Why New Real Estate Investors Should Find Capital Before Finding a Deal

Jay Hinrichs (00:00)
Absolutely. The reason I do the deals that I do today is because I got massively wiped out in the GFC. So if we go back, I’ve built this whole career up doing land development, all these other things. And I built my hard money company up to, you know, in— in the mid-two-thousands, a hundred million dollar hard money company was a sizable hard money company. So I had all these lines of credit with banks. And we had all our capital in there to— to match the lines of credit. I had twenty-some employees. I was funding 60 deals a month—

Issa Hanna (02:05)
Welcome back to another episode of the Real Estate Pro Show. I’m Issa Hanna, your host. And today, I have somebody who’s here to share 52 years of experience with us. Somebody who can open up his wealth of knowledge and teach young investors who just coming up how to go about it. And he’s also raising capital for young investors to empower themselves to achieve their dreams. Ladies and gentlemen, I’d like to introduce Jay Hinrichs. Jay, welcome.

Jay Hinrichs (02:32)
Thank you. Thank you. Thank you for having me.

Issa Hanna (02:35)
Thank you for being here. I’m glad to have you. Like I said, I’m excited to pick your mind about 52 years in the business and all the knowledge that brings. But for now, why don’t you give people a little bit of a snapshot of what your day-to-days are looking like. What are you focused on nowadays?

Jay Hinrichs (02:53)
Right— right now my main goal, I just rolled out— I built a 90-home subdivision up in Oregon. I just finished it out. And we’re taking our— and then at the same time, I’ve had this capital partner business that I started in 2012. And so our main focus right now is helping entrepreneurs that are looking to scale, that— that don’t want traditional debt, that would prefer to have a capital partner. So that they are not— they don’t have fixed debt. So everything that we do is— is with cash. So we have no debt on any of our projects. And because I don’t need the monthly income, there’s no payments. We do everything just as a partnership. We pay cash for everything. The— the folks that I— that come into my business and I— I back, you know, their job is: find it, execute it, sell it, split the profit. And my job is to provide the capital, give my expertise if they need it. And— and that’s— that’s— that’s what I’m basically working on. And at the same time, I have some new construction going in North Carolina. I just finished one in Charleston, South Carolina, and of course my big project in Oregon. And then the third thing that I do is I provide capital for real estate developers, entrepreneurs that are looking to entitle property to sell then to like Lennar, Toll Brothers, D.R. Horton, those kind of companies. I’ve got five of those going. And the situation with those is these folks are really good at— at scouting and finding it and getting it in contract, but it takes $500,000 to a million dollars to get it approved to the point that Lennar will buy it or Toll Brothers will buy it. That’s where I come in. I provide the capital for that. And it’s a very unique capital stack space because it’s unsecured capital. And I— it— I have to really know the person doing it, I have to know the market, and— and then of course, we— we get rewarded pretty handsomely for providing that kind of capital.

Issa Hanna (05:06)
What a business model, and you’re helping empower people who need you and letting them get to the next level. And also, this 52 years of experience came with an extensive lending background. So you do understand finance, money, all that stuff better than most people on the planet, I would assume.

Jay Hinrichs (05:28)
Well, I understand it pretty well, but I also understand land development. I’ve developed well over a thousand lots for my own— my— so, in multiple markets. So they don’t have to, you know, talk to a broker who’s got to talk to an underwriter. I mean, I do it all. I mean, I do everything. And— but again, I’m picky and, you know, I might take down one or two in a year. But it’s—

Issa Hanna (05:35)
Beautiful.

Jay Hinrichs (05:54)
You know, the three I got going in Virginia right now, the gentleman that I backed there, perfect scenario— 35 years old, worked 10 years as a civil engineer in New York City, knows his stuff, found these projects, and he’s gonna make life-changing money. I mean, big money. I mean, I’m talking into the eight figures on these deals that I— that I funded for him in cash. So he’s— he’s gonna have some tax burden. But hey, rather have write-ons than write-offs. So I— I’m excited about that. I mean, I’ve— you know, we put up the money and we materially changed his life. You know, we took him from working hard to a multimillionaire in eighteen months.

Issa Hanna (06:22)
Definitely. Beautiful, and— and you had a huge hand in doing that obviously, because you funded it with your capital and you brought your wealth of knowledge and like I said, not just lending also, but the new construction and the building and just everything. And then with his civil engineering background, it was just— what is it? It’s like you’re making music together, so I applaud that.

Jay Hinrichs (07:00)
And then when deals come to me— I travel a lot. I— not as much this year as I have, but he— he— he gave me the scenario on a Monday. I— I jumped on the plane and I was at Reagan National on a Wednesday, walking the project on the Thursday, and basically made a decision by the next week. Because once I walked the property, knew the zoning, it’s like I would have bought these myself. So it was— it was, you know, we went for it. And so anyway, it— it’s exciting. I mean, I’ve— I’ve— I don’t mean to be bragging, and— and I’m not the one who’s gonna make the mu— the majority of the money, but I’m pretty proud to help this individual and two other individuals I’ve done the same thing for.

Issa Hanna (07:40)
Well, that goes to show exactly— and that goes to show what kind of guy you are that it’s somebody else that’s making the money. You know, it’s somebody else that’s— that’s changing their lives and you had a hand in it, and you’re proud of that. So that shows me that when somebody does business with you, Jay, they’re doing business with somebody who holds himself to the utmost integrity and is proud of his business dealings. So.

Jay Hinrichs (07:41)
Basically.

Issa Hanna (08:07)
You’re exactly the type of right guy to be in business with, with the knowledge and then the integrity. So, like I said, I applaud you for that. And with that, 52 years in the business, how did a young Jay get bit by the bug?

Jay Hinrichs (08:21)
Well, my dad— my dad was in real estate and— and he just told me growing up— and he was very close to his real estate attorney. And so I knew him since I was nine years old, the real estate attorney. And it was like, you know, the big money’s made in commissions. And I went to college for about four or five months. Graduated high school a year early. After about four or five months, I told my dad, “I— I just don’t think, you know, getting a— a— a CPA degree is really what I want to do.” And so he said, “Come— come back, get your license.” I had my real estate license at 18. Took me about three months to cash my first check of $900. And I was hooked on commissions and— and I just— I just ran it from there. And what was cool about the real estate business is the amount of people— just like in your group that you have there— the amount of networking. You meet all these different people. And I was in the San Francisco Bay Area. So I met tech people, all sorts of different people that were doing neat things. And— and then that taught me other business aspects that I morphed into after I had kind of got to my pinnacle of being, you know, a top salesman in a— in a certain market. What— what’s the next thing? And that’s when I went into working with land developers and running their projects and stuff like that.

Issa Hanna (09:50)
Wow. And most people, you know, they get their foot in the door with real estate, they start small— either they’re a real estate agent or, you know, they flip a house or something. And that’s why I call it the bug. You get bit by the bug. But the more knowledge you have in this industry, the more you can do. So eventually light bulbs just start going off. “Okay, I can do this. I can do that.” So definitely can relate to that, Jay— maybe not as much as you, but I can definitely relate to exactly what you just said. So we talked about the past and how you started. What does the future hold for you, Jay? Where do you see your business in five years?

Jay Hinrichs (11:18)
Right— right now I’m in a kind of a personal window situation. My wife—uh, she’s a broker. She sold all the ninety houses, and she’s fully retired now. And I’m in the process of— kind of want to be semi-retired by the end of the year. And and I’ve got my core group that I’m— gonna keep my capital available so that they can take the business and— I mean, they— they run the business, the back end of the business. I’m kind of like the face of it and the salesman, you know, out there. And so as you know— and— and my business, my clients that come to us for— for this capital tend to be— I don’t have a lot of them because I don’t advertise. I— I get the— the business by referral, a lot of times by title companies where people go in, “Who— who’s doing these deals?” Right. And they go, “Well, you should talk to this guy out in Oregon,” which is where our company is based. And so I— I just get a lot of repeat, repeat business. So most of the people that are with us stay with us for a decade, two decades, and they— they like my process and I help them. Most of them are growing rental portfolios, or we have some that have morphed from house flipping into new construction— the guys in North Carolina that I’m— I’m funding their new construction for them. And or Charleston, South Carolina, where you know, I’ve built 40 houses there for a general contractor that I got set up there and has done very, very well. So, you know, I— I’m open to other areas and new clients, and I might take on one, two, three new clients in a year, and I might lose one or two, but it’s— it usually stays balanced at about 10 to 12 clients. So what I don’t do is mass advertise and look for a one-off person who’s shopping me. You know, they’re going to Kiavi, they’re going to Lima One, they’re going to all these and trying to grind me down to— because that’s— that’s— that’s not my strength. My strength is: you call me on Monday, you’re gonna lose the deal if you don’t close on Wednesday. And guess who? And I just did one in St. Louis on five houses for my client. His— his lender couldn’t get their crap together, SHIT together. Calls me on a Monday, I funded it on a Wednesday. He had the title work done, and he’s a repeat client, and I don’t require appraisals. I look at the stuff and I do my own valuations of the properties. And it— because it’s my money, I don’t need to ask anybody. So—

Issa Hanna (13:54)
Exactly, it’s your capital. Use it the way you need it. After all, you know, with all the experience you have in the business, you don’t need an appraisal. You know, you can run numbers in the real estate game. If you know what you’re doing, you can be pretty much spot on with numbers. So, I don’t doubt that your numbers are spot on at all.

Jay Hinrichs (14:16)
I’m not interested in the guy that’s, you know, shopping around to— to save a half a bip, right? That— he doesn’t know what my services are. You know, the guys that I’m funding are making money on these deals. And to pay me an extra five grand compared to Lima One, you know, for speed is— is a no-brainer. I funded another one up in Vermont, same thing, where the guy, everybody had turned him down, the bank wouldn’t make the loan, he needed 300 grand. I put it— I put it in. I just got a payoff demand. The loan’s only been out for two weeks. And he’s getting a loan for like 960,000 from the bank. Part of that’s construction and part of it’s to pay me off. But he was able to get into that deal, and the assessed value is five point five million. He was— he bought the deal for 600 grand. Said, “Okay, I’ll put 300 up and— and we’ll go from there.” No application, no appraisal, no nothing. I just knew that, you know, I check out the property, make sure it’s real, and he’s— he’s gonna pay me a nice fee— way more than a hard money lender— but he’s also created himself, you know, oodles of equity, and he’s very happy. So that’s— I— I do business with guys that are making some decent money, not looking to, you know—

Issa Hanna (15:30)
Definitely, and you’re the guy.

Jay Hinrichs (15:41)
—shop me to a bunch of— they’re looking for my type of service as opposed to, you know, “What’s Kiavi doing today? What’s Lima One doing today?” that type of—

Issa Hanna (15:51)
Yeah, your services are more personable, you know, more accessible. You’re a more accessible guy and why wouldn’t you want to deal with you? And if you’re making all the money or making all these guys money, why wouldn’t you want to give the guy that’s making you the money and making it happen for you just a little bit more, you know? And that goes to show that all your clients are super happy with you because they stay with you, like you said, for decades. So, yeah.

Jay Hinrichs (16:18)
Stay with you. They’re not going to take— you know, they’re semi-experienced or very experienced. They’re not going to do deals for the practice. And so I don’t really have to get a real drill down into the— into the collateral like you would if you’re just advertising and one-off borrowers are coming in and you need to— you need appraisals. You need all that stuff because you don’t even know who these people are. You know, I’ll start with one. And then I’ll do two, and then I’ll do three. And once we’ve done three and they all work, I don’t— I don’t need to do anything other than get a title report and have them give me an address. And— and then, you know, that’s it. If— if I like it, we fund it. If— if there’s an issue, I tell them, “Hey, I— I— I think— I think you may be making a mistake on this one,” you know, that type of thing.

Issa Hanna (17:06)
Definitely, definitely. And it could be really good in the real estate business— you can ride high, high waves, but also there’s been some lows in our industry. With your wealth of knowledge and experience, can you give us one time where maybe you had to pivot in the real estate business?

Jay Hinrichs (17:27)
Absolutely. The reason I do the deals that I do today is because I got massively wiped out in the GFC. So if we go back, I’ve built this whole career up doing land development, all these other things. And I built my hard money company up to, you know, in— in the mid-two-thousands, a hundred million dollar hard money company was a sizable hard money company. So I had all these lines of credit with banks. And we had all our capital in there to— to match the lines of credit. I had twenty-some employees. I was funding 60 deals a— they were all, you know, the term BRRRR. Well, I was doing all that. It was— we put the— we’d put the investor into title who was buying a property out in the Midwest for rental purposes. They would— we would get it rehabbed with my funds, and we’d get paid off on the refinance— rate and term refi, we called it then. And you know, my average loan was going in about 95 days. And I was doing about 60 a month. And— eight hit, nine, and nobody could refi. I had four hundred and fifty, five hundred loans on the books. And I would say I ended up owning about 300 of those houses. And every bank but one called my lines of credit, made me mark to market. So I was hemorrhaging money as— as my clients couldn’t refi. You know, there’s no sense foreclosing on them and going through all that. Just— what are you gonna get out of a W-2 earner who’s trying to buy a rental property? You’re not gonna get anything out of them trying to sue them. So we just— I was just bringing in cash to close deals for about— between nine and twenty-eleven until I started this new— new way of doing business. And I lost, you know, ninety-five percent of my net worth and had to start over. So yeah, I’ve had my teeth kicked in, to say— say the least. Now I will say, my one banker stuck with me, kept a four million dollar line of credit for me and a— a one million dollar unsecured that I could do deals with. And that kept me going. If— if I hadn’t had that, I— I would have had to go into bankruptcy and reorganize. So I made it through without— almost all my buddies in the business. I mean, you look back to anybody that was in hard money in the mid-2000s, there’s very few that made it through that meltdown. Cause it didn’t matter where you were. I mean, properties in, you know, Arizona were— had gone down 75-80%. There’s nothing you can do. You make a great loan at 70% and, you know, the value is only 30% and the bank is telling you, “Pay me off.” You know, that’s the black swan events that can happen to you. And so that’s why I’m cash-only now, and I don’t borrow money to relend money. We don’t have any debt on anything. Had I not had debt on all that property, I could have probably ridden it through. I could have hammered on my borrowers, rented stuff out, but when your bank calls your line of credit and, you know, you gotta pay it off, otherwise you’re in default, you’re stuck. And that’s what happened to virtually every hard money lender. And that’s why almost all of them you see today— Kiavi, Lima One— those are all post-2011, 2012 companies.

Issa Hanna (21:24)
Yeah, there’s no man left standing except for you, and shout out to the banker who you probably did a lot of good business with, knew you were a man of integrity, kept your line of credit open, and then you had the man—

Jay Hinrichs (21:37)
I owe— I owe— I owe him my business career, for sure. They— the feds were constantly telling them— I was on— every ninety days, I had to do updated financials and— to keep my lines of credit. And so I was on the watch list. Their bank was on the watch list. I even loaned the bank money when they needed to raise money out of my— to keep them in business. So it was a wild time.

Issa Hanna (21:41)
Definitely.

Jay Hinrichs (22:05)
So you ask, that’s— that’s the answer.

Issa Hanna (22:07)
And that is one of the craziest stories I’ve ever heard— back against the wall, 95% of the net worth, had one great relationship, and that one great relationship, you were able to salvage your career and build everything up. And you also learn never to go into debt. Now you can survive any crash because it’s your own capital.

Jay Hinrichs (22:29)
Yeah, we don’t have any debt— debt in the business. And other than when I build houses, I obviously get a construction loan. But I don’t— I don’t go for max debt. I never go for max debt. I go for the minimum to get me through. And— the other thing that got me through that— that time too is I still, you know, I saw it coming and I got rid of the trappings of wealth way before a lot of my peers did, you know. So the big house went, the airplane went, the Porsche went. I moved into a— a little condo rental. My wife was driving the service van. I went out and leased a RAV4. It was a very humbling time of my life after, you know, thirty years of doing pretty doggone good in real estate.

Issa Hanna (23:12)
Definitely, and it is— it was a really— it was the roughest time of our lifetime. So, you know— you know, other than the Great Depression, which arguably, you know, people could say, you know, for the real estate people, is even worse always crash. So I can—

Jay Hinrichs (23:27)
You know, a lot of the folks that I’m doing business with now, you know, they were in high school when that happened. There was— not very few of them lived through it. And the ones that did, you know, they all have scars— deep scars. And a lot of the builders that I fund that did live through it, they can’t get bank loans because they had— they gave projects back to the banks. And once you— you give a project back to the bank, it’s very difficult to go back. They have long memories and they just— and the reason I was able to like do that ninety-home project, which was a seventy-five million dollar deal, is I made it through and I didn’t give anything back to my bank in twenty-eleven like my peer groups were doing. So when we— when I started over, they were only doing business with the character— the people that had character that carried them through the bad times. So—

Issa Hanna (24:20)
Wow.

Jay Hinrichs (24:20)
When I did my first two subdivisions, one of thirty-five and one of forty-five units, I did the first— they gave me the first acquisition and horizontal loan to do the utilities that they had done since ’07. And— and this was in 2015, ’16. So my banker and I are— he’s like, “I can’t remember how to put these together. So we haven’t done one in eight or nine years, and you’re my first one.” So, you know, loyalty— loyalty has its rewards in many, many instances. So I never took the— the— the issue that, “Hey, you guys loaned me the money, you’re the bad guy,” you know. And there was two other properties— I had partners bailed on me, I had to carry them through. Cost me hundreds of thousands of dollars to make sure my bank didn’t have to take them back.

Issa Hanna (25:10)
But—

Jay Hinrichs (25:10)
You do what you want to do and, you know, everybody’s different. A lot of people would have walked from that. I didn’t.

Issa Hanna (25:15)
Definitely, and you remained in good standing with the bank, and— and it’s your banker and you are still making beautiful business together. And with that, I did want to ask you because you’ve been in the business a while, and you are probably the most educated man as far as overall the whole real estate industry that I’ve ever spoken to. For people that are just getting started and they want to grow themselves and they want to build a real estate career, what advice would you have on them for growing their networks or fostering business relationships?

Jay Hinrichs (25:51)
Well, I— I think, you know, the— the market has definitely changed from when I came up, right? I mean, you— you got in it by getting your real estate license and going and selling real estate. Now, not so critical. The internet and all the stuff that’s happening and the networking that goes on, I think that’s as important as anything. But, you know, real estate is a capital-intensive business. So in my mind, you have one school of thought: “Find the deal and the money will find you.” I’m not really a proponent of that because you can spend all this time find the deal and you can’t get anybody to fund it. You just wasted six months of your time, earnest money, inspects, and blah, blah, blah, and the deal blows up anyway. So my advice to people starting is to foster their money relationships first. And most people, if they do it with their parents, a lot of times or close relatives, it’s like a 50-50 deal, right? They’ll put up the money, you do the work, you split the profit, which is what I do, right? And so finding someone, a business partner that has capital, giving them enough return on their capital. Don’t expect like, “Here, you should be happy with eight percent because it’s only three percent in the bank,” you know. That’s short-sighted thinking. You need to pay people to get bigger money. And then once you’ve brought them on— because they— they wanna make— you know, people that amass cash got it for a reason. They’re not stupid, you know. They’re not— they— they know the value of their capital. So once you’ve done that, you know, you— you do a bunch of deals, you let them prosper, and then you earn money and you earn a reputation, and then you can go to a bank or a different facility and start doing deals on your own or however you want to do it, or— or do your own, you know, syndication-type setup where you raise capital. But that would be— people starting out, I would be looking for a money partner first off, so that when a deal does come up, you can actually close it.

Issa Hanna (27:49)
Definitely. And in other words as well, when that phone rings to your money partner, you want him to look at that phone and say, “My goodness, I’m going to make money.” Not, “My goodness, this guy’s a stickler and wants to give me 8%.” That’s how you stay in business. That’s how you make more money with the people that matter. Because like you said, the one thing that keeps our business revolving is capital. The money people are the important people, and you need to always make sure that you keep—

Jay Hinrichs (28:20)
You have— you have— you have to honor the money, which is— exactly what I did all through my career. I’ve— I’ve definitely paid, you know, you know— I— almost any— if I do have investors that are working with me, they always make more than I do. Yes. Because that’s— I’m used to honoring the capital, you know.

Issa Hanna (28:39)
Definitely. You keep your people happy and they’re going to keep doing business with you. That is a great, great piece of advice and knowledge you just shared with us. So with that, maybe we have some investors here at Investor Fuel that are watching this. Maybe people back home that are some big-time investors and want to get involved with you, Jay. How could they get a hold of you?

Jay Hinrichs (28:45)
So, well, I have a website. It’s jlhcapitalpartners.com.

Issa Hanna (29:54)
Nice, nice. So make sure—

Jay Hinrichs (29:56)
They can just do that, and— and my— my— my office manager monitors it. We, you know— my— my staff is trained. We get back to people that day, next day, worst-case scenario. Let me— let me give one other advice for these folks coming up: don’t— don’t get buried in text messaging and taking four days to get back to people. You want to be successful, you know, one, either pick up the phone—

Issa Hanna (30:11)
Yes, sir.

Jay Hinrichs (30:21)
—even if it’s to say, “I can’t talk right now, but I saw your call. I’m going to call you in one hour. Is that okay?” That is a very important line to have in your toolbox. And or especially when you’re using other people’s money and doing deals, when your investor calls, you do everything you can to call them back that day, next day, worst-case scenario. There’s nothing more that will fire up an investor and get them going sideways than them calling to ask about their deal and you don’t— you don’t answer for five to seven days. And you— you see that on the social media sites like a BiggerPockets or whatever, where these investors go in with syndicators and the, “Hey, I wrote my syndicator and they won’t call me back. They won’t write me back.” It is— when you’re starting out, communications with your investors is critical, in my mind, personally. And that’s the way I was trained, and that’s the way I run my business.

Issa Hanna (31:14)
Great piece of advice. So as much as you might dread that phone call, as much as you may have to tell them, “Hey, I don’t have answers right now,” that goes a long way. Being accessible goes a lot longer of a way than just simply ignoring a problem. And that pertains to all life, not just our business. You don’t ignore a problem. You pick up the phone and you be accessible. So, amazing piece of advice.

Jay Hinrichs (31:40)
Never know. I mean, you know, some people could have five thousand dollars with you and they just go crazy on the internet. The next thing you know, it’s— especially if it’s BiggerPockets, it’s like number one on Google and now you’re smashed, right? All over a five thousand dollar investor that sent you an email and you didn’t get back to in four hours type thing, you know.

Issa Hanna (31:59)
Exactly. And with that, Jay, I’d like to thank you so much for coming on the show. We’re all out of time, and I would love to invite you back on our show at a later date just to pick your brain a lot more, just because I know we can go for hours. So, definitely.

Jay Hinrichs (32:18)
We could do, yeah, do a Joe Rogan style. Three hours and thirty minutes.

Issa Hanna (32:22)
Exactly, we’ll just go back and forth. And I know I learned a lot, and our viewers are learning a lot.

Jay Hinrichs (32:28)
Thank you very much for having me on. I— I deeply appreciate it. Best of luck to all your folks there, the people that are in your group. I’m sure they get a ton of value out of it, even if I never talked to any of— but it’s a great business. It’s— it’s treated me well, and I wish the best to— out to everybody.

Issa Hanna (32:46)
Thank you so much. It’s been a pleasure having you on, Jay. And like I said, I would love to have you on again at a different day. And to our viewers, if you guys enjoyed me and Jay’s conversation and want to hear more just like this, make sure to like and subscribe. I talk to people every day that could bring us different knowledge on every aspect of the real estate industry. Until the next time, the real estate pros are out.