Edwin D. Epperson III has a lot of stories to tell: as a U.S. Army Infantry veteran who served multiple tours of combat, from 2003 with the invasion of Iraq with the 3rd Infantry Division, to tours in Afghanistan with the 101st Pathfinder company with downed aircraft recovery missions, as a fearless Green Beret trained as a combat diver in Afghanistan and South America, and now, as a private lender-turned fund manager in private lending in Florida. The seemingly incongruous path to lending was gradual yet determined — and guided by the principles he learned in the military: communication and extreme ownership.
As a Green Beret Combat Diver on U.S. Army Special Forces Operational Detachment Alpha (ODA), Edwin met his share of challenges: grueling training sessions in the North Carolina wilderness, underwater training as a combat diver in the Florida Keys, tours of combat in Afghanistan, and advise and assist missions and foreign internal defense missions in South America. The challenges were physically, mentally and emotionally demanding. In North Carolina, he and other trainees were forged their way through the woods at night in freezing temperatures, chest-high water and no lights, all while avoiding the implied enemy. They endured mock captivity in an immersive environment while going several days without food or sleep. In dive training, recruits remained calm under water while oxygen was yanked from their mouths and their eyes temporarily blinded. They plotted and navigated beach assault landings while staying completely submerged. In Afghanistan, Edwin endured the pain of losing a close friend, fought firefights that lasted days, and helped forge a friendship with their partner Afghan Special Forces.
But Edwin views these experiences less as extremes of torture than simply tests of physical and mental stamina in torturous situations. More than anything, they are tests of character, will, and the desire to achieve. They are a training ground not just to endure the treacherousness of combat but the challenges of life. They are lessons in preparation, skill and responsibility: How to communicate. How to lead. How to take ownership. How to be successful. How to fail forward and persevere.
He thrived in the U.S. Army for seven years with successive promotions, and later as a Special Forces Green Beret for six years. But during that time, he searched for a new challenge and was intrigued by residential real estate.
In 2010, he began to research real estate investments. At a real estate club meeting, he met a broker who proposed this idea: Have you ever thought of becoming the bank? Intrigued, Edwin was introduced to George Antone, who became a mentor and eventually led him into real estate private lending. “From 2011 to 2014, I studied with George and other people,” Edwin says. “Mr. Antone mentored me on how to think like the bank, how to do due diligence, and how to use leverage and arbitrage.” As with everything that Edwin has achieved in his military career, his drive and demand to attain the next level pushed him to file his first Reg. D, 506(c), led by Kevin Kim of Geraci Law Firm.
In early 2014, Edwin secured his first deal with a friend who had funds for the purchase but not for the rehabilitation. He aggregated several of his fellow Green Berets’ investment monies — $40,000 — and $10,000 from himself. Together, they made a second-position loan to his fellow Green Beret who had the experience and knowledge. The friend completed the rehabilitation of the single-family residence and sold it. “I realized I could use arbitrage and leverage, but not just leverage of capital; leverage of time, knowledge and experience. This was critical in making that shift in mindset from real estate investor to lender.” Edwin continues, “Using arbitrage, I was able to give my fellow Green Berets an 8% yield on their $40K, but I charged the borrower 12%. So, I created a 4% arbitrage, or spread on their $40K, and I made 12 percent on my $10K. The investors were happy because they knew their money was secured in real estate, albeit in second position. They got monthly interest payments for a few months and I gained some valuable lessons.”
It was now mid 2014, and Edwin was still serving in the Special Forces, but this time he found himself on his last combat tour to Afghanistan. During this last trip, he had made one more loan. “We were given the mission to clear a valley of several villages that the Taliban forces utilized as a main supply artery for fighters flowing into the country from Pakistan. We made preparations and planned for several hours of operation that turned out to be several days and a fight for our lives. Before our infiltration via helicopter, I sent an email with final approval of loan docs and wiring instructions to my investors and the broker. As I sat on the mountain preparing for our early morning raid, I had an epiphany: I realized I’m not geographically restricted. It was feasible for me to work from anywhere and make a loan. I could build a team, much like my ODA, by finding licensed professionals in the state I wanted to invest in. By utilizing the concepts of leverage and hypothecation, I realized I don’t have to go out and get all of these certifications or attain hours of education. I could use other people’s time, knowledge and experience as leverage.
“I lost a lot of good buddies on that last trip, and combined with this discovery of the freedom to become a lender, well it was enough for me to turn down my next re-enlistment opportunity. That was tough, because in my career path, the government spent a lot of money training us. I’ve read that to train a Special Forces Green Beret can can cost $500,000. I was offered a re-enlistment bonus of $75,000 for four more years. I had 12 ½ years of service at that time. That would have taken me to 16 ½. The next bonus: $150,000 to max out to 20-plus years. Yet I had a business I knew I could be successful in, and I felt that God was leading me out of the military into this new venture. So, I was determined to apply the same principles to private lending as I did to the military, knowing I would be very successful.”
He gave his notice to the military (any service in a special operations unit in any branch of the military is completely voluntary) and ended his career as a senior communications sergeant on a 12-man Special Forces combat dive team, after 13 ½ years of service. He received his last military paycheck in October 2015, and was honorably discharged. From October 2014 through October 2015 Edwin originated slightly more than 27 loans. In 2016, he originated 35 loans, and in 2017, 48 loans.
Survival and Preparedness
Edwin is adamant about his guiding principles, communication and extreme ownership, and his faith in Jesus, as the bedrock for all he does. In any special operations unit of the military, people live and die based on the preparedness of the unit and its ability to communicate and take extreme ownership. As a senior communications sergeant, Edwin knew this first-hand. “My role was to maintain communication with everyone in our sphere of influence, both vertically in our chain of command and horizontally in all other military units operating within our area of operation. It may seem dramatic, but it was a matter of life and death. If you’re in a multi-day firefight and you drop communication, and you’re not able to call in a medevac, that person will lose their life. If you can’t call in for resupply and you’ve been fighting for days, you need to have food, ammunition, water and even backup, or literally men’s lives will be lost. There’s no McDonald’s nearby to grab a quick bite; there is no Holiday Inn to grab a nap. The only way you can get life’s necessities is by having communication. So that’s why communication is so critical to me.”
Communication, Edwin believes, is critical to the success or failure of any venture. “When a project starts to go south, investors start asking questions. Why is this taking longer? How come we’re not making progress? People are averse to conflict especially over money. People want to bury their heads in the sand and hope it will eventually work itself out, and everybody will be made whole again and we can go on. Unfortunately, it does not work that way. So, you must maintain communication even in the worst of situations.
“That communication between you, the investors, and your borrowers helps maintain trust and build an even foundation, regardless of which side of the table you’re on: investor, lender, or borrower. Everyone is working toward one goal, which is completion of the project, with the realization of the investor’s return of capital, and most importantly, the return on capital. This can only happen through consistent and constant communication. The worst circumstances can come about and people will still gather together and be a cohesive unit. Should communication breakdown, that’s when trouble comes…trust erodes. And trust is the foundation of any relationship.”
In the Special Operations community, extreme ownership is drilled into everyone. “We wake to it, sleep to it, eat to it, live and die to it,” Edwin says. “You can pinpoint the one quality to those who finish and are selected during the three-week assessment and selections process, and endure and pass the two-year qualifications course: extreme ownership. The success or failure is 100% based on their own desire and ability to communicate openly and honestly and demand extreme ownership from themselves and others. Extreme ownership means you own everything in your operational and influential sphere. We even assume the responsibility of the success or failure of others outside our realm of control. If an action fails, we ask, what could I have done differently, how could I have approached this differently? What secondary or tertiary orders of effect could I have had in place to help this succeed? I live by these three mantras in my business: communication, extreme ownership, and my faith, and they comprise the foundational verticals of my business.”
In 2015, Edwin was able to maintain and lean into those foundational verticals despite an investment that went sour: an unsecured loan that was supposed to be secure against six properties in Georgia. “In early 2015, I was feeling pretty confident. I was finding quality borrowers, and I had made around 10 loans at this point. I was still in the Army but working behind a desk, so I had free time to build my private lending team, attend conferences, and expand my knowledge base. In April 2015, some family and friends invested with me in a two-week bridge loan. This was the first loan outside what I was comfortable with, yet a broker brought it to me, and I trusted this broker. We needed to close pretty quickly and there were red flags everywhere. I made the conscious decision to stick my head in the sand and believe everything the broker was telling me would work itself out. I abdicated my responsibility of extreme ownership to someone else: the broker.
“The borrower did not even own the properties, so we made an unsecured loan. The title company, which was not licensed to practice law in Georgia, violated my escrow instructions and sent money to the borrower. The borrower was indicted by the FBI a few months later for running a $1.2 million Ponzi scheme. I assumed the responsibility of more than three years of litigationwith a cost well over $115,000 for that mistake: for not sticking to my underwriting guidelines, policies and procedures, and by not assuming extreme ownership.”
Not only was the money lost to a scam artist, so was Edwin’s confidence. However, he relied on one of the tenets of his Army training and began immediate communication with his investors. During the next few weeks, he again took up his position of fully owning his responsibility. “I finally took ownership of the entire transaction without casting blame on anyone but myself. I was at the helm; it was my fault. I restored the confidence of my investors by communicating and taking extreme ownership. I overcame an insurmountable hurdle and I am grateful; of the seven investors with me on that loan, six have continued to invest with me in many following projects.”
George Antone, Edwin’s mentor, taught him to create policies and procedures and never break them. “Which I had done,” he says. To prevent another occurrence, he reviewed his guidelines and today ensures they are front and center in every transaction. “Now, we never violate our underwriting guidelines, policies and procedures. If we come across a new loan opportunity, we conduct an internal review of the opportunity; create a set of guidelines, policies and procedures specific to that loan opportunity; and create our loan products. Even if it’s almost identical to an existing product, we have clear guidelines, policies and procedures to bring that loan from inception all the way to reconveayance.”
Looking Toward the Future
His advice to others just starting out? “There are three key factors to being successful: time, knowledge and experience. To gain experience, you must be able to implement the knowledge you have acquired. To be able to gain that knowledge and put it into practice to acquire experience, you must find the time to dedicate to your craft. As we all know, internally, time is our most precious and valuable asset. I didn’t have any experience or knowledge in the mortgage industry, much less the real estate industry. I first had to educate myself. Before that, I had to dedicate time out of my busy day.”
Edwin continues, “Also develop that sixth sense for this industry and be able to read people. Scam artists abound, and when you are new, you become easily susceptible to the almighty dollar. Learn to listen to your gut. Be aware of the red flags and examine them. Never rush. If a broker or borrower is pushing you to close, take extra precaution. As humans, we get complacent, comfortable, we take shortcuts. We begin to trust but stop verifying. By not following policies and procedures, you open up yourself to litigation, getting scammed, all types of problems. Make it a practice to review each deal after it’s complete by going back to the drawing board and asking, Can something be done better, more efficiently? If anything is broken, how can I fix it? Am I sticking to my guidelines, policies and procedures? If not, why?”
“Also, when financially available, have a board of advisors or a committee, and outsource/hire your underwriting. It’s hard to do when you’re first getting started, believe me. You are the originator, processor, committee, review board, CEO, and janitor. Yet at some point, you need to have other eyes on your loans to point out red flags. This is where you can go back to the basic function of leverage. Leverage your real estate attorney, your title company, your appraisal company, and others. Ask them the questions and bring to them the red flags. Then lean in on their advice and no matter how attractive a potential opportunity, follow their lead.”
For the last three years, Edwin has been on the brokering end of the business in hard money and private money, assembling a team of associates and friends as investors in various opportunities. Edwin says he feels called and driven to the next level, which is the fund management space. “It’s a unique role; there is more responsibility on my shoulders, which is exactly what I strive for,” he says. “As a fund manager, I make all the rules. As a broker/lender, my ability to make a loan is dependent on the investor who is providing the capital, so I am not making the rules therefore I do not have the authority.” Now, instead of his investors receiving a return of their capital at the close of each loan, investors can invest in the fund and receive an annual return on their money, as well as profit from ventures the Fund will take on. Investors will have a passive role yet will remain in the loop on all communication.
Edwin is keeping his eyes on the national market, even though his fund will focus in the southeastern states. He says, “There is a shift happening right now as the ROI for single-family residential investments seemingly has peaked. There is rate compression — so much capital that wants to get used in loans and lending, which I have heard and experienced over and over during the past two years. It’s become extremely competitive. Three years ago, I originated notes at 3 or 4 points and made 12 percent. Now it’s common to have 1.5 to 2 points with rates at 9 percent or less. Everyone’s competing for the same money. If I want to compete, I have to offer my capital at or below a competitor’s rates. I believe there is oversaturation on single-family fix-and-flips due to this competition. I am not in the business of competition but in the business of domination. To continue to dominate an arena, one must find new opportunities where you become the disruptive factor. This puts you in the proactive or aggressive stance. Otherwise you are reacting to the disruptive force, which is strictly reactionary, a defensive stance. So to become disruptive, I am looking at many different avenues to deploy capital: new construction, developments in both the SFR and commercial products, joint ventures, which is something my fund will be offering that no other lender is offering. There also has been a surge in multi-family housing that I believe will continue to grow. However, there is a bigger movement underfoot right now.”
Millennials, he says — and he emphasizes this is strictly his opinion — want something different for their living arrangements than their parents and their grandparents wanted. “They are much more concerned about community,” he says, “than single-family residences. Chasing the American dream means something different to the Millennial. A focus on social activism and community living will be a cultural disruptive force, affecting many aspects of our society, housing being one of them.” He believes that because Millennials are waiting longer to be married and don’t feel drawn to owning a big house like their parents did, smaller is better, and efficient, green, simplistic living trumps the extravagant lifestyle their parents sought. “This is the disruptive force my fund will focus on: finding development ideas and strategies that will align with this cultural disruption. It is a dangerous cocktail for those in the industry who are not willing to see the change and adapt. For myself and my investors in the fund, these are exciting times, fertile with new opportunities and the ability to venture into deep oceans, not just blue oceans.”