Michael Zuber's Brilliant Strategy for Raising Private Capital
In this episode of Weekend Wisdom, Michael Zuber shares his strategy for employing private capital. Catch Michael Zuber on YouTube at One Rental At a Time.
Happy weekend, everybody. This is another episode of Weekend Wisdom on The Remote Real Estate Investor. On today's episode, we have author and thought leader Michael Zuber, he is the author of One Rental At A Time, he also has a podcast and a YouTube channel. Definitely worth checking them out. And today we talked to Michael about his methodology of raising private capital. I love it. I think it splits the risk and the upside, he does this thing called a 6-20. And I'm gonna let him explain. Michael, let’s hear it.
Yeah, so one of the things that if you're a real estate investor that is often thought of is the holy grail is raising private money. Now, I believe raising private money needs to be done correctly, I think you need to give it the respect it needs. There are lots of checks and balances. And you must understand the process, the rules of the road, all of that. But the beauty of it is once you understand private money, and you have a track record, you can orchestrate a private money package that works for your lender, which is a friend or family member, and yourself. And I've done two things in my career. And where I raised millions of dollars back in 2010. Just to set this up, people were frightened, and I was paying 10% interest for the entire purchase price of property because lending or savings rate was less than 1%. Much like it is today. People were so scared, but I had documented my success back then. It wasn't YouTube. It was actually a blog, which I wish I kept, but I let it go.
But that blog allowed me to attract millions of dollars because I was documenting what we were doing buying. It was BRRRR before it was BRRRR, right? I'm sure Brandon Turner saw something I was doing because I was posting on bigger pockets all the time. And it became BRRRR right, buy a dump, fix it up, rented refi with, in my case, private money and do it again, which now he calls Burr. But now what I've done in the last couple of years is the market has changed. Real estate is sexy again, in 2010. Nobody wanted to touch it. But real estate sexy today. So what I found today is people aren't really interested in 10% interest, of course, they will take it. But they what they want is they want a piece of the action, right? They want part of the profit.
So what I've done is I've devised a six and 20 program where I again, borrow 100% of the purchase price. And now instead of paying 10% interest, I'm paying six annualized, right, so it's 100 grand is 500 bucks a month. But what I do is I give him 20% of the profit. So when I'm out of a property in 120, or 160 or 200 days, they not only get monthly checks, because I pay monthly like a mortgage payment, which is the 6% part. But they will get 20% of the audited return, which when you annualize everything I've done have the millions of dollars I borrowed, everybody's got an annualized return to date, an excess of 20%. And again, it's all secured, right, your first trustee, your name down insurance just in case it burns down, I invest all the capital repairing it. So my dollars are at risk first. It's extremely safe thing.
But the key to this program is I listen to the private money investors first. I didn't just create it, I went back to the people who lent me millions of dollars before and said, What do you want? And they're like, hey, that 10% was cool, but you cashed me out? Right? That was cool. I lasted but once you could get a loan you did because 6% is lower than 10. And I wish I was still getting 10 Well, like sorry, Yo, 10s Hi. I don't want to take 10 forever 10 times, but like, Well, we'd love to piece of the action. So I'm like, Okay, well, how do you feel about 20% because I'm doing all the work, I'm finding the deal. And they're like, cool. So I'm like, Great, well, let me give you 6% now because that's what I can get from banks. And I'll give you 20% of the upside, they're like Sign me up, let's let's do it. So the six and 20 was born and again borrow millions of dollars doing it.
I love that model just in that you know the same value that you have with real estate because you're having the the ongoing cash flow, which is that 6% plus all the upside of the appreciation and all of that it's, it's beautiful, it's beneficial for you because you're coming in at 6% right away or anyone else that you know, using this similar type of a model. It's incredible, brilliant.
I mean, I love to talk about it because of what the investor gets but I'm a nice guy, but I'm not not going to give the farm away. Right my investors annualized return is 20% My annualized return is over 80% right because all I bring in is a repair money in my monies in shorter and when we exit you know my return on repair money is often much bigger than the purchase because if I purchased it for 120 I might put in 30 or 35 so if i net 20 on the out and they get you know whatever that would be six plus the cash flow I mean yes they get great returns but let's be clear I'm winning also.
When you say exit is that usually cash out refi or was it sale? Oh, today's market would be a sale owner occupants are buying things hands over fist. So if they want to overpay I will let them
Get out of the way. Yeah,
Get out of the way. There you go.
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