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The importance of knowing your way out doesn’t only apply in life, but in real estate, too. It’s better to see the exit before you enter any deal, and that’s called a contingency plan. Ron LeGrand, recognized real estate expert and trainer with 37 years of experience, shows where the deals are in the market as he emphasizes the importance of planning your exit strategy after the search. With over a 30-year history of hard money lending and brokering, he dives into the basics of buy-and-sell houses and shares pointers on how to raise capital. In this interview with Ron, discover the hardest part of the syndication business and the most effective buying criteria when looking at real estate properties.
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Exit Strategy: The Contingency Plan In Real Estate with Ron LeGrand
Our guest for this episode is Ron LeGrand. Thanks for being on the show, Ron.
It’s my pleasure.
Ron is a nationally recognized real estate expert and trainer with 35 years of experience in both residential and commercial properties and over a 30-year history of hard money lending and brokering. Personally buying and selling over 3,000 single-family houses and completing over 300 million commercial property deals with student partners all over America. He’s a highly sought-after platform speaker who has addressed audiences as large as 20,000 and as small as 100 in hotels and convention centers across North America. Sharing the stage with leaders such as Donald Trump, Robert Kiyosaki, Rudy Giuliani, Larry King, Dr. Fields, Suze Orman, and many others. Ron, I appreciate your time and being willing to be on the show and share your expertise. Would you let the readers know a little more about you in case they haven’t heard of you before and what your focus is?
I am buying and selling single-family houses and teaching others who do the same with little to no risk. I still do that to this very day. Pre-2008, we literally had 32 commercial projects going on simultaneously, all of them are mostly in developments in nine different states. That’s where I had a lot of experience in raising capital and private placements and so forth. I pretty much have been around the horn and done it all. I’m what you’d call a generalist, not a specialist. I don’t focus on any one type of commercial property. If you narrow it down, they’re all the same anyway. It’s either a piece of land or a building sitting on land and it’s either generating income or it’s not. Everyone else is the same. It’s the way you crunch the numbers but it’s all about raising income or finding or building or selling something. That’s single-family as well as commercial. I quit counting years ago but I still do a few every month.
It’s such a wide range of experience and I don’t know that I’ve had many people or anybody that’s had that much experience. As far as the $300 million or more in commercial property deals, obviously you’re dealing a lot with syndications, you’re raising capital and you’re working with a lot of students. Tell us a little bit about what that looks like right now for you and what you are focused on in that space.
The projects that I was working on pre-2008 didn’t get to maturity because when Lehman Brothers went down on September of ‘08, capitals dried up around the world overnight. I’ve never seen a faucet shut off so fast but more importantly, all of the exit strategies dried up. The projects that I had then did not get to a conclusion and I don’t know where to $300 million number comes from but they were probably at least a billion dollars’ worth of potential net profit in those projects had we not had that recession. Now, I don’t do it on that scale. I still have some commercial properties. I’m sitting in one right now that I own but I have a lot less focus on that than I did back then. What I did enjoy though was raising the money through the private placements. I have an audience. We do seminars all over the country and I always had an audience to tell about my private placements just like you’re doing right now with the show. My audience was in chairs, I guess yours are too. My audience could see me and I’ve been thinking about doing it again when I get a project that I feel that should fit but I’m not as active as I was. On the other hand, I’m a lot older than I was then too.
You’ve raised so much capital. You’re an expert in that part of the business. You’re helping students, you’re helping lots of people be able to do the same and it’s a big question that I get all the time. People call me every week. Many people are like, “How do I get started in this business? How do I get started raising capital?” How do you guide students as far as getting started in this business and raising capital?
There are several things I’d say on that. First of all, I don’t think anybody should go out and try and do a private placement on the project they’ve never done before or they don’t have the basic knowledge because it might not work out so well. You’re putting other people’s money at risk. If you’re going to do that, you should have some history in doing that kind of a project and frankly, it will be a lot easier to sell the more credibility you have. People always say, “I’ve done that.” Then latch on to somebody else that has, somebody with credibility into the program and make it worth their while to participate. The credibility is there even if it’s not you. The biggest way to break into real estate is most certainly not going out and getting the $20 million project and try to fund that thing. I would suggest to start a lot smaller and work your way up which almost everybody I’ve seen makes any real money. In the commercial, they’ve done exactly that, including myself. We start with projects that we can get our heads around. First, we have to learn how we’re going to finance or fund the projects that we start with.
[bctt tweet=”If you can’t fix it, don’t buy it.” username=””]
A lot of that is private money. As you mentioned that I had a long history in making private loans for people who would rather put their money in a mortgage or a deed of trust and then the stock market. I made over 3,000 private money loans and I collected the points, they collected the interest. That’s low loan-to-value ratio loans and nothing to do with the credit but still low loan-to-value ratio. That kind of money has its place but that’s probably to fund the property in order to raise enough money to buy it and then turn it around and then the exit strategy is almost always to either refinance it or sell it at that point. There always should be an exit strategy. You should never go into a project where you don’t know what the exit is and plan accordingly. I always tell everybody with me, “You better know the exit before you go in the entrance because your offer to purchase will hinge largely on your intended exit strategy.”
That’s some great advice there, always knowing the exit before you go in the entry. I like that. I’ve made that mistake early on myself. You’re counting on that sale.
You know as well as I do in our world and the world of income-producing commercial property, we don’t know what the thing is worth before we even close the purchase. If it needs turned around and stabilized, the value is going to be dependent on net operating income. It’s pretty easy. We don’t have to go get an appraisal on an apartment complex that has 200 units and 120 of them are vacant because I don’t know what that appraisal is going to be worth anyway. Nobody’s going to accept it but we know what the net operating income will be once we turn it around and get tenants in that thing based on some homework and comps that we do. When we get to that point, we know what the after-repair value is.
That will of course guide our offer to get into it and then it’s a matter of, “If the seller is going to get money right now, where’s it going to come from?” There are multiple sources of that and then at what point do I have to be at before I go for a refi, if that’s the case. There are formulas. The formulaic approach to that, as you well know, that’s my debt coverage ratio or DCR as they call it and that will determine how much of a loan I can get. I can be figuring that out before I ever make the offer to buy the house and that’s the whole point about knowing the exit before you go in the entrance.
Could you lay out some buying criteria that you stuck by that’s proven successful when looking at commercial property?
I’m not the guy that’s going to pay retail price for it. Those are the folks we sell to and there are plenty of them out there. Most of the investors looking for the commercial properties are looking for cashflow. They’re not seeking out a great big bunch of equity in a property. I run the opposite. If I buy a commercial property and it’s got a problem, either the property has got a problem or the seller’s got a problem or both because I can fix that problem. By the way, if I can’t fix it, I won’t buy it. If I can fix that problem on building my own equity, therefore I have a reason to actually do the work to turn this thing around. If there’s not a problem, then I’m not going to buy it at a low enough price to make me go on and do all that work, to raise the money and so forth.
In other words, I get paid for what we do. An 8% return on investment is not going to work for me if I’m active. The whole goal is buying properties that need to be fixed or buying land that needs to be developed and rezoned and then do it and then sell it at retail price, not buy it at retail price and go for the small cashflow. As you remember, a lot of people that had equity pre-2008 didn’t have that equity post-2008. It’s not about equity, it’s about cashflow and what can I get out for when I think the time’s right and how much money will I make in the process.
What are some creative ways where you found the problems that you’re referring to?
You’ve got to tell me what kind of property are we looking at first.
Let’s say a large multi-family with a 100 plus units?
It’s got a large vacancy factor and it probably needs rehab. When those two things are there, nobody’s asking retail. Now, it’s a matter of buying at a price that would be very deeply discounted, wholesale price. Knowing what my after-repair-value is going to be so that I can then go in, raise enough money to get it purchased, raise enough money to do the rehab and then either refinance it or exit. You’d get a small single-digit rate of return but on a stabilized property. I find in my experience, the big entities, the hedge funds and the like, they don’t want anything to do with the turnaround.
They’re only interested in the properties that are stabilized so they can get their single digit return and hopefully an upside when they decided to sell it later. I’m going to be the guy that presents those products to them. With an apartment complex, almost always they’re going to have a large vacancy factor and needs a lot of work. Sometimes, it’s 100% totally vacant. There are a couple of those way back because the bank repoed and cleaned everybody out and unfortunately most of the time when they repoed they waited too long to clean everybody out and the neighbors came in and got to the units while the bank was messing around with them. It’s all about math.
Would you say the majority of those properties are going to be C class or B class when you find them like that?
I would say the majority are going to be C because it’s hard to find properties in A and B classes where they had been let go to pot like that or to the point where I’d be interested in buying it. It’s math and Law of Supply and Demand. The big companies that are buying properties, there’s such a big market for them especially right now, especially apartments that a B class is likely going to get closer to the retail price than the wholesale price when it’s sold.
Is C class something you lean more towards to finding more value?
Yes, only because that’s where the deals are in my experience.
[bctt tweet=”The first biggest problem is getting some education because if you don’t get that, you’re not going to get off square one.” username=””]
What about finding some opportunities like that? Maybe give us some pointers on ways you found them besides driving around?
Contrary to some people’s belief, I always like LoopNet, LoopNet.com. People say, “The deals on LoopNet couldn’t be further from wrong.” There are a lot of deals on LoopNet as long as you know what to look for and understand some easy to pre-screen factors such as large vacancy. In fact, if the property has got a net operating income, I probably don’t want it because that means it’s probably closer to retail than wholesale. In other words, if it’s not making any money, it can’t have an NOI, Net Operating Income, until I get in there and turn it around. That also makes it worth a whole lot less money. That’s what makes me interested in it. I can find those on LoopNet and almost everything we bought came through some kind of a commercial broker. They either had it on LoopNet or some website. Sometimes you ride down the street and you see a sign in front. One of my favorite things is land. I like land because there are no tenants and there’s no turnaround unless I want to build on it.
Many of my projects, I bought land at under zone and then changed the zoning. I also sometimes got them approved. A good example would be a housing project. Let’s say I’ve got a 100-acre tract of land a little bit outside of town but not far out. It’s on the path of progress and I don’t have to drive two or three miles to get to a Walmart. That land is probably right to turn into a subdivision of houses assuming the market is such that I can actually make money building houses. I look at that land as if it were a rezoned and probably going after four houses per acre, for example.
When I can take a piece of agricultural land and rezone it to four houses per acre, what have I done? I haven’t touched the land. I’ve immediately doubled or tripled the value of the land without doing anything to it. That’s an easy play. Plus it’s also easy to work with the sellers of these properties to get them to hold some owner financing even for a short-term. I may need a little bit of money. Somebody’s got to pay the engineer to go down change the zoning which is all there is to it. I’m not going to a courthouse or anything.
There are people who do that for a very small amount of money and they know what they’re doing. I sit around and wait for them to get it rezoned and preferably approved for X number of units per acre. Immediately the value goes like that. The easiest exit strategy then would be selling it off to a builder and let them take it from there and develop the horizontal and building houses. Anybody building a house is always looking for land, and of course they prefer developed lots but that means they’ve got to raise more money and do more work. I’d probably sell the land off as is and not touch it.
How long would you typically have to hold something like that?
That totally depends on where you live and the process of getting it rezoned and how long that takes and also, the market. If your market is hot, obviously it will be gone before you can even get through the process. You get a contract to buy it and they’ll buy it whenever the process is complete. If it’s not so hot, I don’t know but it all depends on the market. If we’re up market, then I might sit on it less than a year. If we’re in a down market, I might take two or three years but good news, the market’s always changing. Somebody is always going to want that land.
What have you seen to be some of the hardest parts of the syndication business for you?
The answer is very simple. Syndication is worthless if you don’t know how you’re going to sell the units. The first thing I would ask you, if you were asking me, “Should I do a private placement?” I would say, “Who’s going to buy the units and who are going to sell them to them?” If you don’t have an answer for that, you might as well save the legal fees because you’re not going to get anywhere with it.
What about students? What are some of the biggest problems that students have or people that you help and mentor?
The first biggest problem is getting some education because we if don’t get that, it’s all for naught. We’re not going to get off square one. You should go to people who are qualified to help you with that education and latch on to that. The second biggest problem people worry about is, “Where am I going to get the money?” That’s a matter of getting trained on how to buy these properties without your money. One time a year, I do a four-day commercial boot camp here in Jacksonville, Florida where I live. The first day is Fourteen Ways to Buy a Commercial Property Without Money Down. Some of them needs money, don’t get me wrong, but it doesn’t have to be your money and that’s the whole key. There’s so much money out there chasing deals. You’ll never get at the bottom of the trillions of dollars of money out there chasing deals. What are you going to do with it? The stock market where it’s safe? I don’t know. It’s not hard to get the money. It’s nowhere near as hard as people think it is. The hardest part is getting started but on the other hand, you’re not going to get the money unless you have a deal that is worthy of attracting the money.
It’s a matter of appealing to the investors as you well know and giving them enough for them to make the decision, “This is a good a place to put my money.” It starts with education and then it continues with the ability to say, “Where am I going to get the money to do this project because I’m not going to go firing offers out on properties if I have no idea where the money’s coming from?” I see a lot of guys doing that out in the industry right now with the sole intention of wholesaling the property. Sometimes it takes them a while to figure out. You don’t wholesale a 200-unit apartment complex like you do a single-family house. Buyers want to do a lot of due diligence and time has got to go by. It’s hard to tie up a property long enough to go through that process and wholesale it. I’m not saying it’s not going on because it is. If I make an offer on a commercial project, I’m going to want to know where the money is coming from before I make the offer.
What are some ways you advise so you can know where the money is coming from before you make the offer?
Private placements are one of those or get a few people you know to put up the money. The easiest thing to do is to work with a seller and get some short-term seller financing so that you don’t have to raise that much money. For example, on my land thing, I don’t know of a builder that will actually close on a piece of land hoping it’s going to be four units per acre until it is four units per acre. They’ll sit around and wait until it’s rezoned before they buy it. However, if I got a piece of land out here and my engineers went down and checked with the zoning department and they’ll see any reason why this can’t get a rezoned, I might go ahead and buy the land because I would rather own it.
If I do, then I’ll probably get the seller some kind of a down payment but not a very big one and then let them owner finance the balance. I did a lot of deals with a two or three-year balloon and no payments and no interest. I’m not going to make payments on a piece of vacant land, but that doesn’t mean the seller won’t work with me because they get a little money now and they know well that I’m going to raise the value of the property. It’s in their best interest to let me do it. Worst case, I don’t pay him. The property is still worth more than it was when they met me. All I need money for is a down payment and whatever the engineer’s going to charge to go get it rezoned. I don’t need to raise much money.
Let’s say I’m buying a piece of property for $500,000, I give the seller $25,000 to $50,000 down. He can either raise that or I can ask the seller to subordinate and let me borrow that $75,000 on their land as a first mortgage from a private individual which is, of course, is very easy to get. It’s a very low loan-to-value ratio. I’m going to make payments on that loan maybe and I get the property turned around but why don’t I borrow it from the private lender and let it accrue interest? I’ll give you a principle and interest at the same time if somebody buys me out of this property. I’m not borrowing from loan sharks like me. I’m borrowing from individuals who would rather have a higher rate of return than they’re going to get it at the stock market, safely secured on a first mortgage with a very low loan-to-value ratio. That’s called subordination. I ask the seller to take a second and allow me to get a new first on their property. I’m using their assets to raise the money to turn their asset around. It’s pretty easy to do on vacant land.
[bctt tweet=”The more credible you are, the easier it is to sell.” username=””]
What is a way that you have recently improved your business that we can all apply to ours?
Businesses, I have several. I even own a restaurant which everybody should own to see how easy the rest of the businesses are. I have a book out called, The Less I Do, The More I Make. It’s on Amazon. It’s all about automation, systemization, and delegation. The older I get, the less I want to do of anything. I mastered the art of delegation. I teach my students, “You should get yourself to the point where the only thing you need to do in business is making big decisions and let everybody else do all the other stuff.” I also tell them, “There is not one thing that you need to be done in your business that somebody else can’t do for you if you let them,” and usually for a very small amount of money and quite often much better than you will do it.
Then as men, we struggle with that one because testosterone won’t allow us to get out of the way. We’re control freaks and if it’s working perfectly, it must be fixed. Whatever I do going forward or for the past several years, I’m not going to be personally involved to the point where I have to show up for work. I don’t even want to mess with it. Even my house business is on autopilot. I don’t do much. My restaurant, I eat there. I’m the quality control department. That’s the job for somebody else. It doesn’t make any difference what business you’re in, the same principle applies.
Give us a tip in delegating or maybe hiring our first employee. Who should that be?
I think before I went to hiring people especially if I didn’t have an office, I go to outsourcing because anything you need, hire somebody for you, you’ll find outsourcing a lot cheaper. Plus, you don’t have to pay for an hour if they’re not working. You pay them by the job usually. We have a whole floor of virtual assistants here in Jacksonville at our company called Global Publishing. Their job is to call all sellers for our customers, find out if they would consider taking terms on their houses or not and get the facts on the house. We make about 25,000 of those calls a month for them so they don’t have to. We’ve taken the burden off of them doing all that grunt work and then maybe they’ll have a better chance of succeeding because if they have to do all the grunt work, the chances of succeeding go down. Whatever the job is, you need to get it done.
There’s somebody out there that can do it and there are employment services that can find people if you want them, that’s for employees. It’s a matter of, “What do I needed to be done?” The first place is going to Google. Who does this at Google? Go to Google and there’s a whole list of companies to call and find out, “This is what I want to be done. Can you do it? What are you charging me?” If they don’t get it done, what do you do? Whack them and do it again until you find the right person. That’s how businesses work no matter what the product or service is.
That’s very valuable information right there that’s for sure. Ron, what’s the number one thing that’s contributed to your success?
One is I love to work. I’m working hard to figure out what more work to do, not working hard to get out of work. Number two, I got alligator skin. When you get to my age and you’ve been through what I’ve been through and not much bothers you and that helps. I’m not always worrying about loss. I’m worrying more about winning. Number three is I’ve learned how to protect myself from predators so that if I get attacked, they’re not getting anything that helps a lot. It makes you sleep better at night. Number four is my thinking. The more you get out there and the more you succeed, the larger your thinking gets and I deal with people from all walks of life. Some come in literally, their self-esteem is so low. It’s not about what they can do, it’s about what they think they can do.
The first thing we have to do is change their thinking and teach them, “This is where the money is. This is how you get out. How come you can’t do this? It doesn’t require money. It doesn’t require credit. We do it without risk. We close with the attorneys. What are you worried about?” Some people are going to spend the day looking for something to worry about but what makes them get going is when they get that first check. The first check is a big important check. I don’t care how big that first check is but we got to get to that first check quickly to convince us that we are worthy and also what I call my shut-up check. When the dream stealers come at you and they’ll hold that check-up, I’m like, “Shut up. Go away. Leave me alone,” because people will always be trying to steal your dreams. Nobody wants you to succeed unless they live in your household.
The whole world’s trying to get you and they want to take you out and when you come to grips with the fact that they’re not on your side and they’re not your friend, regardless of what comes out of their mouth, they rather see you fail so they could wallow in self-pity with you. This is called alligator skin. You’re in business very long, you’re going to find out, no, they’re not rooting for you. They’re rooting against you. They won’t tell you that and the whole world is full of people who are going to lie, cheat, steal and do everything they can to hurt you. Get over it. Move on and forget about it because that’s the world we live in right now. On the other end, you take care of the people who take care of you and worry about generating revenue and quit focusing on cost control. You’ll find things go a whole lot better especially when you get the heck out of the way and let other people do what they do best so you can do what you do best and that’s to generate revenue.
How do you like to give back?
That’s pretty much what I do nowadays. I still teach. People ask me all the time, “What are you doing out here? I thought you’re going to send a clone.” I always say to them, “What is it you want me to do?” I take all the trips. I want to fish all I want. I hit golf balls. I can’t see where they land. I teach and as long as I still want to do it, I’ll keep doing it but I give back by getting people out of the mental and financial traps that they’re in. It’s fun when you can help people see the future instead of predicting it and wait and see what happens next. It doesn’t matter who’s president. It doesn’t matter if we’re in a recession or not. It doesn’t matter what the interest rates are, upmarket, down market. I’d been through all of them and what matters is that you make sure there’s never another recession in your house. Cashflow up. Quit worrying about what you can’t control.
Ron, you’ve been a great guest. You’ve provided so much great information and helped educate us. I appreciate your time. Tell our audience how they can learn more about you.
There are all kinds of ways to do that. You can find me at RonLeGrand.com. Go to RonLeGrand.com/FreeBook, it’s where you can get my real estate book. If you want my wholesaling course, you can go get that at, RonsDollarDeal.com. If you want an all-day seminar, go to RonLeGrand.com and you’ll find anything you want on there. There are all kinds of free stuff on there as well and you can get acquainted with what I do and if you want to go to YouTube, that will keep you busy until your retirement age.
Ron, I can’t thank you enough for your time. I hope the audience will take you up on all the free information and putting your book out for free, it’s incredible. Thank you for that and I hope the readers will go to your website. Also, I hope you go to Life Bridge Capital and connect with me and go to our Facebook group, The Real Estate Syndication Show where we can all learn from experts like Ron and grow our businesses together.
Thank you for having me, Whitney and I will make one more statement. If you’re looking for a place to park some money, you certainly better make sure you park it with somebody that actually does what they say, like the man you’re listening to right now. Attach yourself the people that are actually doing the business and not talking about the business because there’s a whole bunch of them out there. I wouldn’t be here if I didn’t believe that was true. Thank you for having me.
Thank you very much for that, Ron. I appreciate that.
Important Links:
- Ron LeGrand
- LoopNet.com
- The Less I Do, The More I Make
- Global Publishing
- RonLeGrand.com/FreeBook
- RonLeGrand.com
- RonsDollarDeal.com
- Facebook group – The Real Estate Syndication Show
About Ron LeGrand
Ron LeGrand is a nationally recognized real estate expert and trainer, with 35 years of experience in both residential and commercial properties and a 30-year-history of hard money lending and brokering. His experiences include personally buying and selling over 3,000 single family houses and completing over $300,000,000 in Commercial Property deals with student partners all over America.
Mr. LeGrand is a highly sought-after platform speaker, who has addressed audiences as large as 20,000 and as small as 100 in hotels and convention centers across North America, sharing the stage with leaders such as Donald Trump, Robert Kiyosaki, Rudy Giuliani, Tony Robbins, Larry King, Dr. Phil, Suzie Orman and many others.
For the last 33 years, he’s been helping thousands of ordinary people take their lives back and create financial freedom by implementing his systems for success as real estate investors. Today, he’s considered the country’s leading Quick Turn Real Estate expert and is referred to by many as the “millionaire maker.”
His books are in stores and online, and over the years he’s created dozens of home study products and live training events on various real estate related subjects, as well as business training for entrepreneurs of any trade.
He spends much of his time passing on his experience at those live training events, held in various parts of the country, while simultaneously running over ten different businesses he owns and controls.
In his spare time, he enjoys fishing particularly salmon fishing in Alaska, and his 53-year marriage to his wife Beverly has produced four children, 9 grandchildren, and 11 great-grandchildren.
