A Better Way to use Private Money?

Happy Monday everyone!

An episode with Cam Cathcart comes out on the Collecting Keys Podcast today and he dropped this strategy for utilizing Private Money that I have been comprehending since we recorded with him a few weeks ago.

If youre unfamiliar with Cam, he is a high level off market operator that runs his business in the midwest while living in Hawaii and being Brandon Turner’s cohost for the Better Life Podcast.

He does 10-15 deals per month and runs a team that does wholesales, flips, and buys a good number of rentals all while living the island life and has some incredible tips in the episode that you’ll definitely want to check out.

BUT one of the most interesting things he discussed was this strategy of how he is using Private Money for a VERY long term play, that just seemed so smart yet so simple I was left wondering why the heck I had never thought of it before.

Cam is like alot of us operators who started back pre 2020 in the way that he has accumulated a decent portfolio when rates were low, now cashes decent transactional checks, and has the desire to BUY MORE but just cant justify it with current interest rates.

His work around is his private money fund which is structured as followed:

1. The private money purchases the properties 100% (no bank debt) with ZERO fixed/pref return, but instead they get a % ownership of the property. The properties are bought at a discount so the investors get a paper return day 1.

2. When rent is collected, Cam collects a standard property management fee (he has a PM business so its like 10%) and the rest goes into an account accumulating reserves.

3. Once X amount of reserves are saved up, the NET goes to the private money lenders as their “cash flow” for the investment.

4. Fundamentally this net cash on cash cash flow, will be FAR less than the investors could get in other investments, BUT the investors are happy knowing they have UPSIDE in the equity at acquisition.

5. When the properties sell in 5-10 years, the investors will recover all of their capital + their equity upside ownership in the deal which, since they bought at a discount and will likely have appreciated, will be some VERY SOLID gains.

Now, bringing in investors for Equity is quite common, but the thing that fascinated me about this whole set up was that Cam was willing to increase his work exponentially doing these acquisitions by finding and managing the deals, with ZERO pay out in the short term and ZERO cash flow (outside of the measly management fee).

This is, honestly, some of the best long term thinking I have heard from a residential investor for quite some time.

Residential investors are always focused on trying to squeeze out cash flow or get Private Money for as cheap as possible.

Instead Cam is foregoing all cashflow and honestly getting VERY EXPENSIVE long term private money, but he is doing it at such a massive volume that he probably wont care how expensive it is when his share of the equity is $10m+ when they ultimately sell out.

Sure you need the connections to raise this kind of money, BUT for such a massive payday that is fundamentally under your control, it certainly seems worthwhile if you ask me.

Anyways, maybe I’ve just been under a rock that I haven’t heard of anyone else doing this haha.

After several hundred guests, he is the first one I have met doing this strategy, and it has me looking at all these solid holds we passed on not wanting to pay for fixed expensive money and wonder “wtf was I thinking??”

Something to ponder as we head into Q3.

Let me know your thoughts and what you thought of the podcast!

Hit me up on Instagram.

Have a good day everyone.

-Mike