How I Used Hard Money Lending to Make $3,000/day on One Real Estate Investment…
Summary
- I made an investment that earns me $3,300 per day in profit from a deal involving a $2.5 million note.
- I engage in hard money lending because it lets me control deal structure, creating both the upside and the downside, which is crucial to managing risk.
- Getting rich isn't about hitting the upside like buying lottery tickets; it's about minimizing mistakes and letting time work for you.
- In the deal, I lent $2.5 million to buyers purchasing a 334-unit building from foreclosure in Memphis.
- To protect my investment, the buyers, each with a net worth over $2.5 million, personally guaranteed the loan.
- The building was valued between $5 million and $5.6 million, and there was earnest money of $300k, confirming buyer commitment.
- To secure repayment, we ensured I was first in line on the title, minimizing the risk of other liens.
- The payment terms were 4% per month, totaling $100,000 per month, with a two-month minimum carry guaranteeing me at least $200,000.
- If the deal took over four months, the interest rate would double to reflect the increased risk.
- A mistake by our lawyers resulted in a lower repayment amount, but the buyers pointed it out, demonstrating the value of trust in business relationships.
- The final repayment amount was about $350,000 plus the initial $2.5 million.
- Trust is a crucial currency in business, and the experience reinforced the importance of trustworthy partners in business.
- I have to pay a 50% tax rate on the income from this deal, which impacts the net gain, highlighting the need for high returns in private lending.
- My personal takeaways include the value of trust, the significance of understanding deal structures, and the need for ethical partners.
- I focus on sharing knowledge to help others succeed without selling anything on my channel.
Video
How To Take Action
A good way of doing better business is to focus on deals where you can control the structure. Here’s how:
- When lending money, always set terms that protect your investment. The key is to control both the upside and the downside.
- Make sure your borrowers have strong guarantees. If they’re investing in something, they should have the means to back it up, like having a net worth that matches or exceeds the loan.
- Confirm the value of what they’re buying. If there’s a solid offer on the table, that’s a good sign. Better if there’s earnest money involved. It shows commitment.
- Get on the title. Be first in line so you’re not stuck behind other debts.
- Set clear payment terms. Know how much you’ll earn monthly and have a minimum interest period. If the deal takes longer, increase the rate to match the risk.
- Build trust. Trustworthy partners point out mistakes, even if it costs them. They think long-term.
- Tax plays a part. Remember, high taxes on income mean you need high returns to make it worthwhile.
Lastly, share your knowledge. You learn by teaching, and it helps others without costing you much. You don’t need to sell anything to do this, just help people win, and they might become partners you can trust with bigger deals in the future.
Quotes by Alex Hormozi
"Getting rich is about really just making fewer mistakes and letting time become an ally rather than a liability"
– Alex Hormozi
"Trust is the most valuable thing that you can have"
– Alex Hormozi
"It's not about trying to hit their upside, it's about understanding downside risk"
– Alex Hormozi
"You only get one name, you only get one reputation"
– Alex Hormozi
"Trust is…worth their weight in gold"
– Alex Hormozi
Full Transcript
100 days ago i made an investment that pays me 3 300 per day in profit off of a single deal that was struck and i told you about this at the beginning of the deal um what was going to happen and so i wanted to do this as kind of a part two um of what actually happened in actuality for those of you who don't know me my name is alex from ozio and acquisition.com uh it's a portfolio of companies that's about 85 million a year the reason for this channel is because i know a lot of people are broke and i don't want you to be one of them all right so one of the things that i like a lot is hard money lending a big fan of it it's private lending which is basically like you are the bank and the reason i like this is because you can determine the deal structure which means that you can create the upside and the downside and then it's up to the other party of whether or not they want to accept that and that's valuable because if you can control a lot of the variables and you can you can mitigate downside risk which if you've heard any of my stuff the ultra wealthy out there it's not about trying to hit their upside like everybody who's poor buys lottery tickets because they only think about upside but they don't think about downside everybody was rich who doesn't do that because they understand downside risk and how getting rich is about really just making fewer mistakes and letting time become an ally rather than a liability using time as an asset rather than something that is working against you what i'm going to do is i'm going to outline the deal structure of what we agreed on um and then what happened and then there was one really curious thing that happened that was actually awesome and i think was probably the biggest takeaway from me and hopefully uh for you in this process big picture here this was a two and a half million dollar note all right so i wired two and a half million dollars in cash to a buyer all right and the buyer went to buy a building out of uh foreclosure all right so they had a 334 unit which if you're like holy cow how's the 334 unit building two and a half million hence the reason i was happy to do the deal all right it was also in a war zone like the police officers don't even go here um this was a deal in memphis and so it's 334 unit building all right it was it was basically condemned they're squatters drug dealers you know all sorts of stuff right and so here here are the here are the risk factors right which is what if i don't get the money back right which means that i would have a building and then how can i make sure that i get the money back all right so the first layer of defense here is guarantees all right so both of the buyers these two two people um personally guaranteed the money all right and they had net worths in excess of two and a half million all right so we had that going for us times two next the building itself we have the value right which the question is well if it was condemned and all that kind of stuff do we know what the value is like is it really worth two and a half million dollars would you ever be able to sell it good question so we had uh three offers already on the building for between 5 million and 5.6 million so an offer is one thing right but is there another level we can have there was actually somebody put earnest money down meaning that they they had made the offer and it was accepted and they were going to put money in the deal so there's earnest money of 300k so they had said we want to buy it it was these guys the 5.6 guys right earnest money 300 000 in the deal saying that as soon as you guys can transfer the title over to us then great all right and the last thing was was to make sure that we were actually in this sounds minor but this is how a lot of deals get messed up that we were actually on the title right so that means that if for some reason we do not uh we do not get repaid we are the first uh the first you know the first people who have ownership or entitlement rather you know titled uh to the property all right so that there's no uh other liens against the property that we're the only ones um who are going to be uh receiving the property if something went in default right and so our cash was used to pay off the last person who had a lien on the home as our on the homes of the building and then we took over that position as preferred and so this was kind of the deal structure all right now this is how we got paid all right so these are the payment terms so it was four percent per month all right now four percent times 2.5 million if you're curious right dude to do is a hundred thousand dollars per month all right so i was making a hundred thousand dollars per month for the last three and a half months um for them to hold this money now after the fourth month so for some reason they hadn't done this deal in four months which it was supposed to be done in 60 days which it wasn't so i'll talk about that in a second right so if it was uh if it was done in uh if it took four plus months the interest rate would double all right so then it would go to 200 000 per month all right because then it starts to reflect that there might be more risk here right so i need to start getting compensated more for this all right on top of that what we did was a two month minimum carry uh which basically just means that uh even if they do the deal in 20 seconds i still get two months of carry which means minimum of 200k i'm gonna get back for just risking the two and a half million which means i'm getting eight percent or whatever um no matter what just for doing this deal so that's the minimum of 200k because there's a minimum two month carry all right that's the key point here beyond that what happened is after uh this deal ended up closing um here's what happened so uh the individuals who did the deal they flew out to see us and have a kind of like a celebratory dinner this was kind of interesting so they're like hey your lawyer sent over the note um and it looked a little light and i was like uh what do you mean they were like well uh you know we've had the we've had the property for a hundred plus days now right and the note said 275k and i was like huh and they're like yeah i mean that wasn't what we agreed on we agreed on paying you more than that and so this is so here's what happened right so our lawyers messed up for lack of a better term they just messed up when they sent the uh the the loan invoice for repayment at the end of this and what was interesting is that this individual because he is long-term minded as well and also a high ultra high net worth individual and this is why i think this is probably more valuable than the deal itself was like yeah my lawyer saw it he was saying his lawyer saw it and said yeah let's just send the money like and you know they made a mistake let's let's move on right and save ourselves you know almost 100 grand which i'll show you in a second what the actual amount was and he said ah man he's like now you can't be my lawyer anymore and he was telling me this story over dinner and it was so funny because we both had this kind of same so the more deals you do with someone there's a big five letter word that starts to occur which is trust right the more times you lend someone money the more times they pay it back as agreed upon right and especially if you have an instance where they have the opportunity to screw you over where most people would especially if they think that they that you'll that you won't find out which we might not have found out but the thing is i might have also looked at these notes a while later and been like like if i had free time and been like this is off what is this right and so anyways he caught it his lawyer caught it his lawyer said to go forward with it anyways he chose not to and to bring it to our attention and so we obviously are not going to use our lawyer anymore he is not going to use his lawyer anymore because our guys made us a stupid boneheaded mistake and that's what we pay them for is to not make these mistakes and double check these things right and his made it ethical error right so mine was an error on skill his was an error on ethics and if you remember my how i pick mentors and vendors video i talk about the three circles right you have the skill you have the the ethical component then you have the hard working component and so both these guys worked hard but they didn't have this one of them didn't have the skill and the other one didn't have the ethics so this is what ended up happening all right so 275 was the deal instead uh we did the we had it was a hundred and something days or whatever so we had 300 k plus 33 33 33 per day um until the deal was closed all right and so it ended up being like 350 k or something like that with decimals right that we got paid back plus the 2.5 million all right so we got to check back for 2.85 million and we have trust which is the most valuable thing that you can have right and so this is this is ultimately one of those currencies that people do not understand who are new to business is that trust is the most valuable thing i mean we were talking about this over dinner and he was like you only get one name you know what i mean you only get one you only get one name you only get one uh reputation see if i cannot get the sun in my eyes here you only get one and uh you know we're obviously you know hoping to do bigger and bigger deals with you guys is uh you know we earn more and more trust and we can do you know 10 million deals 50 million deals um and we'd rather have partners that we know uh we can rely on and so it goes both ways and so anywho uh this was a very valuable experience for me in two ways one obviously because the the the whole deal worked out uh and for those who were like why don't you run a mastermind it's like because i could just move the money and not do anything and make almost 400 that is why i'm just being transparent with you guys like that's why i don't sell anything on the channel that's why the the the trainings we have on acquisition.com are free for all entrepreneurs and the book is 99 cents you can get it on amazon because i just want everyone to win so anyways this is the deal a lot of people like no one taught me how to do this stuff so it was me just trying to figure this out as i go so hopefully you can think through some of these variables if you ever get in that situation and then also uh just a side note here i do have to pay 50 in taxes on this and so that's why you need for me i have to have really high returns on any kind of private lending because uh the the i have to realize those gains right and they're not capital gains to regular income and so uh when you have that i'm actually only making 175 after after taxes on this deal which you know in terms of percentages on on on my original i still want to loan that money out again you know again this year uh so that i can still get at least you know 10 or 20 return on it that's the big deal in terms of the money stuff uh the bigger deal was the trust and the value of having trusted partners uh because they are worth their weight in gold and uh you know we should only be so lucky to have a handful of uh people that you can trust uh throughout your business career and uh you know my hope is that from this channel that you are one of them um in terms of uh in terms of yourself and then also maybe you know you grow your business to three or five or ten million a year and then you let us uh invest with you so we can help you grow more so anyways uh keep being awesome moseynation love you uh if you enjoyed this video hit the subscribe button if you didn't enjoy the video love you anyways and i'll see you guys in the next vid keep being awesome lots of love bye