, and they always do, there’s enough insulation there, there’s enough margin for error, that they can recover from things going wrong. And that was the difference. I was on the bleeding edge of risk on the construction side of it, especially bidding jobs and not wanting to go back on clients

up the price because people don’t like that. And so if you eat that overage yourself, you’re on the bleeding edge of the risk right there. But the bank, they’re involved in that too, but their loan to value gives them the insulation where they can stay away from the fire. And it was just an epiphany that, okay, now I see it. This is how big businesses manage that risk. They insulate from it. And it was just a huge epiphany.

John Harcar (08:54.667)
So are you lending your own money? Are you lending Bernie’s money? What were you doing? Did you have like funds that you had stowed away from doing your construction business?

Tommy Nigro (08:59.608)
So we.

Tommy Nigro (09:03.982)
So we lend our own money and we lend our investor partners money. So we have 5 % of our fund is our money. And it is in a first loss position and it sits on top of the rest of the 95 % of the investors capital.

And if we were ever to take a loss of principle, that loss would come out of our 5 % first. And so the majority of the funds that we use, they’re private funds. So accredited investors, we raise money from people all around the country and put that money to work between 8%, 9.5%. And so that’s what we do.

John Harcar (09:43.925)
So what does your team business, what does it look like now and kind of where are some areas that you, you know, you can have a growth trajectory or where you plan to go with your business.

Tommy Nigro (09:56.002)
Yeah, so there are currently five of us. We have an underwriter. We have a portfolio manager. We have a salesperson. We have an in-house CPA is our controller and myself. And I’m the head firefighter and my real job is building the team, figuring out where we need to go.

make sure that we have the right strategic aim and then building the team to get us there. And that’s been something really over the years I’ve learned more and more. It’s all about the people. It’s you can have all of the best ideas in mind and if you don’t have the right people aligned with the mission.

You spin your wheels and it’s really people first and we didn’t always do that We we had we made some bad people choices early on and and I’ve had to pay the hard price of resolving those we currently have an excellent team in place and So our growth our growth plans are We’re actually going to stop outsourcing our marketing and advertising to a third-party agency with with what we’re spending with them We could actually spend that much or less and take someone in-house full-time

and allocate those resources much more efficiently. We find that we’re just getting a lot of PPC spend with a large amount of money that we’re spending on ads. And if we could spend maybe a little bit less on the PPC stuff, but be a lot more optimized on the intake and the lead funnel and nurturing the clients and educating them. So that’s actually something that’s in the works right now.

John Harcar (11:31.211)
And then you mentioned you made some bad people decisions, but then you have a good team. What kind of things did you change in your hiring process to maybe more vet, more qualify or bring in those better people?

Tommy Nigro (11:45.39)
The book, Hire for Attitude.

And there was one other, and I can’t remember the title of it, but Hire for Attitude is an excellent, excellent tool. It’s written by guys who built an HR consultation firm. So they go into large corporations and they train the HR department on how to properly recruit and to figure out what is their culture, what is it that they’re trying to achieve when they hire.

And then how do they make sure that they could have people that are hired people that are just given a job to do? How can you train them with a methodology to go in and attract the right people? if I can boil it down to two things. First of all, the book makes it one read the book like I read the book like three or four times and took a bunch of notes on it. But.

You have to have skills. The book makes the point. You could have someone with the right heart and the right attitude and all those things, but if they don’t have the skills, you’re better off with someone with the skills without the heart, you know, because the skills just take time.

So start with the skills. Then once you have some candidates that have the skills, you go in and you figure out character traits that you’re looking for. So like one of ours is a willingness to take out the trash. You you can call it humility, can hard work ethic, but we call it willingness to take out the trash. You know, it’s one of 10 things that we’re looking for. We might look for organization, but…

Tommy Nigro (13:17.038)
So what you do is rather than asking someone, hey, are you willing to take out the trash? What are they gonna say? Oh yeah, of course, I’d be willing to do whatever. You don’t let them know what you’re fishing for. You go in and you craft a question that disguises your intent and the question, the response would elicit some evidence as to whether or not they would do that. So you might ask.

Tell me about a time when there was just too much going on in the organization that you were. If you’ve ever been in an organization that just had too much going on, tell me about that time.

And if they say, I can’t handle stuff like that, that’s just, it’s other people’s problem. Or if they said, you know what, I had that situation and I did all of these things that were outside of my job description. Yeah, then you circle the box and you say, okay, they’re willing to take out the trash. You kind of do that. It’s a covert way to see if they have these traits. that book was awesome. The Shopping Cart, yeah.

John Harcar (14:00.627)
out the trash.

John Harcar (14:11.528)
Another good one is the shopping cart, right? What kind of person is it? Do you leave the shopping cart just in between cars? Do you go just what the minimal is and put it in the shopping cart rack? Or do you go the extra mile and take it all the way back to the store?

Tommy Nigro (14:25.635)
Yeah. Yeah.

John Harcar (14:26.581)
Do you use any type of personality tests, disc tests, anything like that when you do your hiring?

Tommy Nigro (14:32.258)
No, maybe should, we’ve all, and it’s critical to train the team on the concept, but we’ve adopted this concept and we actually just made a hire recently and an excellent hire completely fits all of these objectives that we were looking for. And it was like this methodical process that we ran through. So we don’t do the personality test.

But I don’t know that we need to, think that what this does is a tailored personality test to really find exactly what you’re looking for.

John Harcar (15:06.251)
Agreed, agreed. And there’s not saying that one way is the right way or the wrong way. It’s really about what’s a fit for you, your culture, your business, your environment. So, and I just had the question on the top of my head and it just went out of my mind. So what trends are you seeing in the lending world going on right now? I mean, are you seeing any specific way people might be going and raising rates and lowering a rate? mean, what kind of stuff are you seeing?

Tommy Nigro (15:16.61)
Yep. Yep.

Tommy Nigro (15:35.704)
Well, it’s been low volume climate for the last six months, heavily so for the last six months. And we all attribute it to interest rates. Interest rates went from the high twos and mid threes up to seven or so over a short period of time. And it just put the brakes on transactions. So people have been on the sidelines waiting for reprieve.

But the question is, is it coming? Is it, you because you have inflation that is, it’s like this, the embers are still red hot right underneath the surface. And I know the inflation numbers, they’re down right now. But if they go in and they start some quantitative easing again, it’s just gonna fan the flames of that inflation and it just creeps right back up. So they’re in a position of not being able to drop rates. But then there’s such low supply.

that supply and demand dynamics force asset prices to stay stable or continue to increase. So, you know, we’re sitting right now, the Heartland MLS, where we operate mostly, has 2.2 months of supply, with a neutral market being three and a half months of supply. So we’re deep in a seller’s market and we have been for years and…

We track that number every month. don’t really see any relief. One month it’s up, next month it’s down. We’ve just been trapped in this low supply period for a while now.

John Harcar (17:05.931)
If there’s any advice you would give to someone that’s out there, maybe looking at different loans, lending companies, anything specific to look for, look out for.

Tommy Nigro (17:18.648)
Well, assets are, the real estate, the real estate asset is one of the best that there is. It’s the second only to food. You have to have shelter. If you’re not gonna pay some of your bills, your mortgage isn’t the one that you start with. That’s the last thing you quit paying. And values will continue to rise. New construction is not filling the void.

There’s been a lack of new construction supply for years. We’re millions and millions of homes short of new construction builds. And we’re stuck in this low supply climate that as soon as more supply comes on, the demand is there to gobble it up. That’s gonna naturally support prices and people are kind of waiting. What do I do with real estate? Values are going up, just buy. Buy, date the rate.

Date the rate, buy the home, own the home, and own it for appreciation, refinance when rates come down. If they come down, they might not come down. Having Bernie here with us, he’s in his 80s now, but he’s seen a lot of cycles, and he makes the point regularly, 6.75 % is not a high interest rate. Rates were, they got up to 18%, 18, 19%.

And really an average was up over 10 for a while. So a 6 % historically, we’re still in a 50 year average threshold in rates. so it’s, are they gonna go down? Who knows?

John Harcar (18:54.921)
If folks want to get a hold of you or want to use your business, what are some of highlights of your loan programs or things that you do for investors and how do they get in touch with you?

Tommy Nigro (19:05.985)
Yeah, so the first thing, go to NorthOakInvestment.com. And by the way, we have about 10 slots left for anyone who wants to flip a house with us. Their name goes in a hat and we’re giving away an $8,000 all expenses paid Jamaican getaway for five people.

five nights, I’m sorry, for four people, five nights, airfare, lodging, ground transportation, meals, the whole nine yards. So anyone who closes a loan with us, we have 10 more slots. So go to NorthOakInvestment.com and get in. And the benefits that we’re gonna give you, you don’t spend a dollar with us until we fully analyze your deal. So you fill out some online forms on our site.

John Harcar (19:33.387)
Mmm.

Tommy Nigro (19:50.2)
We’re gonna run your numbers. We’re gonna actually help you establish a viable repair budget. We’re gonna do all of this for free. And then we’re gonna run a P &L for you. And we’re gonna let you see, okay, this is what you stand to make or lose on this deal. And so once we do that, our borrowers have a very informed, clear picture of what they’re getting into. And there’s a lot of deals that we’ll do a lot of work on. And we’ll run all the numbers. And we just kill the deal before we even order an appraisal because we’ve communicated

with our client and that one doesn’t make sense. So we want to do good deals with people and help them thrive. We’re not interested in just doing a deal. We want to do numerous deals with our clients.

John Harcar (20:32.253)
Awesome. Well, hey, Tommy, man, I appreciate you coming on and sharing all that. And I hope you guys at home took some notes. You guys got some good information. I know it’s been educational on my end. Tommy, thank you again for taking the time with us today. And guys, I’ll see you guys on the next show. Cheers.

Tommy Nigro (20:47.886)
Thank you, John. Appreciate it.