Seth: To everybody who is listening welcome. This is the REtipster podcast. This is episode 253. Today I'm talking with Drew Haney the founder of Rooster Capital a company that funds land deals for land investors.

Seth: In this conversation Drew and I are going to unpack his funding model how it works what he's learned from working with different operators some of the hidden stresses that come with being a land funder and how his mindset has shifted over time.

Seth: Whether you've ever thought about raising money for your own land deals or maybe even becoming a land funder yourself one day this episode is going to give you a very real look at what that world actually looks like.

Seth: Drew for those who don't know you at all or maybe don't know your origin story let's start with just like a quick 60 second background on how did you get into the land business when and why and how did you evolve into the funding aspect of it.

Seth: And then when did you decide to shut down your actual land flipping business and focus only on the funding side. Tell us how that all worked.

Drew: Good question Seth. And thanks for having me on. I'm really excited to be here.

Seth: Yeah of course.

Drew: So I spent my 20s as an army officer jumped out of some airplanes did a lot of logistics for artillery.

Drew: And during that season I had a boss that was just it was a rough rough experience. And I went home one night this was in 2014 and I Googled how to make money without a boss.

Drew: And at the time Google gave me three options which was be a real estate agent own your own business or be a day trader. And so I got my real estate license.

Drew: I started day trading. Real estate license was not as useful because the army moved me to Korea right afterwards. So I stopped practicing real estate. But I continued day trading.

Drew: I actually day traded commodities and currencies for five years. Eventually after the five years I had left the army to do it full time living in Korea day trading at night for the New York Open.

Drew: And eventually I had to face the reality that I wasn't profitable. I wasn't losing money. I wasn't making money. But by that time this would have been 2019 by now I had an infant. I had a wife.

Drew: And I realized hey it's time to grow up. Let's move back to the States get a real job. So moved back. We go to Kansas City. I start working as an auditor at a finance company. And then COVID starts.

Drew: And they send us home. I lost half my net worth overnight trading leveraged future S&P future contracts during the March 2020 COVID flash crash.

Drew: That's when I was like okay this is not working and I need to find something else. And I actually hit emotional rock bottom because I thought trading commodities was my ticket to freedom.

Drew: And I actually I you know I pictured the rest of my life drive into work stuck in rush hour traffic sitting in a cubicle. And I said to God my life is over. I've tried it my way and I give up and I'll just do whatever you want me to do.

Drew: And that's when I finally hit the lowest point emotionally. That's when I found land flipping. So Eric Wong close friend roommate at Fort Bragg he was like hey you should try land flipping. I triple my money in every deal. He's talking about desert square stuff.

Drew: And I was like there's no way. But I try it because I had nothing to lose. And I started working.

Drew: So fast forward 15 months later I quit my full time job in Kansas City. I'm running my land business. And I got it to the point because Tim Ferriss for our work week was one of the first self help books I did I was always aiming for the four hour work week right.

Drew: And I got it down to that. And I realized that that's actually not what I wanted because then you're kind of bored but then you still have all this responsibility.

Drew: So it didn't satisfy the itch like I thought it would.

Drew: During that time while my land flipping business we did 300 flips in four years. During that time I accidentally started funding deals with some spare cash. That turned into a full fledged business.

Drew: And eventually I had two business models that were working very well.

Drew: And I realized I was kind of B minus at both because my attention was split right. And so I had to kind of look in the mirror and realize I'm a good land investor but I'm a great funder.

Drew: And I realized what makes me a good funder is because I spent five years training my brain accidentally. I spent five years training my brain to detach emotions from money.

Drew: Because a lot of times the listeners know this $100,000 is not equal to $100,000 depending on who it's coming from. Even if their cost of capital is the same you can feel a lot of those emotional strings attached from one guy versus the next.

Drew: You know if they have anxiety over that money and it wears on you. And I think the difference with me is when I send out money I would like it to come back but it's not the end of the world if we have a breakeven deal.

Drew: Done 700 deals in five years with six losses. And to me the numbers make sense. It's a no brainer business model.

Drew: And that's where we're at now. I run Rooster Capital full time.

Drew: I have one full time assistant and I'm just here to have fun. I love partnering with operators. I have a very high need for social interactions and so I actually don't underwrite deals remotely.

Drew: I underwrite deals live with the operator. So they're essentially getting even if I say no to the deal they're getting some coaching along with it. And worst case scenario I make their day 1% better. They get some free advice and then we part ways.

Seth: Just to be totally clear because some people might hear this term land funder and have this idea in their mind of what that means. And the interesting thing is I've still not met any two land funders that do everything exactly the same.

Seth: So when you say you fund land deals let's spell out exactly what this means. So you're not lending people money right. You are actually giving them all of the cash that they need to acquire the deal pay for any improvements and sell the thing.

Seth: And then you split the profits in some form after it's sold. Or I don't want to speak for you. Go ahead and just explain. How does your typical funding structure work.

Drew: Yeah typically we're sending money straight to title. Often we're taking title. That's the gold standard. If I have an operator I've worked with a lot I'll have them take title and then I'll just put lien on it for collateral.

Drew: Because I have money partners too right. It's only a matter of time until you run out of your own money. So I need to collateralize it somehow even if I trust the person with a hundred percent of my my net worth.

Drew: So I send the money to title if there's improvement costs along the way usually the operators either sends me the invoice or they pay it and then I just reimburse them and then on the back end it's not a fixed interest rate we split the profit right it's a joint venture.

Drew: And so the way it used to be is that pretty typical I mean this is the standard for a JV funder usually 50 50 split. And what I found is that it's actually it created a conflict of interest between myself and the operator because there was no incentive for the operator to drop price other than for them to get paid sooner right.

Drew: Because if they know that when they drop price they're eating away at their own paycheck that's an incentive for them to not do that. And as a funder I care more about how many times per year I can roll my money and I care less about the actual spread of each deal.

Drew: So there is a conflict of interest. And I never had any true conflict with any of my operators but I could sense it where there is some friction when I wanted prices lower and they wanted to wait longer.

Drew: And so what I did is I switched it to where it's now an escalating cut. So instead of being a flat 50 50 it actually starts out much cheaper. It starts out 70 30 in their favor for the first 90 days. Then it goes to 40 60 for the next 45 days.

Drew: Then the next 45 days it's 50 50. And then the last six months it's 55 45. So slightly in my favor. But if the operator is truly averaging let's say 85 days on market which is low they're going to have a really generous cut.

Drew: But if they're average let's say what is average right now. Like 130 days on market. If they're average they're going to be at 60 40 which is still slightly better than normal. And that way we're both incentivized to get the money back faster because their their cut is slowly shrinking.

Drew: Then at the one year mark.

Drew: I actually used to not have a 12 month clause and I thought that it was an incentive for the operator to work with me. Because most other funders there's a 12 month clause where you lose your cut at 12 months which is very reasonable.

Drew: And I thought well I want to make myself different. I'll remove that. And what I found is by the nine month mark anyways ways the operator's kind of tired of the deal. They've lost steam on it.

Drew: And so what I thought was a concession on my part that they valued they actually didn't care about that. So I put the 12 month clause back in. So at 12 months they can either walk away from the headache and then it's my problem to figure out how to dispo it or they could buy me out.

Drew: If they still believe in the deal they could buy me out at an interest rate. So that way my money partners are protected. My money partners have a clearly defined end point when there's a deadline because that 12 months I don't want to deal with the property.

Drew: I want the operator to make money because it's not in my business model to sell properties. I can do it but I don't want to be taking buyer lead calls at 11 PM like I used to.

Seth: When you say the operator can buy you out at an interest rate. So that basically just means they come up with the cash to pay you back for every penny you've put into it plus a certain percent of interest on top of that. And how often do people do that. Like does that ever happen. Or do they kind of just say nope I'll just give you the keys. You take over.

Drew: Yeah. So this is a newer program. So we haven't it hasn't been in play for 12 months but I've talked with a lot of my peers who have had this and pretty much they say nobody ever.

Drew: Chooses the buyout option. Because they're done with the deal. They're tired. We clearly got it wrong right. It's a shared responsibility. It's not the operator's fault. It's not the funder's fault. We both got it wrong right.

Drew: And operators just they want that project to stop bouncing around in their brain.

Seth: Who is in charge of the selling process. Like who decides who the realtor is going to be or tries to list it themselves and keeps pushing that forward. Is that on you or is that an operator to do that.

Drew: That's on the operator. So if they want me to hold their hand I can. And I enjoy most of the time I enjoy that coaching process. But most of my operators you'd think that my operators are the newer ones who don't have cash.

Drew: In reality my highest volume operators are ones that have very mature business models. They've done hundreds of deals. A lot of them have more experience than I do and they see it as a huge value add to outsource the most stressful department to me. And so.

Drew: By working with me they're able to do three four times more deals because they've been able to hook up an unlimited pipeline of capital into the machine they've built.

Drew: And if they've built the machine that doesn't revolve around them working more where their systems are running without them then in theory it's what 10 20% more work for 300% more deal volume right. Because their employees are doing it all.

Seth: So if there is an impasse on the pricing like say the property is priced at X number of dollars it's not selling you want to lower the price but they don't or maybe vice versa who gets the ultimate say on that. Or it sounds like maybe this has changed. So how did that used to work. And then how does that work now.

Drew: You know it's odd. So I've done 700 deals 300 in my own business 400 funded. I've never once had that be a problem but I guess it depends who takes title.

Seth: But you said the operator sometimes is reluctant to lower the price. So I guess when they're reluctant do you just do it anyway. Or is it up to them to lower the price. How does that work.

Drew: It's a discussion right.

Drew: Because this is not a transactional business. Some of my competitors they're looking to vet 100 deals and they want to cherry pick the best deal out of 100. I'm looking to vet 100 operators and I want to work with not the best operator but the most pleasant and the most fun operator to work with.

Drew: Because if I'm spending 10 hours a day in this business I want to work with people who are fun and I get along with and we you know iron sharpens iron and they don't have to be the same as me it's not that all my operators are mid 30s with with two kids actually my.

Drew: My most volume operators are married women who have very different lifestyles. And so going back to your original question I haven't had that as an issue. If it did become an issue it means that I did not underwrite them as a person good enough.

Drew: Maybe they're going through a tough season right. Maybe I am. But so far it just hasn't been an issue. But it would come down to what's in the agreement I guess.

Seth: Okay. Well I guess what is the agreement. Because it sounds like it has been an issue. You just have never pulled the trump card and said nope I don't care what you say. We're lowering the price because operators are reluctant to lower it which tells me you wanted to lower it but they didn't.

Seth: So does the agreement give you the power to do that. Or does the operator have the control over that.

Drew: When I said plural operators reluctant there's really just one. I think it's understanding that they know a lot more context on the property than you do and so does the realtor. Right now the agreement says that I'm the final say.

Drew: But the chances that I exercise that with an iron fist is quite low because I know that I'm so far removed from this the context of the deal that it's just unreasonable for me to lay down an iron fist because you're going to damage that relationship. You're going to damage the friendship.

Drew: And what over $5,000 lower price. It doesn't make sense. But yes the agreement says that I have final say but I have yet to really exercise that.

Seth: Well it's interesting.

Seth: The emphasis that you put on the person versus the deal itself which I don't think is like terribly uncommon. I think everybody weighs the personality and the likability to some extent. But to you it's like it seems like that's in the front seat. Like that is almost of utmost importance beyond everything else.

Seth: Correct me if I'm wrong on that. But I guess my question is some pleasant and fun people are not good business people. So like what's the minimum level of competence you need to see beyond just the good vibes they give you. Like how do you know they're not just fun to be around but like I can actually trust them to make a good decision.

Drew: I would say if if they're this classic ADHD visionary with no systems in place and they're just shooting from the hip and they have no team members that balance them out. To me that's a concern because yeah my question would be what are they missing.

Drew: Again if they're doing small deals I see the risk is more decentralized but my perfect avatar for an operator is actually nerdy introvert cares about the details. They don't go to a lot of conferences. They don't want to socialize too much. They just want consistency.

Seth: Let's just go through a scenario. Let's say an operator is coming to you for the first time. You don't know them. You don't know anybody who knows them. And I know one of the things that you like people to do is send you a Loom video or maybe just get on a call like you get to know them personally.

Seth: So like in that first interaction with this person how hard are you looking at the deal in that scenario versus the person themselves. You and I both know people who totally gave off all the good vibes in the world. And it actually takes like months of working with them to realize like oh this person's actually not that great of business.

Seth: They pass the personality test but it's you're kind of down the road with them when it blows up in your face. Is there a point when the deal is scrutinized really heavily. But once you do a deal and it goes well then you can kind of ease off the gas on that and just focus on the person or is it kind of just like winging it to.

Seth: Some extent. Like yeah sometimes you just get burned this way.

Drew: I haven't got burned yet. I think it's very nuanced and I do think it's a skill set that you get better at. Like I said earlier the concerning red flag is the cowboy that's shooting from the hip. They have a ton of charisma but they have no systems in place and they're just kind of winging it. That means it's on me.

Seth: Do you like evaluate their systems or something. Or like how do you even know if they have systems in place or a team member to balance them out. Like how deep do you dig to actually know that stuff.

Drew: You can just tell. And then when you ask questions about the deal you can just tell how much underwriting they've done. They don't even know the utilities. That's like a red flag. I mean I don't expect them to know the diameter of the water line which is preferred but I expect them to at least know where the water is.

Drew: And if they don't even have the troubleshooting ability to call the rural water district and get a map from them then that's concerning. Another thing is on the first call you don't need to have all the answers.

Drew: But by that second call let's say I give you seven do outs right. Let's say I said okay we need to figure out so water's a mile away. Let's figure out how much it costs to bring it in. It's probably going to be way too much money.

Drew: And then also we need to figure out well costs. How deep is a typical well in the area. How much does it cost to drill.

Drew: Where's power. And then by the second call they.

Drew: They don't have the answers that's a concern. So a classic visionary ADHD a lot of charisma if they don't have an integrator on their team it's going to be very hard for them to provide those details for me.

Seth: Pivoting a little bit into what makes you different from other land funders I think that we're kind of getting to that because I know other land funders were like the person almost doesn't matter at all. They're looking at the deal every time. Like what do the cold hard facts look like.

Seth: And if it's not a good deal from the most experienced person ever they don't care. The deal's out. So are you saying you're kind of the opposite of that. Or it's like once a person proves themselves and you know that they're good for it you'll kind of just fund everything blindly because you trust the person.

Seth: On a typical deal say you've done 10 deals with a operator and it's all been good. Is it kind of just like yep here's a blank check. Just go for it. I trust you. or how much time do you or somebody on your team spend looking at the specifics of that deal to make sure it's okay.

Drew: That's a good question. I know you're looking for metrics and like a red line that gets crossed. But really I've had two of my competitors tell me in person two of them told me that they make sure that the operator has enough personal assets so that they can sue them if the deal goes poorly.

Drew: So that is very transactional thinking and that's in my mind that's I feel like they're missing the point. They're trying to maximize the bottom line.

Drew: What I do I'm the only funder I know of that flies to Alaska to visit an operator's kid's birthday party right. I drove to Canada to hang out with operators. I spent a week with them and I'm going to the hockey beer league. I saw his he had a hat trick. He shot three goals.

Drew: I'm part of their lives much more than just a transaction. And in fact I have five or six operators flying in here to my house in LA in February. And we're having a mastermind a free mastermind where they're going to get a ton of value. They're going to get hot seat time.

Drew: And there's a light expectation. Hey I want to do business with you. Let's dive deeper. And yes you might not need my cash for every deal but I want to work with you and let's make this a multi year relationship. So I'm very boutique very private very focused on a select few.

Drew: I don't want to fund 100 deals from 100 different people or I guess one deal from 100 different people. I want to fund five to 10 deals a month from 10 different people right. So that's really what's different.

Drew: And once you get to the point where the track record is very clear. It's clear that they have their systems down. And it's at a point where the relationship and the friendship is actually more collateral and their reputation.

Drew: Eventually that becomes higher collateral than the deal itself. Because if they wrong Drew or Drew wrongs them their relationship takes a hit with me and their reputation takes a hit. And that's really what I'm looking for is what do they have to lose.

Drew: Are they in their mom's basement with with nothing to lose. Or are they a well known person in this business where they have a lot of incentives to do the right thing. So I know I'm not answering your question perfectly.

Seth: We kind of get into it. Maybe another way to ask it is it sounds like to you the person their reputation matters more than the deal itself in some ways which is in the world of like banking this whole idea of maximizing the bottom line.

Seth: Suing the operator or the borrower if they don't follow through like that's actually fairly normal. That's just how banks work. Like they're out for themselves to get the money. They don't care if they leave you for dead. Of course they're never going to advertise that. But at the end of the day when things get ugly like that's what it comes down to.

Seth: They will totally hang out to dry and become made whole. So what you're talking about where it's like no I will actually take a hit to preserve this relationship. That's not something I've seen a lot but it makes me wonder if you're willing to take a hit to preserve the relationship how many bad money losing deals would it take for you to stop working with an operator.

Seth: So they didn't do anything morally or ethically questionable. They're still a great person but like things just aren't going well. Would you abandon them after three bad deals or five or 10 or at what point will you say look we can't do this anymore.

Drew: With the ones that it's clear again my legacy operators they all have the same experience or more experience than me. With them anything under 50K purchase price I'm not looking at. It's just it's not worth my time. And if my money partners have an issue with that then that's fine. I'll use my own money on those deals.

Drew: I do have one operator where I've worked with him for a while but at the beginning he said Drew I know you trust me. I just for my own sanity I want you to look at at least the first 10 deals we do together.

Drew: Even if they're dinky buy for 11 grand sell for 30 right. So I do look at his deals and I'll make a little note in the spreadsheet. Hey there's some slope on this and I'm concerned about the setbacks.

Drew: But at the end of the day I'm good with it because our spread is super wide and there's probably no setbacks in rural Arizona anyways. And so then he responds yep there's no setbacks and there's actually a three quarters of an acre that's buildable area. So I'm good with it.

Drew: It's the type of thing where because I day traded I had 2,000 trades or something in five years.

Drew: I understand the law of large numbers. And for me it's more important to I think Y Combinator does this too where they're really underwriting the person the founder. Because if you try to underwrite every single little transaction you will go crazy. You go insane. I mean I would need a full time employee. I just prefer my model better.

Seth: Yeah. Well and I think you're right to a point and you're probably on the right track in terms of like when it's below 50 grand you know you don't really look that close at it. I mean that's why things like a business line of credit exist. Cause it's like look we know that you as a person are financially strong enough and you know you've got a good history.

Seth: So like we trust you do whatever you want with it. Just pay it back with interest. To answer your other question about the number of duds if I'm going to put a number on it I would say 1 out of 100 is totally reasonable.

Drew: When I say 1 out of 100 I mean significant loss. Buy for 50 sell for 20. We missed the pipeline whatever. I would say if that's 1 out of 10 that's unacceptable way too high. But I will say I am seeing in terms of like breakeven duds I'm seeing one out of five.

Drew: That's very normal for every five deals. One is a home run sells immediately for full asking. Three of them sell between three to nine months let's say three to seven months. And then one is just a dud. It takes a year. We get out just over breakeven. I would say that's pretty normal.

Seth: I know in your history as a day trader you know you had experiences where you lost a lot of money. That's part of why this idea of loss doesn't scare you because you've weathered that and you know it's not the end of the world. Just kind of gives you a different perspective than the average person might have.

Seth: And so that may give you thicker skin in terms of potentially losing money on land deals and how it's to be expected at some point. And that's all good and fine if you're just using your own money. You can make whatever decisions you want but you've got other people who give you money so that you can then fund other people.

Seth: How do you reconcile this with them. Like how much scrutiny do they put you under when you're kind of doing this stuff that's not the most typical underwriting process.

Drew: Like do they kind of just blindly trust you because of your track record. Or do they say no I want to scrutinize every single deal and get in the weeds. Just tell me how you balance that.

Drew: That's a good question. And I think it depends on who the money partner is. So if the money partner is a school teacher making 50 a year and they're sending me 20 K that took them five years to save up. That is sacred money. And I would only deploy their money to do them a favor.

Drew: And in that scenario if there was a loss I'd probably just make them whole. But the best money partners are sophisticated investors. They're doctor lawyers. I've got a Chick fil A owner who just sent me a quarter million last week before he even signed the contract. They understand the big picture.

Drew: And so they don't stress about the small stuff. If I did have a money partner I have not lost money for an investor yet but eventually it'll happen. And if they freak out because they're investing right. They're catching more of the upside because they're exposed to the downside. If they freak out then that means I did not underwrite them correctly as a money partner.

Drew: And if this is happening so six losses over 700 deals even if I had those six losses let's say there was a money partner on those even if every single one of them freaked out and wanted me to reimburse them the math still works to where I can afford that and it's still a highly profitable business model.

Seth: Now what does the pie chart look like. Like of all the deals that you fund what percentage of those are funded with your cash versus cash from one of these outside funders.

Drew: It's maybe one third my cash two thirds arbitrage money. And this is something I've wrestled with for a while because the funding is if you know how to do land deals you know how to underwrite it's super easy until you run out of money.

Drew: And then once you arbitrage it becomes four times the work for half the profit.

Drew: So I've fantasized about why don't we move to Korea live on $3K a month living costs and then I just roll my own money right. It'd be a quarter of the work right. For like 40% of the profit. I enjoy working with money partners on most days.

Drew: And I think I would get bored if I limited my deal volume just to my own money.

Seth: When an outside funder gives you money so that you can then fund a land deal what is the profit split between you and that outside funder. Because you might be getting maybe 50% of the profit between you and the operator. And then that amount what is that split again 50 50 between you and the funder or how does that work.

Drew: Yeah that's what it is currently. So I don't have any special arrangements with any money partner where there's no special cuts right. I offer all of them half of my cut on each deal. So what that does is that keeps it very simple. It feels very fair.

Drew: The pitch to them is hey I've built this machine. I've built this network. You dump your money in it. And then we split the profits 50 50. The funders cut profits. I'm probably at a point where I could because I have enough of a track record and I have enough very happy money partners to where I could get cheaper money.

Drew: I could borrow from them at a fixed 10% to 15% interest rate.

Drew: But I don't want to mess with that right now because it's working so well even though I could get cheaper capital it's just nice to know that I because I'm at a point now I make one text or one phone call and I've got a quarter million the next day for a deal that they haven't even seen.

Drew: They just know that hey Drew looked at it Drew's vetted the deal and the person. These are for bigger deals of course. And it's just I sleep really well at night knowing that I have a lot of loyalty on the capital side.

Seth: So the reason you don't try to get money from banks or some other source is mostly just because of ease I guess right.

Drew: Yeah. I mean it's a pain in the butt to man it's such a pain to have a bank involved at a closing and they want three years of tax returns. I have 12 entities. My assistant spends like three days gathering everything and then we have to answer questions on what does Grady Development do.

Drew: You just have to answer all kinds of questions and it's a pain in the butt. So I'd rather have more expensive capital for more momentum.

Seth: So like how do you underwrite these outside funders. Like what would make you say no to them. I know you talked about the example of like a teacher making 50 grand a year and the 20 K is like everything to them. So like maybe that would be a screen out situation. Maybe not but like what would you need to hear from a funder for you to say nope you're out. I'm not going to take your money.

Drew: Yeah if I explain the business model to them very thoroughly and they still don't understand it that's a big red flag. Because that means if they fund a deal and then something goes wrong they're going to freak out because they simply don't understand what's happening.

Drew: Versus if they understand the risks they understand that this is not a get rich quick thing. It's a business model that's currently working and will probably continue to work but it's not guaranteed.

Drew: I'm just I'm looking for that emotional maturity and some of that financial sophistication.

Seth: So like how much more stressful is it for you to fund deals with other people's money versus just your own.

Drew: Man this is like the bane of my job right now. So because I split my cut with the money partner and when I have a money partner it doubles the amount of communication needed. It's really four times more work for half. Well it's twice the work for half the profit. So whatever ratio that is it's four times less efficient per dollar.

Drew: Again my money partners are great and most of them are very low maintenance. But if I have one that's kind of stressing about money and it's locked up in a deal that's just not going well it's a dud that really wears on you right. It's like what 70% of my stress comes from 5% of my deals.

Drew: And if it's my own money that's parked in this illiquid dud I don't care. Of course I want it back but I don't really care.

Drew: It's eventually going to come back. You'd think that I would have an incentive to cherry pick the deals where I use my own money for the best deals and then I farm out the lower spread or higher risk deals to the money partners. But in reality the way it works I could do that but it would take an enormous amount of cognitive bandwidth. That would be a lot of forecasting.

Drew: What in reality happens is if there's money in the account and the closing is the next day it's my money. If there's no money in the account I'm calling Ryan explaining the deal to him very quickly. And then he's the money partner on that one.

Drew: So it's just whatever money is available at the time that's what goes out. And that's what gets tagged to that deal.

Seth: So if somebody were to bring you a deal an operator brings you a deal and it's a bad deal. Maybe you see something where you're like man this is a disaster. This is going to blow up. This is not going to go well but it's an operator that you've worked with for a long time. You cherish the relationship. You want to keep them happy.

Seth: Are you telling me that you're going to close that deal anyway knowing that it's going to be a disaster just because it preserves it. Or like at what point do you say no this is where I draw the line. You got to go elsewhere for your money. Or does that just never happen because you're not looking at the deal.

Drew: If it's a newer operator I definitely am looking at every deal. So I've got one operator. He's awesome. Army officer. We're similar age. There's just a lot of synergy between us. He's newer but he's crushing it. And he's clearly very competent. So he brought me three deals. One was a clear home run.

Drew: One was average and one was like very C minus. It was like a buy for 30 then put five grand into clearing it. And then it'll probably sell for like 50 to 55. It would be a deal I would normally say no to.

Drew: But my point to him was hey I want to build a track record with you. I want to get momentum. And these small wins in the early in the first year of your business the small wins are very important.

Drew: So my point to this guy was we're doing three deals at once. One's a home run one's average and one's like really C minus. Let's just do all of them so we get some good momentum. And then on that C minus deal I'm not using a money partner just using my own money because it's not even about ethics of it.

Drew: It's about I don't want to have to explain the nuances of it to somebody else.

Seth: If a funder is like riding you a lot and when I say that I mean like calling you every other day with an update and maybe they're like a billionaire they got all the money in the world but they're just like making your life hard. Is that enough for you to kick them out and be like nope we're not working anywhere.

Drew: Yeah when you say funder you mean like a backup funder.

Seth: Yes I'm sorry. That's what I meant.

Drew: Yeah now I call them money partners because a backup funder is just kind of misleading.

Drew: But if they're high maintenance or I sense resentment like I had one guy I had made him 35% annual returns for two years in a row. He was the money partner on 10 deals. And I told him when we started out of every 10 deals two are going to sell immediately for full asking ish. Six are going to be pretty average and then two are going to be duds.

Drew: And so we're in that life cycle where he got the home runs he got the average deals and then now there's one or two duds left and he's annoyed.

Drew: And then I'm feeling annoyed because I feel like I educated him properly where I told him that this was going to happen. And then he starts making comments about how he could have made higher returns in the stock market. And I'm thinking.

Drew: Sure. But hindsight is 20 20 and stock market averages 8% a year. Yeah the market may have been doing 30 plus for the past couple of years. But when I sense that resentment and the lack of gratitude that's when I'm.

Drew: Like hey maybe we're not a good fit anymore. And I don't have that discussion with them. I just stop asking them to partner on deals.

Seth: What is the bigger bottleneck for you. Is it finding more operators in deals to fund or is it finding more money partners or backup funders.

Seth: Which is the harder pipeline to keep full.

Drew: Well the first three years it was way too many deals and hard to find money. And then now it's slightly the teeter totter is slightly in the opposite where I have a lot of money partners saying hey Drew I've got 100K sitting here. Let me know when you've got the next deal.

Drew: And then now I'm on the search for more operators because it's just such a fun business model. I talk about high maintenance money partners sometimes.

Drew: And you know sometimes they can ruin your day but 29 days out of 30 this is a really fulfilling role I'm in.

Seth: So like what is keeping you from quadrupling the size of your business right now. Is it just there's not enough deals to go around.

Drew: Deals. Yes. And the way I I'm looking for more deals is I'm looking for you know five to 10 more solid operators who we do we do one to 10 deals a month together.

Drew: And then also my systems I'm revamping all my systems right now. So I have Justin Pichet's Notion guy. His name is Lloyd. I can connect you with him or Justin can connect you with him if you want. He is doing a custom Notion system for Rooster Capital and that should allow us to have a lot more efficiencies a lot more automations.

Drew: Because 100 to 150 deals a year on Google Spreadsheets was working. But if I want to be doing 300 plus flips a year I need more efficient systems and so I'm upgrading the systems and then I'm.

Drew: I'm currently looking for more solid reliable pleasant operators to work with.

Seth: If you were just starting out now in this funding space knowing what you know now if your primary objective was to find these money partners like find as many of them as you can so money is never a problem. They're just waiting to give you the money. How do you find them. Or how do they find you. Like if your mission is to just find as many of these as possible like what are you doing to find them and connect with them.

Drew: So the same way that I'm vetting an operator these potential money partners are vetting me because I'm their operator. They're looking for what does this guy have at stake to not run a Ponzi scheme and steal my money and flee the country. Like having a wife and kids helps because I have a lot to lose.

Drew: I've never had anyone ask me for my credit score but what kind of citizen are you. Are you volunteering in your community. Are you a contributing citizen. Are you a well known person in the space. Do you have a reputation that is at stake.

Drew: I spend a lot of time on my own podcast and being guests on other podcasts. And so these potential money partners they start to see you more and they realize hey Drew is in this for the long haul. He's in this for the next 20 30 years. He's not going anywhere.

Drew: And so for a lot of them it's the easy button where as a money partner who gets half of my profits it's like 1% of the work for what. A quarter of the net profit on the deal.

Drew: That's a win. If I could find another Drew I might just pack up move to Korea and just deploy my money with them.

Seth: I don't know if you've ever considered trying Stride for your Notion thing but I'll just mention it here because it seems relevant. So we can set up as many opportunity boards as you want. It's basically like a little Trello board. You could use one or you could use 50 if you wanted to and then give each money partner access to only that opportunity.

Seth: So it kind of keeps them and you and everybody updated on like where is this deal at in the process. And what is the value of this opportunity when the thing sells. And if it's been sitting in a certain stage for too long it can send them or you a notification to like hey revisit this reevaluate update this person that kind of thing.

Seth: It's got a lot of automations that are just built into it or that you can create.

Seth: As far as your imagination can go. I'm sure Notion could probably some of that but it might be worth considering. Anybody out there who's trying to keep track of multiple deals and different people involved in them and different stages and automations based around that. That's exactly what it's for.

Seth: Have you looked at other CRMs beside Notion.

Drew: Stride I haven't used it myself but what I know of you and Mike because Seth your attention to detail and your desire for perfection is the highest out of anyone I know combined with Mike's crazy scaling ability. I just feel like it's the one CRM that's been made by very serious land guys.

Drew: So I've had operators that I've used that they're excited about it. And I know you guys have worked really hard on it and I'm excited to try it out myself.

Seth: Yeah. I appreciate that. Yeah. Anytime you want a demo let me know. I can show you how it works.

Seth: On the operator side of this I know you said currently the bottleneck is not having enough operators and deals that you know you could use more of those to make your business bigger. What is the process for finding them. There's a lot of different ways. Chad GPT came up with 13 different ways.

Drew: And I'm trying to figure out right now what is the most efficient lowest effort highest return. Because how do you find that perfect avatar. It's truly a needle in a haystack it feels like sometimes. Going to conferences definitely helps. You're spending time with people you're seeing them when they're tired and they've just traveled and maybe there's some alcohol in their system and they have less filters.

Drew: You get to kind of see who they are with their walls down.

Drew: I think that's important. Saying it on a podcast like this I think will make a difference. I have been posting on social media. I'm just tossing spaghetti at the wall right now and see what comes back. But I've been posting. So the B roll is me working out. And then usually I post some text or some voiceover on how I'm looking for more deals.

Drew: So still too early to know how well that's working. But I think.

Drew: There's a million ways to go at it. And I'm still trying to figure that out because up until now everyone's come to me. This is the first time in three years where I'm looking for people until now everything has kind of fallen in my lap.

Seth: I can totally relate to that. I know the evolution of my business has kind of been similar. Part of it is just the difference in how the internet has changed and different social media algorithms that kind of don't work as well anymore for getting your message out there. But to your point like I don't know that I haven't figured out either.

Seth: It's sort of just a game of like trying a bunch of different things knowing that some of it will be a waste and won't work but some of it will. At the end of the day there is power in just talking about it repetitively and making sure people are always aware of what you're doing and what you have to offer. And at some point it'll kick in.

Seth: But the worst thing to do is to just not do it and not talk about it and not make the effort because then nobody is ever going to hear about it.

Drew: And there's a lot of avenues I haven't tapped into yet. So one is you know I've had a lot of close friends Ajay Kendall.

Drew: A lot of them who have an audience have said hey let's do a Facebook live.

Drew: Together and just kind of show the world what kind of service you provide. And so I haven't even tapped into that yet. So I'm excited. A lot of opportunity a lot of fun projects ahead. I love working on projects whether it's volume deals or more complex subdivides.

Seth: Well some of these operators you work with how do you keep them loyal to you. Because for some of them I don't know this maybe you don't know this but I have to assume you're probably not their only funder. Maybe they use you for some deals and somebody else for other deals. So assuming that's true assuming you have some operators where you are not their only funder.

Seth: Why not.

Drew: Yeah I've had some tell me hey Drew you're the only one I use and I'm loyal to you just because you're the easiest I've worked with. Then I have some that I know they have maybe one other money partner.

Drew: And I just don't think about it. It's up to them. They can do what they want. And as long as they're not sending me their worst deals it's going to be clear after a while if they're just farming out their worst deals to me and then maybe they have a cheaper source of capital where they do their best deals with.

Drew: But you'll go crazy thinking about all these people. If you start to think of it like a marriage and them using other money partners as infidelity then you'll go crazy. You'll be insane.

Seth: On some of the deals that you've had I think you said six deals where you have lost money. What happened. What could you have done differently in hindsight to avoid that. Or what have you changed about your business to fix those things in the future.

Drew: On the ones that you said have lost money yeah is that am I remembering that right you said six of them have lost money.

Seth: Yeah I mean just looking at hey did we miss something in our underwriting or did the market just slow down in that area after we bought right is this something we could have prevented.

Drew: So the biggest loss was something we could have prevented where we actually took a risk. So we call the county operator calls the county or the city and we get the maps.

Drew: The multiple sources said no pipelines underneath. Everything's fine. These three lots are buildable. And the survey was six grand. So we decided to not do a survey. We took the risk. Ends up that there's a pipeline underneath two of them. And so now we have two unbuildable lots.

Drew: And so you know is somebody to blame for that. Not really. We took a risk. And it backfired right. We wanted to save money on the survey. Are we more prudent now.

Drew: Probably yeah. Spending some of those smaller amounts to potentially kill the deal is less painful than rolling the dice and having a big loss. But if it's out of those six losses two have been significant. You're exiting significantly below what you paid for it. The other four were just under breakeven. So I don't know if I would consider that a real loss.

Drew: You know like 400 bucks three grand whatever.

Drew: And so if we just made a bet when the market slowed down I don't think there's anything to change from that. At the end of the day we don't know how these are going to go.

Drew: You could go crazy doing all kinds of due diligence. You can try and find as much information as you want on it. But at the end of the day you need to pull the trigger without having 100% of the information.

Seth: You and I have talked a little bit about this perception that some people have about being a funder. First of all some people see it as something you graduate to. So you start out as an operator you work that way for a number of months or years. And then when you reach the pinnacle of success then you become a funder.

Seth: And either do that half and half with being an operator or you just graduate to fund it completely like what you did. I think you had pointed out how like that's not really how it needs to work at all. Like you could start as a funder if you wanted to. It's not like something that only the best of the best can do. What's the reality check on that.

Drew: This is something that I think is a misnomer a lot where you're supposed to graduate to different levels. You start out with the desert squares and then you move to this blue ocean five figure flip stuff. And then you move to subdivides and then you move to entitlements. You know somewhere in there you become a funder because you have too much cash.

Drew: And I don't see it like that. I think that's a normal progression for a lot of people. But there's plenty of days where I often fantasize about having my own land business again.

Drew: Right. Because you have more control. If you get those dopamine hits when you close a big contract with a seller that's super exciting right. I don't get that as a funder. So I don't think it's something that's a hierarchy.

Drew: There's a lot of ratios that you can use to make funding look great like time per dollar. I don't work as long as a land business owner. But what about stress per dollar or pressure per dollar or risk per dollar a lot of those ratios are a lot worse.

Drew: Sometimes I wish I was in the operator's shoes where I've had operators make 300K with no skin in the game. For you know nine months of work two hours a week. That's nice. I'd like to do that. Get the dopamine hit of closing that big contract. You risk somebody else's money and then you just get paid to make sure the driveway guys go out there and make sure the gravel is good and make sure the realtor is listing them correctly.

Drew: Sounds nice to me. So it depends on what you look at.

Seth: Yeah. I think it's easy for people in both seats to see the other side as the grass is greener. I've heard kind of like subliminal complaints from both sides about.

Seth: How we risked all this money. We only made half the profit or like man I put all this time into it. I only made half the profit. But when I look at an operator especially one where their cost of capital is zero zero financial risk in the game like that's a huge deal especially if the funder is wearing the selling hat or leading that charge.

Seth: Some funders do some funders don't. But you could literally just make your whole job just finding deals and bringing it to a funder especially one like you that they trust. And like it's almost kind of a rubber stamp as long as the operator has looked at it closely enough and that kind of thing.

Seth: I mean that's a heck of a business when the financial stress and anxiety and risk isn't there at all. As long as things continue to go well like that's a pretty nice gravy train when you think about it. It's just a labor play.

Drew: I fantasize about that a lot where I'm just the solopreneur maybe one assistant.

Drew: I'm hunting woolly mammoths and I've got this money partner in my back pocket where yeah he'll take half the profit. But if you're closing you're getting stuff under contract at 2 million. And then for a year's worth of work you're turning that into 4 million. And then he makes a million you make a million. That's a cool thought to have right.

Drew: Maybe it's four hours of work throughout the year four hours per week.

Seth: Yeah. I think about that a lot.

Seth: Are there any other problems that a funder has to deal with that the operator is kind of unaware of or oblivious to.

Drew: I mean sometimes it's the thought of.

Drew: Being exposed to 100% of the downside for 30% to 50% of the upside. Because if you're a hard money lender technically the operator has to pay you back versus JV funder. If it's a loss it's a loss and you lose your money.

Drew: And so a lot of times it can feel like this asymmetric bet to the downside where it's almost like selling options where you're just trying to avoid that black swan event. But yeah there's times where the stress is through the roof. It can ruin a whole vacation. You're in Japan your wife wants to try gelato and you need to find 250K by the next morning and it's nighttime in the US.

Drew: That's not a good feeling. You're going to be grumpy.

Drew: Or if it's Friday and you need to find 300K by Monday and you're calling people on a Sunday afternoon saying hey buddy you want to wire me 300 K tomorrow morning. You know it makes you look bad but then you've made promises to the operator. You know I've missed one closing out of 400 and it was because the money got tied up by a bank thinking it was fraud.

Drew: So to keep that perfect track record is an enormous amount of pressure.

Seth: Tell me how you balance things between having multiple operators that need you for things and also multiple money partners who have money that they want you to use. How do you make a decision. Like okay I'm going to bring this deal to this guy because of X Y Z whatever that reasoning might be. Or if there's five operators all barking for money and like you can only give it to one or two of them right now. Like how do you make those decisions.

Drew: I don't think I've yet told a money partner that this is my doing. This is stress. I put on myself. I have not yet. Sorry. I've not yet told an operator that I don't have enough money for the deal. I always find the money to my own detriment.

Drew: I mean there's there's one time last year I had to find one point three million in three weeks. And man that was stressful.

Seth: And so why do you put yourself under that stress. Why not just say sorry can't do it right now.

Drew: Well what we talked about I don't know if the mental health conversation will get into the episode but just talking about these neural pathways and these coping mechanisms we have as adults from wounds as a children there's probably something in my brain that says.

Drew: Hey if I say no to this person then they'll abandon me and they won't come back. So I have to do everything possible to deliver. Otherwise they'll see me as unreliable or not consistent. There's some people pleasing in there too right.

Seth: Maybe this is actually an interesting time to shift a little bit into the vulnerability side of things. I know you and I were at a Land Investor Hangout earlier this year at Josiah's house and talked a little bit about dealing with the bad feeling when you aren't being seen as an authority or being invited to things or being seen in high esteem.

Seth: You had also mentioned how for whatever reason you often compare yourself to your peers who are about your same age. So like you wouldn't really compare yourself to me because I'm older than you but you would compare yourself to somebody like Ajay or Callan or you know other people that are of a similar age. So why is that.

Drew: Well Ajay is eight years younger I think never mind forget I said Ajay pick another name that's you're saying Justin Pichet Callan they're all within 12 months of me those are tough people to compare yourself to.

Seth: Yeah they're doing so well but like there's probably way more people your same age who are not doing as well. So why not compare yourselves to them.

Drew: It's this weird thing in your brain where once you pass somebody on whatever fake metric you choose to compare yourself once you pass them they're no longer a competitor. So like.

Drew: Justin Pichet same age. He went through military officer training just like me. He probably makes three times more money than me. He's got twice as many kids.

Drew: You start to compare yourself in a way that it's just this never ending doom cycle.

Drew: And let's say there's a metric on beating him in I don't know consistency with lifting weights. Then in my brain it's like well that doesn't matter. So I think that's a sign of a deeper issue that we all need to explore where you know why are we comparing ourself.

Drew: And even rejection you know I hear I'm invited to a lot of stuff but there's occasions where I hear oh this group of guys are doing this mastermind in Montana and I wasn't invited right. It's a private mastermind. And you feeling that rejection that's an evidence of something deeper that if you want to heal and progress you need to explore.

Drew: I think when you get on that hamster wheel of comparison you need to get off of it. And I think most of us wrestle with that in some way or another.

Seth: When you find yourself resolving that in your mind and maybe you don't I don't know but when you're able to get off that hamster wheel and just be okay with who you are what thoughts are helping you get there. Like how do you stop those thoughts and just let go.

Drew: If there truly is a higher power that created us if we do have a creator and he's a good creator wouldn't we want to know what he thinks of us. And if we could hear what he thinks of us he speaks it and we hear it then nothing else matters. If somebody like flips you off and.

Drew: And calls you a loser doesn't matter because the most powerful being in the world just said that he approves of you. And so that's kind of what I'm exploring is what does God think of me. And what does he say about who Drew is. And if other people say stuff that conflicts if other people say hey Drew's a loser then I have to choose to believe one or the other.

Drew: And if there's this omniscient being that's good versus humans that have limited.

Drew: Knowledge then I'm going to choose to believe my creator right.

Seth: Makes sense to me. Good answer.

Seth: So one other thing I wanted to touch on before we wrap this up because this is getting pretty long. Appreciate everybody for sticking around and Drew for you talking with me for so long but I had heard you talk about how sometimes career growth feels long and slow and boring especially when you do something for a long enough time and you get good at it and it almost becomes easy.

Seth: You can kind of almost get bored with it. And so your brain starts looking for these exciting sounding projects but they can actually send you down the wrong path more often than not. So have any examples of that or like are you learning a good discipline for staying the path or when to block out the shiny objects out there.

Drew: Yeah. I mean the shiny objects are our brains searching for dopamine. And I think if we don't have a vision for our life right then all these shiny objects can come in and you feel productive because you're learning and you're growing but you're just tossing your seed all over the place. You're not planting your seed or your efforts very purposefully.

Drew: And so I think in September when we were in Florida you guys were the ones I was already leaning on cutting a bunch of shiny objects. I was doing some multifamily stuff. I was in China in April. I visited eight factories that built tiny homes when Trump started tariffs. I was in China right when the tariffs were announced.

Drew: And so the idea was white label on top of these Chinese tiny homes and then sell them to the Saudi government as they're building this Dubai like country to get off of their oil needs.

Drew: But eventually you realize these are shiny objects and Rooster Capital is working. And yes there's seasons where it's kind of boring because it's so consistent. And I had to cut those projects cut it back down to what's working and what is feeding into the vision for my career and my family.

Seth: Yeah that's a hard thing man. Totally get that. I guess it kind of is a good reminder of the importance of being connected with other people who are working in a similar space and that you know like and trust and seeking input from outside sources because I'm like you like I could be staring down the wrong path for years sometimes if somebody didn't show up and say hey Seth you're an idiot. Why are you doing this.

Seth: Think about course correcting. so like constantly seeking that criticism as proverb says a wise man heeds criticism it's like gifts when people speak into your life and tell you i think this is a bad idea like i might not feel good to hear that but like it's so important to like listen very closely to that it needs to be someone who's not a stakeholder in your success or failure they need to be able to give you unfiltered feedback and show you your blind spots and that's why masterminds and hot seats are super important because a lot of times.

Drew: Everyone can see clearly what changes you need to make. And maybe you already knew you need to make them but having five people tell you at once is really powerful. Another thing I do is usually I do this with Ajay you know about once a month him or I will text each other some cool idea we have some shiny object. And then the other person says to not do it.

Drew: And it's just kind of like checking in and being accountable in a kind of a fun way with each other is also helpful.

Seth: Yeah. The tricky thing about that for me is I think more often than not a helpful friend or accountability partner probably will steer you right but not always. Like maybe they just don't get it. You know maybe they have a different vision for their life that they're projecting on your life. So like it's not a black and white thing. Sometimes you still have to say no.

Seth: And it's I don't know it can be hard to know that.

Drew: Discernment in general I think is hard. I think a lot of times we think so we have a we have door A door B and door C and we think that the right answer is only behind one door. We think it's binary and it's not like that. There's better doors and worse doors but it's not binary.

Drew: And I think we're so afraid of making the wrong decision and missing out right FOMO. So once we realize that it's not binary I think it really helps a lot.

Seth: Absolutely.

Seth: Well Drew always great to talk to you. If people want to connect with you or learn more get a deal funded throw money at you to fund other deals.

Seth: Anything like that what's the best way to connect with you.

Drew: Yeah. You can email me at drew at drewhaney.com or go to drewhaney.com and you can get on my calendar. You can submit a deal through there or Facebook messenger is one way. I'm on Instagram but I don't really check those messages too often. But reach out. If you have my number already text me if you have an iPhone. If you don't have an iPhone then I want to use my keyboard to send messages. I don't want to use my thumbs.

Drew: And so on the MacBook I can use iMessage to text people but not if they have an Android.

Drew: This is a tangent. But I create a lot of group chats. I'm usually the organizer of a lot of stuff. And if somebody has if there's 10 people and none of them have iPhones and one guy does not oh yeah I'm probably leaving him off the thread because I want that thread to stay on my MacBook.

Drew: So you you might not even know you might not be invited to this stuff if you have Android or maybe you don't get sent deals because somebody's like Drew is lazy doesn't want to text you from their phone.

Drew: Doesn't matter if you are the A lister among A listers you will not make it on the group chat with Drew if you've got an Android.

Seth: Yep. So also people out there feel free to check out the show notes retipster.com/253 because this is episode 253. I'll have links to Drew's website all the stuff he just mentioned along with a handful of other things I think accompanied this conversation quite well.

Seth: Thanks again for listening. Drew thanks again for being here and to all the listeners out there I'll talk to you next time.

Drew: Thanks Seth.