PLP-043 Tom Berry Discusses How Investor Loan Source Was Funded Without Bank Money
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After being hit with the financial crisis of 2007, Tom Berry needed to work on something to get him back on his feet. He went off buying properties and investing in real estate. What separates him from the rest who attempted to go the same path is that he and his team never used a penny of bank money to source for money. He is a seasoned investor, teacher, and the founder of Investor Loan Source which is one of his primary vehicles for assisting fellow investors. Tom shares his journey on how he built Investor Loan Source and provides great wisdom on private lending and how you can also do the same.

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Tom Berry Discusses How Investor Loan Source Was Funded Without Bank Money

I have a question for you. Are you an investor looking for funding for your next fix and flip or maybe your next rental? Or maybe even you’re owner finance or seller finance or looking for some funding that you can wrap to sell to your end client, to your buyer or tenant. If you’re an investor or a lender who is looking to passively invest in real estate while others do the work, then you’re in luck because Tom Berry will loan you money for your deals and/or he will put your money to work by lending it to mortgages backed by real estate. This is really geared for accredited investors. You and your spouse have to make $300,000 a year or you as a single person can make $200,000 a year or have a $1 million net worth that does not include your homestead. I’ve been waiting to get Tom on the show for a while. I’m very happy he agreed.

I’m more than honored and pleased to introduce to you Mr. Tom Berry who is with Investor Loan Source and is the reason that I have this podcast is that I’m a private lender. Tom, welcome to the show. Thank you for joining me.

Thanks for having me. I appreciate it.

I met Tom at Quest IRA in Houston. He was looking for money. He has a great hero background story. How did you get into real estate? I know you came from a different background like most of us in real estate. Can you give us your background story?

My wife and I had a financial services firm. We moved from Ohio down to Texas about a year before the financial bubble burst. In 2007, we lost everything. We went from riding high in 2006 to nothing in 2007. We were part of a lot of people that were out there looking for work and trying to figure out what we were going to do next. I couldn’t find a job. I put out resumes. I couldn’t even get a phone call. I told my wife one day, “If nobody’s going to offer me a job, I’m going to make one.” She’s like, “What does that even mean?” I said, “If I don’t have a job, I’ve got to do something. I’ve got to start some little business, a little company or something.” I’ve always wanted to do real estate and my other job and my other career never allowed the opportunity timing-wise. I guess the opportunity was given to me and it was a blessing in disguise. We didn’t look at it as such at the time, but it allowed me to get into real estate. Like most people that are starting where we were financially, we started out wholesaling. Then we figured out how we can do a couple of fix and flips. We figured out, “We could keep some of these rentals.” We accumulated 425 doors, made over $100,000 a year every year including our first year in cash and were completely and totally financially independent and multimillionaires.

Just because you said you’ve got to do something and no one would hire you.

It pissed me off.

I guess necessity is the mother of invention.

I’m not a person to sit around on my hands and wait for somebody to come to give me something. If there’s no opportunity out there, I’m going to go make one. That’s what it was. I was angry not at anybody in particular. I was angry at my position and my situation at that point in my life. I was over 40 years old and I couldn’t get a job. That is the first time in my career that I couldn’t get a job.

If you don’t know how to vet a deal, then you shouldn’t be a private lender.
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What were you doing prior to the crash?

Prior to that, we owned our own financial services firm and then prior to that I was in corporate management. I was what’s called a turnaround specialist for companies that have a problem. It might be one store that’s not profitable or one depot that’s not profitable. I always took the non-profitable ones and the challenge for me was to see how quickly I could beat the profitable ones.

I see the parallel into flipping in real estate.

I was trained for this. I didn’t know it.

I remember you telling your story. I remember thinking, “This guy has got a lot of hustle in him.” A lot of people will go and you meet them in REIAs, Quest events or Meetups. I still have your original business card. It’s got a palm tree on it in one of the corners. I pulled it out when I was getting ready for this. I was like, “Look at that,” I couldn’t believe it. How much in that time before you got into Investor Loan Source and whatnot? How much money did you borrow from private lenders from Quest or any other IRA custodian?

The first eight years we bought roughly $18 million worth of real estate and of that $18 million, I used $1,000 of my own money. That’s a whole different story on why I did that. I bought a house for $1,000. It would have cost me $450 to get the legal docs done to borrow the money. That wouldn’t have made financial sense. I did suck up my pride and used my money for that particular purchase. Other than that one oddball deal, we’ve never used our own money. We’ve done a lot of other things with private money too. We purchased some houses is what we started with, but then we bought apartment buildings and then we moved up to buying apartment complexes. We bought office buildings. We bought self-storages. I bought a dumpster rental and excavating company. I started a pawnshop and a gun store. I bought a hunting ranch. I’ve done a lot of stuff with private money outside of buying single-family homes as well.

With the $18 million, are the most of it from IRA clients?

I would say IRAs probably made up over half of it. Probably 60% if I were to put a percentage on it.

Investor Loan Source: Go to meet-ups. Meet with investors. Compare notes. Swap secrets.


We were both at the Quest Expo in Dallas. That was a great experience. I always tell people to go. These people put on free events all the time. Go meet with investors. Go meet with other lenders and compare notes and swap secrets. I didn’t realize it was 60% all private. I remember you telling a story once that a private lender had called you and said that he had a problem that he needed to put money to work because he didn’t want it back in his accounts. You being Johnny Hustle is like, “We’ll find a place to put it. Don’t worry about that.” You and your partner came together and tell us about how you came to create Investor Loan Source.

Investor Loan Source came out of necessity. Pretty much every company I have has come from necessity. With Loan Source, the problem was we were selling off our apartment complexes at a rapid rate in 2016 and ‘17. The prices were to the point. I was getting offers. Honestly, I didn’t think the properties were worth what they were offering. I was more than happy to let them go. That created an issue. It created an issue because now for the first time in my career since being in real estate, I had some cash. I was getting some of that equity. On paper, I looked good. It was just on paper until we sold those properties and saw that equity in our bank account. That was a problem. What do you do with that? When you’re in the market cycle, it doesn’t allow for finding really good deals like we were finding in prior years. The other challenge that we were presented with was all of my lenders were howling at me. They’re getting these massive amounts of money back and they don’t want it back. They want to continue to get their interest payments from Melissa, my wife who makes payments. I was literally inundated with phone calls, “What do you mean you’re paying?” I’ve got a payoff request. What’s happening? Why are you doing this? We don’t want the money back.” We were literally looking at millions and millions of dollars that were available and there’s nothing to buy. For the first time in my career, I had way more money available to me than I had deals.

Prior to that, it was always I had plenty of deals on the table and I was scraping, scrounging and making phone calls to get the money put together. This time it’s a totally opposite situation. I said, “What can we do to fix this?” I called up Donald Sutton who was my fourth private lender. Donald I knew had been raising capital from folks in his hometown for years and years. He had a pretty good little pool of cash, his families, his friends, and other people in the area. I said, “We ought to start a lending company together,” and he says, “I have X number of dollars.” It was $6 million at the time. He says, “What do you have?” I said, “I could kick in $1 million or so,” and he’s like, “I don’t understand how that’s equitable.” I said, “Here’s how it’s equitable. You don’t know how to lend. You got lucky with the borrower. You have never known how to lend. Any other borrower, you could have got your butt handed to you. You got lucky you were lending to me and I knew how to vet deals.” This is instructive for people that want to be private lenders. Most people should not be private lenders because they don’t know how to vet a deal. They don’t know how to vet a borrower. They don’t know how to vet the paperwork. They don’t know the legalities involved. They don’t know how to read a title commitment and know what it means. They don’t know what title company endorsements they need on the title policy, on their lenders.

I could go on and on about the things most people who are trying to be private lenders don’t know how to do correctly. In Donald’s case, he didn’t know how to vet a deal and he didn’t know how to do the numbers. He didn’t know anything about repairs and he didn’t know anything about vetting a borrower. That could have been extremely detrimental to him given the amount of money we have of his. At one point we had over $3.5 million of his money. Giving money to people has to be a methodical thing. Private lending is great if you know what you’re doing. It can be a horror story if you don’t. He’s great at the details. He’s great at knowing the title policy stuff and what should be a note and what should be in a deed of trust. How the assignment of rents and all the other things that go along with lending should be. That’s stuff I don’t want to deal with. I don’t want to learn it. I don’t ever want to be good at that.

What I’m good at is real estate and I’m good at the people part. I can vet the people. I can vet the deal. I can go walk a property and know if the repair estimate is reasonably close and correct or not. I explained to him, “Putting your talents and mine together, I know you think you’re doing great right now but it’s because you got lucky. You’ve got a good, big borrower. Without that good, big borrower, you’re going to get your butt handed to you at some point.” He agreed. We started that company. He had a little office in his house. I had a little office in my house. We kicked it off. We have 21 employees now.

The last time I had counted it was around nine or so. You’ve already double.

We run out of two offices. I handle the marketing side. I handle creating new loan products. I handle opening new markets and going into different states. All of those types of things as far as growth orientation are on my plate. We also handle in my office vetting of the deals. All the underwriting takes place in our office. Once we’ve got it underwritten, approved, and we say, “This is a great deal. We’d love to lend on it,” then that file is taken to Donald’s office and he takes it through to closing and beyond in the servicing.

How do you source your funds? Is it yours and Donald’s money?

Private lending is great if you know what you're doing. It can be a horror story if you don't.
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That’s what we started with but we quickly ran out of that. We brought out some unique loan products. There are few hard money lenders that have products like ours. In fact, I would argue we have some but no other hard money lenders have. It’s because we created them. We invented them. I created those products based on what I know as a real estate investor and what I wish I had when I was starting out as a real estate investor. That has given us an opportunity where we don’t have any competition. We are constantly growing. Every month is bigger than the one before, it seems like. I know that’s probably an exaggeration, but certainly every year has been larger than the one before. We are constantly out of money. It’s been a joke with us. We were out of money when we had $6 million. We’re out of money when we had $10 million. We’re out of money when we had this $15 million and on and on.

As we grow, the amount of money that we keep in play, we still always have a huge appetite for more. We wrote $46 million in loans just in 2017. We may not double that this year but I know we’ll certainly eclipse it. That’s the volume we’re riding. To answer your question, the one thing we don’t do for sourcing money is we do not and never have, to this point, ever used a penny of bank money. I’m using the same rule that I used when I built my real estate portfolio. I never used bank money ever. Not a penny. Now that I’m to where I am with my portfolio, I am refinancing out of a lot of those private loans. I’ve got my lenders howling again because banks are throwing money at me cheap now. That’s a great opportunity. We’re taking those lenders and moving them to ILS and we’re still taking care of them. We’re still able to put their money to work for them there as well.

My goal with this podcast is creating and training private lenders on how to do it, how to do it right, how to do it safely and taking banks and brokers out of the equation. That’s been your MO from the start. The fact you’ve done all these loans without bank money. That’s the whole point and the beauty of being a private lender. Even lending into something like Investor Loan Source where the professionals vet it out and they put the money to work. You get that mailbox money every month. When your lenders get a lump sum back, that makes me nervous. I want to see my money working for me.

That’s constantly what I hear from my lenders when we’re paying off, whether it was when we were selling apartment complexes and we were paying off huge amounts of money then. I refinanced 34 single-family homes. That put a lot of money back into my lenders’ hands. I was prepared. I knew the phone calls, emails, and texts would start coming in. This time, I had a quick fix for it. The quick fix for it for them was really simple. They could move the money into our private equity fund, which then we use to make short-term loans on a fix and flip properties. We give that profit back to the investors in that fund. If they don’t like fund investing for whatever reason and some people are weird about it. Some people have to have a first lien position deed of trust in their palm, that’s fine. We’ll sell them some of our long-term notes. As we write these notes, we can’t sit on them for ten years, twenty years, whatever the case may be. We’ll sell those notes to IRA holders or people with some cash that are looking for a good, strong yield and don’t want to go to the stock market to get it. It’s backed by a first lien deed of trust on a rental property with a tenant in it. It’s cashflowing. It’s about the safest piece of paper you could buy. It works well for IRA holders in particular.

That’s why I love it, especially now that we’re somewhere long in the tooth in this market cycle both from a real estate and stock market standpoint. If the market’s like we’re a nine-inning baseball game, what inning are we in? I’m thinking we’re in the 14th inning right now, so far beyond the “normal” with what history has shown.

There are a few things that have propped that up and elongated this cycle. I do a lot of study on market cycles. That’s how I made my wealth is playing market cycles. We bought houses when no one else would buy them and put tenants in them and cashflowed them and held them. Now, I’m

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