Nick Zalonis is a SREC student and real estate investor from the Northeast Ohio area.
While being fairly new to real estate investing, Nick has found great success in finding private lenders from the courthouse and obtaining sources through private mortgages and sending out direct mail pieces.
[DISCLAIMER: A 506C registration is required.]
Why did you get into real estate?
I’ve always been interested in real estate. My grandfather was a property owner and after he retired, he still had a lot of income. It was all because of his multiple properties. He always told me that real estate is something that is always going to be needed by everyone. He always had a lot of free time, even while he was still working part-time after he retired. He was basically just a landlord at that time. He wasn’t really working. He was doing what he liked to do. He’d go fishing every weekend.
I was like: “This is for me! This is what I’d like to do!”
He passed away when I was 16, but his lesson stayed with me: “If you ever want to have a good income, real estate is the way to go.”
I kept reminding myself of this.
A lot of people start with wholesaling, but it’s a really hard thing to do (Especially in Ohio). I learned this the hard way. I remember I was calling title companies, asking them if they would allow this type of deal. They said they wouldn’t, and that it’s illegal in Ohio now.
[JC: In Ohio, every real estate transaction has to stand on its own “Two feet”. So taking the funding from the second transaction and applying it to the first isn’t allowed anymore. It was something that was fairly common years ago. Title companies were looser and mortgages were easier to get.]
What are you focused on right now in your business?
I’m focused on getting private money. I have a newsletter that I send out with what some ideas and other topics in real estate. I have 100 subscribers to my newsletter currently and every six weeks they get it. I can see the metrics on it and see who’s reading it and I contact them and say “Hey, what do you think of that newsletter?” A couple of people are very interested in what I’m doing as far as the newsletter goes.
[JC: Let me just set the table for this next question…
If you’re looking to raise money for anything, there are different types of offerings that can be made. If you are getting a note or a loan from someone, and you have a promise to repay them with principal plus interest or principal press returns, you are basically selling a security. So, that note with the promise to repay, is a security. And if you’re in the business of doing this on a regular basis you are in the business of issuing and selling securities. (If you’re doing a personal loan, it is not a security. Personal loans are actually excluded from the law).
What is great is that in every state, there is something called an “Intrastate Offering.” An Intrastate Offering means that with very little paperwork, you can raise money from people within your state. So as long as you, your LLC or your business, your lenders, and your real estate deal are all within your state, you will be compliant.
If more than 20% of your dealings more than 20% of your businesses across state lines you are now regulated by the Federal SEC – The Securities & Exchange Commission.
So what I did when I started which is much like what nick is doing now, is saving the time and the resources and the money by focusing on an Intrastate Offering, which is basically staying within your state.
And then of the time is right, when the money is right, when the resources are right, and things start to grow, Nick will then move to a “Federal Offering”. A federal registration will allow Nick to raise money from coast to coast.]
What are the things that you’re doing to try to recruit and raise private capital here within the state?
I work in a restaurant, and I come across a lot of people that have quite a bit of money and whenever I get a chance, I tell them what I do outside of the restaurant and I give them a business card. I carry my business cards with me everywhere I go. I’ve gone through about a thousand of them within the past couple months. A lot of people are very interested in what we are offering as far as the interest we’re willing to pay back.
As far as contacting others that are outside of the restaurant, I’ve gone to the County Courthouse, (To the Recorder’s Office.) where they keep a record of their mortgages. I was looking to find where they keep a record of their mortgages and I asked if I can have a list of people that have provided private mortgages and unfortunately I was told there’s no such list. What they said I would have to do is go through all of the mortgages, and find individual names as opposed to bank names.
I just did it I did a simple search. It’s on a computer in the Recorder’s office. That is where they keep [a database] of every single property in the entire county. What I discovered is when I put in the search from January 1st to whatever particular day it was, there were over 26,000 mortgages that had been granted since the 1st of the year so that just goes to show how many mortgages there are, just in Cuyahoga County.
[JC: So he’s at the county courthouse and he discovers that there is 26,000 records to look at and he’s looking for the people who appear to have given mortgages on a private, “One-off” basis instead of a bank. The theory is that these people are private lenders. Maybe they’ve carried back a note, or sold a property on owner financing. These are people who are hopefully in the business of lending or investing their IRA. He hopes to become friendly with these people so they can make him private loans.]
So when you went through these 26,000 mortgages, what did you find?
Out of the 26,000 loans, I pulled only 60 names. It goes to show you that there aren’t a lot of people doing private mortgages in Cuyahoga County, but the ones that are doing them are doing big investing. They are professional investors. They know what they’re doing and it’s what they do for a living. I sent all of them my newsletter.
I’d say for every ten letters, I get two phone calls. Out of those two phone calls I get one meeting. That means, out of the 60 letters that I sent out, I got six meetings.
The meetings went quite well. I showed them the PowerPoint that is in the 40k flips site. I just went through it and explained what we’re doing. They really like the idea. Especially because on average, they’re making 8%-10% on their money and we’re offering quite a bit more than that. This really intrigues them.
[JC: We pay 12% interest or 15% of the profit, whichever is greater. Considering that investors routinely get smoked when the stock market free-falls, my investors are super happy because of their annualized returns from investing with me. I close these private money deals using the same setup that I’ve taught you and I’ve taught thousands of other people.
Now, I want to be clear about some of the securities laws. With an Intrastate Offering, you have to wait 30 days and have had at least three communications before you can actually make them a specific offer. A specific offer would be things like:
“Hey I found this particular property at 123 Main Street. I need you to fund $125,000 for the purchase and repairs and I’ll pay you a 12% interest rate or 15% of profits, whichever is higher.”
So when you offer them a specific property to fund or a specific interest rate, you’re now making them an offer. Up until that 31st day, you can talk about what you pay your other investors, the concept of private mortgage lending, and the benefits of not being in the stock market. But, you cannot be specific.
So Nick waits these 30 days, he waited for 3 touches, and he has a meeting. When the time is appropriate, he gives the potential private lender an offer. He sort of says:
“Hey, I have this property at 587 South Park Drive. I’d like you to fund this one. I need $150,000, and I’ll pay you 12% interest or 15% of the profit.”
Boom! The guy says “Yes,” and now Nick has a private lender. He’s followed the rules because he waited 30 days, he waited 3 touches he did not criss-cross state lines. He stayed with an intrastate offering and in Ohio. You can have up to 10 lenders or 10 notes, per company, per year without having to file anything. When you go beyond 10 in Ohio, you have to do a 62A filing (Which is just to put the state Securities department on notice that you are raising money). If you go beyond 35 lenders or notes in Ohio, you have a 62B filing that you will need to fill out. The other threshold is 1 million dollars. If Nick raised more than 1 million dollars, he would have to go on to a Federal registration.
DISCLAIMER: I AM NOT AN ATTORNEY. You need to find a good securities attorney in your local area that can make sure that you are compliant.]
You are getting about a 20% response rate, which is awesome. 10% of those letters are resulting in meetings. Can you tell us more about this newsletter?
I address them by name first, and I tell them: My name is Nick Zalonis and I am the owner of Lloyd Edward Holdings, LLC in the Cleveland, Ohio area. And I recently noticed that you provided a private mortgage for the property located at (The Address).
As an investor, I’m always looking to educate others about the advantages of lending private money for real estate investment and how my company can typically offer a very handsome return on your money as opposed to simply parking in a bank financial institution. Providing private mortgages to real estate
Investors, like me and my company, is an increasingly popular way to aggressive returns while taking advantage of the incredible foreclosure market we are currently experiencing without having to deal with tenants, change light bulbs, or replace toilets. I would like to discuss this opportunity with you via a short phone call. If you like more information or would like to meet to discuss the opportunity please feel free to contact me at (Phone number).
I’m looking forward to hearing from you,
Lloyd Edward Holdings, LLC
[JC: Notice that Nick does not mention any specific returns in his letter. Nick is is targeting a list of people that he doesn’t know. He doesn’t know if they’re accredited or not. He doesn’t know if they have money or not. He just assumes based on the fact that they’ve made loans before that they’re interested. What’s great is that Nick’s letter has gotten a 20% response, and he is still within the guidelines. He’s not stating a specific property, specific interest rate, or amount of money to invest. He’s staying within the rules.]
Do you have any other letters that you send out to leads found at the courthouse?
I have a follow-up letter that I send out. I give it about a week or so to hear a response. If I don’t I send out the second letter. It’s just a little more forward. It says that I have contacted you already once before and I’m just curious as to whether or not you would be interested. I really haven’t had to send out the second letter that often. That first letter gets a really great response. I think I’ve sent the second letter maybe to 20 or 30 people and they didn’t respond, so they’re obviously not interested.
[JC: If you’re looking to raise capital for your business and don’t want to go the route of a federal filing yet, and you’re staying within your own state lines, you can do things like Nick has done because he’s not being specific. You can invite people to a luncheon, you can invite people to a one-on-one meeting with you, a one-on-one phone conversation with you, a conference call, a webinar, etc.
I tell people upfront:
“The SEC has a very specific rule that says that I am NOT allowed to make you an exact specific offering of securities until I’ve known you for at least thirty days and three touches. Once I’ve known you for thirty days and we’ve had three touches, then I can be specific about what I can potentially offer you, what I can do for you, the interest rate, etc. But until then, here’s what we do, here’s how we structure deals. And please understand that this not an offering of securities this is just how we structure deals, we find properties, foreclosures, for sale by owners ,off market properties. We buy them at a discount and we have a private lender that steps in and funds the purchases plus the repairs we put them at interest rate. Then when the property sells, we pay them back the principal plus interest or a piece of the profit.”
I did not mention a specific property. I did not mention a specific amount of money. I have not made them an offer of securities yet. I am just telling them in general what we do.]
Because you can’t be as specific, how have conversations been going for you?
These are professional investors that I’m contacting and when I mention that there are SEC requirements they know right away:
“This guy’s a professional. He knows what he’s talking about”
It gives you credibility the moment that you say that. But I’ve been blown off a few times by these guys. You also have to understand, these guy already have people that they invest with that they trust. It all comes down to:
“Can I convince you that I can give you a better deal?”
It’s the trust issue. When you’ve been working with [someone] for 30 years, even though he’s only paying 8% on your money, and I’m offering you 12% to 15%, it really comes down to trust.
[JC: In situations like these, maybe you would have to use a combination of a loan from the money that we provide from Freeland Lending as a first mortgage, and half the money from a private lender. Then you can say to guys like this:
“Just give me a shot. I have a great deal. If I can get a deal where the purchase and repairs is less than 65% of the realistic saleable after repair value, and a first mortgage (or some funding) from another source, why don’t you test me out?
Why don’t you give me $40,000, and I’ll pay you a 12% return. We’ll do a 6-month loan and I’ll do the deal within 6 months. After the deal sells, I’ll pay back your principal plus interest. Then, you can test me out on a little bit of a larger deal.”
Introduce them to the contractor you work with and the deal you’re looking at. Coming in with some of the money, instead of ALL of the money might allow them a bit of an easier appetite, so they can get in with you for the first transaction.]
Anything else you’d like to say?
If you’re out there and you’re looking for private money, don’t get discouraged. It’s hard for everyone. Your first deal is not going to happen overnight. Surround yourself with successful people because you’re going to want to emulate what they do. The only way to be successful is to just keep at it and to emulate someone that you want to be just like.
JC: We’ve raised so much money using this exact process, that I was able to start a private equity fund. Nick is a guy who doesn’t have a lot of deals under his belt, and he is out there creating his own success. He went through our 40k Flips program and is taking action. Education without action is simply just entertainment.
Take action and be daring,
About Nick Zalonis
Nick Zalonis is a SREC student in Cleveland, OH.
Nick invests in real estate part time and recently closed a deal that resulted in a $60,000 profit.