Meet Derek Dombeck, Founder of GOW Global.
He is a seasoned real estate investor who invests in Wisconsin.
Derek is diving into how the subject-to (SUB-TO) world is nothing new, but it isn’t always done in the right way. People first is how Derek handles his business. Here is his take on how “doing the right thing” will help you be a great real estate investor, sub-toer, or wholesaler.
Listen now and/or watch on Youtube!
Derek’s links:
– The Generations Of Wealth Podcast –https://podcasts.apple.com/us/podcast/generations-of-wealth/id1736129601
– Website: https://thegenerationsofwealth.com/
TRANSCRIPTS:
Speaker 1 (00:00):
Lending has actually been a great space the last few years, but
Speaker 2 (00:03):
Purchasing somebody’s property, subject to their mortgage thing in place, it’s something that’s, so if you were looking at going into any kind of a syndication, I would be asking questions like
Speaker 3 (00:18):
Chris Miles was able to retire twice by the time he was 39 years old, but he’s not content to just enjoy his own financial freedom and peace of mind. Chris wants you to have your own ripple effect so you can live free today. He’s not the financial advisor you expected. He’s the anti Financianal advisor you deserve. He’s jumping behind the mic right now, ready to make waves. Here’s Chris Miles.
Speaker 1 (00:49):
Hello my fellow Ripples. This is Chris Miles, your cashflow expert in anti Financianal advisor. I’m going to show it’s for you. Those that work so fricking hard for your money and you’re ready for your money to start working harder for you today. You want to become work optional where you work because you want to, not because you have to. You want enough passive incomes that you can live life, your dreams, doing what you love with those you love. But most importantly guys, we know it’s not just about getting rich, it’s about living a rich life because as you’re blessed financially, you now have a greater capacity to create a ripple effect through the lives of those around you. Thank you for tuning in today, guys. Appreciate you joining our show as well. And guys, thank you so much for binging. You’ve been sharing our episodes and even most importantly, guys, you’re taking action on the things that you learn.
(01:27)
Speaking of which, if you haven’t done so already, go to money ripples.com if you want to be able to go down that rabbit hole and get more education for yourself and find out how you can actually get this to work for you in your life today. Hey guys. So I’m bringing on a special guest here that has been in the real estate space. We talk about if you’re going to talk to a real estate investor or if you’re going to invest with people, you want to invest with people that have not just been there, done that, but they’re still doing it today. And even most importantly, they have actually been through multiple market cycles. Well, Derek, like me, has been through that. We’ve gotten a few gray hairs over the period of time. We don’t have a ton of gray hairs, but we’ve created a few.
(02:02)
Derek has been investing in real estate since 2003. He’s also responsible for the out in Wisconsin, doing the Rio Group out there. So any of you guys that are out in the Midwest, definitely some guy you probably want to connect with as well. He’s done everything from creative deal structuring to wholesaling, flipping, landlording, lending and investing through the years. I mean, he’s done literally been in thousands of transactions over his career and he’s even a founding member of what’s called the Generations of Wealth, which we’ll have him talk about here today. So really excited to have him on and really to dig into what does he see going on right now, some of the good, the bad, and the ugly of real estate today. Let’s just have a brutal conversation. So Derek, welcome to our show today.
Speaker 2 (02:42):
Hey, man, thanks for having me, Chris. I really appreciate it. And yeah, I’m looking forward to just sharing the good, the bad and the ugly because I think there’s a lot of opportunity right now across all different investing platforms, but there’s also a lot of fear and there’s a lot of misinformation. So I’m an open book that we know each other from before, so you can ask me anything. Well,
Speaker 1 (03:08):
Let’s get started. In your background, how’d you even get into real estate investing in the first place?
Speaker 2 (03:12):
I lost a bet years ago, I think or something. Honestly, for me, I was tossed into it because you talk about the anti financianal advisor. I got started in the financial advising space and didn’t really enjoy sitting down with families who wouldn’t take advice, even if it was the best thing that they could possibly do for themselves. But a part of that role as a financial advisor, I was also originating mortgages. And so that’s when I learned about the lending space a little bit. And I had a construction background, so I built my first house myself. I was into construction trades, so it just made sense. I was able to do a lot of the work on my initial properties by myself and over time and through many, many, many mistakes as well as successes, we figured out the better ways to do it, which can be active or passive, and that’s really in the lending space. So I ended up post starting co-owning a lending company, and up until recently for 10 years, we ran a private lending company, short-term lending to landlords and house flippers. That’s where we looked at a lot of deals over the years. For every two loans we gave out, we turned one down. So we certainly looked at a lot of deals
Speaker 1 (04:48):
For sure. Actually, I’m going to come back to that again here in a little bit, but I want to go back. It’s funny how many of us started as financial advisors and then broken this real estate space. We took this matrix red pill and went over to the dark side. I mean, what were some of the things that really discouraged you that got you to leave that industry?
Speaker 2 (05:10):
Well, at that time, I was in my mid twenties, 26, 27 years old, and it was hard for people that were 10, 20, 30 years older than me to take me seriously. And so I could sit in front of them and again, have this mapped out plan of how they could really have a better life. And even if they did take me seriously, they honestly just didn’t want to do it because it was painful to cut back on expenses and try and increase their investment revenue. And I guess why try and change the 95 percenters when we can just be the five percenters and go our own path to this day? I want to help anybody that needs help, wants help, but you can’t force them to want or use the help. And so that was it.
Speaker 1 (06:05):
Now, of all the real estate investing you’ve done, what’s been your favorite?
Speaker 2 (06:08):
Well, I don’t have specific favorite niche so much as I like the creative deal structuring where I’m helping somebody out of a unique situation that very few other people can help them with. And that could just be a single family home. That could be a business, that could be a commercial transaction, but it’s, I guess buying properties with cash is boring after you do hundreds and hundreds of properties yourselves and thousands of loans, eventually it’s just another day at the office becomes another day at the office. And so the ones that really intrigue me, they’ve got more moving parts and different structures. I know that’s very vague, but there’s never two deals that are ever the same. So I’ll tell you the most recent one I’m working on right now, I just bought two weeks ago, a waterfront property with two 1200 feet of frontage.
(07:10)
We’re going to subdivide it into three parcels. Each parcel already has structures on it, and the unique part of that deal was it wasn’t a state and the grandmother had passed away a couple years ago. Two heirs are local, two heirs are out of state, and of course the out of state heirs don’t have to do anything and they think everything should be worth a lot more money. But the part that I loved about this deal, the grandson has an adjoining, or his house is on an adjoining piece of property. They are concerned about somebody building right next to them. So I said, well, I’ll give you a slice of land. So according to the setbacks and the codes, nobody will ever be able to build next to you in return. Him and his mother are holding off on their portion of the sale of the proceeds from the sale and they, they’re carrying it back as seller financing. So it’s a win-win scenario for all of us. That one wasn’t very creative, but it was very win-win and everybody likes it.
Speaker 1 (08:17):
Seems like what I’m getting from you is that if the deal, it can’t just be a standard vanilla deal for you. It has to be something that has a little bit of variety to it, almost like a little bit of creativity, but still creates that win-win where you can still help people out.
Speaker 2 (08:29):
Yeah, I mean, we’ll do the vanilla deals. They’re just boring and not fun to talk about. So I mean, currently I have six properties under contract closing in the next 30 days, and there’s only two that are interesting to talk about, but we’ll still do ’em. Don’t get me wrong. I’m still a capitalist.
Speaker 1 (08:47):
Yeah. Well, in today’s market, what kind of deals do you see you doing more of lately?
Speaker 2 (08:51):
Well, as what I target and watch a lot of in all of our marketing is segments that are starting to sit out there longer. So we do a lot of direct marketing to sellers. We also do a lot of social media marketing, and I track how many days it takes on average to sell a house, and I work in our entire state of Wisconsin as far as purchasing different markets are different for sure. We are starting in the last 90 days to see an uptick in our leads and not so much our leads in general, but just qualified leads, people that are more interested in talking about alternative strategies, purchasing somebody’s property, subject to their mortgage, staying in place. It’s something that’s being taught all over the country as some brand new magic way to buy and sell real estate, which is not
Speaker 1 (09:46):
Thanks. Page. Warby.
Speaker 2 (09:48):
Yes, I wasn’t going to say the name, but it’s people that have a large following. They sell a bunch of courses and tapes and I guess not tapes anymore, but recordings. And the reality is this is just repackaged into a different brand, and it’s the same thing that’s been done for decades. The problem right now though is people are doing it incorrectly and they’re going to harm other people. They’re going to harm the owners of these properties or the people that are still on the note if they do it incorrectly. And so I’m an advocate
Speaker 1 (10:20):
Of, let’s back that a little bit. Let’s explain what’s subject to or sub two. Let’s explain what that is.
Speaker 2 (10:26):
Okay, so if I’m going to buy your house from you, Chris, for whatever reason you’re relocating, or maybe you’re in default and you’re behind on some payments or you just feel like selling it this way and we’re not going to pay off your loan, but the deed is going to transfer to me, well, that is considered a purchase subject to your financing or your promissory notes staying in place,
Speaker 1 (10:51):
Especially if they got a low interest rate like 2.75 or something like that. Right.
Speaker 2 (10:55):
That’s exactly what makes it attractive right now is there’s many, many people that have locked in financing in the two point a half to four and a half percent rate for 20 to 30 more years, which is very attractive for us. We can obviously buy property potentially in some markets like mine still cashflow that property because of the low interest rates. We can also do an arbitrage play where I may buy your property subject to a 3% interest rate and I can then lease option it or even sell it on a wraparound mortgage to another consumer at a 6% or 7% rate and make a spread. So it is attractive for sure. Now, what pace more BS organization, and I don’t want to say pace more specifically, but organizations like his, they may not even be teaching it this way deliberately, but the way it’s being acted upon is I come in and I to buy your house, Chris, and subject to your mortgage with no intentions of actually ever being the owner.
(12:01)
And I go and wholesale that contract to an end user, buyer, investor, what have you that you don’t have any relationship with, you don’t know at all. You have no idea if that person is trustworthy or capable of covering the payments. And it’s no different than doing sandwich lease options, which I’m not a fan of either. So I just believe that if I’m the one committing to you to buy your property and make sure your payments are always going to be paid, that I should stay in the deal. And if I put a tenant in there, if I want to resell the property, as long as I’m in the deal and I’m making your payment regardless if I’m getting paid or not, then it’s morally an ethically okay. But if not, I have a big issue with that. Yeah,
Speaker 1 (12:52):
Such a great point. Well, that’s a hard thing with, I mean, obviously it’s tough when there’s all these, everybody has these three second attention spans, and so you have to grab ’em with attention and show ’em flashy stuff. And I know we struggle with the same thing sometimes where we’ll have a ten second video clip to give just a little piece of advice, and then people will start coming in and saying, yeah, but yeah, but you’re like, okay, watch the full video and you’ll hear all the yeah buts addressed, right? But you’re too a DD to even want to go watch that video, so that’s why you’re going to just go piss all over my comments and page and stuff. But it’s true. Really, the TikTok and influencer stuff has really made it harder in some ways in the real estate space. Now people are calling bull on a lot of it, aren’t they?
Speaker 2 (13:36):
Absolutely. But there’s always going to be that population of people that will just do it no matter what. I’m going to go do this and I don’t care who it hurts. And then they’re also the same population that feels like they were frowned upon, taken advantage of or whatever when they get their hand slapped. I don’t know if you’re familiar with a lot of the wholesaling laws that are getting passed. I believe in the last two weeks, six more states passed some form of wholesaling legislation in their states and
Speaker 1 (14:07):
Requiring a real estate license, for example, that kind of thing.
Speaker 2 (14:11):
Yeah, they’re all a little bit different. Some are requiring licenses. Some like Wisconsin just passed laws where you have to disclose if you’re going to be wholesaling. You don’t have to be licensed though. It was actually pretty lax. But the point of this is people in my local community and nationally that are wholesalers are now freaking out. They’re like, oh my gosh, this is the worst thing ever. No, it’s not. This is fantastic because this is going to make it harder for the newbies, the rookies who are doing it wrong. If you’re doing it correctly, this should not bother you whatsoever. But if I’m going to buy or contract to buy your property with no ability or intention of ever closing, and then I walk away, if I can’t find a buyer for that contract, I am harming you and I shouldn’t be able to do that. So I do like the thinning of the herd. We’re thinning out realtors right now. We’re thinning out wannabe real estate investors, flippers, wholesalers, landlords. And at the end of the day, it’s got to happen. It’s all part of the cycle of business. And some of your listeners might not want to hear that. And to be the blunt guy on the microphone, look in a mirror and say to yourself, are you doing things right or wrong? If you’re doing things wrong, maybe that’s why you’re getting thinned out.
Speaker 1 (15:38):
Well, you mentioned you’re a capitalist, and I definitely think I am too, but many people have different definitions of what that means. But to me, a capitalist is somebody who’s always looking for the win-win that creates profit, that creates that ability to earn capital, to earn money. And that only comes from serving people and doing the right things. At least if you want to have long-term success as a capitalist, that’s the only way to do it. You can’t just do it by seeing how you can screw people over and then hoping that it never comes back to bite you with the karma butt.
Speaker 2 (16:06):
Well, and that’s the way we fund all of our deals. We talk about passive versus active real estate investing. All of my deals are funded by real people. I don’t go to banks. I don’t use institutional funding. And would I get cheaper debt? Absolutely. If I went to banks, I would get cheaper debt. However, I like the fact that my friends, literally just before we jumped on this show, I had a conversation with my buddy. He’s got a hundred grand sitting around and he just, we’re signing a three year deal for him to get 10% return on his money against, well, 50% loan to value against one of my properties. That’s a safe deal for him, and it’s good for me and it’s good for everybody. I could go and get a little bit cheaper debt at the bank, no doubt. But I love the fact that my friend is getting the money, not an institution, and it still works for me. It works for the deal. So I think it’s, before I forget,
Speaker 1 (17:03):
Derek,
Speaker 2 (17:03):
It’s capitalism, but it’s also capitalism with a heart.
Speaker 1 (17:09):
Well, dollars follow value that you create for other people, and that’s how it keeps going and going. Right. That’s true wealth right there, in my opinion. Well, before I get to the next question, I want to get to the one that what you were just saying leads into. What’s the best way, if people want to follow you, what’s the best way they can do that?
Speaker 2 (17:25):
Well, if you’re watching this show, you can see a logo behind me and a logo on my T-shirt and my hat as well, but the Generations of Wealth, which is my podcast, my show, and it’s the generations of wealth.com if you want to check it out. This platform, it really was born over the last few years as an umbrella over everything we do. But the purpose of it is really to build a network of people of following, so to speak, of people that are interested in not just financial wealth, but spiritual wealth, physical wealth, time, wealth, all of that. And it comes down to having a vision figured out for your life and then building a business that serves that vision for your life. And so we say, our motto is, live your vision, love your life. I’ve done this all personally. This is why I’m passionate about it, because for the first 15 years of my career, I was wide open seven days a week, whatever it took, answer the phone, twenty four seven, didn’t matter deal junkie.
(18:39)
And I didn’t slow down enough to enjoy life. I didn’t really take into consideration my kids, my family time. And so I see many, many entrepreneurs that do that, right? They are told they should build a big business. They really don’t know why. They’re either trying to keep up with the Joneses or they’re just driven by their own ego. But I really, once we figured out our vision, we actually slowed down. But more things happen. There’s more success, there’s more opportunities, and opportunities are a little bit scary because if you don’t have a vision figured out that shiny object syndrome can pull you 180 degrees off from where you really should be going. So yeah, that’s a very brief version of what it’s all about, but I’ve got great guests on my show. You were one of ’em. And this is, again, bringing a platform of different types of investment knowledge and experience, not just real estate. That’s the short version.
Speaker 1 (19:49):
No, I love it. One thing I love about what you talk about there, your message is that it’s never about just the money, right? There’s so much more to wealth and having that, you said a vision, a clear vision of your life, of what you want, where you want to go, but then also be able to create that in all areas of your life too, and the people that surround you in your life as well. So I love that. So definitely we’ll put that in the show notes, make sure people can follow you for sure. One quick question on this is right now, in the current market economy that we see today, where do you see the biggest opportunity for creating wealth or even just for investing right now,
Speaker 2 (20:27):
Passive investors? I would be cautious if you’re looking at syndications for apartment complexes and things of that nature, because it’s not the space itself, but many syndications are in a second position behind a bank. So if I was trying to buy a hundred units, I’m going to go get 65, 70% bank financing, and I’m raising through a syndication for the down payment. Well, now, as a lot of these syndications that were put together in the last two to five years, their bank financing is coming due. It’s ballooning out. Cap rates are not anywhere near as low as they were before, which means the value of that property is going to be lower. So who’s going to get wiped out? Not the bank. The bank is fine. It’s going to be the syndication. They’re either going to get wiped out or they’re going to be a cash call, and they’re going to have to try and pony up more money and ride it out.
(21:24)
So if you were looking at going into any kind of a syndication, I would be asking questions like, are we in first position in this syndication? Or are we behind an institution? If we are behind an institution, what does that look like? What are the terms of that? Most of that is likely disclosed upfront, but not everybody asks those questions. Opportunities. Again, I think there’s a lot of opportunity in the cashflow space in the Midwest, east coast, west coast, there hasn’t been cashflow in years. So again, if you’re looking at a property that’s designed to be a longer hold that you’re investing in for cashflow, I would look at the more stable Midwest markets. There’s a lot of people that are still chasing storage units. It’s tough to get a decent deal in that mobile home parks or are tough. Personally, I am in the market wanting to buy RV parks around the country at this point. I’m also interested in buying out small businesses, the people that are in the car wash space that’s getting really, really hyped up the last 12 to 24 months. And not that there isn’t good investments there, but it’s like anything, I don’t want to be the last one in on the ride. I want to be kind of seeing what’s coming up in the future.
Speaker 1 (22:49):
It’s investing in Phoenix in 2022, right?
Speaker 2 (22:52):
Right. Exactly. Exactly. But for me, what we’ve always done is we’ve raised money for our own deals. That’s how our lending company was operated. We raised funds for our own deals. We had gotten to a point where we had more money than deals, but we had friends that needed the money. And that’s literally how our lending company got started. So I would say it’s just ask as many questions as you can as a passive investor. There is no stupid questions. It’s money. It’s your money. Just vet the hell out of ’em. I mean, don’t just take somebody at their word. And if you are lending money against a specific piece of real estate, make sure that you have property insurance that’s listing you as the lender. Make sure there’s lender’s title insurance in place. Make sure there’s properly documented notes, mortgages or deeds of trust. Honestly, Chris had no idea how many people on a monthly basis tell me. Yep. We lent money to a friend and it’s not even documented with a note and mortgage. Right? It’s silly. A handshake. Yep.
Speaker 1 (24:01):
Yep. Yeah, that’s the thing. Even if they’re a friend or a family member, whatever it might be, if it’s an honest deal, they should have no problem signing a document with you. They should have no problem. In fact, they should have less obstacle to that than anything.
Speaker 2 (24:14):
It’s not even that. It’s what you’re doing is so wrong financially because let’s say I brow your money, Chris, and you say, no, Derek, we’re buddies. It’s not a big deal. I’ll give you a hundred grand against that house. Well, that’s fine, but if I get hit by a bus tomorrow,
(24:34)
You have no way of collecting that a hundred thousand dollars. It’s not pledged against the property. So it wasn’t even that I was going to do you any wrong or you were going to do me any wrong. I could get sued. I could get killed all these, and you have no way of collecting. So if you are borrowing from a family or friend, that’s even more important. You should want to absolutely take care of that person in the event something happened to you and you could have a half million dollar house free and clear, and it gets tied up by a $20,000 mechanic’s lien. And now that mechanic’s lien is in front of your private money. So you definitely want them to have, the investors should have that note and mortgage so that if they have to, they can foreclose, they can wipe out other things and obviously protect their money. Yep. People do it wrong all the time.
Speaker 1 (25:26):
So true. So true. Well, I appreciate this, Derek. That’s great advice and advice. I agree. Lending has actually been a great space the last few years, but I have seen a lot of people that just willy-nilly throw money at stuff that really, either the economics don’t add up, the person doesn’t add up, or just things aren’t done right, and you don’t cross your T’s and dot your I. That could bite you in the end.
Speaker 2 (25:50):
Do you know what the number one rule in lending is, Chris?
Speaker 1 (25:52):
What’s that?
Speaker 2 (25:54):
Never lend on something you wouldn’t want to own because someday you might own it.
Speaker 1 (25:58):
So true. Just like a bank, right? They don’t want the property, but they get it. They’d at least know they’ve got something with value.
Speaker 2 (26:06):
Absolutely.
Speaker 1 (26:07):
Well, that’s why your deal is so good. I mean, 50% loan to value, that’s all they’re lending on is 50% of value. So much flexibility there. So if even things go wrong, people say what the values drop, what if they do? Just like any bank, if they only lent you 50% of the money of the value of that house, they’ll be fine foreclosing on you. They’ll be just fine. Absolutely.
Speaker 2 (26:27):
Well, and I like doing on my short-term loans, I like doing participating notes because oftentimes I’m dealing with people’s retirement accounts, their IRAs 4 0 1 Ks. So I’ve got one closing next week actually, where the gentleman’s getting 10% interest only payments, and then he’ll get 10% of the profit when we sell. And it’s a short term project to be three to six month deal. But we’re doing on a one year note. And what that does is it keeps my costs down on the short term, but it gives him, depending on when we close, it gives him a really nice double digit yield in the 14 to 16% range. And so participating notes are another really good avenue and it’s safe. I mean, his worst case scenario, if the deal absolutely made zero profit, his worst case scenario is his 10%. His best case scenario is 14, 15, 16.
Speaker 1 (27:24):
So true. Well, again, Derek, great information wise advice for sure. I know that everybody watching this needs to be writing down notes for sure, to make sure that they keep this on. Again, we’ll put generations of wealth will make sure we put that in there as well as the podcast, invite people to follow that as well. Again, thank you so much for your time today, Derek.
Speaker 2 (27:45):
Absolutely. It’s been a pleasure, Chris, always great to chat with you and if I can do anything to help any of your audience, please, guys, don’t hesitate to reach out.
Speaker 1 (27:54):
Absolutely everybody. I love what Derek said earlier is that it’s always about who you’re serving, how you’re showing up to help that person. If you’re just trying to make a lot of money, there’s a space for that in real estate. But don’t expect that you’re going to feel good and don’t expect that the law is going to want to stay on your side for very long either. So the best thing you do is just do it right the first time, make sure you’re doing your due diligence, but also do what’s right for others too. So guys, go and make it a wonderful prosperous week. We’ll see you later.