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Understanding Wrap Loans with Dorsie Boddiford Kuni

SHOW SUMMARY:

In today's show, Larry talked to Dorsie Boddiford Kuni. She is a full-time real estate investor. Her primary business focus is wealth building through retirement accounts. She has released a book "The Solo 401k" which she co-wrote with her father, Dyches Boddiford.

In this episode, they talked about the difference between the solo 401k and IRA. Dorsie also explained what a wrap loan is and the benefits it offers.

SHOW HIGHLIGHTS:

  • How Dorsie started in real estate
  • On her book "The Solo 401k"
  • The differences between the solo 401k and IRA
  • The benefits you get from a solo 401k
  • Kind of business that will qualify for a solo 401k
  • Two types of contribution you can make to a 401k
  • What a wrap loan is and how it works
  • The paperwork involved in a wrap loan
  • Underwriting the property and the borrower
  • The experience she requires from a borrower
  • Things people need to look out for when doing wrap loans

Quote:

  • "As real estate investor, we need to walk a thin line with how we invest those retirement funds."
  • "The best kind of education that you can get is from a lender."
  • "Real estate gives you so many different ways to make money."
  • "The more ways you know how to make money, the more deals you're gonna be able to do."

RESOURCES AND LINKS FROM THIS SHOW:

  • Assets 101
  • Dorsie's Email Address: dorsieb@gmail.com

SHOW TRANSCRIPT:

Larry: Welcome to the Brain Pick-A-Pro Show live from Lake Wylie, South Carolina and I am assuming down in Atlanta area somewhere is a good friend and I’ve known her for a long, long time. She grew up in the business, you guys are going to be blown away by some of the information that you are going to learn today from such a young investor, please welcome, Dorsie Boddiford and now Kuni. Congratulations!

Dorsie: Thank you Larry. How are you?

Larry: I am doing great. How you’ve been?

Dorsie: Doing good, doing good.

Larry: Awesome! Thank you so much for being on. I really, really appreciate it.

Dorsie: Sure.

Larry: So, you’ve been investing. You grew up, you know, in the business, you know, I don’t think it’s probably any secret that you’re Dyches Boddiford’sdaughter and he has been teaching in doing investing for, you know, many, many, many, many, many, many, many years, right?

Dorsie: Right.Yes.

Larry: That’s true. So, you grew up in the business. You probably did your first deal when you’re about 3, I’m guessing.

Dorsie: Not exactly. Yeah, so like growing up like my dad would drive me to properties every now and then, but he really never forced anything on me and I have a younger sister who is not at all in the business, but she still invests, but yeah, he wanted me to join the corporate world out of college and I was like, why would I do that when I see guys like you like, you know, super successful, having a great time and enjoying life and having a freedom of being an entrepreneur, so…

Larry: That is awesome.

Dorsie: Yeah. Like I kind of want to give to his wishes because he wanted me to try the corporate world and kind of feel the pain of working for somebody else a little bit.

Larry: Right.

Dorsie: But yeah, so I jumped right in it and I, you know, haven’t regretted it.

Larry: That is great. That’s really, really good. Now, you wrote a book also, right? Called the Solo 401K?

Dorsie: Yes, yes.

Larry: Yes. Tell us a little bit about that.

Dorsie: Yeah, so it was couple of years ago, my father and I wrote it and we’re constantly keeping it updated because, you know, the contributions and, you know, all that kind of changes with how the laws change.

Larry: Right.

Dorsie: I mean, essentially, you know, my father one thing he told me was like, you know, “You’re an entrepreneur, you need to worry about retirement from like day 1 because, you know, that’s kind of what we’re going towards is that financial freedom.” Right?

Larry: Right.

Dorsie: So, that Solo 401K, I self-direct it, so kind of like how you can self-direct an IRA, 401K is very similar in how you can invest it and I found that like when I was doing my research, there are a lot of benefits of a Solo 401K over the IRA. So, I started really focusing on growing my Solo 401K and I’m constantly trying to grow that as I do my other types of investments for, you know, my own personal money too, so that is a little tool I encouraged every entrepreneur to look into is the Solo 401K.

Larry: So, if you don’t mind, share a little bit of the differences between the Solo 401K and an IRA because they are actually governed a little different because the Solo 401K actually falls under ERISA, correct?

Dorsie: Correct. Yes. So, some of those rules changed a while ago, so that a Solo 401K, which is very similar to like your regular 401K that you might have with a company. So, it’s the same concept except as a small business owner as, you know, your own employee as well, you can set up your own 401K plan and because you don’t have other employees, you don’t have to worry about all the discrimination, testing, and all that expensive paperwork that the big companies do.

Larry: Right.

Dorsie: So, it has a little bit more freedom, we can contribute many, many times more a year into Solo 401K than you can into an IRA and that attracts a lot of people from day 1 because you can go ahead and make a big contribution and do some big deals. There are a lot of other benefits too; penalties, though if you invest incorrectly and do a prohibited transaction when you invest your IRA money, well, that could be deemed as your IRAs completely distributed on that day that you did that investments, but you could be, you know, walking on thin ice there if you do maybe a kind of questionable deal.

Larry: Right.

Dorsie: So, if you do a prohibited transaction in your 401K and you don’t realize it, well, all you have to do is pay a penalty and only those funds invested are risks rather than your entire account, so that really attracted me because I know as real estate investor, you know, we have to walk a thin line with how we invest those retirement funds, so it kind of gives you a little bit more freedom with how you can invest those. There are some other benefits like you can have that in your 401K and not have to worry about UBIT which that’s a whole another conversation there, but there are a lot of benefits. You can also invest your IRA and your 401K at the same time. You know, you can be contributing to both, so no reason why you can’t do it all.

Larry: That’s really good. Now, there are several points that you brought up which are really, really, really good. The first is, in an IRA or ESA or HSA or whatever, if you buy a property and you incur debt, now it has to be nonrecourse debt as everybody knows, but you’re going to pay UDFI or Unrelated Debt-Financed Income, I believe it is what it’s called, which is a form of UBIT but in a 401K, you can leverage that property and you don’t have to worry about that UDFI or UBIT, correct?

Dorsie: Correct, but that’s only when you purchase the property, so only acquisition debt.

Larry: Right.

Dorsie: That’s the one major thing, but yeah, so like you can have just a few hundred dollars and you’re still on 401K and still, you know, be able to buy rental property or, you know, you can still do a lot of deals and not to worry about that big tax that you wouldn’t had if you were in your IRA.

Larry: That’s really good, and the other thing you brought up that I think is so important, if you do a prohibited transaction in your IRA, your IRA blows up, it is gone, right? And you also pay a huge penalty, so all the money could literally go away in your IRA, but if you do it in a 401K if you happen to have done a prohibited transaction, it’s, if I’m not mistaken it’s a 15% penalty, I could be wrong, but I think it’s a 15% penalty only of the portion that is affected or was in that particular investment. Is that about the way it works?

Dorsie: Right, right, and it depends on how your Solo 401K is set up, but yes that is the case, and you have to qualify. Solo 401K is not for everybody. You do have to qualify but if you qualify, it is an easy tool. One other huge benefit for me is I’m doing a lot of lending, that’s how I’m trying to invest my retirement funds. With my IRA, it’s with the custodian and, you know, at a drop of a hat, if there is an awesome deal that comes along, I want to be able to be a part of that deal. Well with my IRA, I have to go through a custodian, do a bunch of paperwork, and it could take a few days, but with my Solo 401k, I just reach into my door right here, I’ve got my checkbook and I can write the check and I can be a part of the deal, you know, within 10 minutes, I can have that all set up. So, that’s huge for me. Also because of that, you know, less cost with managing that account because I can, you know, do everything inhouse because I’m my own trustee, I’m my own plan administrator, I’ve set it up that way, so I don’t have to worry about all the IRA custodians and all that stuff, you know, if I were to do it with my IRA fund sources.

Larry: That’s really, really good. Now, I’m sure you also have, you know, probably an HSA, an IRAs as well but with the Solo 401K, you don’t have to have a custodian, you set it up yourself, you are your own plan administrator which basically gives you checkbook control.

Dorsie: Right, right. That’s huge. That’s huge as a real estate investor. We want all the freedoms we can. Right?

Larry: That’s exactly right, but we want to make sure that we do it the right way, that’s awesome. Now, you also mentioned something about with the Solo 401K, you don’t have to worry about employee discrimination and what we are talking about there is where us an employer, we put in a lot of money into it and then put a little bit of money in for the employee, explain a little bit about that and what makes a Solo 401K different, what kind of business they need to have to be able to qualify for one.

Dorsie: So, there are 2 types of contributions that you can make into of 401K. So, that’s your own personal contribution which will be like an elective deferral and then there’s a company contribution. So, if you do have employees, when the company makes contribution, they have to treat all the employees, you know, similarly.

Larry: Right.

Dorsie: Not discriminate. So, you know, some people don’t want to, you know, they want to be able to maximize their contributions but they cannot afford to, you know, give all their employees the same benefits, so with the Solo 401K, since you don’t have employees, you can figure out, you know, what is tax advantageous for you at that time. You know, you can make your personal contribution, your elective deferral, and then your company can match that with the company contribution. It’s all based on salary and it is based on what type of corporation, what type of company you have. If you have a sole proprietorship, you can have a 401K and if you have C Corporation, you can have a Solo 401K. You know there are other qualifications as well, but that’s the main difference is that you don’t have to worry about contributing to everyone. Now, some people just like turn this off, and they are like well I have employees, so I don’t qualify for the Solo 401K, so this does not apply to me, so I need to stop listening.

Larry: Right.

Dorsie: But because, they’ll still be interested in the Solo 401K because there are others who have some plans that can become like a hybrid. So, if you have only a few employees, you can have someone help you set up a plan that works for you that still has some advantages over other types of retirement plans.

Larry: Right.

Dorsie: And it might still going to workout for you, you know, to pay your employees, to give them those contributions, so you can get the contributions as well, you know, that might just be another way that you can benefit and you can, you know, be able to compensate your employees as well through these retirement accounts.

Larry: That’s really good. That’s really good. At our organization, we actually have what’s called a Safe Harbor 401K.

Dorsie: Yes.

Larry: Which is very similar to a Solo, but it’s in case you have employees but the thing I really like about the Safe Harbor is as an employer, I do not have to contribute to their retirement accounts unless they also contribute, so if they don’t, I don’t have to contribute for them. We do a match which is really good. So, if you guys happen to do have some employees, then look into Safe Harbor as well. Now, Dorsie, you mentioned a few minutes ago that you’re doing a lot of lending in your Solo 401K which really brings us to the really great part that I want to talk about. You, have some really, really cool strategies that you do as well as teach a lot of people how to do and that’s called wrap lending. Tell us a little bit about the kind of lending you do and first of all maybe explain what is a wrap loan.

Dorsie: Okay well, first of all I got into wrap lending when I first started out in real estate, I was flipping and I was being all these other investors who were more passive income and they had all this freedom and they didn’t have to worry about waiting for those paychecks whenever they sold the house, so I was like, you know, I want to get there fast. I want, how can I change from being a flipper whose running a business to being, you know, I wasn’t quite ready to build up a random portfolio yet, I’m slowly building that up but the rents weren’t creating enough passive income, so I was like I want to be a hard-money lender and it’s kind of hard to be a lender when you don’t have a lot of your money to be able to do that, right?

Larry: Right.

Dorsie: So, I hop in into the wrap concepts where I’m able to take small funds and I was able to grow those funds by working with other real estate investors who were also lending.

Larry: Right.

Dorsie: One problem I saw when I went to seminars, I went to these real estate meetings, you had a group of investors who were active, who were flipping, who were buying rental property and they were super active and they were boots on the ground and then I go to some other meetings in some other real estate events and you have the investors who were kind of slowing down, they have the money they wanted to invest on, but they couldn’t find the deals, they couldn’t find the people to invest the money with, so I was like, you know, this is a perfect tool to be able to wrap. It’s perfect tool to bring together those people who need the money and those people who need their money working, so the way the wrap works is that a wrap loan is a loan that includes an underlying loan and so an underlying loan will be in first position, a wrap lender would come in with a little bit of money and come in in second position but instead of just being regular first and second position loan, that wrap loan includes the first-position loan.

Larry: Right.

Dorsie: So, the way you get such a high return and the way you can profit off of these deals is not only are you making money on your small funds that you’re putting into the wrap deal, not only are you making those terms on that but you’re also making the difference on the terms of the wrap loan and that underlying loan. Let me say a quick example, so you know if an investor came to me and said, you know, “Hey I need $100,000 to do a deal.” Well, I don’t have a $100,000 lying around to be able to lend them, but I talk with them and I say, okay, well what kind of terms are you willing to pay. Well, it’s a quick flip loan, we’re willing to pay 15% on 5 points, quick flip, you know, within 6 months we’ll have you paid off. So after I negotiated that with the borrower, I go find a lender and negotiate with them, so I say, hey you know this investor has a great flip deal, here’s all the information, you know, I’m willing to be a part of this deal as well, would you be willing? Is there any reason why you wouldn’t put up $90,000 in first position on this deal and I’ll come in behind you with $10,000 and wrap your loan, you know, what kind of terms would you want? And usually some of these lenders you know 8% in 2 points, maybe 10% in 2 points you know it depends on who it is, right? But still that’s a difference between 15% in 5 points, right? So my 10,000 will wrap that 90,000 and as a wrap lender, not only will I get 15% in 5 points on my 10,000 that I’ve invested but I’m also going to get that 7%, that difference, so if it was an 8% loan, I get 7% on the 90,000. So, that’s kind of a quick explanation and some people asked me why wouldn’t that lender, you know, after you told them all about the deal, why wouldn’t they just go and lend to the borrower, you know, and give the borrower a break on the interest or maybe they can get the better interest, the better terms. Well, one of the answers I give is that as a wrap lender, not only are we creating deal flow for these other investors, but we’re also kind of babysitting the deal because we’re in second position, you know, we’re the first one to get foreclose out if something goes wrong.

Larry: Right.

Dorsie: So there’s a lot of benefit to all parties with this type of structure.

Larry: You’re the safety net.

Dorsie: Another point, because I’m able to do more deals and if I just invested all my funds into a single deal, you know, I’m able to spread it out and create higher returns that way.

Larry: That’s huge. That’s huge. And if you get 15% in 5 points, 5 points on $100,000 loan is $5,000. You only put up $10,000 and now you got $5,000 in points right up front? I mean, right there you’ve already made 50% on your money, right?

Dorsie: Right, but Larry I mean even if you’re not getting huge returns, you know, even if you’re lending it out at 8% and 2 points yourself, you know, and if you’re wrapping someone else’s money, say they’re wanting 6% and you’re wrapping at 8%, you’re still gonna get a much higher return than that 8% because you’re going to get that 2% on their money as well. So, no matter what… Even if it’s not like a home run deal, this is one way you can maximize your returns across the board. So I mean, that’s one of the things where it’s like with this longer-term deals, when I’m doing it in my Solo 401k, I’d like those deals to be kind of out of sight, out of mind, I put a little bit time and energy into, you know, creating the deal and overseeing it, but I want to ink these possible deals in this retirement accounts because right now I’m 29 years old and I’m not going to be, you know, I don’t have all of the time in the worlds to worry about my retirement. I need to keep growing my other assets as well. So, you know by creating these wrap opportunities, I can, you know, know that okay, you know, I’m getting at least the 30% return on all of the deals that I am in because one way or another I have some type of wrap structure in there.

Larry: That’s great. That’s really, really good. I really like that. Tell us a little bit about servicing these wrap loans. You know I mean, it can be a little complicated and maybe for some they doesn’t understand it at first, but do you service those loans, collect the money and then send off the portion to your other investors, your other lender?

Dorsie: Yes. So I don’t really quite look at it as servicing. I mean, a lot of investors use a servicing company. For me, it’s doing my own bookkeeping and seeing that that money is coming through and kind of keeping my thumb on the pulse, making sure that that deal is good. So if it’s my Solo 401k and I have checkbook control, I treat that like it was, you know, kind of a personal deal as far as collecting the funds, paying out in the other funds. One of the major things you got to remember with these wrap loans is that you’re not borrowing the money yourself to lend it out. You’re just putting other investors, you know, in contact with each other.

Larry: Right.

Dorsie: So the wrap lender and underlying lender, they’re both making loans to a single borrower, though that wrap lender is not necessarily liable for the payments. If I don’t get paid on a wrap loan, you know, I do not have to pay that underlying lender, but I will because I’m behind him and I want to make sure he doesn’t foreclose me out too. So with the Solo 401k deal, I can treat it just like a personal deal where usually the money comes in, the payment comes in, I cut the underlying payment out of there because I’ve agreed to that borrower that’s what I’m going to do. As long as he pays me, I will make sure that the underlying loan gets paid as well. Now if there’s any hesitation with the borrower doing it that way, if he, you know, wants to make sure that underlying lender gets the funds or if it’s an IRA, if it’s my IRA wrapping, you know…

Larry: Right.

Dorsie: Then it’s going to get sit the custodian. The custodian, you know, is going to take some time and then he’s gonna cut the check and send it on and it could be days before I realize that a payment has even been made. In those cases, we tell the borrower “Hey, you know, this is the payment you make to the first loan and this is the difference and what the payments going to be that you make to the second loan, to the wrap loan.” So, depending on how you want to set it up, you can structure it in many different ways to where all parties can feel comfortable and you know, that money can pass through the wrap lender or it cannot. So, you know, it depends on how you want to set it up and I have a home study course “Wrapping for Profits” where, you know, I’ve explained all of the different kinds of strategies and you go through all of that, so you know, if you’re interested, that’s something you can check out too.

Larry: Yeah exactly. And I have it myself. Okay, so let’s talk a little bit about the paperwork involved in the wrap loan.

Dorsie: So the paperwork is going to be very similar to your standard note and mortgage, your first position loan is going to be just to start a loan, you got a note, you got a mortgage securing that note, the property, and that’s what’s recorded. So then when you had the wrap loan, you’re going to have that same note and that same mortgage, then you might also have like an addendum to the note where that payment, that kind of structure is described, that agreement where the wrap lender says, “Hey borrower, this is how payment is going to be made and I am required to make the payments that you make to me to the underlying lender.” You can put all of that language in there, and the main thing is with the security instruments, so what’s recorded with the wrap loan, that security instrument is going to say that it is a wrap mortgage and it includes the underlying mortgage and usually, you know, you want to reference the deed book and page number and the reason why you want to make sure that people realize this is a wrap loan, there is another loan that’s included in that loan and then when you get a payoff, you know, they know, okay who are the different lenders and what funds are going to each because, you know, you don’t want to show up, well you might want to, but if you show up at closing and the attorney doesn’t, you know, you got to see that it’s a wrap loan. Some investors tell stories about how they go to closings and the attorney totally misses that it’s a wrap loan and they’ll cut the checks to the underlying for the ballots and they’ll cut the check to the wrap loan for the full ballots and you know, you got to make sure that, that is on record that is a wrap loan because that’s not the case. It’s going to be the difference, it’s what the wrap lender is due.

Larry: That’s exactly right. In fact, if you want to have an attorney or title company that understands this and is investor-friendly and already knows, you do some of these in trust as well, right?

Dorsie: Yes, I do but I don’t recommend it for everyone. So, sometimes we lend out of trust and that gives a little bit of privacy to who the lender is but you really only want to be doing that with like family funds because when you’re doing a standard wrap loan structure, everyone is on record. Everyone is collateralized on record. When you do a wrap loan inside of a trust, then only that trust is on record. So, it can get kind of messy and there’s a lot of responsibility to that trustee, you know, to make sure that everything kind of lines up. So, that’s not something I necessarily recommend but it’s good for like families who might want to get their funds working together or really, really close financial friends but it’s not something, I do not do this with anyone else outside of the family within trust. Another way you can wrap that a lot of people are familiar with is kind of the typical wrap that we think about where you buy a house and there’s already mortgage on it and then you sell that house with another mortgage wrapping that. I have done that, but that’s not a huge strategy that I incorporate. I have found right now with the way the market is, there are so many more opportunities right now to lending and working with other investors. This market is hot and it’s hard to find deals sometimes, but there are investors who are killing it in this market and they need that money coming in, you know, and those investors need that deal flow to keep their money working. So right now with the way, with the market is, I’m finding that lending and working with the successful flippers and successful landlords that’s kind of where I’m focusing right now.

Larry: That’s great. That’s great. You’ve mentioned deal flow a couple of times. I think it’s really important. You also mentioned that, you know, some of the investors you’ve talked to in the past have even said, “Why don’t some of these lenders just go directly to this person and cut you out?” Right? And it is because they’re looking for deal flow as well. They want to be passive investors. They don’t want to have to go out and swing a hammer or deal with the contractors or deal with the borrower, so you are providing deal flow and money. You’re providing deal flow for the passive investor, right? That wants to be a lender and they don’t have to go out and find their own deals and you’re providing money to the active investor that’s going to be rehabbing the deal, so you’re just… It’s a match made in heaven. You’re just putting both of them together and you’re making a huge return at the same time, right?

Dorsie: Right. I mean, there is some leg work. I mean, it’s not super passive for the wrap lender because a lot of times as a wrap lender, I’m the one doing all of the due diligence, you know, I’m the one that’s, you know, talking to the borrower, you know, doing my own due diligence on the deal because I’ve put my own money into this deal. I want to make sure too that like this is the deal that I would do myself if I were the one buying it, doing all that leg work and then also like construction draws, you know. A lot of times we’re able to lend the entire funds on a purchase under renovation. So as a wrap lender, I’m holding that construction draw and I’m going out, I’m checking, I’m doing the inspections and I’m kind of that go-to person whereas the underlying lender, they can call me up anytime and ask me how this deal is going and I need to be able to, you know, give them that piece of mind and let them know, that’s going okay. And if the deal ever, you know, went south, I’m the one who is going to step in and have to take responsibility to make sure either that I finish out that renovation or you know I get that property sold because I have, you know, I just kind of have a moral responsibility as well to this underlying lender that he’s going to get paid off and he’s going to be made whole and keep that profit that he’s expecting. One thing I mentioned is the borrower when we’re doing these wrap loans, they know we’re doing wrap loans, right? Because they’re going to closing, they’re going to be signing two loan documents, right? So that is the hardest part I think and it takes the most time and practice, to kind of be confident in that and that you need to approach that borrower before closing and explain to him, you know, what he’s going to see at closing because if they don’t quite understand it or if the attorney is not very good at explaining what’s going on, they might get scared and not, you know, not going to work with you. So that’s the big thing is, you know, knowing how to present yourself and how to talk to those borrowers ahead of time so that they realize what’s going on and that they are only responsible for those terms that you had first agreed to.

Larry: Right. That’s good. Yeah, I could see where that would be probably the most difficult part to explain to the borrower. Why am I signing two loans? Why are there two different interest rates, different points? You know, I could see that. Talk a little bit about underwriting. How do you underwrite your borrowers and determine if you’re going to actually make him a loan?

Dorsie: Like I sit down every so often and I kind of have like a meeting with myself with, you know, what are my qualifications? What are some good deals? You know, I’m doing my own deals right now, so I kind of got some knowledge of the market and like what a good deal is. So when I get a phone call from a borrower, you know, right off the bat on the phone, I kind of ask the basic numbers, you know, what are you buying it for, how much is going to take to fix up and then when are you going sell it for or when are you going to rent it for, and then I do that like a rule if everyone knows like the 70%, you know, can you buy it, fix it up and have money into it at 70% of what it will take to sell it and then also like the 1% where is, can I rent it out for 1% of the money that I have into it for months. So, I want to be able to make sure that just off the bat, it’s a good deal.

Larry: Right.

Dorsie: And also my loan-to-value, so how much am I willing to lend on a property before it gets to be like I am way too leverage into this property and that this borrower does not have enough equity to make me feel comfortable. So for me, that’s 60%. So I’ll lend up to 60% loan-to value and Larry, many of our borrowers right now, many of them are able to buy and fix up for 60% of what they will end up selling it for.

Larry: Wow!

Dorsie: If that’s the case, we do not ask those borrowers to come to the table with any funds, so that’s one thing that kind of sets us apart from some of these other lending companies in the area who require those borrowers to come to the table with cash. I do my own due diligence. The main thing is doing the due diligence on the deal itself. Want to feel comfortable with the borrowers, you know, they are investors that you’re going to have to work with, right?

Larry: Right.

Dorsie: So you want to make sure that you feel comfortable with them, you both kind to see eye to eye on things and making sure the numbers in the deal work and physically going out to the property and walking the property and meeting those borrowers and kind of getting eye to eye, and the more you can do as a wrap lender, the more information you can get from the get go. It’s easier it’s going to be to find those other lenders with the lower terms and let them feel comfortable in the deal.

Larry: That’s good. That’s good. So you’re basically underwriting two things. You’re underwriting the property and you’re underwriting the borrower. Tell us a little bit about what kind of experience you require for a borrower?

Dorsie: So what kind of experience for the borrower, when it’s a new borrower, we kind of want to hear the history, you know. We want to maybe see some a couple of success stories. Sometimes, we have newbie borrowers come to us and you know, they might not be bringing the best deals, but you know, I tell investors that “Hey, the best kind of education you can get is from a lender because if they will not lend the money to you, then you do not have a good deal.”

Larry: Right.

Dorsie: [Inaudible] [30:17] sometimes because I have to answer those phone calls and tell people that’s not a good deal, but they need to have the experience and you know, depending on that experience level and how knowledgeable they are, you know, we’re going to structure the deal accordingly. Our guys who are, you know, killing it, who are super successful and getting the deals, you know, will do straight-up loans and be able to work with them a lot easier. If we need to establish a relationship and we need to establish some success stories before we start getting to that point, you know, we might structure it a little bit differently to where, you know, we have a part in the deal rather than just being the straight-up lender.

Larry: Right.

Dorsie: That is the great thing Larry about, you know, real estate investing is you can be creative and on the spot about it. You don’t have to go, you know, don’t have to be cut and dried with how you’re going to do things, right? You know, like you know, when I go to these real estate meetings and I introduce myself and talk to other investors, the newbies all say, you know, “I’m going to wholesale” or “Oh, I’m finding subject to deals” and I’m like “Well, that’s great that you’re focusing on that, but you got to be ready to, you know, if you have awesome deal come along, you know, an awesome opportunity, you want to structure it accordingly, you know. You don’t want to leave a ton of money on the table or you know, not get the education that you should be getting in the deal. So yeah, so you just got to go and to be open-minded, yeah.

Larry: That’s so true. It’s like I tell people it’s just one more tool in your toolbox, if you know different ways to structure a deal and if a strange deal comes along, if you don’t know how to structure that deal to make money, you’re never going to make money on that deal. You can’t stay inside a box. Real estate gives you so many different ways to make money so the more ways you know how to make money, the more deals you are going to be able to able to do, right?

Dorsie: Right. Exactly.

Larry: That’s good. So where do you find most of your borrowers that you’re doing your wrap loans with?

Dorsie: So when I was starting out with doing this strategy and just, you know, in my day-to-day investing, I’ve got a real estate, you know, local real estate meetings, meet-up groups, seminars, I mean, the best thing about seminars is you know, having that lunch time, having that break time and being able to network with other investors. Even if they’re people out of state like we get people being referred by people I meet in seminars who are like “Oh, you know, I know so and so from Atlanta.” You know, I might be in California but you know, you never know who’s going to hear something…

Larry: Right.

Dorsie: So putting your name out there and putting out there what you do. So like for me, I lend in the Atlanta area. I only lend at my backyard because I want to be able to keep eyes on the properties. So when I meet people, you know, I might meet someone in North Carolina and you know, I’m still going to have that conversation with them because you’ll never know who they know or who they’ll come across and I can do the same for them as well, so that with starting out, I really had to be aggressive with meeting people and finding those deals and now that I kind of put some fillers out there, now I kind of get that passive deal flow where I get phone calls, I don’t do mail outs because as a lender, you have to be careful with how you conduct your lending without looking like, you know, a big lending company. You don’t, you have… There are some security laws that you got to be very aware of and very careful of. I’m kind of paranoid on that. So, I do a lot of things word of mouth. So, creating that deal flow where you can be passive, that’s huge. And just being out, you know, looking, door knocking, looking for houses day to day, you know, I meet people, I meet wholesalers, you know. I get my wholesale list, but I tell wholesalers and this has happened a couple of times where I say, you know, you might be wholesaling but keep me in mind as a private lender because if you have a buyer who is either to buy one of your properties, let them know about me and I can, you know, I can be quick to act and I can get you, you know, get them buying that property, you know, whole lot quicker than some other sources. So…

Larry: That is awesome.

Dorsie: Yeah.

Larry: That’s really good. Networking with wholesalers is a really good strategy because they’re working with a lot of fix and flip investors. So one more question, what are some things that people need to be careful of when doing wrap loans? I know there’s probably, you probably have a few horror stories. Anybody that has done a few deals has at least one or two horror stories. So what are some things that people need to be aware of and be careful about when doing wrap loans?

Dorsie: I would kind of stick to your guns, when you decide what you want your loan to value to be, stick to that. It could be a home run deal and they need, you know, 80% of the money and you might get money hungry, like don’t be greedy because when you’re starting being greedy that’s when you make stupid decisions.

Larry: Right.

Dorsie: And then also make sure, you know, you kind of have responsibility to them but you want them to be successful too. You want all parties in the deal to be successful too, so making sure that you’re kind of checking that everyone is going to be profitable and everyone is going to be successful in the deal, don’t just worry about yourself because, you know, you might be getting yourself into a situation where that borrower is going to be in dire straits and you might think you’re going to be the one to get paid and you might not be, so kind of sticking to what your criteria is from the gecko and all along, and also not be scared to be creative and be flexible. Sometimes, deals come along where we think it’s going to be a, you know, easy quick flip or easy wholesale for that investor and I’m being able to be flexible and letting that investor know that we have had deals that we think are going to get paid off within a few months and that investor says, “Oh no, the rent is great. This is going to be a great rental.” You know, being able to talk with them and being able to restructure the deal maybe in the middle of the deal, so that it can turn out to be an even better deal for you as well. So just being flexible but also sticking to your criteria and staying in your backyard. I have heard so many horror stories of investors who lend, you know, all across the country and you know they feel that they’ve dudded those borrowers or they’re friends of friends or they’re part of their inner circle and you know, if you can’t get to that property immediately and put out that fire yourself, you know, you’re just getting everyone in the quicksand when you do that and that’s one… And I have trouble, I have to take a step back sometimes because I see awesome deals. I have people call me that I meet at seminars and they’re like, “Hey, won’t you lend me this. This is an awesome deal.” and I have to say, “No, no, no. I can’t but hey I have some other contacts I can put you in touch with who will be much better suited to help you out.” And so by passing along the deals like that to where I wouldn’t be comfortable in that deal because I don’t know how it’s going to turn out because it’s not my backyard. Yeah, so just, I always stay in my backyard. That is the number 1 thing that I do as an investor and I’d stated that that’s going to… You know what, I will leave a lot of money on the table, I’ll lose a lot of great deals by saying that, but I also will sleep at night too.

Larry: I totally agree with you. We only loan in the Carolinas but I’ve traveled all around the Carolinas doing rehab loans, doing rehabs and stuff like that, so I know the cities to stay away from and stuff like that. I had a guy call me yesterday, wanted a loan on a deal in Florida. It sounded great, but I had to say, “No, I’m sorry. I don’t make loans in Florida, only in North and South Carolina.” and that is it. So Dorsie, I really, really appreciate. This has been some awesome, awesome information. If someone…

Dorsie: Thanks, Larry.

Larry: If someone wanted to get your course, right? Wrapping for Profits which I think I got it in Mary Hart event up in Asheville when you were speaking up there and we were a vendor up there as well, but if somebody wanted to get your course or get your book about the Solo 401k, how would they get in touch with you?

Dorsie: You can go to website, assets101.com. You can go there. You can also see some of my father’s educational material as well. If you want to get in touch with me, I’m happy to email back and forth. My email is dorsieb@gmail.com but if you don’t know how to spell that, the best way to get there is to just fill out the contact form on assets101.com and that will shoot straight to me, so we can talk that way as well but yes, thank you so much for having me Larry. I’ve enjoyed talking with you and hope our audience learned something today.

Larry: That’s awesome. It’s great. You know, I traveled around the country. I’ve even been out of the country teaching and training people and your dad’s events is one of the very, very, very few events that I actually attend as an attendee. I’ve been to all of his events. The trust concept, advance, the hard money, you know, all of those different events multiple times. So, you had a great mentor growing up and you’re doing it and you’re crushing it now and I’m really proud of what you’re doing.

Dorsie: Appreciate it, Larry. It’s always good to see you there as well.

Larry: Yeah, sounds great. Thanks a lot. I really appreciate you being home.

Dorsie: Thank you, Larry. Bye!

Larry: Thanks a lot. Take care!