Ed is a do it all kind of person and investor. He loves helping his clients make great decisions on their investments, as well as doing his own deals. Not to mention he brokers hard money, the “Lending Tree of hard money” as he calls it. Tune in to hear how he gets hard money for his clients, as well as what he tells newer investors as they are breaking into the business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“Some lenders have bigger names and people think they are better because of their name” – Ed Hendrickson
Ed Hendrickson Real Estate Background:
- Full time real estate professional, focuses on helping others invest while building his portfolio
- First year as a real estate business owner, he assisted in closing over $20 million in transactions
- Based in Hoboken, NJ
- Say hi to him at https://www.hardmoneyproject.com/
- Best Ever Book: A Million Bucks by 30
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
With us today, Ed Hendrickson. How are you doing, Ed?
Ed Hendrickson: I’m doing well, thanks. How are you?
Joe Fairless: I am doing well, and looking forward to our conversation. A little bit about Ed – his first years as a real estate business owner, he assisted in closing over 20 million dollars in transactions. He is a full-time real estate professional, focusing on helping others invest while building his own portfolio. Based in Hoboken, New Jersey… Right across the river from Manhattan. With that being said, Ed, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Ed Hendrickson: Yeah, I like to say I’m a Swiss Army knife for real estate investors. What I do is a little bit of everything. I am a licensed real estate agent, but I don’t specifically use my license. What I do is I predominantly help people buy properties at sheriff’s sale, mostly in Union and Essex County, New Jersey. At the same time, I also help broker hard money loans. I got into the business, besides having a passion for real estate, but what I really learned the business was through hard money. I worked for a local hard money lender, and after working there for a year I left and started brokering on my own, which allowed me to get deep into purchasing these properties for other people and just growing my network. And then as you said, I have my own real estate portfolio. I buy properties, I flip properties, and I own some rentals.
Joe Fairless: You are a Swiss Army knife. [laughs] Well, which direction to take it…? Let’s take it all directions. Let’s start with the helping people buy property at sheriff sales. What help do you provide, that people need in order to successfully accomplish those purchases?
Ed Hendrickson: I manage the whole process. You need 20% down in order to buy at a sheriff’s sale. You deal with that as a reverse wholesale. Instead of a wholesaler calling you and saying “I’ve found a property in Paterson, New Jersey”, or wherever it specifically is, and there’s a $20,000 wholesale fee, you know what my fee is directly upfront, I only get paid for the deals that I close. So what am I specifically doing for you is you tell me “Ed, I really like Elizabeth, New Jersey. I wanna buy a multifamily in Elizabeth, New Jersey.” So what I do is I search through the online database (it’s public) what’s going to auction on a specific date, I find out where the properties are, I drive to the properties to see if I can get an idea of condition, as to whether they’re gonna need a lot of work, or no work; I try to see if there are tenants that are living there… I’ll call the tax assessors, find out if there are any taxes, water bills, I’m checking records to see if there are any liens on the properties… There’s not enough time to actually run a title search, so I’m kind of running a soft title search through my due diligence.
The reason why somebody needs my help is most people don’t really have the time that I have, and also the experience as well, but really more of the time to go through, make all the phone calls, drive all the properties to find out — I mean, I’ve been helping a client for months now, and we haven’t bought anything. Most people would have given up at that point, but I’m at the auction for other people at the same time, so it continues to make it worth my time.
Joe Fairless: Oh, that’s a lot of stuff. So you search the online database to see what’s available, you look for liens on the properties, you find out where the properties are located… What are some other things you do?
Ed Hendrickson: I’m calling to see if there’s any water bills, if there are, again, liens (federal liens), any open permits – I try to find those out as well. And talking to tenants if it’s a multifamily. I’ll knock on the door and speak to the people who are there.
Joe Fairless: And what do you ask them?
Ed Hendrickson: To be honest, I try to lay off with a “Hey, I’m looking to see if you’re interested in selling your home”, and most of the time they give me “My house is going to sheriff’s sale today” and I’m like “Oh, really? I didn’t realize that. My investor is interested in purchasing your property”, and I just kind of feel them out from that. I try not to say “Hey, your property is going to sheriff’s sale”, because I tried that, and you get “What do you mean? What’s going on?!”
Joe Fairless: Yeah.
Ed Hendrickson: I try to be a little bit friendlier as I’m speaking to them.
Joe Fairless: So what information are you looking to learn from them? Ideally, in your ideal scenario in that conversation, what’s the ideal information you learned?
Ed Hendrickson: How flexible they are with moving out. With a single-family owner occupied, or even a multifamily, but if it’s owner occupied in there, I wanna know whether they’re willing to leave or not, and I’m just asking questions. “What’s your plan…? If this sells today, what are you gonna do? Have you tried bankruptcy?” I’m almost educating them how to get out of a sheriff’s sale, just to find out what their intention is, so this way I can let my investor know “Hey, we’re staying away from this house. This guy is crazy. He yelled at me.”
I have one guy who told me “I know all the rules. I’m never leaving this house until [unintelligible [00:05:35].22] comes.” So… You wanna know that.
Joe Fairless: [laughs] And you don’t wanna bid on that property.
Ed Hendrickson: Exactly. He told me “Don’t bid on it.” He had known just as much as I knew about the process.
Joe Fairless: [laughs] Oh, man… New Jersey and the tenant laws, huh?
Ed Hendrickson: Yup.
Joe Fairless: Wow. Was that his primary–
Ed Hendrickson: It was.
Joe Fairless: Oh, okay. So he’s not a tenant, he’s…
Ed Hendrickson: It’s owner occupied, and obviously the owners have some pretty serious…
Joe Fairless: Yeah.
Ed Hendrickson: You can win, but it takes time. That’s really what it is.
Joe Fairless: Right. And money.
Ed Hendrickson: Yeah.
Joe Fairless: Alright, and how did you get involved with sheriff’s sales initially?
Ed Hendrickson: Actually, like I said, I was doing hard money and I was looking to leave and continue doing that, and my broker, Luis Leva at Culture Estate does a lot of sheriff’s sale stuff, and an investor – I liked it, it seemed cool, and I just jumped right in.
Joe Fairless: What do you like about it?
Ed Hendrickson: Oh man, it’s such an adrenaline rush. You drive around all day, and you’re making bids, it’s the competitiveness… And everybody knows about the sheriff’s sale, but it is kind of still a very niche market; the same guys every week. I don’t wanna say old boys club, because that’s not really true… But it’s fun just overall.
Joe Fairless: You were a broker for hard money loans, right?
Ed Hendrickson: I used to work directly for a hard money lender, so I would then broker the deals back to other hard money lenders when I left.
Joe Fairless: Got it, okay. When you were working for the hard money lender, what are some things that you learned?
Ed Hendrickson: I’m really glad you asked that, because that’s a huge thing, this hard money stuff that I’m focusing on right now. I learned how to structure a deal, and for better or worse I learned places where hard money lenders all have — call them your hidden fees. Everything on the face is “Oh, I get [unintelligible [00:07:19].01]” That’s great. But do you charge interest on your construction funds? Some lenders do, some don’t; some depend on how much construction funds you’re borrowing. And it’s not always very upfront. Somebody might tell you “Yes, we’re gonna charge interest on $50,000 the whole time. But what does that cost?” I learned to start calculating this stuff, and running calculators. A lot of hard money lenders have calculators on their website, but I’ve created my own calculators in the meantime to show, because these are big things that I find investors don’t realize that they have.
They buy a deal, 100k, 50k rehab, and they’ll sell it for 180k. “Great, I’m gonna make 30k”, but there’s so many other costs; either closing costs on the front-end or back-end, or just your carrying costs that people are missing.
Joe Fairless: What are some hidden fees of a hard money lender, other than interest on construction funds?
Ed Hendrickson: Draws, for example. Some lenders charge $100 for a draw. Some charge $500 for a draw. At the end of the day it’s not taking $20,000, but it can add up to a couple thousand dollars. And do they charge an application fee? Some of them charge a credit check fee. They might check your credit throughout the life of the loan, so they’re gonna charge you again for that. What else can I tell you…? Lien releases – when you sell your property, pre-payment penalties.
I actually had a lender once that didn’t really disclose their pre-payment penalty, and it was partly my fault. I was the borrower, actually. I didn’t realize it was only nine months. I just assumed everybody did 12 months, as all the other lenders out there… And when it bumped up at the end of my 9 months, I was gonna have to pay a fee, but I was able to negotiate with the lender to get out of it, because I was closing basically in 9 months and 5 days… But that was a real shocker for me. In fairness, I didn’t do a good enough job of checking it out, but they also didn’t do a good job of letting people know.
Joe Fairless: That’s some really helpful information, especially for fix and flippers who are out there looking for some hard money on their deals. Now, you currently do lend out money – is that correct?
Ed Hendrickson: I’m currently a hard money broker, as I was saying, but I’m working on this platform right now with my partner, Luis Leva, who happens to be my broker who’s helped me grow in this business… What we’re doing is it’s maybe a lending tree of hard money, you can say, but… What it would be is a borrower is gonna come onto our platform, they’re going to fill out their personal information and their deal information, and then the lenders who are also on their platform will get an e-mail, and then they’ll have an ability to go in and see the information and bid on the loan. The borrower will then get an e-mail and say “XYZ lender just bid on your loan.” They’ll go in, and we’re forcing these lenders to outline all their fees. So being in the business now I’ve seen the fees, I see where they come from; so they have to start saying “Is there a pre-payment penalty? Draws? If you charge interest on unused funds, at what point do you charge them? Is there a breakeven point in that?”
Basically, they have to fill out all their fees, and then the borrowers will have 2, 3, 4 options to decide which lender they like the most, and it’s all gonna be a blind bidding process, so they won’t actually know who the lender is. We’re partly doing that to protect ourselves, but also, to be completely honest, I don’t want anybody to be biased as to who the lender is… Because some lenders have bigger names out there, and people think that they’re better because their name is bigger. And there’s some lenders who have smaller names, who actually offer better products.
Joe Fairless: It seems like a service that needs to be in place, it needs to be in the market, so I’m glad that you’re putting it together. You mentioned interest on unused funds, and you said “At what point is there a breakeven part of that?” Can you just elaborate on what you’re talking about?
Ed Hendrickson: What I mean by that… I might have a lender, for example, who charges – I don’t know how in-depth you wanna go.
Joe Fairless: In-depth, please.
Ed Hendrickson: [unintelligible [00:11:11].29] two points. For those that don’t know, two points is 2% of the total loan amount. Now, that lender – the points are always gonna be on the total loan, so construction and purchase price. They might be charging interest on the whole loan amount as well, from day one. Now, you might have another lender that charges for example — my numbers aren’t gonna work well here, but four points, so they’re 10% and 4%. But they don’t charge interest on the whole loan amount. That actually might be cheaper, to go with the higher upfront cost, if you know that your deal is gonna take 12 months. Maybe if you know your deal is gonna take 3 months, you go with the guy who charges interest on the full amount. That’s what I meant by breakeven. I guess I meant that more the borrower can try to figure out what their breakeven is, not the lender would have a breakeven.
Joe Fairless: That’s helpful. That’s good to think through, and I’m glad that you mentioned it. So you’re also an investor, right? You buy your own properties. What’s something you’ve bought recently?
Ed Hendrickson: The current deal that I’m working on – I bought a 3-bedroom, 2-bath in Kenilworth, New Jersey.
Joe Fairless: Purchase price and business plan?
Ed Hendrickson: The purchase price is 240k, and the rehab is about 15k.
Joe Fairless: Okay. And what are you gonna do with it?
Ed Hendrickson: I actually have done the work already. I’m trying to sell it right now for 360k. My biggest headache with this one was I bought it at the sheriff’s sale with an owner in it, who got ill, and basically wasn’t able to move out because they were in the hospital… So I had to go through the court battle of evicting them. They hired a lawyer to just defend themselves. That’s my most recent project that I’m on. I’ve just actually sold a property and refinanced another one, so I only have one that I’m actively engaged in.
Joe Fairless: Let’s talk about the one you sold. What are the numbers for that one and what type of property is it?
Ed Hendrickson: Another single-family in Bergenfield, New Jersey. I bought that one for (I believe it was) 280k, and I put about 40k into it, and I sold it for 420k.
Joe Fairless: That’s some good math, right?
Ed Hendrickson: Yeah, definitely. And that’s something that I actually wanna point out, because that I think is a common misconception, as well. There obviously were costs that I had throughout; the loan went a little bit longer than I had expected. I thought that it was gonna be easier, and I actually really projected a much simpler rehab. The reason why the rehab got larger was — because I buy a lot of my properties at sheriff’s sale, I can’t really get in and have a contractor give me a quote. It is very much an estimate-based thing. But the electric in the house was a disaster, so I had to redo basically the entire electric, which cost me more than I was expecting at buy time. We had to rip open all the walls, because it wasn’t a gut. So they rip open all the walls and by the time I patched everything and got it all fixed up, it just took a lot longer. Some issues with the city… It was my third buyer that bought it; that’s never happened to me before. I had two buyers go through the inspection phase and back out.
Joe Fairless: Why?
Ed Hendrickson: The first one – they told me they had family issues. They decided not to move. The second one – I think the guy just really wasn’t interested, because he sent me the report — I’ve never had this happen either, by the way, Joe… [unintelligible [00:14:36].19] home inspection, he sent me the whole entire report back and said “Fix everything.”
Joe Fairless: [laughs]
Ed Hendrickson: I was like, “No, we’re not gonna do that.” [unintelligible [00:14:45].25] fix the driveway; the driveway had to be replaced. Things that were — it was obvious, the driveway didn’t really need to be replaced. It had some oil stains. The prior owned changed his own oil and had some stains. I’m not replacing the whole driveway.
Joe Fairless: [laughs]
Ed Hendrickson: [unintelligible [00:15:00].14] removed in the yard. There was a lot of stuff that most people wouldn’t ask… And I went back; I actually did go through it very thoroughly. I really did say that I would fix probably 80% of the things, and then I offered a credit for some of the other stuff…
Joe Fairless: That’s very reasonable of you.
Ed Hendrickson: Sure. Within like an hour they came back and said “No, we’re not interested.” So I think it was just kind of their trying to get out of it.
Joe Fairless: Yeah. What did they have it under contract for?
Ed Hendrickson: Actually, it’s funny you say that, because they were under contract for 405k, so…
Joe Fairless: Oh, my gosh…! Look at you.
Ed Hendrickson: Exactly. And I’m starting to think, “Man, I’m gonna have to sell this for 380k by the time I find a reasonable buyer…” And the weekend that I sold it, I had three offers at full price, being 420k.
Joe Fairless: Wow. And when I said “Those are some good numbers”, I think you said “Something like that could be a misconception of the money that’s made…” But if you were all-in at 320k and you sold it for 420k, what additional costs were there that we need to keep in mind?
Ed Hendrickson: So the purchase price was 280k. I had title insurance, and attorney, the points on the loan that I borrowed… So that’s 10k-15k upfront that that’s gonna cost. I’m paying interest throughout the life of the loan; that was about $2,400/month. And then I paid taxes. The taxes were about $1,000/month on the property. Those start to add up.
One thing that I didn’t even really think about – and I’m pretty good at running my numbers – is I had the house staged for five months, and my stager charges $500/month. But the first three months are a part of the setup fee. Now on the back-end, these last two months, I’m paying another $500/month in carry, so at the end of the day you’re looking at my carrying costs press to almost $4,000/month to maintain the property.
And then at the sale end, we have our closing costs, and the most expensive thing is gonna be the realtors’ fee, and there’s transfer tax as well that I had to pay.
Joe Fairless: You don’t list your own?
Ed Hendrickson: I do, but I don’t consider that so much a benefit that everybody has, because a lot of people don’t… So I always wanna include that. And even when I list my own, I still have to pay the 2,5% to the other agent who actually brought the buyer.
Joe Fairless: So when the dust settled with the $4,000/month carrying fees and all those other costs that you mentioned that are factored into that, how much did you make on this deal?
Ed Hendrickson: I had a private investor that put down some of the down payment money, so by the time (like you said) all of that is settled, I walked away with easily 50k-60k.
Joe Fairless: Thank you for going through that, because it helps me ask more informed questions, other than “How much did you put into it?”, because — [laughs] So what should I ask? Should I ask “How much did you put into it and what were your monthly carrying costs, and how long did it take?”, so that we can factor that in, too?
Ed Hendrickson: Yeah, “What were your carrying costs?” That’s a big misconception. If someone’s paying a couple different percent difference, it adds up over eight months.
Joe Fairless: Yeah. Oh, you had it eight months…
Ed Hendrickson: Yeah, because I had to carry this thing through the holidays now. I had it listed in October, and we just closed in April.
Joe Fairless: Yeah, because on the surface, when someone says “I bought it for 280k, put 40k into it” – okay, 320k. Sold it for 420k – congratulations, six-figure deal. But in reality, it’s perhaps half of that, or 60% of that. So that’s some great info.
Ed Hendrickson: And they love to take a photo of the check they got at closing…
Joe Fairless: [laughs] But not all the expenses going out the door right after that…
Ed Hendrickson: Exactly.
Joe Fairless: Oh, man… That’s good stuff. Based on your experience as a Swiss Army knife real estate entrepreneur, investor, lender, broker, what is your best real estate investing advice ever?
Ed Hendrickson: Really run the numbers. That was my biggest mistake. My first property I bought, I broke even. I didn’t run these actual numbers that I emphasize – the carrying costs, the purchasing and closing costs… So it’s “Run your numbers and know your numbers front and back.” I’m the kind of person that when somebody calls me and they’re trying to get a loan, I can’t tell you how many people I have educated out of doing deals… Whereas if I wanted to be selfish, I could have taken the deal and not cared. The fact that they either were not gonna make any money, or that they would lose money on a deal.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Ed Hendrickson: Yes, sir.
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:19:36].11] to [00:20:22].12]
Joe Fairless: What’s the best ever book you’ve recently read?
Ed Hendrickson: I would say “Millionaire by 30.” It got me into the business, and the whole entire thing.
Joe Fairless: Who wrote that?
Ed Hendrickson: I don’t remember…
Joe Fairless: I’ll look it up, that’s fine. No big deal. But I don’t know if I’ve come across that. It looks like that is — oh, three people: Douglas, Andrew… Oh, are they related maybe? Aaron Andrew and Emron Andrew. Okay, so the Andrew people wrote it. What’s a mistake you’ve made on a transaction?
Ed Hendrickson: Hesitation. You’ve gotta make decisions quick. You’re in the middle of a deal and something needs to be fixed or no fixed. Maybe for example you add the bathroom or don’t add the bathroom – you can’t really sit and think on these things… So I would say that would be my answer.
Joe Fairless: Best ever way you like to give back to the community?
Ed Hendrickson: It’s education, man. Like I said, I just wanna teach people as to what they’re embarking on. HDTV is great, but they’ve made it seem so easy. Everybody wants to come in; the mom and dad want to be a flipper, my cousin wants to be a flipper… All these people all of a suddent start wanting to flip. They think it’s easy… It’s not easy, and there’s a whole lot of running around that’s not shown behind the scenes. I live 30 away from Bergenfield. The amount of time I spend in my car, driving back and forth for inspections, go into the city, see my contractors, showing people that house… It is a huge amount of time. I believe people can do it. You can do it on the weekend. You’ll only really be able to do one project, but… It’s education. I’ve gotta give back. There’s so many people that have helped me and taught me this business. From the lending standpoint, I’ve learned so much working for the lender… That really gave me a really solid foundation to continue to grow in this business.
Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?
Ed Hendrickson: They can check me out at my project for my new platform, HardMoneyProject.com. It’s gonna be my new platform, and I’m gonna offer education on the platform as well, so that’ll be a huge part of it… And then it’s a place where they can get bids. My contact information is on there, so anybody who wants to reach out to me can reach out to me through there.
Joe Fairless: I learned some good stuff, because when I interview fix and flippers I will ask that question about carrying costs… And I love the example that you gave – 280k, you put in 40k… Did you make 100k if you sold it for 420k? Well, you actually made about 50k-60k, because here’s why – and then you talked about the different factors.
Then also for fix and flippers – well, this interview is gold for you when you’re looking at selecting a hard money lender or private money, because of those different fees that could be hidden, that Ed went through… So thank you for talking about all that you talked about.
I enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you again soon.
Ed Hendrickson: Thanks.
