How to Raise Private Money and Create Deep Networks with Humberto Gaeta

Sean: [00:00:40] Thank you so much for being on the show today. Go ahead and introduce yourself and let everyone know who you are and how you got into real estate investing.

Cookie: [00:00:46] All right, so my name is Humberto Gaeta, but everybody calls me Cookie in the real estate space. The reason why is because my last name sounds like Cookie in Spanish. So hey, it was just more memorable when I would get to meet someone. I’ll just say “hey, my name is Cookie” and instead of just saying my full name, which everybody’s gonna forget, Cookie is just like that, just like branding, you want to be able to be memorable, right?

Sean: [00:01:08] Exactly!

Cookie: [00:01:09] And how I got into real estate? I knew I always wanted to go into real estate or at least invest my money that I was going to make elsewhere into real estate. So I went through a three-day seminar just to dip my toes into what real estate is and what real estate investing is. That initiated my real estate career two months before I graduated college. So I started reading a lot more books. I was just like “Okay real estate is the number one vehicle that makes millionaires happen.” And so I started learning how money works and reading about how the wealthy stay wealthy and the ninja tricks behind how money works. Really that three-day event was an initiation into what I’m doing now and everything that I do. And that makes Cookie who Cookie is.

Sean: [00:01:57] Awesome. And I mean, most people don’t even think about real estate while they’re in college. You did it two months before graduating. How did you even decide to attend a three-day course?

Cookie: [00:02:06] I was going to go graduate as a mechanical engineer. Then I got my certificate in project management. So I was literally an engineer being dipped in gold to any company because I can speak project management verbiage and engineering verbiage. I had interviewed enough people down the mechanical engineering role that were working just for a paycheck and then some that had the nice houses had the good cars, had their kids going on vacation during the summers to Europe. And those people had made a business happen. And so that led me to think like then it’s about making a business. So to answer your question why I was thinking about real estate in college? I was looking for a path to see how millionaires make it in real estate. And so I’m like, “Okay, I’m going to go to this three-day event. I’m going to learn a little bit about real estate” and little did I know I have taken my girlfriend at the time there and she was like “This fits you like a silk suit” and I was like, “I think it does”. And the fact is that I wasn’t going to work for someone, I was going to go work for myself. And beyond money is my time. Having ownership of my time and what I can do, who I can spend time with, where I can be and not strapped to one location. I feel like that’s more valuable than money itself, right?

Sean: [00:03:39] Nice, I think we were in the very same situation. We saw what it’s like to be an employee as an engineer. And we’re like “This is not the life that we want to live”. Cool. So after you take the three-day course, you read a bunch of books; walk me through what happens next.

Cookie: [00:03:53] What happens next? We’ll Cookie goes freaking bananas. He’s freaking out!

Sean: [00:03:57] What does it mean, like you decide not to get a job? You decided to like move to North Cal? You’re in Irvine before right?

Cookie: [00:04:03] Yeah. I was in Irvine. I went to school in UC Irvine. For all those people on this podcast, I walked the stage but I did not graduate. So I literally you can call me a college dropout, but I was like one class away. But my whole mission behind that is when I’m able to donate so much money to the engineering department, I’m going to go back and take that one class that’s going to take like 12 weeks. But really I’m going to be networking with all my old professors and make them investors in what I’m doing now.

Sean: [00:04:39] There you go!

Cookie: [00:04:40] Yeah! Making a win-win right? But to answer your question. What were the next steps after that three day event? It was execution really. It was execution on the curriculum that I had in front of me. Because knowledge is great and I’ve seen your podcast, that you bring knowledge. You bring value to your audience. So applause to you my friend. But also knowledge is not everything. Execution is everything because if you have knowledge, if I can show you what Warren Buffett did but you just have the knowledge but you haven’t executed anything you, might as well have not known it. So I have to execute but in order to execute you need to have the will and the confidence to move forward. And I like that. I mean I was confident. I mean I could dance with every girl on the dance floor, but when it came to real estate I was brand-spanking-new. I was like in kindergarten, you’re learning to walk again. And so really my biggest hurdle was gathering that confidence to push forward. That took me a good 10 months in order to know what I have to do and that’s why I always encourage people “don’t do real estate alone” Do it with a team. Do it with a buddy. Do it with someone else that has the same mindset as you. Create a team around it because that team is going to propel you forward because it’s just like you drop all the BS and you start executing. I’ll let myself down but I can’t let Sean down. Like if we’re doing a deal, “I can’t let you down dude”. Now, it’s a partnership. But if it’s just something that I have to do on my to-do list, you’ll put that thing off for 90 days and forget about it.

Sean: [00:06:29] So did you get a team together? Is that what you end up doing?

Cookie: [00:06:31] Yes, so we ended up. We ended up I ended up doing my first deal with the mastermind that I had created. So we met once a month. So this was something shocking by the way. To answer your question. Yes. I ended up making a team indirectly. I didn’t do it consciously but later on, the team that I did build I knew that “Okay I have to make a team. Things need to be outsourced. I take care of our money, you take care of management, you take care of acquisitions” right? And so having at least that type of compass allowed us to really not step on each other’s shoes and be able to embrace that role and learn in that role and now people are. People come to me and ask me “How do you raise money? You know how to raise money so fast, how did you raise, a million dollars in five days, in 10 days. How were you able to do it so fast and it’s just?”, it was all the learning curve and and really execution because , it gets frightening sometimes when you don’t know and you’ve never done that before.

Sean: [00:07:40] Right. So basically because your role is only focused on raising money you were able to get really good at it really quickly. Instead of having to learn all these other different things at the same time.

Cookie: [00:07:48] Yeah, cuz that’s the thing, real estate is a vast. We know this, you can skin, real estate in so many different ways. I mean we’re talking Airbnb, flipping, mortgages, loan officers, real estate agents, brokers. I mean there’s so much in real estate that you can do, whole selling. It’s crazy. But then if you build a team and then your focus is just doing one thing then you become proficient in it really quick because that’s the only thing that you got to take care of. And so like right now I just raised some funds for one of our projects that took me 30 minutes. We just needed a short little loan and I was like, “Okay made it!” I didn’t even make a call. I made a text because you already have that network together, right? So you start getting quicker at it and so now because I’m just focused on the finance side, I just take care of that. And so my whole other team they’re the ones talking to the contractors. The other, John is the one taking care of acquisitions and selling the property. He’s the agent, he’s been an agent for 12 years. But when it comes to the capital, Cookies’ the guy

Sean: [00:09:00] Got it. So let’s walk through your whole timeline. you graduated or you pseudo graduated from college. What was this like 2016?

Cookie: [00:09:07] June 2016

Sean: [00:09:08] So two months before that you went to your 3-day course. You walk the stage. And then you went bananas.

Cookie: [00:09:16] I went bananas but really what I did was when I say bananas, there was a lot of fear in execution because it’s unknown territory. And just like anything new that you do, whether it’s a new relationship or a new skill that you’re trying to do, you’re gonna fall, trip on your behind a lot at the beginning. And so that was me the first three months and then I’m like, “Let me help my parents with the knowledge that I’ve acquired because they already have assets, because they already have a retirement account. Let’s put those to work in better places so they can start getting double-digit returns. And I focused for the first part of my of my real estate career was just putting my parents in a better retirement position to grow their assets a lot faster. And so I took care of them first indirectly because I was just so afraid of taking action myself that I was like, but but what I can take care of my parents because I know enough knowledge to be able to put them in a better position. So that was my first steps of moving money in real estate, which was putting my dad’s money or my parent’s money into another flip and going from two percent return to 32 percent return.

Sean: [00:10:31] so you’re from northern California originally and you just moved back after college?

Cookie: [00:10:35] Correct. Born and raised in the bay area in Northern California. Went to school at UC Irvine down south and then moved back

Sean: [00:10:42] And then how did you find that first deal to put your parents’ their money into?

Cookie: [00:10:47] So that was just a friend, an acquaintance that we knew and that he already had the deal running?

Sean: [00:10:53] Is he from your group as well? Or is it just some random person?

Cookie: [00:10:55] No this was an investor from an escrow company. It was just a connection of a connection that we ended up finding that deal. So that wasn’t my first deal. My first deal came like three months later which is 10 months after I graduated college. Someone in our mastermind found a deal. It was a new construction deal and he came to me and he was like “Cookie, what do you think?” and I’m “Dude, well, I know someone that does construction. Let’s shoot it over to him.” He was like “There’s a million dollars here to be made. This is a huge deal!” and I was like “Cool. Let’s make it happen.” And so he was like,”All right Cookie”. So essentially David, David Herrera shout out to him now, he does new construction in the Bay Area. He was like, “all right Cookie. Go raise $630K. We have a 10-day escrow, 5 days are up. You got 5 days.”

Sean: [00:11:55] So wait, someone from your mastermind group came to you and said “hey, here’s a potential deal. It’s new construction”?

Cookie: [00:12:01] It was on the MLS. It was just laid, it was a 1920 house on a lot and then two doors down was a new construction that had just sold for 3.6.

Sean: [00:12:12] And then you brought this to this guy David.

Cookie: [00:12:15] Because I knew that he could do new construction. Yes.

Sean: [00:12:17] Is he also part of the mastermind group or is he something else you…?

Cookie: [00:12:19] He’s also a Fortune Builder. Yeah. We’re all Fortune Builders.

Sean: [00:12:22] Got it. And then he said, “okay, not only did you find the deal, but I also want you to raise the money.”?

Cookie: [00:12:28] Yeah, because he was just like “hey you want to cut this up correctly or you just want to make more money?” and I was like “hell yeah!”. It was like go raise money and I was like, “all right. Well, how do I do that?”

Sean: [00:12:40] How did you do that? You’re like 22, 23 years old?

Cookie: [00:12:42] I’m freaking 21 dude!

Sean: [00:12:44] Your first deal, right? You’ve never done it before?

Cookie: [00:12:47] I’ve never raised money. I’ve never done any of that stuff and so I’m like “how the hell do you secure that?” And the cool thing is that David already had a money manager finance director on his team Mr. Dan Novo. And so Mr. Dan Novo has been doing this for good part of 30 years and he’s been raising money. He’s been doing that for David for a good amount of time. And so I came in and Dan was just like “you connect me with people that want to land on an opportunity like this and and I enroll them. So you make the connections Cookie and then I enroll them.” Well, guess what? I didn’t know what the hell I was doing. But I was making so many calls, text messaging people, just literally really going bananas, because I was just like “we’re going to get this money. I don’t know where the hell, but we are going to do. I don’t know if we’re going to rob a bank or something but we’re gonna have to make this happen” and during that time we started raising. I started making calls, started making connections. We were like $440,000 in and we still needed like another $190K or something like that. And we had like 36 hours left to make it happen. And now I know that with escrow you can push it back. But I didn’t know that back then and they didn’t want to let me know that. They were like “no, let’s see what Cookie has under the hood.” We went on a three-way call. We were just huddling up, we’re like, “okay, we need to raise this money like it needs to happen in the next 36 hours.” Like we need to make more calls. That’s the execution. I feel like my forte really, where my skill really shines is really believing in the outcome and expressing that and the energy that I bring that it will happen. It’s going to happen and we’re going to make it happen and you better believe it’s going to happen and when I evoked so much energy through the phone literally we all came off and we came off believing like this is going to happen. Let’s go. And sure enough, 18 hours later. We found the rest of the commitments and we found that $630,000 to close the deal and that was our first acquisition. Dan later on, got on a call with me and he was just like “You have a gift kid. Your ability to believe in yourself and the outcome that you set your goal on like being laser-focused, that’s your gift. And being able to believe in yourself invoking and telling people like you’re either with me or you’re without me and I’m going to bulldoze through anything to get there” When he highlighted that, I’m like “Wow!”. So fast forward five months later when I created another team where it was just four guys/four people from the mastermind. One had project management experience, one had construction experience, one was an agent, and then it was myself, which is my current team now, it was almost like a handshake and we were just like “let’s go and acquire. Let’s go wholesale!” and we set out a goal for $200K in the next 30 days. We’ll guess what happened?

Sean: [00:16:03] You got it.

Cookie: [00:16:05] We’ve made two hundred thousand in less than 30 days.

Sean: [00:16:10] That’s what’s up.

Cookie: [00:16:11] That was March of 2018. We literally met up right after a Tony Robbins event. And we’re all fired up and literally all the BS we were saying just being alone, now we have 4 of us together and we have a team together. A pseudo team together just on a handshake. No paperwork, no nothing, no LLC. Everybody had their own LLCs but we were just “let’s see what we can make happen.” and dude we kicked butt. Like those weeks went so fast we were like “oh we’ve got to accept this, we got to wholesale it, we gotta go over here” We ended up wholesaling 3 properties, and making those $200K and we just couldn’t believe it. We just took action. It was just all the execution. We didn’t look back. We didn’t think twice we were just executing, making offers like talking to agents. We ended up implementing a marketing idea that I had been planning for the longest time and we were just like “Let’s go”. Like let’s throw everything on the wall and see what sticks and it happened, man. And it was mind-blowing and still to this day it’s just like “You just gotta have that grind, that execution. You don’t have to have a whole full plan. You learn as you go you, do as you go, and you pivot as you go.”

Sean: [00:17:34] Yeah, for sure like you said before it’s probably better off that you got a team of four people so that you guys each keep each other accountable. Like one day if you’re slacking instead of just saying I’m going to chill, no, I have people depending on me. I got to do some work. Can we go back to your first deal where you were given the challenge of raising $630K in five days. I mean, I’m assuming you’re just calling a bunch of people, texting bunch of people and saying “Hey, here’s our potential deal. We have here some great returns and if you want to do it, here’s like Dan Novo’s phone number.” Is that basically what you’re doing?

Cookie: [00:18:08] Well, I made the first connection and I got on a phone call with them and if they have any questions that I could answer. If I couldn’t answer them, I’m like “That’s a great question. Let’s schedule a call with the time that works best for you and I’ll get my finance director to talk.” So there was like another level right. Then I brought Dan to the to the call and then he would answer questions because he was the one with all the knowledge. And that was learning. I was on those calls and I was just picking everything up like a sponge. And then I learned how he enrolled them, all the paperwork behind it. And now I do it with my laptop. I take control of all the paperwork in terms of acquisitions now, but back then my first deal he was taking care of that out. All I was doing was connecting the two.

Sean: [00:18:51] Yeah, so I want to ask you a multi-part question. Who are these people you’re calling? Like how did you even get their phone numbers?

Cookie: [00:18:58] If there’s one thing that your viewers get from this podcast, it’s this. Who was I calling? Well, I was calling people that were part of the same community of investors. We’re all fortune builders. So everybody bought into the Fortune Builders education. I don’t get paid to talk about Fortune Builders, but that’s how I got started. I paid a good amount of money to get into this education and it’s a national group investors that have this education. We meet once a month, nationally and what not, but there were people that were not just interested in real estate investing but had purchased education and invested good amount of money to be a part of this educational program that teaches them how to put themselves in a better position to have success in real estate. So instead of me going and trying to raise money off of an average Joe out on the street and trying to teach them what real estate is, what a deal is what an ROI or ARV is, I need to talk to people that know real estate. And so that was my biggest “Aha!” moment because I remember when I tried to raise money with my family, they’re just like “You’re crazy” because they don’t understand that language. And so my biggest thing is for those viewers that are raising money and you got a short time to raise it, talk to people that are already interested and part of real estate investing communities because now, you’ll have a collective audience that already knows what a deal is. They’re already interested in real estate. They talk the same lingo, the same language, and that really was what expedited the process to us getting all the commitments and raising the capital needed for that. And in those five days my family and I had to go to a wedding in Mexico and when I touched down back in San Jose we had everything committed and I was like…

Sean: [00:21:09] Sick!

Cookie: [00:21:10] Yeah!

Sean: [00:21:11] You were on vacation and all the work are done!

Cookie: [00:21:13] And I made all the connections via phone call so it’s a good thing that we are in the city and we have signal but everything was made, it was crazy. But it just goes to show that anybody who has the will and the belief in themselves to make this happen will make it happen.

Sean: [00:21:33] I mean that’s really smart because if you’re trying to raise money from people who don’t even know you, what a good deal is, then they’re going to think it’s risky or like how come these numbers are so high like, oh, it must be a scam.

Cookie: [00:21:43] Yeah, exactly.

Sean: [00:21:44] That’s actually smart. So how many people did you actually end up calling to subscribe?

Cookie: [00:21:49] Dude, at the time. I didn’t have any software that I could like email blast or text message blast. It was all personal. It was people that had known me for probably a short amount of time because I had just started doing a Mastermind, a monthly mastermind. And we were getting local people together. And so I literally went through the community resource where, I started communicating with local Fortune Builders. And so when I came in and introduced an opportunity, I made sure that I posture myself correctly where I don’t need money but I have an opportunity. And so I presented an opportunity. I didn’t present myself as “oh, I need money. There’s a deal here like we need this much.” This is an opportunity for you to put your money to work and get double digit returns. Compared to most people they’re not getting double digit returns. They’re getting more like double digit returns. But the point is in the front. It’s in the wrong place.

Sean: [00:22:49] .12% !!!

Cookie: [00:22:51] Exactly! Talk about CDs and stuff. So yeah, man, it’s a unique opportunity. There’s more money out there than opportunities like this to invest. So that’s why it makes us very unique individuals and entrepreneurs because the opportunities that we have, people are begging to to put their money to work, because it’s been sitting for the longest time earning twenty bucks for $100,000 that they have in the bank. Like really? $20 is not even gonna get you like a dinner. $20 it doesn’t get you anything when you have a hundred thousand dollars in the bank are you kidding me?

Sean: [00:23:28] So did you only contact people that you’ve actually met in person before or did you cold call people too that were also in the Fortune Builders program.

Cookie: [00:23:34] Both. So I went through people that I knew and I was so frantic. I didn’t know what I was doing. But they knew that we had a mastermind. Even though I hadn’t met them person to person they knew “Oh, it’s Cookie who has the mastermind.”

Sean: [00:23:51] They’ve heard of you before.

Cookie: [00:23:52] They heard of me before. And so by those means, when I would call them up I’m like, “I’m also inviting you out to the mastermind that we have every month like come check it out” and they would and it was funny. This is bad to say, but for the people that I hadn’t met in person they had lent us $100,000 and whatnot. And I didn’t recognize the man like I didn’t. I was like,”Okay. I know the name” but when I actually met them I was like I didn’t know the face. Now whenever I save a number in my phone, I always put a put a face to it. Yeah, I go on Facebook and I look them up real quick and I get the photo and I put it on the contact card. So I know exactly who I’m talking to.

Sean: [00:24:42] Got it

Cookie: [00:24:43] And I also saw your name too like Sean Pan, Sean Pan. Later on you message me and I’m like, “Oh is this Sean Pan? I’ve seen this guy’s face.” I just grabbed your profile picture on Facebook. I put it on there and every time that you text me or call. It’s just your face. So I’m like, yeah, that’s Sean. So yeah whenever I see you, I’m like dude what’s up?

Sean: [00:25:03] All right! So if you were to just like ballpark it though, how many people do you think you contacted to raise that 630K?

Cookie: [00:25:13] I texted a lot of people that’s the thing. I texted a lot of people it was just more convenient. I must have contacted a good 380 people.

Sean: [00:25:24] Jeez! That’s just you alone not including your other buddies who did it with you?

Cookie: [00:25:28] Yeah, my other buddies were talking and calling and making conversations but the way that I did it which was texting was a lot more effective. Once again, if you’re raising money right now, you’re going to want to take this tip with you today. Sean if there was an opportunity and someone were to call you right now. Can you pick up?

Sean: [00:25:45] No.

Cookie: [00:25:46] No, you’re doing a podcast, right?

Sean: [00:25:48] That’s right.

Cookie: [00:25:48] Okay, but if you got a text message, you would get a notification, your watch will buzzer and you’ll see the name and then you’ll see like the first few letters of it on your watch and you’ll deem it whether it’s important to go into your phone and actually reply and you’ll look down right now and look at your phone while you’re still on the podcast. So what’s more convenient, a call or text message?

Sean: [00:26:14] Text message all day.

Cookie: [00:26:16] Text message all day. A text message or an email?

Sean: [00:26:18] I mean text message at this point, especially I know you right? It’s like “Oh he text messaged me, must be important.”

Cookie: [00:26:26] Yeah, exactly. And so text messaging is the next wave of communication for businesses out there. I’m saying that a lot in dealerships now, they’re just like you’re just a text away from it getting your car serviced and you just text one of the representatives and say “hey, I need an oil change. Can I come in at 2 o’clock” and “They’re like, yeah, you can drop it off” and so now instead of calling and waiting and having all the time that you have to waste on it and holding, you just text someone and they text right back there like “yeah drop it off”. Because that number is for your representative that takes care of your car and you just text them. Imagine how much time people save.

Sean: [00:27:11] Yeah. I mean, they would open it too, it’s almost like a hundred percent open rate.

Cookie: [00:27:16] Exactly dude!

Sean: [00:27:17] Whereas email some of them goes to the spam.

Cookie: [00:27:19] Yeah, like right now I had to go through like 79 emails that I hadn’t looked at in the past 24 hours and that’s a high number because usually I only have like 30 that I have to look at. And so imagine all those emails. There was only like three or four of them that were important. All the other ones were spam and whatnot. Text message is personal. Real estate is personal. Real estate is relationships. It’s networking. It’s communicating with other people. If I were to text you right now, it’s a lot more personal because it’s directed. And email, you don’t know if it’s spam. You don’t know if it went into spam while you’re in the inbox. You don’t know if you’re selling something, if it’s too long people won’t read it, if it’s too wordy people just won’t read it, or if the subject line doesn’t intrigue you, you won’t open it. But a text message, short and sweet and to the point, baby.

Sean: [00:28:13] That’s right. I mean people don’t get texted every day anyways like most people. Not like Paris Hilton who have like 5000 messages every day.

Cookie: [00:28:20] Yeah exactly. This is another trick that I learned. So the lending pro forma where I shared all the details about our opportunity, I was able to take that Powerpoint and produced a PDF from it, produced a short link that was shareable to anybody that could open it, and I was able to text that over to anybody. And put that in emails as well. So now Google drive is the one that has a space, and the link is the one that takes you there. So I can text you that link. And if you have an iPhone, it looks nice because the first page of it comes out and it looks so freaking professional. I was like, “dude, I’m legit now”. That was like the next phase of me raising money and being able to do that because I learned I had to adapt, I had to be innovative. So I learned how to take a Powerpoint, a lending pro forma, put it on Google Drive, make a shareable link and be able to text that to people and it gets the word out there like this. Because now it’s not just text. Hey, I have an opportunity lending opportunity and they’re like, “Okay. I’m interested” But to be able to deliver that information quicker, I had to house it on Google Drive. Don’t do it on Dropbox. It’s a lot more messier and it doesn’t come out. I’ll share it with you dude. So you can check it out and it’s good. It looks so clean.

Sean: [00:29:54] Sure you can send me a text.

Cookie: [00:29:54] I’ll send it to you, it’s just so intuitive. It’s just like, “Cookie has a lending opportunity, the details, the property that’s what it looks like, that’s what it’s going to need, these are the comps, this is the team, some credibility, my photo and my team at the end. Eight pages, I wrap it up like that.

Sean: [00:30:18] That easy. So talking about raising money. Do you have like about a minimum that you let people invest in? If it’s only like 10 bucks, probably like there’s no point.

Cookie: [00:30:27] It just depends. It depends on the situation. So if you’re acquiring a property right away in the Bay Area, you’re looking at raising any gap between say 250 to 450 thousand for any type of rehab or if you’re adding a little bit of square footage. That’s usually your gap. So you want to go for the bigger fish first, you’re hundred thousands what not. If you get anything less than a hundred thousand then you keep them on a list and when you’re coming closer to the finish line where “Hey we’re looking, we’re 80 grand of an opportunity left.” That’s when you start contacting those smaller amount. Because the whole idea behind it is escrow doesn’t want to have so many people lending in second lien position and then insurance gets involved in there. Like “Hey, try not to have more than three to four people.” So is there a minimum? No, there’s not a minimum, but you want to have a max, three to four or five lenders in second lien position. And they all share second lien position.

Sean: [00:31:40] So let’s talk about the debt structure a little bit more. So it’s a little more technical now. Is your first like a hard money lender that you’re still getting the debt from?

Cookie: [00:31:48] Hard money lender and first lien position.

Sean: [00:31:50] And you typically get like 80% LTV or 70%?

Cookie: [00:31:54] So I get 85% of the purchase price as long as our comps are right and we bought it right. 85% of purchase price and they’ll cover a hundred percent of the rehab cost with draws.

Sean: [00:32:06] Yep, so you basically need like 15% for the gap funding plus maybe some extra money?

Cookie: [00:32:13] Yeah, you want to know exactly what you need.

Sean: [00:32:15] Sure. Go ahead.

Cookie: [00:32:16] And this is going to be a huge value. Dude for you guys that are watching this right now and you’re raising money, it’s not just the 15% that the the hard money lender is not providing you. So the raise amount that you need was, so hard money takes care of 85%. I have to take care of the 15% that’s left for the purchase price, right? For closing costs 2% of the purchase price essentially rule of thumb to take care of the closing costs. 15% of your rehab cost is going to be for project management fees that you’re going to pay yourself. A lot of these investors, new investors, don’t pay themselves for managing the project and they just wait until the end of the rehab to pay themselves. And it’s a big fat check, I get it. But you still have a phone, you have monthly services, you have rent, you have things that you have to pay on a monthly basis. And for you to wait six, seven, eight months to get a big check, that’s not how the world runs. So you want to pay yourself a project management fee what you’re going through the month. So that’s essential. That’s something that we had to learn the hard way because we’re just like we need to put food on the table. I put 50% of the rehab costs to start construction. And this is the reason why usually our hard money lender divides the the rehab cost into four. So we have to put up 25% of the rehab cost to get to our first draw. But usually the numbers are different and especially if you’re new, you don’t know what you’re doing, there’s a lot of money that you have to put up front and there’s mistakes that happened and you just want to be able to leverage a little bit more money than to be having to re-raise money. Ask me how, I know. So it’s not just the 25% to start the rehab to get to the first draw. It never ends up being that way. So that’s why I say 50% of the rehab cost. It’s just a nice cushion to have to start construction, get you to the first draw and just have good cash flow because every investor that has started has always had cash flow problem. I bet if you’ve done a rehab too, I know you ran with cash flow problems too. So that was number four. Number five is hard money lending payments. Interest payments are going to pay your hard money lender per month. Have those in your bank reserves to be able to pay those out and so you don’t have to do cash advances in all your personal credit cards and to try to make those hard money payments.

Sean: [00:34:56] So you raised like an additional six months worth of payments or something like that?

Cookie: [00:34:59] Yeah. So if I know the project is going to take me six months. I’m going to raise those six months of hard money lending payments. I’m going to pay out to the hard money lender with my PMLs, with my private money lenders to have that in reserves and remember that money can be leveraged. That’s going to be also cushion because if you go a lot faster with the rehab you’re going to use some of that money to just go faster. And then the last one is 2% of the purchase price for property taxes, utilities and insurance, if it’s a 12-month project. So if it’s six month project and it’s one percent of the purchase price, etc.

Sean: [00:35:40] That’s a great list. So seems very formulaic and breaks down very simply.

Cookie: [00:35:45] I didn’t come up with this. After so many minds in the mastermind and us all getting together and talking to my hard money lenders. This information has proven true and it just depends on how you pull your drawers, who ends up lending you the money for the rehab but if you follow this, you will raise the right amount. I’ve seen so many people so many new investors. They’re like, “oh, yeah. I’m looking for the 15% of the gap and that’s all they raised and that’s all they put in second lien position. But little do they know they forgot about the other excessive payment, all the utilities, all the insurance. The property taxes, property taxes are a big bill now in the Bay Area

Sean: [00:36:32] Supplemental taxes are the worst man!

Cookie: [00:36:34] Yes. Supplemental get me started man!

Sean: [00:36:37] Green envelopes, man.

Cookie: [00:36:38] Oh, I know I sent three of those out like three days ago dude. I was just like “dude. I didn’t know this stuff. I didn’t know there were supplemental taxes.” It’s the biggest scam in the world man. But I didn’t know that right, like not knowing what you don’t know. Like I thought there was just a property tax bill, but no it’s property taxes, supplemental taxes, utilities, insurance and wait until if you don’t finish on time, it’s one point to extend the loan for three months. You got to extend insurance too so now you have to raise money for that. Stuff like that. It’s little things that you just don’t know.

Sean: [00:37:24] That’s pretty cool. So like these numbers came up as a result of you guys just masterminding and like determining the numbers?

Cookie: [00:37:31] Our numbers, and then talking to other people that are doing even more deals than we are and people that we have ran into the end of the project, the end of their loan. And they’re like “Man we had to pull, where to get an extension.” Well how much did you pay? Well, usually the standard is one point of the loan to extend it. And so those were all big learning lessons because we’re like, holy crap. We paid so much and so many extensions. It was crazy. So when it comes to the rehab, time is money because if you don’t finish on time, you are heavily penalized and you got to pay a point.

Sean: [00:38:13] Yeah, I mean it’s going to hurt. It’s awesome how like a mastermind is able to create something so awesome and formulaic as this formula you have right here.

Cookie: [00:38:20] Yeah, and I think this is simple right? I think this is a simple information, simple numbers that you would think would be intuitive. But for those people that don’t know or getting started…

Sean: [00:38:31] Yeah, you never think about it.

Cookie: [00:38:33] You never think about it. Yeah. I shared one of the presentations that I did at a meet-up. Raul Luna’s. shout out to him. And it’s a lot of those people that were experienced investors were like “Dude. I closed this deal like 2.2 million and I only raised the 15% gap” and I get it because the lingo just isn’t there, and the intuition is not there. My hard money lender told me they were going to fund a hundred percent of the rehab cost. How?

Sean: [00:39:05] But it’s draws.

Cookie: [00:39:06] Its draws. You Gotta pay up first and then get to the first draw and it’s not just 25%, it’s just like 25% and all the little mistakes that you did and the timing behind it and your contractor, knocking on your door calling you like “Dude where’s my check? Dude where’s my check? Work is already done.” Like I can get a quick rehab and now knock that thing out of the park because I know exactly my numbers. I have my hard money lender, my escrow officer, like I have everything in line, so we can close in like four days no problems. No questions asked, so it’s awesome. We’re lethal now and not me. We are because the mastermind. That’s what a mastermind ends up becoming. These little rule of thumbs. So to the people out there, make sure you raise the right amount of money.

Sean: [00:39:52] Can you talk about the terms you give to your private money lenders?

Cookie: [00:39:56] Private money lenders. I learned from one of my mentors. Mr. Michael Gordon. I just keep it simple because they’re all friends. Everybody gets 12% flat, no points, 12%. Easy math for everybody. They know how much they’re making, wouldn’t have to go into calculus to figure it out. Easy for everybody.

Sean: [00:40:17] Do you pay them out after you’re done with the project or do you pay them during?

Cookie: [00:40:20] Yeah, correct after. After it’s sold they get their money, a big check.

Sean: [00:40:25] That’s good. So you don’t have any like cash flow issues because of your distribution.

Cookie: [00:40:28] Exactly. The only thing you gotta worry about is your hard money monthly payments, interest payments.

Sean: [00:40:34] Yep. All right, cool. I mean that’s very simple.

Cookie: [00:40:38] To be honest people love to ask about how complex it is. No, the simpler you are the better. The people are talking about emails and how to raise money and how should I format my email? I’m like “I send out a text”.

Sean: [00:40:53] Yes, right. 12% is simple. That’s also like a good number for a lot of people.

Cookie: [00:40:57] Yeah, it’s double digit returns and I’ve known of people raising money at 6%, at 10%. 6%, it’s just like you’re getting people that make a lot less. That’s great. When I started I was thought 12% and that was the norm and I saw that. And I did get a couple people at 10% because that was their number and I was like, “Oh, yeah, I’ll give you 10%” but most of all our investors they make 12% and they understand, like literally I got money lent to me today and we didn’t talk about percentages. There was just you know you’re making 12%.

Sean: [00:41:37] Yep, and let’s say in the worst case there’s a loss situation. Do you still owe them for all their money plus the 12% on a recurring basis. You’re gonna pay them back eventually somehow some way right?

Cookie: [00:41:48] If that project came negative, that’s why we’re always doing multiple projects. So in a portfolio standpoint where we made money, they’re going to get paid back.

Sean: [00:41:59] How’s does it work? You said everyone’s also in a second lien position. But yeah, how’s that work?

Cookie: [00:42:05] It’s called a fractionalized second lien deed of trust, fractionalized second deed note. So all the private money lenders are secured. We’re not guaranteeing funds. They’re being secured by the asset with a deed of trust and a note. They both get recorded with the county. When I say fractionalized, you and I were going to go in on a deal and how much they have to raise is 200 grand. You’re going to put a hundred grand and I’m going to put a hundred grand and so we’re both going to share second lien position. You’re going to have 50 percent of second lien position. I’m going to have 50% of second lien position. So all my private money lenders whether it’s $1 or $100,000 they all share second lien position.

Sean: [00:42:57] Do you need a special title company for this to happen? Or do you need a special hard money lender for this to happen?

Cookie: [00:43:03] We had to sit down and talk to our escrow office. I try to go to all these escrow office and tell them “Hey do you do fractionalized second liens?” And they’re like what the hell is that? Everybody’s like in the retail side right? But anyways you just have to go and explain and tell them “hey, we’re investors. We do creative financing and this is what we’re going to do. Everybody sharing second lien, that’s how we do it. This is the paperwork that we do. Can you have your underwriter just check this information out and make sure everything’s legit and tidy?” And they’ll have you change a couple things per in that title company whatever their code is to be able to endorse it and move forward, but that’s essentially it. So I essentially had to teach my escrow company how to do it. They knew how to do it it’s just that they don’t do it often and I have to show them how we’re gonna secure this. So it’s not that they can’t do it, it’s that they’re not aware of it.

Sean: [00:44:06] So any escrow company or is there like a specific one?

Cookie: [00:44:10] I’ll tell you who we use, Fidelity National Title. Their sister company’s Chicago Title, and we’ve had great luck with them. I know that First American Title, we had a big problem with them and to be honest it’s not the type of title company. It’s really your escrow officer. It’s really your escrow officer because your escrow officer is the one that knows and pulls the strings everywhere for you. So if you don’t have a standing relationship with your escrow officer, take him out to dinner. Get to know them, get to see what’s up, like interview escrow companies and you’re going to be talking to the escrow officer. So it’s not the company even though I’m telling you right now,it was more so the escrow officer.

Sean: [00:44:58] Yeah the individual.

Cookie: [00:44:59] Yeah. Do you want to know a big tip with escrow officers?

Sean: [00:45:03] Sure

Cookie: [00:45:05] Man. This is going to save you so much headache.

Sean: [00:45:08] All right, let’s hear it.

Cookie: [00:45:10] If when you’re closing on a deal, make sure that your escrow officer is not going on vacation during the time to get your deal closed. What are they going to do if they go on vacation? They’re going to give it to their assistant or another escrow officer that’s busy doing their own work and they’re going to be like “What the hell is a second fractionalized position. They’re like, what the hell is this?” Mr. Terry L, he’s part of a mastermind, they sat him down in San Francisco at at the escrow office and he was literally dealing with the assistant that had just started working there for a week. So they were just like, sign this, sign this, sign this, and this and this, because they just wanted to cover their butts. There were just like, I don’t know what this is but I’m gonna have you sign all this stuff that I think that you need signed and here you go. And so that’s essentially what he had to do and he was like “Why am I signing all this stuff?” The guy has like 18 years of experience in construction, and he’s signing all the stuff that he’s never signed before. That was one big tip that I learned early on. I’m like when we were closing my third deal with my team, what we should have closed in 14 days we ended up closing in 45 days. Because we ended up switching three escrow companies. And why? It wasn’t because they didn’t want to give it an endorsement. It was because the escrow officer had mentally already checked out because in the weekend he was going to be in Cabo San Lucas. That guy has already checked out and dude, I had to call this guy 10 times. Like literally he wasn’t picking up and I get it and he was busy and I had to respect his time. But it got to the point where like my private money lenders have their money in escrow. It’s costing me money, hard money is waiting there like “what the hell’s happening?” but there was no progress and he never answered the phone dude. I had his phone number. Had his cell phone number and when he wasn’t answering the phone I literally called them until he replied and what he did after the 10th call? Because dude that was all my thing. I think we’re closing that one deal were like “Dude. This is the only thing that I got to work on. I’m gonna call you until you damn answer” and he replied with an email. He’s like “Stop blowing up my phone. I’m doing a signing right now.” Sometimes you just got to bug people until you get what you wanted. It’s keeping them accountable. Same thing goes with the contractors. Like dude when is this going to get done? I can’t have delays on this, this is going to cost you too. Like let’s go. And so you always nag. It is nagging professionally. Professionally nagging. But know how to do it.

Sean: [00:48:20] Awesome. You mentioned that you started a monthly mastermind. Now I know it’s weekly, but you had nothing going on. So what even spurred you to even create this mastermind in the first place?

Cookie: [00:48:32] Dude, for me these people that had bought into Fortune Builders paid a $30K- 50K. They had paid a great sum of money to be a part of this mastermind, right? And Fortune Builders is awesome dude, they give you so much value like all the tools and everything. I am a product of them and I rep them like I bleed for them, because they have such awesome people and their environment it is just awesome. And I really wanted to bring that environment local. That’s why there was a weekly huddle, right? I didn’t have any experience. I had no deals in my belt. I had nothing. I was a part of the community, but I didn’t have anything to show for it. My big question was everybody put down money, made an investment and they weren’t meeting? Sean say we were part of the same community and we’re not in communication with each other. Like why aren’t we getting together? If you’re trying to wholesale and I’m trying to wholesale, why don’t we do it together? Why don’t we, we don’t have to JV the deal, we can just JV on the task to find deals like we can just go and be partners and being accountable to each other. Like doing it alone in those first 10 months there is a lot of fear in me. There is a lot of doubt that I wasn’t confident because it was uncharted territory that I did not know what the hell I was doing. But when you start talking the same language, you are on the same boat in the same journey,it’s a lot easier because now you have someone right next to you that’s in the same boat feeling the same thing, and my thing is why are we not meeting. Why are we not doing deals together instead of trying to do it all by ourselves? Everybody’s doing it all by themselves and learning all the education. Now I gotta do this and this and that and nothing gets done because you get overwhelmed. And I was like dude we need to divide and conquer. We need to join forces and come closer. And when we started that mastermind, it was a monthly one, but there we only met 12 times a year. It was a hi-and-bye situation, two to three hours out of a month. And that was it. There was no real connection. That’s really what was missing the connecting part, the networking part. I mean people were networking saying hi and bye. Oh you’re from over there cool, but people weren’t following up, people weren’t really connecting to a deeper level more than just surface, to be able to get to know who Sean Pan is, to get to know what you what your aspirations are what your goals are for these next 12 months. How can we work together to make it happen? And so I’m like well if they’re not taking the initiative to follow up because they’re too busy or because just life is happening. I’m like great,I’m going to make an environment where it’s going to have to happen because they see each other. The people that are truly committed to the goal and to making this happen, they’re gonna see each other every week now and it was one of those I’m out on a limb. Let’s start meeting on a weekly basis. I don’t have a place to have it but we’ll find it and in the next couple of days, I found a place that we can have it for free and we went on to having a weekly huddle. We started with eight people, grew to 12, grew to 18 then everybody started coming out every week. I’m getting anywhere from 30 to 40 to 50 something. Sometimes even hitting 60 depending on what we’re talking about, people a week. And I’m like man, I’m running a church around here man.

Sean: [00:52:33] Real estate church right here.

Cookie: [00:52:34] All right, but when you’re around this environment of like-minded people of positivity of like, “Let’s do this!” and just everybody’s ambition is together, like you start synergizing and just creating something magical where you’re like, let’s go do this, like lets do this campaign, let’s work on this deal. Now you’re leveraging other people’s resources, relationships, everything, time. You have your own network. I have my own network. I have my own resources, you have your resources,we join forces, we just become a powerful partnership. Coz now it’s not just me, coz if it’s just me I’ll always be thinking to myself like “man can’t I make this happen, it’s gonna be tough man.” But when you have two people or group of individuals, now you get to leverage each other’s resources like time, energy, experience, everything else, to make it happen, and it becomes easier to execute.

Sean: [00:53:40] And how is your meetups currently formatted? Is it just free-for-all for two hours go talk to whoever you want to? Or you have a good lecture style?

Cookie: [00:53:47] We always provide value. We always bring topics. We always bring new things. I mean, We like to have an hour of a topic and then we network a lot. The event starts at 6:30, people are walking in through the door at 6:30. 7:00 it really starts. So everybody’s always networking and they see each other every week. So they’re like, “Hey, what’s up?”And it’s not just a meet-up that’s the thing. And it’s not just a mastermind. That’s the thing. It’s a family. It becomes a family because you’re seeing each other every week. And they’re like, “oh I got this new lead. You want to check it out.” We’re getting each other’s like advice on things and you’re getting a separate set of eyes. So essentially every week we have something going on, but when it gets down to having a weekly one hour session, I was just like man, I can’t provide value that many times like, I don’t know. I only know so much and so like my friend Tony Robbins and Dean Graziosi, they just saw the course where it was just, you don’t have to be the expert. You can be the one interviewing the expert just like what you’re doing right now. And so this is no different than a weekly huddle. You’re asking me questions and I’m providing value in a weekly huddle where my goal now was wasn’t for me to provide value. My whole responsibility is to highlight the people within our mastermind that were experts at that one thing. So I would bring in Amanda Bank. She’s been an agent and she had just flipped a property. Okay, it’s a case study, talk to us. What did you learn. The question that we love to ask in the rehabs that have been completed within the mastermind was “when did shit hit the fan?” I want to know about that because that’s when everything went haywire. How did you come out of it?

Sean: [00:55:37] I should come to your meetup then. I have a lot of those stories.

Cookie: [00:55:40] Exactly. I know we all have them that’s the thing. Like that’s when we learn from each other because then everybody’s like, “oh when shit hit the fan, I want to hear this. This is like the climax of the meeting.” It’s like we don’t just go for the surface level details like “yeah, we bought it for this. We have this contracted.” No, rehabs are freaking a journey. It’s a roller coaster man. It’s like the contractors like getting them on a timeline, the discussions, you fired a contractor what happens then, legally what happens. When did she hit the fan and we love having those case studies. And then we also do property walk throughs. We had one this past week where we actually went to a property that just got finished by another Fortune Builder. And where the magic really happens is when the people within the mastermind synergize, they come together for a deal. They come together and put something, put the resources together to make a deal happen. And I kid you not this lady Ms. Cindy Pierce. I know I’m name-dropping a lot. But she was so scared back when we used to be a monthly mastermind. She was so scared out of her mind to do a deal and she was like “I haven’t done a deal. I’ve been at it for such a long time. I don’t think this is ever going to happen.” And when I started encouraging everybody like “dude team up, team up. Go and joint venture with just tasks. Look at deals together, bounce ideas off each other.” She ended up forming a team. And they ended up going together on two deals and they end up executing, they finish and they sold them. And they learned so much from that now they’re so much more experienced and have two deals under the belt. When this lady, I kid you not, I would look at her and I’m like man, there’s only so much I can do for her. And she’s scared out of her mind. I’m like, how is she ever going to survive and she’s not going to be able to do this alone because I was in those shoes when I started, like I was wearing all the hats, raising money, acquisition, selling it. I didn’t know everything. I wasn’t an expert but I feel like everybody that starts off tries to do everything themselves and it’s all about making a team that goes together. And even right now I’m going to make a marketing team. And for the longest time I’ve been putting it off because I’ve always managed it but I managed everything myself, but I should take my own advice and start making the team. I made a rehab team, now let’s have a team for the marketing side. And so these people are getting together every week and they’re synergizing, putting deals together. And now all the fear drops down because now they have each other. All the fear goes away because now they can go forth and tackle these goals together. And for the people who are trying to do it themselves, you can, but it’s a daunting task. It’s an overwhelming task. But together you can do so much more.

Sean: [00:59:00] Networking is honestly probably the best way to become successful at anything you do. You need to surround yourself with people.

Cookie: [00:59:07] Yeah, and that’s the thing. I took a conscious decision last year to start networking with people that were at my level or above and so I started joining these masterminds. Dude there were people masterminds that were just a bunch of badasses at marketing, a bunch of badasses at business, they were just at another level and I’m like, those are the people that I want to talk to, right? Those are the people that I want to hang out, have conversations have dinner with them and talk shop. And I thought I was weird. I wanted to have that more than go out and be the average 24 year-old going drinking. That didn’t appeal to me anymore. I was like, let’s talk shop. Let’s talk business. And so that was a lot more appealing to me. And now that I’m a part of these masterminds we all talk shop. We are adding value to each other and that’s the magical thing. Being part of masterminds is just awesome and especially the ones that are not just the hi-and-bye situation. It’s like no I get to connect with Sean Pan and get to pick his brain and get to learn from them.

Sean: [01:00:13] That’s right. That’s an amazing story. Thank you so much for coming on the show today and dropping so much knowledge on us. But good thing is all this is going to be transcribed and notes will be taken for you. So if you actually go on the website when this is released you’d be able to see all that on the website everythingrei.com. So before we end the show today, how can people get in contact with you and more importantly, how can people join your amazing weekly huddle.

Cookie: [01:00:39] The weekly huddle. I’m going to turn that baby into something that’s open to everybody and because there’s so many people that have been asking for my advice and I always want to give back. That’s one thing that I feel like I wish I could copy and paste myself, to be able to provide value and serve others, but where you can reach me is on Facebook at Ask the Cookie Jar. Yeah, and then this is my Facebook, which is Humberto Gaeta, who I know everybody I go by Cookie, but that’s my actual name. And if you want to hit me up on Instagram and DM me it’s just Humberto_Gaeta, my name. So I keep it official on social media, but you get Cookie when you actually need me.

Sean: [01:01:24] Don’t worry, man. We’ll copy paste you on this episode.

Cookie: [01:01:28] For your listeners out there, dude shoot me a text. Don’t send me an email. All right, shoot me a text.

Sean: [01:01:33] What’s your number?

Cookie: [01:01:36] Right dude for you guys that are local, 408 710 3387. If I can help anybody man, at least I’ll direct you in the right way, to get the right resource. So I’m always willing to help, always willing to provide value to everybody so to all you audience out there, kick-butt, keep crushing it. And if you guys have any questions reach out. Don’t be afraid to reach out and ask questions. We’ve all been through there. There is no such thing as a stupid question. You ask a way to learn to move forward and that’s the way to do it man.

Sean: [01:02:10] Well said! Well, thank you so much for being on the show today. I look forward to seeing you around

Cookie: [01:02:14] Dude, Sean Pan my friend. Thank you for putting this together, brother.

Sean: [01:02:18] All right. Take care.

Cookie: [01:02:19] Awesome!

Here are some of the key takeaways I got from Cookie. There is no age or experience barrier to real estate investing. You just need to get the knowledge and you need to take action. Surround yourself with people who are doing the same things as you and keep each other accountable. Create value and start your own mastermind group. If you’re all doing the same task, why not do them together. Meet every week so that it’s not just a hi-bye situation. These people become family and you build a deeper network that way. Raising money is just a function of how much people know, like, and trust you. So get out there and let people know who you are. Texting is a much more effective way than calling or sending emails. So get your texting game on point. This episode is pretty long. So be sure to check out the show notes at everythingrei.com for the full transcript and resource links. I hope you all learned a lot. Thanks, and have a great day!