Today on Unstoppable REI Wealth you are in for a real treat as we are joined by Derek Dombeck. Derek has surfed the ups and downs of the market since 2003. Derek’s expertise ranges from creative deal structuring, wholesaling, flipping, being a landlord, to lending and investing throughout the years. He has been involved in thousands of transactions in his career; and what sets him apart is his love for people and their success. Derek has an uncanny gift for problem solving and negotiating; and he enjoys using his gifts and knowledge to help people out, sometimes when they have nowhere else to turn. He puts together creative solutions for sellers that few other investors can, and with his team’s support, they always deliver. Derek co-owns a private lending company called Best REI Funding, a real estate acquisition company and hosts three national mastermind groups called REI Circle of Trust. They also run an annual advanced strategies and networking event for real estate investors called Generations of Wealth Voyage (gowvoyage.com). Derek is dedicated to giving back to his community. He founded and ran the Central Wisconsin Real Estate Investors Association and later merged with WiscoREIA, based out of Wausau Wisconsin. There he coaches and teaches other real estate investors his keys to success. Derek has been married for 20 years, and he jokes that he “married up.” He and his wife have a unique family, with three children from different backgrounds. They avidly help other couples who are struggling through the conception/adoption process. Derek’s family loves to travel and experience new things. An adrenaline junkie at heart who grew up racing stock cars and skydiving now enjoys hunting, fishing and camping...and watching the bucking bulls they own at rodeos. Connect with Derek: Get on the list for Derek's book by sending an email to derek@bestreifunding.com and say you heard about it on this show and you would like to get on the list for the book. https://gowvoyage.com/ https://bestreifunding.com/ And after that head on over to... https://easysell411.com https://billyalvaro.com https://billyssecrets.com Who knows maybe you will be our next partner? To get some neat (and FREE) Tools | Tips | Tricks to help you in REI!
Today on Unstoppable REI Wealth you are in for a real treat as we are joined by Derek Dombeck.
Derek has surfed the ups and downs of the market since 2003. Derek’s expertise ranges from creative deal structuring, wholesaling, flipping, being a landlord, to lending and investing throughout the years. He has been involved in thousands of transactions in his career; and what sets him apart is his love for people and their success.
Derek has an uncanny gift for problem solving and negotiating; and he enjoys using his gifts and knowledge to help people out, sometimes when they have nowhere else to turn. He puts together creative solutions for sellers that few other investors can, and with his team’s support, they always deliver.
Derek co-owns a private lending company called Best REI Funding, a real estate acquisition company and hosts three national mastermind groups called REI Circle of Trust. They also run an annual advanced strategies and networking event for real estate investors called Generations of Wealth Voyage (gowvoyage.com). Derek is dedicated to giving back to his community. He founded and ran the Central Wisconsin Real Estate Investors Association and later merged with WiscoREIA, based out of Wausau Wisconsin. There he coaches and teaches other real estate investors his keys to success.
Derek has been married for 20 years, and he jokes that he “married up.” He and his wife have a unique family, with three children from different backgrounds. They avidly help other couples who are struggling through the conception/adoption process. Derek’s family loves to travel and experience new things. An adrenaline junkie at heart who grew up racing stock cars and skydiving now enjoys hunting, fishing and camping...and watching the bucking bulls they own at rodeos.
Connect with Derek:
Get on the list for Derek's book by sending an email to derek@bestreifunding.com and say you heard about it on this show and you would like to get on the list for the book.
And after that head on over to...
Who knows maybe you will be our next partner?
To get some neat (and FREE) Tools | Tips | Tricks to help you in REI!
SUMMARY KEYWORDS
people, deal, property, option, loan, lending, years, billy, cashflow, mortgage, business, buy, network, strategies, derek, house, lease, sell, wisconsin, banks
SPEAKERS
Billy, Derek
Billy 00:19
Welcome to Unstoppable Real Estate Investing. Well my name is Billy Alvero, aka the unstoppable BA, former billion dollar mortgage banker, gone bankrupt turn professional real estate investor, where each week you'll learn the tools, strategies, systems and secrets myself and other highly successful real estate investing entrepreneurs use to start, grow and scale their businesses creating massive profits and how you can too, and we'll teach you how to put those profits to work. So you no longer have to get ready to finally experience financial freedom and generational wealth now let's get started. Welcome back, welcome back. Welcome back. What is going on everybody? This is Billy Alvaro unstoppable BA here with another episode of unstoppable Rei wealth. Today I'm interviewing a gentleman Derek Dombeck, Mr. Dombeck is from Wisconsin. He brings a diverse background and I love this interview, guys doing lending, doing creative financing doing fix and flips has a beautiful wife where they understand. So Derek, welcome to the show, brother.
Derek 01:27
Hey, thanks for having me, Billy. I really was looking forward to a kind of a mellow interview today, but it looks like a little bit more upbeat. So
Billy 01:36
grab your coffee, buddy, grab your coffee iced. So listen, quick background on you just give her audience like you. You've been doing this for a while rather since 2003. So let's just go back a little bit. I know you said you're long winded sometimes. So don't give me like a three hour answer. Just want to go into exactly what you did. Back in the day to get into this.
Derek 01:55
Yeah, so the short version of a very long, 18-19 years, I came out as a construction worker out of high school. So always had that work ethic and that, you know, work with my hands type of background. And my wife and I started just like most people, we bought a couple of fixer upper properties as rentals. And then we started while we were growing our portfolio in Wisconsin with some fixer uppers. We started building new construction projects in Florida. And a little thing called 2007 happened. Oh, yeah, got our ass kicked in. That's when we realized we had zero control over our business. We we use banks for everything. And when the banking industry shut down, we had no choice, we had no options. And that was a point in time where we had to decide do we quit Tucker tail and you know, go crawl back on the porch? Or do we come out swinging. And we were forced to learn how to get creative, learn how to take on private capital, business partners, whatever it took. But I learned so many strategies, because I had to, but I also wanted to now I look at it as if a bank should be second or third priority in putting your deals together. And I just love doing creative deals because you can you can help a homeowner, you can do it without a whole lot of your own money or any if you're good enough at it. Yeah. And and you're not a slave to the bank. You're not a slave to any institution. So that's a very abbreviated version.
Billy 03:37
So look, we have a lot in common because 2007-2008 crash happened and I ended up going upside down $14 million in the hole. So I get the pain of starting over. How long was your setback? How many years or months did that last before you actually started getting back at?
Derek 03:55
Well, I never quit. So I was always, you know, I took on a partner right away as soon as I could and using his credit, but we were still using banks, because I didn't know any different. So reason his credit split and deals 50-50. So I never slowed down in that regard. As far as getting back on our feet. It was about four years.
Billy 04:15
Yeah, really well. People don't realize it takes time. But you get this the wind knocked out your sails like that. You know, if you're resilient like you and I are we get back up, but it's just one word time. It takes time to get yourself back up and get at it. And you know, every day, getting out of bed was a struggle, man trying to go out there and make things happen. But I realized that if I didn't do it, nobody was going to hand it to me. I need to get back here and start work. So working again. But those beginning years, I'm sure you experienced the same thing there. It's a lot of energy, man. It takes a lot of energy to get something off the ground.
Derek 04:48
It does and I know now what My biggest mistake was in the early years or the first half of my career in my business was I was a closet investor. I didn't go out and scream it from the roof. Top what I was doing, and I didn't build a network. So I fast forward to now, like when COVID hit, for example, we've got such an extensive network all across the country in other parts of the world, that we all collaborated and for most of my friends in my network and my masterminds that I host 2020 was our best year ever. Because a lot of people freaked out, because if they didn't have people to turn to, which I didn't in 2007, and that was my own fault. My wife and I were on an island, we were just trying to figure it out. Didn't you know didn't know what to do?
Billy 05:37
How do you feel now that you're out of the closet?
Derek 05:41
Well, I don't know what kind of show this is my lip.
Billy 05:46
Now good for you, though, bro. You know, a lot of guys, including myself, when I when I started doing this, I just didn't tell people what the hell I was doing. And the more quiet you are, the less opportunities are going to come your way less opportunities with money, less opportunities with deals less opportunity to joint venture with people. It's important. And I think now with the you know, social media and internet, it's been out there for years, but leveraging platforms like this, to get your name out there. If you're a good person, you do good deals, and you have a good value system. You're going to attract those people to your tribe and those people who are going to want to vibe with you and do deals with you.
Derek 06:21
Absolutely. And you know, honestly, people ask me why I'm getting on podcasts and why I don't have my own. I don't have my own because I want to expand my network with your like you and everyone else. I honestly believe this is the 27th podcast I've been on in the last two months. Give it put that's that's just for me to give back and expand my network, right?I it doesn't have any other ulterior motives other than to do what I didn't do back then I just want to expand my network,
Billy 06:52
it's gonna come back to you tenfold when when givers are out there and only do is given the Educate, and they put out good content. You know, the rule, man, it just comes back to you tenfold. So, so good for you in that. This, you know, the people who listened to this podcast, they're in the start, grow, or scale phase. Now, I want to do a little bit mixed with you because you're, you have so many years of experience. And when you had to do your restart, as I'll call it, you got in? What did you do? Because you got away from the banks is what I heard you say earlier? So how did you go about constructing these deals without banks. So
Derek 07:25
probably the biggest turning point I took on a partner. But that was again, still using banks. And that partnership lasted a couple of years. And we were just flipping houses. There wasn't I wouldn't say anything creative. When I got to about 2012 2013, I met my current business partner. And he his name is Jeff Jeff had never used the bank for any of his investments, and had started in the mid 2000s. And he was raising private capital. And putting that to work. Along with doing that and learning how to take proper take control of property using options, leases, sub to, you know, seller financing via notes and mortgages or land contracts, all those different strategies are just a strategy, we learned how to stack strategies. So I might buy a property subject to that needs $20,000 for the rehab, I'll bring in a financial friend for the $20,000, put them in a participating note, and then lease option the property out to an end tenant slash buyer. So we're stacking the different strategies. And I learned how to do that through over a period of probably four or five years, you know, 2010 through about 2014. And some people learn by listening, I learned better by doing you know, I hear of a strategy. That's great until I'm actually in a deal. Working on the pieces and parts and the paperwork. It doesn't necessarily stick. But once I do one, and it's it's stuck in my head now I can use that moving forward, I can stack even more strategies. Yeah. And
Billy 09:14
it goes to prove like you said you were a contractor prior to going into this. So working with your hands, doing the work is how it gets indoctrinated into your DNA. Like yeah,
Derek 09:25
and meanwhile, raising the private capital for our flips. We got to a point where Jeff and I had raised more capital than we could keep busy in our own deals. And we didn't want the or our investors to go somewhere else. So we started lending. And we have a big network at this point across our region and starting to get across the country but at that point, really just across Wisconsin and what started out as a couple loans here and there turned into five a month and then 10 a month and you know now we're around 20 loans is a month sometimes Morris and we still to this day Do not take on any Institute institutional capital. Everything is just private individuals that right now, Billy, we're seeing a shift in the market, right? Yep. And if I had institutional money and they just watched, you know, the Fed raise interest rates multiple times, they might start getting nervous and come in and just pull the rug out from underneath us. When we deal with private individuals, we can have those conversations with the private individuals, some of them are getting nervous, some of them are getting excited. I'm excited. I this is like Christmas. For me. I've been looking forward to this market shift for years. Yeah, it's gonna shake out the weak, right. But that's the good thing about using only private capital with private people that you can have conversations with. And we can talk about what happens if our default rate goes up, which we have an extremely low default rate. But if it goes up, we already run an acquisition company. And you know, we have rentals. If we have to take some properties back, okay. Maybe the investors are going to have to ride it out for a couple years. Yep. We put tenants in the properties, we cashflow. And when the market comes back, we sell them off. Like we have those, the flexibility. But that all comes from conversations. I don't even like using the word negotiating. Because it's really just conversations and looking out for your partners, your investors, sellers, buyers looking out for their best interest before your own. That's really what's made us so successful.
Billy 11:41
Yeah, that's what's driving your success. For sure. I can see that. I want to flip back, because I do want to get into the lending side. But I want to flip back to the creative financing side. So are you still actively utilizing all the creative strategies that you've mentioned early, this sub to the lease option, the raps? seller financing? Okay. So with those types of deals, what are you primarily doing them in your home state, Wisconsin?
Derek 12:07
I do. Yeah, we we are in a rural area. So we work about a 200 mile diameter. And so I do the majority of our deal structuring over the phone, long before I go visit with the homeowners at the property, I would say if I had to put a percentage on it 75 to 85%, sure, I'm going to close a deal or get a contract before I get in the car, and drive to that property. So I've gotten very good at doing it over the phone and reading people over the phone and getting people to open up because you don't find a creative deal. You you structure a creative deal. And you structure that by finding out what their needs are and solving for x. You know, I don't think I really did very well in algebra in high school. But you know, if I know their problem, I can solve for x. And so I can tell you on on on Friday of last week. Let's go through that. Yeah, this, this couple had reached out to me over a year ago. And at the time, we were talking about buying their property subject to their mortgage, and giving them a little bit of cash for their equity. But the house still needed 15 $20,000 worth of just cosmetics. And we built great rapport, the deal never came together because they needed to find another house to live in. And it took them until last well, a week and a half ago when they reached back out to us to find another house. They didn't do a whole lot more to the house than they did when I was in it the first time over a year ago. But we built such a good rapport they've been marketed to for this entire time. And they did not call any other house flipper or real estate marketer. They picked the phone up and call me when they were ready. So I can give you the numbers. Of course, these aren't gonna be California numbers, but three bedroom two bath ranch house 1800 square foot after repair value about 225 to 235. They owe 106. On a 30 year fixed mortgage three and a half percent interest with 28 years left on it. And there's my strike price I'm taking it down with a lease and an option. My lease amount is going to be exactly what their loan payment is right now, which is like $850 and my strike price is 135 grand. I will give them $5,000 upfront. And in my option I have the right for one year to buy it outright for cash or subject to their mortgage. And then I just pay them out the remainder of their equity or the remainder of that Purchase Price and cash. So I've got two ways I can exercise the option.
Billy 15:05
And in going, because I want to talk now with the guys who are listening to that in new right in going about explaining to the sellers, that you're going to keep an underlying debt in their name, but yet you're going to take control. And I want to get into how you take control if you do it in a trust or what mechanism you're utilizing. How do you go about addressing the objections that, you know, Mr. Seller, I'm going to act as the seller, Derek, you know, it sounds good. But, man, I'm going to have this $105,000 mortgage, and I'm responsible for what if you don't pay?
Derek 15:37
So Billy, what I would typically tell you is, in the days of online banking, it's very easy for us to monitor each other. So we're gonna share a login to your online mortgage payment. And you can see that I've made your payment. Or you can see if I didn't make your payment. The other part of this is, I would preempt that saying to you, Billy, are you planning on doing anything with your credit in the near future, that this could affect because you're buying another house, first and foremost, I have to make sure you can qualify for that next loan. So they are under contract to close on a house October 28. By us leasing the property and signing a lease, now they can show that to their mortgage lender, that they are no longer or they have additional income coming in to cover that that mortgage payment. Okay. So that was important to them. Then I did continue the conversation saying in the event that I bring in somebody that doesn't want to buy it outright, or doesn't have the ability to right now, and they need some time to do a rent to own Are you okay with me keeping your loan in place, and I explain, I tell everybody, The Good, the Bad, the Ugly all the time, that is going to depend on on the personality type of who you're talking to. Like, for me, I make decisions very quickly, I'm once considered a driver. I don't do as well with analytical people, because that's the furthest from what I am. So if I recognize Billy that you are analytical, I would get a lot more in detail with, you know, charts, graphs, numbers, spreadsheets, to hit your hot buttons and make you feel comfortable. If if you were more of a social conscious person, meaning you really cared what was going to happen to the house, who was going to be living in it didn't want it to be a rental property because you had the same neighbors for last 20 years. Now I'm if you're a social conscious type of individual, I'm going to focus more on what am I going to do to improve the neighborhood? What am I going to do to improve the house? So I factor in as quickly as I can figure out what your personality is. I shift the way I talk to people. Okay, so in this case, the deal we're talking about that that's going down right now, they are very similar to me. They are not analytical. They just want no bullshit. Give us the bottom line. What's the good, the bad, the ugly? So we talk about due on sale clause, we talk about what happens if I don't make the payment? What's your recourse? What what do you do to protect yourself? And we just lay it all out there. And it went very, very smoothly. I love the key thing that you
Billy 18:27
said there Derek and there was a lot of them. But you know, reading people's personalities and adjusting yours to speak to them in their language. How they want to be spoken to, is what separates okay salespeople from top great salespeople, and you know, the know like and trust the rapport that you built with them a year ago. And for them to call you back a year later, did you guys remarket to them and they just picked up the phone and called you.
Derek 18:50
We did not remarket to them. They came through us through social media on Facebook, and they kept my contact information since last year.
Billy 18:59
It's solid, you guys. So
Derek 19:03
yeah, and that's the other part is most people listening to this, you know, the show may not want to believe the fact that they are salespeople, but we are all salespeople. 100% Everything we do in this business. It doesn't matter if we're talking to a seller or a buyer, a banker and attorney, the list goes on and on and on a contractor. We are constantly selling. But the definition of sales doesn't have to be a slimy car salesman. You know, the definition of sales, in my mind is me convincing you to believe in what I believe in. Right? So a preacher, a pastor is a salesperson, you know, looking at from that perspective and looking at from the perspective of helping people and getting them to get come to a conclusion that we already have drawn in our mind. That is in their best interest is really what I feel like I do very well.
Billy 20:01
Yeah, I think, you know, laying out the good, the bad and the ugly upfront, answering all the questions before they become objections, is also a big thing when it comes down to building that rapport, because it's, you're building the t factor, you're building the trust factor, when you're doing that. You're telling them all the shit that's going to go wrong, that could go wrong. And this is how we address it. And just it separates those guys or girls that try to go out there and act like the slimy set car salesman. And they talk fast, and they don't really answer the questions, they kind of skirt what they're saying. And they never really give concrete anything. I mean, you know, they can sell to a portion of the population, but they're not going to be able to connect with the full personality types are out there. Because they're going to get read themselves. They're going to be like, you know, this guy's this guy's a fast talker piece of shit.
Derek 20:49
And when the market shift, that's when we weed those people out. Yeah, sure. Anybody can sell a house the last two or three years, that is going to come to a screeching halt. And I I love the market shifts. You know, there's there's opportunity and everything.
Billy 21:07
For sure. So these days, Derek, on your I want to your investment group first, right? Tell us to the foundation, how many people are in your company currently? And how many deals are you doing in that business?
Derek 21:20
Ah, all total staff through our lending company is I believe he's loving of us. My real estate acquisition company, I've got Acquisition Manager and his wife. And then my assistant, and I have a full time project manager. Everything else we subcontract.
Billy 21:40
Beautiful.
Derek 21:41
So yeah, we've got about 1314 households relying on us to not make mistakes. So no pressure, right?
Billy 21:49
Yeah Let's, let's switch gears over to your your lending business. So over the years, I guess from you just putting out good content for you building up your network, you've had a bunch of people that started resonating with you and your message. And these people like, hey, Derek, I want to start lending some money.
Derek 22:08
Yeah, it started on a local level. So when I met Jeff, he was running the real estate investor Association group in Green Bay, Wisconsin. And from there, he helped me start a group in my city where I live. So we're, I'm about an hour and 20 minutes from my business partner. And over time, we just networked with all the other groups. And eventually, we merged with this one umbrella called Wisco. Ria and the Wisco RIA has seven locations out of the nine in the state of Wisconsin. So we became the preferred lender throughout that chain of RIAs, including the two that we don't have any ownership of or control of, and through that are educating, standing in front of the room, telling people, you know, creative deal stories, or just what we're talking about now. That's how we we built up that that initial pool, right? It was people that had some money that didn't know what to do with or couldn't find deals. And then the people that needed the loans. So the majority of our lending business has been word of mouth, both from raising capital and deploying capital.
Billy 23:26
Are you doing with your investors, you putting it into a pool? Are you doing one offs,
Derek 23:31
we used to do a lot more one offs. Now it's primarily in a fund. And so we pay our investors 9%, on an annualized return. And everything is spread out what the number of loans that are funded by our fund, that's how their money is diversified. And then everything is secured with first position mortgages, we lend out to 70% of the after repair value. So I will say Until recently, we, you know, we average, like I said about 20 loans a month. So you can do the math, these are six, six month loans. Until recently, we've only had nine properties that we've had to take back in the last 10 years. Let's get on the writing. So we've had a very, very low default rate. And the last few months, we've had about six or seven default, I think we're only going to actually have to foreclose on to because those people just stopped communicating. And
Billy 24:36
it's no surprise that you see the market starting to shift and now that's when people the investors who are borrowing is starting to go south.
Derek 24:42
Well, the reason I'm bringing it up is because I think your listeners can get something out of this, right. Everybody that comes to us to get a loan is pie in the sky. They want to use the highest comps, the lowest Scope of Work costs, and everything's going to get done on time and it's gonna sell or get refinanced perfectly with no hiccups? Well as lenders, we got to call bullshit. Because our job is to look at what if you do fail? And what's your plan B, so many of the people that are borrowing money, have had the plan of doing the Burr, you know, and they were going to get it fixed up using our short term capital and then refinance. They did not do cash flow analysis six months ago, based on a 7% interest rate. Yeah, they did it based on a 4% interest rate, or something along those lines. And now six months later, their loan is due. And they're looking at saying, well, we can't cashflow it anymore. So now we're going to try and sell it. And that's taking more time. And I just, I can't tell you, Billy, how many people set themselves up for failure? Because they're just plain lazy? Like, they're you're not going to have 4% interest rates forever? Why do you not run a cash flow analysis based on multiple scenarios, and have multiple exit strategies? But we are seeing that more and more.
Billy 26:09
Do you think that's a you think that's due to newbies? Or is this guys who are seasoned as well, that are just lazy, as you put it?
Derek 26:17
It's a mix. I mean, it's certainly the newbies will will probably be more common with that. But you even see the ones that, that have been in the business for five years, made this mistake. honestly believe if I see somebody that didn't start in this business until after 2010, or 11, they have never seen what you and I saw, like we had we saw the end of the movie, we we got the spoiler alert, right? We got the t shirt. Never want to wear that T shirt again, I'm pretty sure you don't either. But we you know, it's easier for us to see these shifts and see when people are making mistakes. We can tell somebody, whether it's an applicant or somebody at a at an event that we're speaking at, we can tell them all the warning signs and explain to them this is going to happen. And they just believe in their own heads. It'll never happen to me. I'm too good for that to happen, too. And I was there and oh seven, I thought my shit didn't stink to you, but I was wrong. So it's our job as lenders as educators as speakers to try and spread that message and but we can't do it for them. They've, they've got a gotta grow up. Right. Like they got to just I almost said that's not politically correct. So you know, gotta they gotta,
Billy 27:39
they gotta get they gotta get hurt a little bit, right? You don't really learn until you fail. And we're all invincible until we get our asses pounded. And you know, once you really take a beatin once or twice, and you realize what the implications are. And then you look back, you do a mental rewind, you're like, shit, the writing's on the wall. And because I was all high and mighty, and things were looking so good, you know, I didn't plan for x, and I didn't watch my overhead and I didn't cut back when I should have and I grew too fast. I mean, look, hindsight, 2020 rule, brilliant. But when you're in the mix, you're not. And to your point, the guys who got into this business guys and girls after 2010 11, they've not experienced what is about to happen. Now I don't I don't think I don't know what your view is. But I don't think we're going to have a tsunami, like we had in 2008. And if there's going to be a shakeup, I think there's going to be a nice correction, which is going to shake a lot of people out. But I know people today in this market, mostly west coast, California, Arizona, some of the Midwest states, were there, their values have already plummeted. 10-15 and 20%. And I'm not we're not seeing that yet east coast. I think the wave, you know, it takes a little bit more time for some reason to hit us over here. But there's guys out here in the East Coast that they're still buying off today's ATVs and today's cash flows. If they're doing rentals, they're not forecasting out what's about to happen, and they're gonna get banged up.
Derek 29:02
Oh, yeah. And that is one of the luxuries of being in the Midwest. We don't have the huge runs up or down. Yeah. But you know, we still have to be very mindful of what's coming. But we've got a little bit more grace. And we're not in a sexy investment environment where we live, but we've got stable jobs stable, you know, revenue, and you can really build a solid business on that. That was the other thing from 2007 You know, I don't buy anything today based on appreciation. If I can't cashflow it, my offers going down or I'm not doing a deal period. And my other pet peeve is people that have been using their their personal homes as piggy banks and taken out lines of credit against their personal houses
Billy 29:49
because it's been going on forever. Do you think?
Derek 29:52
They think this is the best strategy ever? Well Been there done that damn near lost the house. Don't ever risk your personal res It means that you put a roof over your family's head. To me, that's just foolish. But I learned that the hard way, right
Billy 30:07
but but you had to learn it the hard way. And that's the key point. They're not going to learn unless I was in your shoes do I, when I had the mortgage bank I did a first was a $4.8 million $4 million line of credit. It was a debt that I can convert over to equity. They brought it in, they had me sign personally on that which when the company went the full, I was liable. But then I had a million dollars on top of that. And my primary residence was part of the blanket loan that they did. And when shit hit the fan man it was it was not fun. You know, here I am. I had, you know, I thought I had 100% equity in my house not realizing what realizing but thinking to myself, holy shit, I did this blanket loan. I'm encumbered. I mean, the fault, they're going to take everything. And it is it is not a good feeling when your primary is going into foreclosure and all your other rental properties and investment properties have been already foreclosed on. And your $14 million in the hole like it really. You a man really looks himself in the mirror. He's like, you gotta realize what you made up to try to get through this. Now he's
Derek 31:09
no it's not. It's not. But that's part of the things like we're talking about what's coming up. And what we learned in the past. I think it's, it's, like I mentioned earlier Christmas, I mean, to be able to go now defaults are increasing. So there's going to be more foreclosures, to go and be able to catch up somebody's loan and take it subject to a two to three and a half percent rate locked. You have another 20 some odd years. That's fantastic. Especially in the Midwest, because I can cashflow I can buy a house with zero equity and cashflow it if I got a 3% rate lock for the next 20 some years. And so that's one strategy that I have almost no competition in my area. I teach people how to do it, they still don't do it. options is another one I love using options. Almost nobody in my area does it
Billy 32:08
Explain the options we use them out here. Not a lot but but often enough, talk to the audience about options what they are, you told me lease options, you'd spoken buying options, what are you talking?
Derek 32:18
Both. So I mean, if you use a lease in conjunction with it, it's just so that you get control of the property. And also, I'm using a lease and an option on this deal, like I mentioned, because the lease gives me the right to use the property and I'm not living in it, I'm working on it. But I still use a lease for that the option is the separate document that gives me the the right to buy it at a predetermined price for a predetermined amount of time. But I've got other straight options out there that didn't involve leases where, you know, I had one the gentleman was behind $4,500 on his property taxes. And it was to the point where the judge was taking the property way, I actually had to appear in court with cash and pay that in cash, which blew my mind why they wouldn't take a cashier's check. But anyways, so I paid his $4,500 property taxes, and I have a 10 year option to buy his property for $18,000 that's worth at least 100. And I it's just I do that stuff with my retirement account. Like that's just a good little investment. And he's still living there. And I have no intentions of exercising an option. I actually did that to help out a family friend. And you know, in the future when when he's no longer using it either by choice or he passes away or whatever. Great. I'll go exercise my option, you know, another good way to use options is what if you find somebody that's got some work they really need on their house? Maybe they need a roof, the roof is really bad, they don't have the 10 So what did you say what's a rough? Well, you would call it a roof. But the correct pronunciation would be roof shingles on their damn house. You know, approach them and offer them to offer to them to pay for the shingles and but pay the contractor directly don't give the money to the homeowner in return for an option to purchase their home. And it might be 10 years 20 years. That's a another great one to do with a retirement account that's got a small dollar amount in it. Go and control. And once you have that option, you don't have to be the one to exercise it. That option is currency. You can sell it trade it use it in another deal as collateral. Like it's got so many different uses.
Billy 34:48
Are you so let's let's talk about how you do your options. Right so they use the guy who was behind $4,500 I'm just gonna say you said do like 18,000 properties worth maybe but Just call it 120. Yeah. Are you recording the option at the courthouse? No, you're not?
Derek 35:07
I do not. And this is something that not a lot of people talk about. I record a mortgage securing the option at the courthouse.
Billy 35:16
And that mortgage is for how much? What's the face value of the mortgage
Derek 35:20
face value that it states on is going to be my strike price, what I'm buying the property for? Got it. But really, why do you think you would record a mortgage instead of recording the option itself? What's the pros and cons to
Billy 35:34
it? Well, the mortgage is going to come with a property with an actual debt, it's going to put the world on notice. And I think it's going to be a little bit hard, it's going to be a lot harder for title insurance to come in. And for somebody to sneak that option off the property.
Derek 35:46
That's a couple of major points. Absolutely. The other real reason I want to do it is if I record the option, then people can go and read my deal, they can see all the terms of my deal. But the other thing that I do is when I get an option, especially if it has a lease involved with it in my intention is to sell it fairly soon, I will also have power of attorney over that property. And in most cases, I'll go back to the deal we were talking about earlier that I just signed on Friday, I will have power of attorney, a lease an option and a mortgage securing the option, I will fix up the property and I will list it on the MLS as Power of Attorney for the current seller. The reason I do that is because if my buyer, my end buyer wants to use FHA financing, for example, if I try and double close, you can't, I can't seasoning of title is an issue. But I can sell it from directly as power of attorney from the current title holder to my end buyer, and I get paid on the HUD as a mortgagee pay off. And that goes through underwriting every time not a problem.
Billy 37:05
I love it. So it's similar to innovation a little bit different, but similar. How did you How do you stop them from incurring the property with other other debts or the mortgages or even judgments for that matter?
Derek 37:18
Well, that's the beauty of having the mortgage in place, because you can't really stop judgments. But if somebody tries to refinance, they're going to contact the mortgage holders. And they're going to find out what's your payoff? Because they don't want to be in junior position behind us. Right? So we've had those phone calls, or some title company or a lender is calling us direct, saying, Well, what's your payoff for your mortgage? Well, gee, I don't know, let me think about this. Whatever I want it to be whatever they're willing to pay me, right. But we have it in our option documents that they're not allowed to encumber it intentionally. Again, it doesn't stop if they got a judgment against them. But that's the other power of having the mortgage.
Billy 38:03
So on the other judgments, looking at this, what's the reason that you're not putting it into some sort of a trust, to isolate the property from having any type of judgment from the individuals get attached to the property?
Derek 38:18
I guess I've never considered that an issue. I tried to deal with people that are that are above board. And I know we can't always know that. Right. But if I was doing an option deal with somebody that that was just about to file bankruptcy, I'm not doing an option deal, right? Like I'm very picky on who I do business with. Whether it's the lending business or real estate, we have a no assholes clause. In our company. We just don't want to deal with people that are hard to deal with. And if I smell anything, that's that's kind of sketchy. I just won't move forward with the deal. Putting it in a trust, it still wouldn't prevent it from getting judgments. It's just another layer of anonymity. But it to try and explain to a homeowner, you're gonna have to spend X number of dollars to put this in a trust or I'm going to spend that much money to put in a trust. And now we have to have a trustee and a beneficiary and all these extra moving parts is kind of tough to explain to a lot of home sellers. They just want to push the easy button. Yeah. To me, having the mortgage securing the option gives me the power to foreclose and wipe out those junior credit creditors if I need to. Even if it's a friendly foreclosure. And we've never had to do it, but it but we have the right to do it in the ability to do it. So
Billy 39:47
I love it. These are good little nuggets, man that I'm sure the people listening are gonna get get something out of for sure. Derek, do you. I know before we got on, you said you're writing a book and it's coming out in December. And what's this book about?
Derek 40:02
The book I'm authoring myself is about the lending business. It's all about how anybody could be a private lender, all the steps from application through underwriting to, you know, what do you do to service the loan and through the payoff, really a construction workers Guide to Becoming a private lender, you know, the Redneck guide to private lending, I guess, I got a I actually have to think of a title for it yet. I like to. It's funny. I think I liked that one actually write that down. This funny man. But it's, it's something that I never really saw myself being I thought this was something that, you know, the older generation does when they're, they're just sick of buying and selling property, and they got a bunch of money. Our entire lending company is built on arbitrage. I mean, yes, we lend some of our own money, but it's really all arbitrage. So anybody can be a lender. And it was something that Jeff said to me, my business partner said to me early on, because I was brought up in that mindset of get 100 rental units that cashflow $100 a month, and you're gonna make $10,000 a month, and then you can leave your job and that same sales pitch that I was hearing in 2003. I still hear today, but the numbers haven't changed. Which is kind of interesting, crazy. But then Jeff said to me, how much time is it take to manage 100 rental units? Managing it yourself? I said, Well, that's a full time job. He said, How much time do you think it takes to manage 100 loans? I had no idea. And the answer is a couple hours a week, you know, but you have all the control. The lender typically has the most control in any transaction. Yeah. And we can do it from anywhere. So we travel the country, we travel the world, we've got great staff. And we can we can do it from anywhere. And I'm not worried about contractors showing up or all this other crap that I used to have to deal with. So it just became the this the best move for us was to grow the lending company.
Billy 42:11
Yeah, the only thing that that sucks, and it's a good problem to have, but it's still a problem. As you're paying, you're paying ordinary income and that money that you bring it in?
Derek 42:18
Well, that's why we still have real estate acquisitions. And yes, Uncle Sam loves you if you don't have other things to offset.
Billy 42:26
Yep, yep, no doubt. How did people I know your books not coming out to the seminar? How do people get a copy of it?
42:32
So if they simply send me an email, my first name Derek de R EK, at best R E, I funding.com. And just say, Hey, I heard you on Billy show, I'd love to get on the list for the book. And when it's out, we'll send you the electronic version, I got to be clear about that. I'm not sending everybody a hardcopy but, and then there's a second book that I'm co authoring with a bunch of other really cool people that is being published by a guy named Kyle Wilson. And Kyle Wilson was Jim Roans, business partner for 19 years. Beautiful. So I'm gonna give everybody both of those books when they're out. And, yeah, just shoot me an email. It's as simple as that. And I monitor my own email, and my assistant monitors my email. So it's, you know, I have no problem answering questions within reason. You know, so that's how you get ahold of me.
Billy 43:29
And so besides email, social media, what else had people check out online?
Derek 43:34
Yeah, I mean, Facebook is primarily where people find me LinkedIn. Just under my my full name, Derek Gombak. And beyond that, I mean, we're doing a fair amount of public speaking out there. And, you know, some regional some national just depends, we put on a conference ourselves. That is actually a conference we took over from our former mentors and great personal friends now and used to be on a cruise ship. Now it's on land. And eventually, I hope he gets back on a cruise ship for logistics reasons. But it's called the generations of wealth. And it's going to be in Mexico, Cancun, Mexico, February 2023. That we're really proud of it, Billy, it's for advanced real estate strategies. So a lot of stuff that we were talking about on the show and all the fancy creative stuff. That's that's what we talk about. Got about 10 to 12 non selling speakers. It's not a pitch fest. Yeah. And we have people speak from nine until one it's a five day conference nine until one the whole afternoon through dinner is networking, hanging out at the pool, playing volleyball, whatever, right? We're out. It was a beautiful resort, swim with the dolphins do whatever you want. We come back in the evenings for a town hall session for a couple hours a little more interactive and duh, we do that for five days. And the the other part of it is I encourage people to bring their kids, especially kids that are tenant, tenant older. So my daughter, I have three children 1611 And five, my 16 year old has a network of other kids who have parents that are freaks like us from all across the country. And can you imagine if these kids can build a network in their preteen and teen years, get it, that we didn't do? What doesn't even matter if they go into real estate, it's just what it does for their lives. Like I told you, the biggest mistake I made was not having a network the first half of my career. And we're taking that extremely seriously, including with our kids. So I don't charge any admission for the kids they can be involved in as much or as little the conference as they want. And I think last February's conference, we had 18 kids there and about a dozen of them sat through damn near everything. It was it was really great. So
Billy 46:04
it's been years in the making, how do people register for that event?
Derek 46:08
G O W voyage.com, which simply stands for generations of wealth. voyage.com, G O W voyage.com. And I'm not gonna lie to you. It's not a sales pitch. Even though I'm a salesman, I did not get a huge room block at this all inclusive, like this is not going to be some 300 400 person event. We're really going to be at about 125 250. Like this gets pretty intense and pretty intimate. For that reason. So yeah.
Billy 46:40
Good. Good stuff, brother. So listen, I enjoyed the conversation thoroughly. You're, you're a really good dude from Wisconsin. What did you call yourself before? A heck? What did you say? The book,
Derek 46:53
redneck? rednecks guide to private lending.
Billy 46:57
I love it. I love it. Honestly, really? You're an interesting dude, bro, you have a good personality. You're doing some amazing shit. Love it. You're a type A driver just like me. We make sure it fucking happened charge forward. And I love the fact that you read people. I want to know. Last question. How did you read and sell your wife? Because I heard like you trade it up in the marriage? Or how did you sell this?
Derek 47:19
I'm married. I married up. Yeah, she lost a bet and she had to honor it. Listen, man, it when you understand how it works in how negotiating and reading people and controlling the frame of every social interaction really happens. It can be used for for good, but it can be used for bad too. And you can manipulate people and you shouldn't manipulate people and I didn't manipulate my wife as far as she knows. But yeah, the reality was I definitely married way above my paygrade but, but I married the farmer's daughter from down the road who had the same ethics as I have, you know, hard working work ethic pound through it, like stood by my side through thick and thin when we lost everything. And the part that I didn't talk about that, you know, I do talk about publicly but same timeframe as we lost everything. We also were trying to raise a family and couldn't do it naturally. So we we had to grow our family to the tune of about a quarter million dollars through adoption and in vetro and a bunch of other stuff. We've got three awesome kids, but like you said, adversity, it's it either it's either going to destroy you or make you stronger than ever. And that's your choice. It's 100% Your choice.
Billy 48:42
No doubt, bro. No doubt congrats with everything, especially the family. Honestly, really good conversation. I appreciate you bro. I will see you next time around. Thanks, Billy.