Serena Holmes is a full-time investor who previously ran her own brand experience agency for 18 years and sold it in February to focus on real estate. She is also the author of The Accidental Entrepreneur. In this episode, Serena discusses her passive investing experience, the lessons she’s learned from investing with different groups, and the successes and challenges she’s faced along the way.
Serena Holmes | Real Estate Background
- Full-time investor who previously ran her own brand experience agency for 18 years and sold it in February to focus on real estate.
- Portfolio:
- Has been a passive investor in 50 private deals
- Based in: Toronto, Ontario, Canada
- Say hi to her at:
- Greatest Lesson: Due diligence. The investment I've been most disappointed in is with a syndicated mortgage that was heavily advocated and promoted by Keyspire.
Click here to know more about our sponsors:
TRANSCRIPT
Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I'm Joe Fairless. This the world's longest-running daily real estate investing podcast. We only talk about the best advice ever. We don't get into any fluffy stuff. We talk about commercial real estate, because that's what's important to you, so that's what we talk about. And with us today to talk about that, Serena Holmes. How are you doing, Serena?
Serena Holmes: Hi. I'm great. Thanks. How are you?
Joe Fairless: Well, I'm well, and looking forward to our conversation. Serena is a full-time investor. She actually ran her own brand experience agency for 18 years and then sold it this past February. She's been a passive investor in approximately 50 deals. She's the author of the book called "The accidental entrepreneur", and she's based in Toronto. So with that being said, Serena, do you want to give the Best Ever listeners a little bit more about your background and your current focus?
Serena Holmes: Yeah, absolutely. So I know you mentioned that I had my own brand experience agency, and as a service-based business, I'm sure you can appreciate that you're only making money when you're working...
Joe Fairless: Yup.
Serena Holmes: ...so I ended up hiring a coach, my first coach actually, 10 years ago. And the best advice that she gave me at the time was "You don't need this much money sitting in the bank." And the way I used to look at that was "Anything happens, I can cover all of our costs for a year and a half." And she's like, "You don't need that much. Most companies operate on three months. If you're more comfortable, maybe give yourself six to eight months." And she really encouraged me to try to think outside the box and put some of that money to use.
So I ended up buying my first rental property in 2013, which was a short-term rental in Florida. And then did well with that, doubled the money that I had in four years, and then put that to use in a couple of other places, and then I was introduced to the concept of private lending. So a lot of that stuff, one thing kind of led to the other, but I'm so grateful that I did it, because who would have thought COVID was coming and I literally couldn't even operate my business anymore...? So I'm so glad that I started doing all of this going back those years ago.
Joe Fairless: So private lending - can you tell us more about what that entails?
Serena Holmes: Yeah. I think when people think about real estate investing, obviously they think "I'm going to be a landlord, or maybe I'll have an Airbnb", or something like that. And this concept was really foreign to me until maybe four or five years ago. I started to get a little bit more active in terms of real estate investing with some syndicated mortgages... After I sold my property in Florida, I also bought a couple of pre-construction properties... And then I had a friend that said "You should really start talking to my broker. I do a lot of private lending with him to small businesses and people that just need money in the short term." And I'd never really -- you know it happens, but you don't really think much about it. I don't think the average person thinks about it.
So she introduced me to her broker, I started doing some loans with him... The first one was for $45,000 over two years, and it was set up as a principal and interest loan... So I think at the time the interest was 15% or 16%, and then we did a couple of others... So I think I did three in the first year, eight or nine a year for the following two years, and then this year "Why am I limiting myself?" So I basically connected with some people in the real estate investing community that I'm part of, and got a big laundry list of different people that were either doing land development, redevelopment, all different kinds of things... And I ramped it up in this year; I've done over 25.
Joe Fairless: Wow!
Serena Holmes: Yeah, so I really ramped it up. I reappraised my house in 2017, so that opened up a lot of money on my HELOC. It went from $150,000 to over $650,000. So I look at it like there's going to be risk in anything that you invest in, but for me, I look at it like "I diversify it among a lot of different borrowers." And that's why I can put a lot of money to use. The chances of all 25 of them falling apart are very slim.
My comfort level has typically been $50,000 to $100,000 per deal, and then they all cycle through at different periods of time; some are six months, some are 12... Sometimes there have been bridge loans. I think the most lucrative I did was an $80,000 bridge loan for two months, and it paid $12,500 in interest. And then the borrower had to extend by two months for double the interest. So I made $25,000 on 80k, in four months. So it's been amazing. Like, it's really been my bread and butter. In fact, this year I made about twice as much as I ever made in my business in my biggest year that I took home personally... So it's been great.
Joe Fairless: So many questions on that. I'm gonna enjoy this conversation, because --
Serena Holmes: You're on the flip side. [laughs]
Joe Fairless: Well, yeah, I'm on the flip side... [00:05:46.14] we don't have individuals lending us money for the short-term; we do equity investments. But it's a close cousin to "I'm on the flip side." But I really liked this conversation for people like you, who have money, and they're looking to passively-invest in real estate opportunities, and you're doing that. So I'd like to dig into how you're doing it, how you qualify it, the amount of work, all that stuff. So you don't have to answer all those questions; I'll ask them one at a time.
Serena Holmes: Sure.
Joe Fairless: First, how about how do you qualify the groups that you end up lending money to?
Serena Holmes: Yeah. So I'm part of a real estate investment community. I've been working with them for four and a half years. And prior to that, I was actually staffing some of their events in the States... And it's a very engaged group of investors all across Canada, and some in the US, all focused on different things. Sometimes they're buying underperforming properties, they need money to renovate, some people are buying large acquisition; they might be raising money for the downpayment, and then they're going to fix that property up over a couple of years, and they pay out monthly in the meantime, and then they reappraise the property and cash out their investors. So they're all working on different things.
I did get a lot of referrals, and I basically just set up calls with all of them to see what they were doing, see what kind of information they provided me with... In a lot of cases, they could be like a GP/LP structure, in which case you're a limited partner on the deal, and then they're the working partner. In other cases, it could be promissory notes. So that's actually been something that a lot of people are nervous about, because technically, it's unsecured, but it's always involving a property.
So the way that I approach that - if anything really hit the fan, the property is really going to be the leverage, even if it's technically a promissory note. So since I'm also a realtor, I have access to tools just to make sure that they are on title. I usually get identification for the borrowers, just to make sure that they are who they are, they are on title. If there's anyone else on title, I try to look into that further, and then just go from there.
So there have been some deals that I've turned down since I used my HELOC and interest has gone up. I don't really look at anything if it's less than 15%. And then I just try to diversify at that point. So you just kind of trust your gut; some things I've turned down, other things I've invested with the same people over and over.
Joe Fairless: Okay, that's really helpful. So you've seen two structures; a GP/LP structure and a promissory note structure, right?
Serena Holmes: Yeah.
Joe Fairless: Which one do you prefer?
Serena Holmes: Well, promissory notes pay the most. So if you're looking at it just from an interest perspective - I was introduced to a mortgage broking agency in July, and they'll provide you with tons of details on the borrower, the performance of the property, and they're paying 17% monthly on interest-only loans. So if you're going after the money, those have definitely been probably the best.
Joe Fairless: Why do promissory notes pay more than the GP/LP structure?
Serena Holmes: I think just because they're considered to be more risky, because they're technically unsecured, meaning it's not registered on the property... Where if it's a GP/LP structure, I think there's a lot more involved in terms of legalities. The paperwork for example on some of those could be 30 to 40 pages, and the paperwork on a promissory note three pages. So I think it's just a lot more work for the GP to setup.
Joe Fairless: And with the promissory note, even though [unintelligible 00:09:00.26] not registered on the property, you would get the property if it defaults, correct?
Serena Holmes: Well, that's the channels that you'd go through. So I always have a property listed on that agreement; even though it's technically unsecured, it's always listed in the promissory note and the general security agreement.
Joe Fairless: Okay. And you haven't had to go that route yet.
Serena Holmes: Touchwood, on 50 deals. I definitely have had one company that I've worked with that was really heavily advocated by the company in this community, and there have been major, major, major delays with their projects; chances are the backend interest won't be compensated, so I stand to lose some money on that deal... But when it comes to all the rest, I haven't had any issues.
Joe Fairless: If you could identify what went wrong with that group, how do you take those learnings and say "Okay, I'm gonna try not to repeat it with other groups"? Looking back on it now, what would you say?
Serena Holmes: They were really heavily advocated, again, by this company that I think all the investors really trust... And they, I feel, really misrepresented themselves. I understood at the time that they were the brokers setting up the money for borrowers to basically buy these large purchases, like a shopping mall, or a set of townhouses or something like that, and it turns out they're the actual land developers. I signed the contracts with them and a few days later talked to someone else that had invested with them, and he mentioned he'd experienced some delays. And then the delays that I've seen have been pretty extensive; I invested about 355,000 in three different syndicates. They paid at one and a half on time, and then the remaining 180,000 that's left split between one and a half has been delayed.
So technically, three years at this point. They have two six month extensions they can use, that they used. They're two years past that. And then last summer, another company was brought in to administer the funds, because they got in trouble with the regulatory body. And now we get updates maybe every six months, and it was sounding positive in the spring, but now it's sounding like the company wants another year or two to go back and redevelop site plans... And because they're so overdrawn on the mortgage, they're basically saying "Don't expect your backend interest." So they had set it up to do 15%, frontend and backend, half/half. And on one of the funds, he said you could even potentially stand to lose maybe 10%, the way things are looking at the moment.
In this situation, the investors can try to force their hand and sell the land. The company that was brought in was saying not to do that, give it a bit more time... So he was like "You're getting more frontend interest during all this time", and that's how they're trying to give you a silver lining.
And for me, I'm like "They're still paying their frontend interest. It's not the end of the world." But for people that were depending on this money during a certain period of time, I could see that being challenging, because this is five years later, their money could be tied up another two to three years... So that's very, very significant.
So I think looking back, maybe doing more due diligence, maybe doing less... Like I said, my comfort level per deal has come down a lot based on this experience, because I did a lot with them, and even split between three deals. 350,000 is a fair amount of money, so that's been a lot to learn... So I think I would stand to lose about 60,000, and that doesn't include if there's a hit to your principal.
Joe Fairless: So let's say not this group, but another group that is just like them, approaches you, with a different name... What questions would you ask that new group that perhaps you didn't ask the first group?
Serena Holmes: I think I definitely took too much at face value, and I think I would probably try to seek out other investors who had worked with them in the past. And that's something I've done with most everything else that I've invested in the past there, just to see more of what those experiences were. And again, I got that warning, but it was three days after I signed off on all the contracts... So I was like, "Ah..."
And the other thing is that I don't like the split interest; because it was half the interest on the frontend monthly, and then half of the backend. So I wouldn't touch anything like that going forward. Because at this point, even though all the other private loans I've done have paid off that principal at this point, interest has gone up from 2% to 7% almost, so the monthly interest really wouldn't even be covered at this point. It's just awash. So I would really never touch anything that's split that way going forward.
Joe Fairless: On the flip side, what's the deal that -- well, you told us, actually. 80k in four months, you made 25k. Have you done other deals with that group? And if so, do they tend to over-perform? Or was that just the stars aligned, and [unintelligible 00:13:30.15]
Serena Holmes: That was specifically with the broker I started with... And I tried to split up the deals I deal with him and other groups, and stuff like that. And he's done a mix of principal and interest; I think in the last year I've done three bridge loans... And some could be as short as two weeks. Someone asked to wipe their line of credit before their mortgage closes, so they might pay $2000 for $20,000, just so that they can pay it off, and then the mortgage closes, and they pay it back. If anything, it's paying stuff off early. So I'm like, "Oh, this should be a year" and they're paying it off in eight or nine months. Because the interest is so high, people don't want to just keep paying that if they don't have to. So if anything, things have usually paid off early with them.
Joe Fairless: Okay. And these deals - how much time do you invest in overseeing the deal after you sign the contract and you send your money?
Serena Holmes: Not much. In the beginning, I had a lawyer that would look over certain things, or if it was a larger amount of money, he would double check the financials to see if they had enough equity cover it if anything went wrong. And there were a couple of deals that I didn't go ahead with based on that. But beyond the original meetings, say you have a call with them for an hour, they send you information... Sometimes I'll send it to a lawyer to look over, sometimes I don't, depending on what the amount is... Maybe a couple hours... Then you just wait for the payments to start a month later.
Joe Fairless: Okay. Do you have a spreadsheet that you track "Hey, I'm supposed to get this amount from this investment on this day?"
Serena Holmes: Yeah, I track the date, who it's coming from, what the principal was and what the interest is monthly, and then I track where the payments are at. So it could say like, 1 of 12, or 2 of 12 [unintelligible 00:15:07.24] it's going to finish. And that way, if there are any unforeseen delays, which maybe there would be a day or something like that, at least I'm kind of keeping track on what's coming... Because at this point, there's a lot of them, so I just try to keep track in that sense. And the one brokerage I started working with, they'll even give you an extra $100 if they're even a day late; they have a late payment fee for their borrowers.
Joe Fairless: Have you taken a look at the spreadsheet and determined if there's any way to optimize your selection process on the frontend to get you higher returns, for example? Maybe certain deals in this market are outperforming other deals in other markets or this operator is performing better... Any of that stuff?
Serena Holmes: Yeah, there's definitely -- this mortgage broker, again, they're between 15% to 17% in their promissory notes; because I'm part of this investment community, there's just constantly people looking for money, so I just keep an eye on what the terms are being a little bit higher. And one of the groups, we loaned at 17% for three months... And then they basically just ask if you want to keep reinvesting it three months at a time. And then they dropped it maybe from 17 to 16... So just keeping an eye on all of those things, and just always keep an eye on what's out there, just to kind of see what people are offering, and what the terms are, and stuff like that.
Joe Fairless: How have the terms changed over the last couple of months compared to this time last year?
Serena Holmes: Well, I think one concern that some people have is if you're loaning to people that are renovating underperforming properties, are they still going to appraise at the value that they're expecting to appraise at when it's time to cash out? So I think that's one thing to be super-aware of. The brokerage that does offer that high interest, a lot of those investors are in really small markets, like Timmins, Sudbury, Sioux Sainte Marie... So those properties are already very, very low in value to start with, like $180,000, $200,000. So I don't think they're necessarily going to go down the way that we're seeing things go down in the GTA, for example, that have gone down 40%.
So in that sense, I don't feel like I'm as concerned with it. But I think it's just harder for people to get money. There's definitely a lot of concern, which is -- I mean, it really works out, because those people end up needing the private money, because maybe their bank isn't delivering, or whatever it may be... So there has been like a huge surplus I think of people looking for money at this point in time.
Joe Fairless: What's your best real estate investing advice ever?
Serena Holmes: I think it's just to take some action, and also try to find some passive income. For me, no one could have known COVID would happen; but if it wasn't COVID - maybe you get an illness, or maybe a family member has an illness, or there could be a time that you physically can't work for a period of time, and I think it's important for people to look at... Like, if they're just working a job, you're renting your time. And what if you couldn't work tomorrow? What were you going to do?
So I think it's smart to just try to look at see what's out there, try to consider what your appetite for risk is, and just try to put some of the money you have access to to use in some way, just so at least it gives you that nest egg, whether you're saving for something else... But just don't depend on one source of income.
Joe Fairless: We're gonna do a lightning round. Are you ready for the Best Ever lightning round?
Serena Holmes: I'm ready.
Joe Fairless: Alright, sounds good. First, a quick word from our sponsor.
Break: [00:18:13.25]
Joe Fairless: Best ever deal you've done, outside of the 80k and 25k profit over four months? What's number two?
Serena Holmes: I've done well with both of the properties. I had the property in Florida that I mentioned, and I also had a [unintelligible 00:20:27.27] property in Edmonton. I had them both for about four years, and I doubled my investment on both of them during that time, so 100k on each property.
Joe Fairless: Best ever way you'd like to give back to the community?
Serena Holmes: Definitely a mix of money and time. I have an almost three year old, so time is a little limiting now...
Joe Fairless: I hear you. I've got a four year old.
Serena Holmes: Yeah, so you can tell the time on that's a little bit hard; but definitely time. I've sat on different boards with Camp Trillium, for example, which is a camp for children with cancer... And I even went to Thailand for two weeks and volunteered with Rescued Elephants.
Joe Fairless: What was that experience like?
Serena Holmes: It was awesome. It was through Elephant Nature Park, and they have different spin-off projects all across Thailand... So I spent one week in a village called Bri Rim, and I spent another week basically following the elephants in the mountains of Chiang Mai. And by being a part of that program, you're basically taking them out of what their owners would have to put them into to cover their expenses by being in entertainment, or whatever it may be... So it was really great just to see how they're being taken care of and take them out of otherwise very awful conditions.
Joe Fairless: How can the Best Ever listeners learn more about what you're doing?
Serena Holmes: So I've got a couple of Instagram profiles... One is just my name, Serena Holmes Realtor, and then because I wrote the book last year and I got that published, I also have another one, Serena Holmes Author.
Joe Fairless: Well, Serena, thank you so much for being on the show, talking about your passive investing experience and lessons you've learned from investing with certain groups, and a lot of successes, and then some challenges along the way... So I appreciate that, and I'm looking forward to talking to you again soon. I hope you have a best every day, and I enjoyed, again, this conversation.
Serena Holmes: Thanks, Joe.
Website disclaimer
This website, including the podcasts and other content herein, are made available by Joesta PF LLC solely for informational purposes. The information, statements, comments, views and opinions expressed in this website do not constitute and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. Neither Joe Fairless nor Joesta PF LLC are providing or undertaking to provide any financial, economic, legal, accounting, tax or other advice in or by virtue of this website. The information, statements, comments, views and opinions provided in this website are general in nature, and such information, statements, comments, views and opinions are not intended to be and should not be construed as the provision of investment advice by Joe Fairless or Joesta PF LLC to that listener or generally, and do not result in any listener being considered a client or customer of Joe Fairless or Joesta PF LLC.
The information, statements, comments, views, and opinions expressed or provided in this website (including by speakers who are not officers, employees, or agents of Joe Fairless or Joesta PF LLC) are not necessarily those of Joe Fairless or Joesta PF LLC, and may not be current. Neither Joe Fairless nor Joesta PF LLC make any representation or warranty as to the accuracy or completeness of any of the information, statements, comments, views or opinions contained in this website, and any liability therefor (including in respect of direct, indirect or consequential loss or damage of any kind whatsoever) is expressly disclaimed. Neither Joe Fairless nor Joesta PF LLC undertake any obligation whatsoever to provide any form of update, amendment, change or correction to any of the information, statements, comments, views or opinions set forth in this podcast.
No part of this podcast may, without Joesta PF LLC’s prior written consent, be reproduced, redistributed, published, copied or duplicated in any form, by any means.
Joe Fairless serves as director of investor relations with Ashcroft Capital, a real estate investment firm. Ashcroft Capital is not affiliated with Joesta PF LLC or this website, and is not responsible for any of the content herein.
Oral Disclaimer
The views and opinions expressed in this podcast are provided for informational purposes only, and should not be construed as an offer to buy or sell any securities or to make or consider any investment or course of action. For more information, go to www.bestevershow.com.
