One of the things that take up our time is stressing over finances. It’s time to reduce that pressure and start your path to financial freedom. In this episode, Penni Zelinkoff, the CEO and Founder of Penni wiZe Empowerment Network, LLC and The PenniZ Show, reveals one of her best-kept secrets to financial freedom – passive income business through real estate lending. She opens up on her personal experience that led her to explore this side of finance and how it creates cash flow and builds wealth at a quicker and higher rate of return than traditional investing. She also shares some of the ways she is giving back to the community by sparking conversations around financial education.
Listen to the podcast here:
Financial Freedom Through Lending with Penni Zelinkoff
I’m not going to be the only Penny Z on this show. Interesting enough, I had come into contact at a fantastic event at CEO Space and met another Penny Z, so it is possible there are two of us and we’re both kickass businesswomen. Penni Z is going to be on the show and as we talk about the show and how to be more efficient and effective, Penni‘s going to talk about it from the perspective of finance. Penni Z is the CEO and Founder of Penni wiZe Empowerment Network. She also has a podcast called The PenniZ Show. Her mission is to help a million lives by empowering her clients to have a voice and to choose their financial freedom and overcome obstacles in their lives.
I’m going to keep this one short because she’s going to be talking about it. She trains her clients to minimize the rollercoaster ride that so many have experienced in their lives around finances. She believes that personal, professional and financial stability go hand in hand. She says, “These areas affect our quality of life. When we are grounded in our life and have a life vision, we can make better financial choices. When we think better and know better, we do better.” We already have met and known each other. Penni, welcome to the show.
Penny, thank you very much. I know it’s so exciting to meet another Penny, but another Penny Z, I’m honored.
It’s very cool. We think alike. In all the things that you’ve posted and the things that you’ve written, we have a like-minded connection in that context.
I love the kindred spirit.
It’s so great to have you here and talk about finance because there are a lot of entrepreneurs that read the blog and people are frustrated. If they’re in the financial markets in any sort, whether it’s real estate, whether it’s in the stock market, it’s nerve-wracking. Before we go into that, what makes you passionate about finance?
Penny, thank you for asking the question. I’m passionate about finance, but the finance has to do with empowerment. It has to do a little bit with my story. As you mentioned in my bio, the financial and the personal rollercoaster rides that we live in our life doesn’t have to be such highs and lows. With your theme about Take Back Time, my idea of finance is to not only empower people but to take back their choice and their voice within their finances so that they become empowered. That they can have quality peace of mind moving forward into the retirement, but they can take back time and they can do that very simply through taking back and managing their finances in a very simple way.
You talked about a personal story. Do you have a personal story that you could share with us that helps us get to know you a little bit better?
I’ve been a real estate investor for over eighteen years and when I started, didn’t have a mentor. I was self-taught. After about fifteen years of being in the industry, over the years, I used what’s called person to person lending or private lending in the real estate world. It wasn’t traditional, as a bank or a mortgage. It wasn’t hard money lenders. It was a person to person relationship lending situation. As I was doing fix and flips, one of my lenders said, “Penni, why aren’t you lending?” I said, “What do you mean?” She said, “Why aren’t you a lender? You have cashflow and you have retirement from when you were in the corporate world. Why aren’t you helping other small to midsize lenders lend?” I had to think about it for a minute. I said, “I have never been asked. I didn’t know that I could do it.”
In very simple terms, when I was given the opportunity and learned about what being a lender for real estate investors meant, I was able to take back my time and I stopped doing the fix and flips and became a passive income lender. That’s a lot of my stories. My passion is empowering people to think differently and to learn about this unique investment opportunity to be able to have peace of mind because one of the other things that take up our time is stress over finances. We would not be doing something, but we’re stressing over it.
When we think better and know better, we do better. Click To Tweet In March 2019 of Forbes, there was an article that I read that 76% of Americans even in today’s market are worried about retirement. Even though they’re not necessarily physically doing something, they’re taking their mind space and their time in stressing. If we think better, we know better, we do better, that’s where I offer a unique outside of the box way to passively invest. Make a higher rate of return very easily with minimal time to be able to reduce that stress, to take back your time and quality of life and planning for your retirement. It was my own experience of somebody waking me up and saying, “Penni, why don’t you do this?” When I didn’t know I could, that started me on this journey of empowerment and financial freedom.
I like how you’re relating the Take Back Time to where you were spending your time in fix and flip. I‘m not in that particular area. I can imagine that it’s more hands-on which takes up your time, coordination, different types of activities that go on there to going to more of passive income. People can relate that in any area of their life of opening up perspective and seeing all the things that we’re spending our time on. Is there an easier way? Is there a better way? That’s a great example in real estate and some people are in their businesses and other areas, but how can they use that as a metaphor if they’re not in real estate? I know we’re going to talk about that, but I want them to see this context of thinking differently that goes across everything that we do.
Whether you’re in real estate, whether you’re an entrepreneur or a corporate executive, for those of us or looking for opportunities for outside of the box thinking, we’re also taught to diversify our investments, number one. We’re also taught to have multiple income sources. This is a great partnership. It’s a great add-on passive income opportunity that I helped train. Talking to people about when it comes to private lending, to be able to add onto your already busy life very easily with a minimal amount of time and minimal amount of knowledge and yet your rate of return for your investment is pretty high. I can’t guarantee anything because I’m not an investment banker or anything like that. I have to have a disclaimer there, but if people are looking for multiple sources of income or diversification or passive income business, this mindset and this opportunity within the real estate investing world is pretty amazing.
I want to get to that. You said something that I think that you take for granted that many people who are reading are not told. They haven’t heard before, which is having multiple income sources. There are a lot of people out there that don’t know that. All their eggs are in one basket in terms of all their income is coming from their regular job and they may not be set up to take advantage of different income sources or even know how. For people who are reading, let that sink in. Imagine that not only did you have the job that you’re working during the day if you have a job and you get an income from that, but imagine that you got income from lending, that you got income from the stock market, that you’ve got income from different sources. Maybe you sell a product online and so forth. Imagine how much more financial freedom and flexibility that would give you by having multiple streams of income.
I’ve been taught that for many years, probably several decades of my life. I’m a little bit older than some than younger than others. You mentioned that perfectly because we all look at our job or if we’re an entrepreneur and a business owner as one source of income. What I help people do is what is that excess cash that you have that’s sitting in a bank account, that’s sitting in a mutual fund, that might be sitting in stocks and bonds or even a retirement account? There’s a better way to invest that and be able to make a higher rate of return which will help to bring in multiple sources of income. If you don’t have money currently set aside in any of these portfolios, you’ll want to look at that as an option. If you do have money set aside, there’s a better way of getting a higher rate of turn. Making money quickly and be able to do that in such a passive way that you’re able to solidify and feel comfortable moving forward into your retirement.
I’m passionate about people living their life and their desired life in their retirement and it came from again, personal experience. My mom and dad only had one source of income and that was whether they worked. If they got up every morning and they went to work and they got their paycheck, they had money. They put money away into a retirement account. That was their only source of income. My parents are great people, but they got to retirement. They had one and a half source of income. They had their retirement and a little bit of social security. Unfortunately, at that point it’s almost too late. Not only were they working hard for their money in one way while they were working and being stressed out about it, but they also then got to retirement and they were worried that they don’t have enough to be able to live on in retirement. My passion is to help people think differently and plan differently for their current life and their retirement life.
What I’m thinking is that there are a lot of people online who might be saying, “That sounds good for you, but that sounds risky for me.” They’re used to having that one source of income. “If I were to take that money out of the bank or take it out of something else, that’s risky, isn’t it?” What would you say to them for that thought process?
Thank you for the question. The first thing is I am a believer that you need to have something set aside for a rainy day and emergencies. When I work with our clients, I never recommend putting all eggs into the one lending basket, so to speak, especially right in the beginning when people are learning a little bit of a new skill to shift their money. That’s the first thing. The second thing is the beauty of being a real estate lender or what I like to call be the bank or be the money in the deal is if you look at a mortgage company, they secure their asset with the real estate. The same thing that a mortgage company does, we teach our clients to secure your money with your real estate loan, with the asset, with a property, with a commercial building, with a single-family home. Whatever you feel comfortable in lending on, the secured aspect of it or the minimizing of the risks is that first we teach you how to do the due diligence on the property, on the investor and the property. That’s very important. Number one, do your due diligence.
Number two, know what your boundaries are when it comes to what you’re willing to lend on and not lend on and stay within that lane. Number three, always make sure that you have your loan secured with the property. The beauty of that is when we teach you how to negotiate, how to do the loan in an upmarket or a downmarket as a lender, you still have security and you still have that asset. Let’s say the best-case scenario happens first, to give you an example and then we’ll say the worst. The best-case scenario is I am putting a loan on a fix and flip. I have a one year loan on a fix and flip and it’s secured by the asset.
The real estate investor pays me back in full. I do my due diligence upfront. I write the loan and we secured it with the county. The investor pays me throughout the year and I get my money back. It’s very simple. There’s hardly any work for me to do when it comes to time-savings except for the little work that I need to do upfront, but let’s say for some reason that investor did not pay the money back. Just like a bank, we get that asset back and as the lender, you now have multiple exit strategies in which to be able to get your money back and still make money off of your investment. It’s much less risky to do real estate lending than it is to have your money in the stock market.
I want to hear about that because I think that’s the way people were taught how to invest. Most people in the circles initially that I was talking to, everybody invested in the stock market and if you have a financial advisor, that’s all they advise you on is the stock market. They’re not financial advisors because they don’t advise you across all different platforms of money. That’s what’s out there.
Mainstream America and the way our corporate financial institutions have taught us was we either invest in stocks, we put our money in savings or we put our money in a retirement account which is stocks, bonds or mutual funds. That’s typically how we as Americans have been taught for decades. Financial planners are great people, don’t get me wrong. They’re out there working hard to pay for their lifestyles well. It’s the financial institutions that have taught us. Let’s say I have an investment in stocks, whether it’s in a regular stock or my retirement account. I have no control whether the market will go up or down tomorrow, do I? As an individual, I don’t. Even if I had $1 million in my retirement account, I still don’t have enough power as an individual to control whether the stock market will go up and down.
You don’t have that power either in the prices of real estate either.
You don’t, but in the way that you negotiate the loan, you have equity in the property to be able to minimize your risks. For example, let’s say again, I have a loan on a property that is secured by the asset. I have a loan with an investor that’s secured by an asset. What that means is I will negotiate to have 20% or 30% of equity. If it’s $100,000, let’s say the average retail price of a house is 100,000, It means as a lender, I would negotiate to loan perhaps $70,000 or $80,000 so I’m not loaning 100% on the actual value of the property because I want to minimize my risk to manage my investment in an upmarket or in a downmarket.
70% is about the amount that you look for.
70% is a good rule of thumb, so if the market goes down 10%, 20%, 30%, then the investor still has the property, they’re still paying me on my loan, that value doesn’t matter as much as if the investor defaults. When the investor defaults and the market goes down, I now have negotiated the property with equity. I can keep the property as a rental property if I choose to. I can choose as the lender to fix it up and flip it and make money on the property. With every deal, we teach and talk to our clients and talk to individuals who are interested in this thinking on how to negotiate not only the loan. When you’re looking at the loan and you’re looking at the property if you were to get it back, what are your three to four exit strategies in which you would want to own the property? That is the best way to minimize your risks. Even in the downmarket, you can still make money and you have the asset.
Let’s say back in 2009 when the stock market crashed, it crashed about 50% of its value. On the day that it was strong, maybe you had $10,000 in the bank. It happened over several months. Let’s say you had your money in the market and you stayed in the market. In 2009 at the very bottom of the market with the 2007, 2008, 2009 crash, you would’ve lost potentially up to 50% which means you would’ve only had roughly $5,000 in your retirement account. From there, you had no control over that other than, “Do I keep it in or do I take it out? At what point do I take it out?” If you’re taking it out on a downmarket, you’re still losing money, so the beauty of it is in the downmarket of 2009, it took investors on average four and a half years to make their money back.
I know you can’t buy a house for $10,000, but let’s say that $10,000 was on a loan and the market turned, you would be able to keep the property as a rental and have income. You would be able to possibly look at selling it for a quick sale and maybe making a couple of thousand dollars still making your money back and a rate of return or you might again want to keep it, rent it and wait for the market to return and sell it in a higher market. The bottom line is what we try to do is to teach people how to minimize risks, how to negotiate your loan on the front end and also negotiate how you want to own the property with multiple exit strategies to minimize your risk.
That tells me that in real estate, in this type of lending, when you’re doing it on a secured asset basis that you have less risks than what you have in the marketplace if you’re loaning less than 30% and you’re leaving that 30% swing.
You have less risk and you have much more control and you can negotiate a higher rate, even an upmarket or a downmarket as a secured asset lender.
You can't control bank rates or the stock market, but you can control how you negotiate and manage your money for real estate investing. Click To Tweet You also have cashflow. They’re paying you back in cash and you can decide whether you want to put that back into some property or whether you’re going to use that as income. Whereas if it’s in the stock market, you’re seeing a percent at the end of the year and then I guess you roll it over or whatever and that’s good too, but this provides the added benefit of cashflow if that’s what somebody is looking for.
You make a great point. Yes, it is a great way to add cashflow. The other point that I would like to make when we’re talking about earlier about multiple streams of income, so when your money is invested in let’s say the stock market, however that is, you have one source of income and that’s that your money goes up. With secured asset lending, you have potentially three or more ways of making money on one investment so if you’re a lender, you can charge interest which is income. You can charge fees which is another form of income. If you have a mortgage and you’ve gone through the mortgage lending process, the mortgage lenders charge closing fees and processing fees and you can also charge points. On one deal alone, as a lender, you can have a minimum of three income streams to an investment in the stock market of one income stream.
It’s a three to one investment. The other thing again is the only way you make money in the stock market is if the market is up. As a secured asset lender, the way that you secure your income and your investment is you can negotiate in an upmarket and a downmarket. The beauty of a downmarket is there’s less money available for real estate investors in a downmarket. For anybody who remembers 2007, 2008, 2009, 2010 in the real estate market, it was very difficult to get loans of any type. The beauty of this is if you have money and you’re willing to be a secured asset lender for a real estate investor, you make money in an upmarket because real estate investors need money in an upmarket and things are good and they need money in a downmarket because there are less available options for them as well. You become a major resource to real estate investors in either type of market.
That means you have the potential to charge more in terms of points, interest or whatever.
You have the option to negotiate. There are guidelines. There are government guidelines that we talk and share the resources. In essence, you’re able to negotiate your terms so you can charge more in your interest points and fees again based on their called usury guidelines, but they’re very simple to understand and they are online. We provide a link and a resource for people to look at those and share a little bit more of what those mean. Yes, you’re correct. You are in charge of your negotiation so you can charge more in a downmarket and you can charge in and upmarket. It’s a win-win situation for the investor meaning the lender and it’s a win-win situation for the real estate investors as well. I’ve been in the market for eighteen years and I can tell you there’s almost not a day that goes by that someone is not asking me for money as a real estate investor so there’s a need.
I want to go back because I know that managing your time is so important on your show, Penny. I know I’m talking about a lot of stuff that might be new to some of your readers. Once you learn the simple system on the front end, you can set it and forget it. Once you learn the skill, once you understand how to set up your lending business, let’s say, and you learned that in the beginning, then you can go anywhere. You can be anywhere as long as you have computer access to a phone. It’s very easy to manage this passive income business once you learn the tools on the trade. It’s very easy and there’s not a lot of time needed to do that.
I want to say on the side when you said we talk a lot about time management and managing time and spend a lot of time talking about managing your thinking. This is perfectly aligned with managing our thinking. It brought me a question for people to get clear when you talk about return on investment. If I were to put my money in some short-term market like a money market or something, what kind of return I could expect on that on average compared to what return I might expect on a short-term loan? If I took a year, maybe share with people what’s the difference.
Again, I want to disclose. I’m not a financial planner so I’m giving industry guidelines, what’s happening in general in the industry. Let’s say someone had $100,000 in a money market account in the bank. They may or may not need to have to hold that in the account for a certain length of time to get their interest rates. When I looked on average, the interest rate that the banks are paying on a money market for you to hold a high amount like $100,000. It doesn’t have to be $100,000 but I’m going to use that for the example, then you’re averaging between 2% and 2.5% rate of return. I’m going to give with the benefit of the doubt and go for 2.5%. On average, if someone had their $100,000 in a bank in a money market, they would make $2,500 in interest that year.
Let’s shift our mind for a moment and let’s say you’re a secured asset lender. You do a loan with the real estate investor for one year and you’re able to negotiate. I’ll give you the range and then I’ll give you an example. The average is between 8% and 12% right now in the industry. That’s the going interest rate for a loan as a private lender in real estate, 8% to 12%. You’re also able to charge one to four points, which is another percentage, and anywhere from about $500 to $1500 and fees is what the average fee is for a personal loan. On $100,000 you’re looking at let’s say 10%, which would be $10,000 for the year, you’re looking at let’s say charging two points right in the middle, which would be an additional $2,000 and you’re making a fee of $1,500 for covering closing costs, expenses, attorney’s fees and things like that. For someone who is a lender for one year loan on 100,000, they could in theory make over $13,000 on their money which is a difference of over $11,000 between putting it in the bank and a money market or mutual fund and being a lender to a real estate investor. That’s a big difference.
That’s why I wanted you to quantify it so the people could see and that varies. We’re not holding you to anything, but you’re looking at a significant additional return on investment of how when you use your money in a more effective way and still be secured from risk, there are ways and that would take you how many years at 2.5% to earn that money.
That’s not guaranteed because the banks are the ones who are in control of the rate. They take the money out or if you have to take out certain amount of money for that year, then obviously your rate adjusts. We don’t control the bank’s rates. We don’t control the stock market, but we can control how we negotiate and manage our money for real estate investing as far as being the bank.
What about taxes? Are there any tax disadvantages or advantages of being in this space?
Absolutely. I advise people to talk to attorneys and CPAs and tax accountants on their situation. If you have money and what we call liquid asset, which would be income, it could be in the bank account or it could be in stocks and bonds. You would have to pay tax based on your tax rate. That would be something that we always recommend to talk to an attorney about how to set up your real estate lending company. We like to recommend that you put it into a business so that you have limited liability and some other benefits for that and talk to your accountant or your tax advisor on what’s the best way to invest. That’s on the liquid cash side. It’s income. It’s like you’d be making money for work or an income and other ways. When you get to the retirement account, that’s when there is a huge benefit.
I work with self-directed IRA companies. I have one that I work with, Midland IRA, that also helps teach our clients about what’s called self-directed. If you’re able to take your current retirement account and pivot it, which is a rollover, it’s a very simple way moving your money from a traditional retirement account over to a self-directed retirement account. Not only that you maintain the tax benefits of the retirement account, but you’re also able to invest the entire amount of your retirement account if you so choose. You’re not limited to only a certain amount that you are able to like some IRAs allow and you have an opportunity. You’re not limited to the annual contribution that the guidelines have for companies or your IRA if you might have a single K with an employment or you’re employed. The tax benefits and the income that you can produce is much higher and better through this program than through other programs.
I’m not a tax expert. I do advise people and I do have people that I refer to tax experts, but it is a huge benefit. I know that self-directed IRAs with your traditional IRAs, there’s a limit in which you’re able to contribute every year. As a secured asset lender, there is not a limit. We teach you how you can actually put more money away and have that tax deferment in your retirement account than you’re able to do currently. You’re able to build wealth at a higher rate of return faster and a lot bigger than the way that the traditional retirement accounts are currently set up.
That sounds pretty awesome. That sounds like taking back my time.
It’s one of those best-kept secrets that the general population is not aware of. I’m passionate about educating people about this opportunity and it’s a great way to build wealth and to secure your future financially and like you said, not only change your mindset about worrying about money to not worrying about money, but also having more time to do other things that you want to do in your life.
Absolutely and contribute more. I know a lot of people who want to give more. This would also put them in a position to give more and give more of their time to charities and different types of organizations that are doing good and creating impact. This is also another catalyst for bringing more impact and meaning in our lives because we can use it in different ways as well.
I’m talking to my attorney about setting up the foundation so that we can help other people as well, what did we set one up or we partner with a foundation because I agree with you. When you’re given and receive abundance, you should give abundantly. I think that giving back to charities and organizations is fantastic. It’s a great idea. It’s not something I have in my normal presentation, but I love that, Penny. I also think that for those people that think about leaving a legacy for their children, family, for charities, it’s another great way to add additional value to that legacy.
Imagine you only find this, let’s say when you’re coming close to retirement, imagine that you started and you pass this another way of a legacy that you pass this knowledge, not just the money, but the knowledge of how to build wealth to your grandkids and others in your family. That’s huge too in terms of legacy so that they can stress less about their finances for their whole life.
When you receive abundance, you should give abundantly. Click To Tweet This way is a great way when you talk about time management, those who are in their 40s and 50s that are worried about retirement coming sooner than later than someone in their 20s. This is a great time management tool and a way to build wealth quicker, which is important, but one of my passions is to be able to change the mindset of how people think around money to empower them to have the conversation about money, wealth, and investments. I would love to put together a youth program to be able to educate people, not only educate the parents and the adults in our society and have them have that conversation but also to be able to educate our youth as well to think differently, know differently and do differently.
Where can people find out more information about the education that you’re doing now? I could imagine that there are some people who are thinking, “I need to know more about this.”
Thank you for the opportunity, Penny. I greatly appreciate it. They can reach us in one of two ways. We have a website, www.PenniWize.com or they can email us at ZTeam@PenniWize.com.
Is there anything else that you wanted to share with the audience before we close out?
I’m excited about the opportunity to be on your show and excited to spread this incredible way of thinking. I’m also a speaker and a podcast host, so obviously we’d love to be able to talk to people if there’s anyone out there that is looking for a motivational speaker or would like to learn more financial education, I call it Wealth Education. I would be more than happy to have a conversation with them.
There you have it. That’s Penni Z’s two cents and since there are two of us, I think that equals two cents. Right, Penni?
The best two cents ever.
Thank you so much, Penni, for being here. It was amazing and I think that people will be able to walk away from the show and have a different way of looking at their finances.
Thank you again for the opportunity, Penny. It was great.
Thank you for being here and being open to thinking differently. You’ve heard me say it before that productivity is a byproduct of thinking and acting more strategically. When we want to be better with our time, it’s about managing our thinking. This Penni Z said it, so it must be true. Thank you for being here and we will see you in the next episode.
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About Penni Zelinkoff
PenniZ is the CEO and Founder of Penni wiZe Empowerment Network, LLC and The PenniZ Show. Our mission is to help a million lives – by empowering our clients to have a voice and choice in their financial freedom and overcome obstacles in their lives. PenniZ started her fix n flip business 18+ years ago, while watching an infomercial. The training materials came in a box delivered to her door, she read the materials and thought I can do this, which is when she started her real estate investing career. Since then she expanded into commercial, new home sales, land-lording and Private Money Lending. The one thing she wished she had done differently was to have mentor(s) sooner.
3 years ago while she was going through a divorce, moved to a new state, restarted her flipping business in a new area, and financially stressed; PenniZ thought maybe she needed to do things differently. “I made a lot of money, yet because my business relied on me working, taking a break wasn’t an option. A friend shared with me the passive income business of real estate lending. I realized what got me here won’t get me there.” In taking back her power she transformed her mindset and life – she discovered her choice for a passive income business and by doing so her life purpose – which is to empower people!! PenniZ created Penni wiZe Empowerment Network, a training and mentor company to help create financial freedom through non-traditional investing options. PenniZ is passionate about sharing her training and mentoring program with the world and her clients. Penni wiZe Empowerment Network provides her clients with the opportunity to learn a very effective way to create cash flow and build wealth at a higher rate of return and quicker than traditional investing.
PenniZ trains her clients to minimize the roller-coaster ride that so many have experienced in their lives around finances. She believes that personal, professional and financial stability go hand in hand. “These areas, affect our quality of life and when we are grounded in our life and have a life vision we can make better and wiser financial choices. When we think better and know better we do better.”