What To Do When The Banks Stop Lending With Alan Cowgill
There are multiple avenues for you to acquire money to fund your real estate purchase. One of the most common is through banks. But what if they stop lending? What do you do instead? In this episode, Alan Cowgill, the owner of Colby Properties, LLC., cracks the code on finding private money from private lenders to fund real estate deals. He also differentiates Private Lenders from Hard Money Lenders. Alan found that private lenders lend money based on their trust in you. Find out how you can build that relationship and see through your deals. Tune in to this episode and learn more from Alan’s experience as a private investor!
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What To Do When The Banks Stop Lending With Alan Cowgill
In this episode, I’m here with our special guest, Mr. Alan Cowgill. He specializes in all the money you need to get your real estate deals funded. Alan is known all over the nation as the guy that has cracked the code on finding private money to fund the deals. He’s an author, a national speaker and a private lending consultant. He’s been featured in three newspaper articles about purchasing real estate through private lenders.He’s appeared in three national infomercials and has published two books titled Walking With the Wise Real EstateInvestor and Walking With The Wise Entrepreneur where people like Donald Trump and Chuck Norris have also been featured. Alan started his career as a real estate investor in 1995. In 2001, he quit his job and started as a full-time real estate investor. He’s created a system to buy 5 to 7 houses a month and has done hundreds of real estate transactions. That’s very impressive. Welcome to the show.
Thank you. I appreciate you having me.
It should be a great one. I know you have a lot of information to provide to our readers.
I do. I want to share a lot of information in this episode.
Why don’t you tell us how you got started? Real estate to me is not common but it’s what everyone wants to do and knows it’s a great investment. How did you get started?
I started in Corporate America. I got a lot of years at Corporate America. The last company I was with was Honeywell. I was in the aerospace division and I was with them for seventeen and a half years. When you see those flashing lights go over at night, it was my department. I had about 60 folks working for me. I did acquisitions in Europe. I moved some plants. I was a leader for five multimillion-dollar multi-state implementation programs but along the way, I was living paycheck to paycheck.
I thought, “Something’s not right here.” I didn’t know how to change my life though. Getting a property didn’t even come into my vision because of what I was living paycheck to paycheck. I had a couple of catalysts though that changed my life along the way. I had this old beat-up car that I needed to put some money into but put that on the back burner.
I’m a little bit embarrassed to tell you that my mother gave me the car and I had a first date. I took this lady out and at the end of the date, we pulled up in front of her apartment complex. I hopped out and started walking up to the door and I heard something. I turned around and looked and the fireman, who was showing up was putting my car out. It burst into flames. When I speak all over the nation, somebody will go, “What a hot date.” It was more like the first and last date. Do you know how embarrassing it was standing, holding her hand and watching the firemen put my car out?
I wanted to do something to change my life. I looked into franchises but they take money. That was out of the question. I did decide to invest though. That year, I took my whole Federal tax return and plunked it down on lottery tickets. I lost on every ticket. It kept me frustrated not knowing what to do with my life. One night, I couldn’t sleep. I got up and started to watch TV. I channel-surfed at 2:00 in the morning.
This real estate infomercial came on and it got my attention. Let me back up a second here. Shortly before that, my aunt and uncle had worked all their life in jobs and when they quit, they were at the poverty level. With the car bursting into flames and then that happening and then this infomercial I’m watching, I thought, “Maybe this is the answer.” At 2:00 in the morning, I pick up the phone and ordered that home study system. I then became enthralled with real estate.
That year, I bought my first 2 properties, the next year 5 and the following year 18. Since that point in time, I’ve done hundreds of real estate transactions along the way. Oddly enough, I’ve been in three nationwide infomercials. I got started with an infomercial and I’m out on these infomercials all over the US. It was quite a life changer at that point in time.
When something personal happens to you, it is such an eye-opening, especially when you see a family going through it as well. It’s even more so. How many years have you been in the business?
It’s been 28 years as of this time. I got my first property on July 7th, 1995. What had happened was I saw in the newspaper that they had someone talking about real estate. I had a passion for real estate at that point in time, even though I had never bought a property at that juncture. I went to this meeting and it was a meeting that a REIA group had in my town. I didn’t even know they existed. I went to this meeting. I bought a home study system there. It was my second home study system.
One of the board members of the REIA took me under his wing and helped me through my first property. I remember walking out the door and my knees were knocking. I was excited about having to buy a house. His thoughts were on the next property. “How are we going to go buy the next property?” It wasn’t too long after that. That’s exactly what I did. Once I had one underneath my belt, I was looking for the next one. That is man years ago when that all started.
We’re going to talk about private lending. Why don’t you tell our readers what is the difference between a private lender and a hard money lender?
Let me stop back on the hard money lender. They’re structured to where they manage the rules. They set the rules like a bank sets the rules. What I saw over the last few years or so is that hard money lenders would set up booths at REIA events but they wouldn’t have the word hard money on their sign. They would call themselves private lenders.
I felt that’s a misnomer and I want to caution people about that because it’s a distinct difference between a hard money lender and a private lender, which is what you’re asking me. With a hard money lender, they set the rules like a bank sets the rules. The difference of it though is they call them hard money lenders because it’s painful financially. They charge a lot and they have a lot of ugly rules.
I encourage my students to be hard money lenders to have another stream of income. With a private lender, it is the opposite. You get to set all the rules. A private lender is a person that wants to get a high rate of return on their money and maybe they’ve got money on a bank certificate of deposit and getting a poultry low rate of return. We come along and offer a higher rate. The person decides to loan you money.
When they decide to loan us money, they have no idea typically of what is expected, unless they’re a real estate investor. I had a lady walk into my office one day and hand me a $110,000 check to go fund my property. You don’t want to do that because then the money is not secured. I didn’t take the check. I wanted her to take it. When I got a deal coming up, I would call her up and she could take that money and send it into escrow so I could cover it.
That’s the key to private money. What I do is track, convert and manage private money lenders. That’s what I teach my students and I also teach them to do it safely. On that safety part and this is what a lot of people out there that are interested in getting into private money or maybe they’ve already got a private money lender, they don’t know that there are some rules out there that they have to follow.
What sets me apart from all the other speakers out there that’s teaching private money is the fact that I hired an SEC attorney to research every state. He started with mine. I had heard before I’d hired him that it was the Wild West. We could do whatever we want. I thought I’d better check it out since I was starting to use private money. I hired this attorney and he researched my state. He says, “They aren’t tough but there are some rules.” I had him do the whole United States and then Canada.
Coming out of that, he called me up and said, “I want to thank you.” I said, “Why is that?” He said, “I moved into my new house and you paid for it.” It gives an indication to my students of the moral obligation and dedication I get to them to make sure that we got the facts. A lot of my students have no need to use the SEC. You don’t always have to use the SEC. I used to have to use it in certain situations like if you’re doing big commercial deals and other stuff. That’s what I teach my folks.
That’s impressive that you did that because there’s a lot that doesn’t. knowing the rules or at least knowing what to watch out for is a good thing.
It’s critical. I was given bad information early on by this other speaker. He came off stage and I told him that. He told me it was a Wild West. I thought I’d better make sure that that was true and I come to find out that it was not true. There are rules. We need to follow them. They aren’t hard. What happens is people just don’t know what they are. What the blessing for me is by hiring that attorney, I can share this with my students and they can make the decision on what they want to do.
For all of our readers, you can go to FullerWalletMedia.com/AlanCowgill to get to his website where he has a giveaway and you can get information on his course as well. Can you use private lenders for any deals? Is it restricted?
The first part of this will not surprise you but in the second part, I’m going to talk about it. You can use private money on commercial deals and residential. About 35% of my student base is doing commercial stuff. I’ve had a little commercial stuff. What might surprise you is you can use private money for your residence. You can buy notes. I know people out there want to make money by buying notes. This might shock you. When I’m in California, I will have movie producers buying my system because they want to have people invest private money into the movies.
You can use private money on commercial deals and residential.
I did not know that.
You can become a hard money lender. This next one will shock you. People sometimes don’t pay the credit card and therefore credit card companies will take that money and bundle it up with non-payment on these credit cards. Let’s say they bundle it up and have $1 million. They will sell that for pennies on the dollar. I’ve had my students use private money to go buy that and then go after the people to pay.
There’s a group prior to COVID in Columbus, Ohio. I’m in Springfield. What they were working on was to create a big concert with private money. They might still do that but fell apart back then. They had big names on that. When you’re looking at private money, there are a lot of different ways to do that. What I like to do with real estate is have the money secured by real estate, which protects not only me but my lender. Some of the things here I brought up like the concert, producing movies and buying credit card debt, those things there are not secured. That puts the lender in jeopardy. That’s stuff that I don’t prefer to do but I know other people do.
Their money’s as secure as anything else. When most people get their principal back, do they reinvest?
What will surprise you is private lenders loan you money based on the fact that they trust you. What I have found is that they’ll beg you to take their money back once they get in it. When they’re starting, there’s a little hesitancy, “Is this the real thing,” and all that. Once they go through and see that you come through and they get a nice check whether you’re paying monthly or at the end, they get excited. They don’t want you to quit loaning them money. They want to keep loaning money to you. It’s important and it’s very rare that they leave you.
The only reason that they will leave you is because they’ve had a life change. That would be like a divorce or the kids had gone to college. I’ve had that happen before too. At that point in time, they need to get the money back. It’s simple when that happens. I have some of my students. Before they get into this, they understand how easy it is because all you have to do is call up another person and they’re tickled to jump in. You can get these transactions done within 3 days or 1 week. If somebody wants their money back, you pick up the phone, call the next lender, get the money back and play.
Within 3 to 5 days, you can get it rolling. That is awesome.
When I buy a property, there are four parts of a deal at closing. To fund the property with private money, they’ll be closing costs you got to cover. There are rehab costs typically to enhance the value of the property. The fourth item, which is unique is, I will put money in my pocket the day I buy a property. Normally, what we look at is getting money at the end when you sell the property or in payments over time.
I get money there. I don’t suck everything out of this but I also pull out a little bit of money. The same thing will happen to what you and I are talking about. When I have a lender that has to get the money back to send the kids to college or whatever it is, I bring in the next lender. I not only include a little bit for closing costs but I also included a little bit for me. It’s a win-win for me and the private lender’s win too.
How do you find the private lenders?
I started with my mom. I was coming up through my real estate education. I heard this thing about hard money lenders and private lenders. I thought they were the same thing. Probably half the people reading are thinking, “That’s the same.” They’re distinctly different. A hard money lender sets the rules like a bank and the rules there are ugly. I consider even the bank ugly too but with private money, we only ask people to loan us money. I encourage my students to work with people that they know. There are some people out there in the NFL club, No Friends Left. We have to work differently with them.
However, what happened was as I’m coming up through my education, I found out that there is a difference between hard money and private owners. I went back to my mom and said, “You’re getting this poultry low rate of return on a bank CD.” She had committed some money when my dad passed away and she was so proud of herself because she would put money on a bank CD. She would drive 45 minutes one way to get a few pennies more on a bank CD.
I figured this out. I come back to my mom and we sit down at the kitchen table. I said, “You’re getting this low rate of return. I’ll give you a mortgage and a promissory note. It has a lender, title insurance and a disclosure. I’ll pay you a high rate of return and I’ll pay you simple interest only like the bank was paying you. Mom jumped her joy and she started loaning me money.
I found a second person. I went to his house and sit at his kitchen table. I’m a little bit embarrassed to tell you that I couldn’t answer all of these questions but by the time I got done, he had agreed to loan me money. I had my second private lender. Along the way, his son and his wife had loaned me money. One of the things I want to share with people is 1 private lender will bring you 2 and 2 can bring you 4. What’ll happen when you do that is you could get so much money you can’t spend it all. That’s what happened to me one time. I had so much money I couldn’t spend it all.
That would be a good problem to have.
It was. I bought a lot of houses. I hired a guy to go buy houses. I taught him real quick how to buy a property. He wasn’t a real estate investor. He had two personal residents before. From mid-September when I hired him to Christmas, he bought me 21 properties spending my private money. From New Year’s to August, he bought another 48. That’s 69 properties in less than a year and that’s how much private money I had flowing in.
Do you give everyone the same amount of interest?
It depends. If you’re doing a group meeting, what happened to me was when I quit my job, the bank quit me. I didn’t think they would but they did. I had been with them for years. I had to do something quickly because I had a negative $10,000 cashflow. The problem started at that point in time when I quit my job. I called this group meeting and I had eighteen folks show up. I told them about what I did and the next month, I had about twelve folks show up. A couple of months later, I had $1 million to go buy property. That got me launched.
When I started with my mom, the way she liked to have money was the way a bank CD does. The bank CD takes money in. They give you an interest rate. Mom liked it because she got monthly payments and eventually, that matures. She liked that but they also have some downsides with the bank because they give you a six-month penalty if you take the money out and things like that. I don’t do that. If they want their money back, I give them their money back.
In my mom’s case, I would pay her simple interest only. That’s the way I started with everybody. The bulk of my private lenders were people with bank CDs. Along the way, I learned more about IRAs. I started to encourage people with IRAs to loan me money too. What happens is I found out about 401(k)s. If you know somebody that has quit, retired or gotten laid off and they got this dorm at 401(k), they can roll that money over into the self-directed IRAs.
I started to have three different ways to do money. One is to amortize. That’d be the lowest interest rate and paying down over time. Number two is like my mom. Simple interest only, which means if she loans me $100,000 and I pay monthly, what I’m doing is I’m paying the interest every month to keep up with the interest rate. In the end, when I sell this property, my mom would still get her $100,000 back, which is unlike amortization, which goes down.
The third way, which was incredible when I figured this one out, is people with 401(k)s don’t get monthly payments as my mom did on the bank CD. I realized when I got thinking about this, if somebody has a 401(k), roll it over into a self-directed IRA because they got to get it out of the 401(k), they’ve gone all these years and not had to have payment on this money so why didn’t I continue with that?
What I started to do, and this is great for people that buy, fix and sell, is I borrow money from somebody that has had a 401(k) rolled into a self-directed IRA and do no monthly payments. I give them a nice rate of return and that money’s going up over time but it is such a blessing to people that are doing deals like rehabs or fix and sell. That way, they don’t have to come to pick money out of their pocket every single month to cover the expenses.
What happens then is it’s a beautiful thing. It’s a double-edged sword though. This is what I tell my students. If you do this and you get out there eighteen months and you still haven’t got this property handled, then you need to be thinking about how to have this thing paid down. Even if you go to the bank where they can take the money back down and amortize it, then you need to do that so that you can handle this deal. What most folks do is buy, fix and sell and then they don’t have to have monthly payments using the way that I teach them. What do you think of that one?
That’s a great system.
I pay three different ways, amortized like my mom did with simple interest and then they get paid when I get paid, which is when I sell the property.
It works for your different types of lenders. That’s the best part. Do you use only one lender for each property? How does that work?
That’s a preferred way but that’s not typically the way it happens. Sometimes, you’ll need more money on the deal. The bigger chunk of money gets the first position and the smaller chunk of money gets the second position. I try to tell a joke where I say the person in the 73rd position is not in good shape. What a blessing to bring in people and have all the benefit from what you’re doing and you stack the mortgages up, if need be.
I read on your website that it’s a win-win for everyone and that’s the best part. Everyone benefits. Looking back, would you have done anything differently?
I would do two things. It took me a couple of years to get my first private lender. I’m embarrassed to say that when I started in 1995, I didn’t get aggressive until I quit my job in 2001. I had a period there where I was buying some property through banks. I started with my mom as a private lender and then a couple more but I didn’t get cranked up until I quit my job and the bank quit me. When that happened, I got going on it. There’s a period there about five years where I didn’t get into it. I would do private lenders quicker and more of them because it’s a wonderful way to do real estate.
The other thing too is I was very passionate about getting training and I wish I would’ve done more of it early on. I started by being a part of the REIA group and learning stuff from the other investors, which was good. I bought into a boot camp and that was great but I took the same boot camp for one year. I could go back as many times as I wanted and I went to it every time they had that boot camp three times or whatever it was over the year.
What happens and what I learned in real estate is that there are different pieces of this business. How to buy, how to fix and things like that. What I realized is I should have gotten more training in that period, which would’ve allowed me to grow quicker. The bottom line in this business is education. That’s what I got from that first home study system off of TV. Years later, I created 75 products for real estate investors.
For our readers, you can go to FullerWalletMedia.com/AlanCowgill to get the information that you’re looking for. Is there anything that we didn’t cover that you’d like to leave our readers with?
That’s pretty much it.
You gave some great information.
It’s important. I want people to know that when you’re looking at private money, you need to know how to attract private money lenders. You need to know how to convert them into loaning you money, how to manage them and how to do so safely. That’s the key path to tracking, converting and managing private money lenders and doing it so safely out there so everybody can be tremendous real estate investors.
You need to know how to attract private money lenders. You need to know how to convert them into loaning your money and how to manage and do it safely.
Thank you so much for joining us. We appreciate it. I love talking with you. Have a wonderful day. We’ll have to do it again soon.
Thanks, everybody. Enjoy.
E. Alan Cowgill is the owner of Colby Properties, LLC. and President of Integr ity Home Buyers, Inc. Alan invests in single family and small multi – family properties in Springfield, Ohio. Since 1995, A lan has done hundreds of real estate transactions. Alan uses Private Lenders, to fu nd his real estate purchases. Alan looks for “Win – Win” situations, where the seller, the lender, and the eventual homeowner can all “Win”. He is not a Realtor, but a Private Investor. Alan has s erved as an elected official to the Board of Directors for the Clark County Property Management Association. He is an author, consultant and national speaker. He has been asked to speak on the topics o f “Investing for the Beginning I nvestor.” and “Findin g Private Lenders.” His home study system, “Private Lending Made Easy”, shows new and seasoned real estate investors how to find private lenders for their own real estate business. In addition, Alan: Holds a BS Degree in Business Management. Appeared in 3 real estate infomercial s that were shown nationwide. Featured in the Business Section of the Springfield News – Sun newspaper in an article on real estat e investing . Published Author: Walking With The Wise Real Estate Investor – book also includes other po pular contribu tions . Adjunct Professor for 5 years at Clark State University. Is a published author not only for Real Estate but also in American Industry. Has over a quarter century experience in Business Management. Acknowledged in the book “e – Mail Basic s” ISBN #0 – 9676313 – 1 – 9. Business trainer and consultant. Speaking Engagements include: Yovel, England; Dallas, Texas; Fort Collins, Colorado; Atlanta, Ga.; Jacksonville, Florida; Cash iers, NC.; Las Vegas, Nevada, Springfield, Ohio and many more . Spoke 45 times all over the USA in 2019.
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