Making a living on Real Estate ROI

After 36 years in the oil & gas industry, I decided to retire after spending the last 5 years of my career in the headquarters of a major oil company here in Houston. I wasn't an executive so I didn't walk away with several million dollars but I did manage to scrimp and save two. Was this a wise decision? Mainstream "safe" investments returning 4% to 6% would create gross earnings of $80k - $120k per year which would have been a little more than half the salary my family and I were used to. Thankfully, about 1 year before retirement I had been studying my lifelong love of real estate investing when I happened on the private lending subject. I was locked into only limited stock and bond investments through the company 401k and RSU's but this idea of "self-directed" retirement funds sounded perfect. At retirement, I could roll over my investments and my pension and actually put the money to use in investments I understood at returns in the range of 12% - 15%!

Lending my hard earned "nest egg" seemed a little risky at first. But I then realized that I would basically be the bank and use all the well known safeguards the banks had been using for decades to reduce the risks and maximize the profits. I would only invest in short term fix & flip projects that were transparently laid out. My underwriting and due diligence parameters would be to loan 65% to 70% of the After Repaired Value (ARV) of the real estate for terms ranging from 6 to 12 months, charging 1 point for setup fees, and I would either hold the 1st lien position on the property or I would hold the deed. The interest rate for these short term loans would range from 12% to 15% depending on the demand and the comfort level I had with the people doing the deal and my company must be named on the builder's risk insurance policy that I would require on the job. I knew I would have to become very familiar with the nuts and bolts of doing fix & flips so that I could intelligently gauge the risk of the deal and I know I couldn't rely on HGTV, even though I enjoyed a few of their shows!

So I began attending all the Houston Real Estate Investor's club meetings I could find and eventually found one that had a very successful local couple that had reached a level of success and were willing to teach me the ropes. I was lucky that I didn't fall into some of the travelling road shows common throughout the country with Guru's who made all of their money doing these road shows and very little of it doing as they teach. This couple taught and mentored people while they continued to fix & flip, buy and hold, and lend private money on deals. It wasn't long before I was comfortable enough to dive in and before long, I had found plenty of deals to invest my money in and reap the 12% - 15% returns. Although the challenge remains to quickly roll this money into the next deal after the present deal pays off, the returns easily outpace any investment vehicle I have found over the years and it is in an arena that I love! And keeping my money in short term investments that demanded the higher interest rates also allowed me to stay with the returns the market was providing. Fluctuations in the housing market  which might decrease the spread provided by the 65% to 70% limit of loan to value still afford little risk and the short term helps to further avoid being locked into a long term decline. As a last resort my security is the fact that I can foreclose on a property that is valued higher than the money I have invested in it.

To keep a solid supply of investors seeking money to do their deals, I frequent several real estate groups throughout Houston and make it known that I am in the private lending business. There never seems to be a lack of investors looking for money to do their deals. in fact as anyone would suspect there are far more people looking for funding than private lenders circulating in their midst. I also remain competitive due to the hard money lenders in the area. These are larger companies who have more restrictions, charge higher points and higher interest, and also are slower in funding the often fast paced deals where my bread and butter lies.

So waking up in the morning with a cup of coffee and a short walk into my home office in my pajamas, the first window I open up on my computer is my accounting program which shows the loans outstanding, the rates, and the loan term dates. I like to keep one field in easy view - this is the value of interest I am making per diem. The satisfaction of seeing a $500 + daily value in this field for the little effort I put forth is gratifying and it also free's my time to go out and work real estate deals myself. 

I often think of my colleagues who are either still in the daily grind or who have retired on less than they had hoped. I keep in touch with a few and sometimes mention the returns available using self-directed IRA's or Solo 401k's. One day I hope to help anyone approaching retirement to realize the safety and profit of investing in real estate using the private lending vehicle. So if you are planning your retirement, keep an ear to the real estate investor community or give me a call. You may be able to retire earlier than you plan or at a much higher level of income than if you are considering the normal 4% to 6% equity or bond vehicles offered by Wall Street.