090 Financing: Private and Institutional Lending

 

Welcome to episode 090 of “Connie and Sheila Talk”.  Here are today’s show segments:

1)   Famous Quotations

2)   Financing: Private & Institutional

3)   Heart Topic:  Challenge Yourself to Expand- Personally, Professionally & Financially

If you have a question or a comment call 615-592-6361 to leave a voice mail!

 

Segment 1   Famous Quotations

“How can we save ourselves?  The answer, and the key to our freedom from the tyranny of our economy, is knowledge.  By educating yourself about money and how it works, you unlock the potential within yourself to break free from the mentality of scarcity and see abundance all around you.  For you, these truly can be the best of times.”  Robert Kiyosaki, Conspiracy of the Rich

 

“Don’t wait to buy real estate, buy real estate and wait.”   ~ T. Harv Eker

 

Segment 2     Financing: Private & Institutional

There is an ongoing debate about debt.  The popular thought is to stay out of debt, debt is bad.  However, others believe there is good debt.  Can there be such a thing as good debt?  What is the difference between the two?  According to Robert Kiyosaki, author of Rich Dad Poor Dad: “Assets put money in your pocket and liabilities take money out of your pocket.”

The same can be said about debt.  Bad debt takes money out of your pocket and good debt puts money in your pocket. For example: Monthly cash flow from a rental property is the result of good debt.  Borrowing money, in order to buy a rental property, that puts cash in your pocket each month, is good debt.

On the contrary, if you want to go on a two week European vacation but don’t have the money, borrowing to fund the trip is not such a great idea.  This would be considered bad debt.

Today we explore this topic in detail to include explanations & definitions for: primary market, secondary market, mortgages, rate & term loans, construction loans, interest only loans and principal only loans.

In addition we share: How to set yourself apart from others and impress a lender!

(NOTE: Our program, THiNK Real Estate, Grow Rich covers this topic in great detail and includes examples of a Personal Financial Statement, Lender Packet, Property Holding Spreadsheet, a Passive Income v. Monthly Expenses Spreadsheet and much more.  This program is for sale on our web site: www.connieandsheilatalk.com 

 

Segment 3    Heart Topic: Challenge Yourself to Expand: Personally, Professionally & Financially

Over a year ago we talked about the book: The Alchemist by Paulo Coelho.  It is one of the most enchanting & spiritual books you can read and it can be compared to Jonathan Livingston Seagull, The Little Prince, The Art of Racing in the Rain and other great books.

The story is about a young Sheppard boy, named Santiago, and his quest to find his Personal Legend.  He leaves his home land and travels to foreign lands and encounters many different people: nice people who help him along the way, thieves who steal from him, people who think differently from him, etc…

Santiago discovers each experience, good or bad, leads to more opportunities to expand….personally, professionally and financially.  Here are a few passages from the book:

“There is only one way to learn,” the Alchemist said.  “It’s through action.  Everything you need to know you have learned through your journey.”

“Tell your heart that the fear of suffering is worse than the suffering itself.  And that no heart has ever suffered when it goes in search of its dreams, because every second of the search is a second’s encounter with God and with eternity.”

Our question this week is: Are you the best you can be: personally, professionally & financially?  

Until next week, Peace!

Connie and Sheila

 

The following books are mentioned in this episode.  Should you order any, please know we will be paid a small commission through Amazon.com.

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12 thoughts on “090 Financing: Private and Institutional Lending

  1. shelia

    Another great episode. Very applicable — even in my industry. Actually negotiating a personal loan right now.
    I haven’t read The Alchemist, but it sounds like I need to.

  2. Christopher Battles

    That is a large binder. The last piece would be your social security cards, but it already has your drivers licenses…
    I enjoyed Kiyosaki’s comment.
    Thank you for the show ladies.

    K, bye

  3. Connie & Sheila

    Thank you Shelia Butler and good luck negotiating the loan you are working on. You would love The Alchemist, and we’d love to hear your feedback on the story.
    Cheers,
    C&S

  4. Connie & Sheila

    Yes Christopher, that 3 ring binder is a rather large notebook. It takes some attention keeping it updated and current, but so worth it. The information inside is invaluable when obtaining a loan from an institutional lender, for so many reasons.

    We do not include a copy of our social security card per se, however, our SS#’s can be found on each tax return. Great thought though. We too love Kiyosaki’s comments. He is a very wise man indeed.
    Hoping you have a great day!
    Connie & Sheila

  5. Heath

    This is the first episode that I’ve listened too and I really enjoyed it! Thanks for the good information

    We currently have a couple of duplexes and are looking to expand

    I have a question and you may have shared this elsewhere and if so please just point me in the right direction.. but my question is: On your “typical” deal what percentage of the purchase amount comes from your own money? Are you putting up 20% and borrowing 80% or 80:10:10, etc?

    I’m having trouble finding anyone who will loan more than 70-80% on investment properties right now. Even if I can borrow some of the other 20-30% from someone else the banks will not allow more than 70-80% LTV (actually loan to sales price) (from all sources) on the property. But, like you say in this episode I am just going to banks and looking for mortgages..

    Thanks!
    Heath

  6. admin Post author

    Hi Heath,
    Welcome to Connie and Sheila Talk. We are glad you found our show, and that you liked what you heard in your first episode. We understand you have some duplexes and are wanting to purchase additional rental property. First of all – congratulations on the duplexes. You’re off to a great start. Secondly, you asked about financing. As far as financing our deals we seldom put any of our own money in the deal. However, we pay cash a lot of times, rehab the property, get the unit rented, and then get a loan based on what the rent amount can support or baed on an 80%LTV. After working with “the right” lenders who know how we buy property, they do not require anything down for the loan. Most of them are like a re-fi. For instance we bought a duplex for $96K. We only had to put about $15K to make it rent ready at $1600/mo. The appraisal came in at $148,000 and we asked to borrow $118K (or 80% LTV). Our lender will loan us up to 80% LTV, if the rent supports a 1.2:1 ratio. In this case we really only needed $113K, but since the rent supports a higher loan payment, we put $5K in our checking account for operating capital.

    I know it is hard to believe, but there are bankers out there who will still loan on a 75% & 80% LTV on after repaired value (ARV). Out of 110+ deals, we have put money down-with an exception to two larger deals we did with some partners, we have come out of pocket on 6-8 deals. One of those were 10% down, and the others were a flat $7500, $5000, and $3000 down. Hope this helps.
    Cheers,
    Connie & Sheila

  7. Heath

    Awesome info, Thank you!

    When you talk about the “right” lenders do you mind sharing if you’re talking about mortgage companies, as opposed to banks, or are you talking about private investors or something else?

    I’m not asking who specifically your lenders are I’m just trying to get pointed in the right general direction

    Also, do you typically have to own the property for a full year (or some other period) before you are able to borrow against it / re-fi?

    Thanks
    Heath

  8. Connie & Sheila

    Sure Heath,
    The “right” kind of banker, we were referring to a smaller bank. A community bank, not a big corporate bank. Corporate banks give mortgages, not what we call rate & term loans. We very seldom get a mortgage on a property. They’re more expensive and most likely we’re not keeping the property long term (not 30 years). Plus Fannie Mae only allows a certain number on your credit. With 70+ properties we could never get mortgages on that many.

    Smaller banks/community banks give loans for 5 years at 6.25%. Another example would be a rate and term loan, 6.5% for 3years. After the term is up, we have always been able to renew the loan for a cost of about $100-$150. Sometime the rate has changed a bit, but the principal has decreased making the payment hardly changing, so it doesn’t affect the cash flow.

    The rate/term loans we get require no seasoning. Unlike a mortgage where there may be a 90 day seasoning after the sale before they will lend on it. Or 12 months before they will re-fi.

    With rate/term loans you can close today, make it rent ready, get a tenant in place (with a signed lease) and get a loan 10 days later. (Not to imply we turn them this fast, we do not.)

    Week 6 of our THiNK REAL ESTATE, GROW RiCH program explains the different types of loans we get. The program is $899. It is a 10 week + 1 BONUS WEEK for How To Find Deals, How To Make Money From Distressed Properties, How To Negotiate a Deal, Financing, Land lording Successfully, and much more. I am not saying this to pitch this program to you. Honestly, more to THANK YOU for giving us an idea.

    Would this interest you? If we took each section in the program and created an eBook for just that topic.

    Then people wouldn’t have to buy the whole program if all they are interested in is one section. Obviously if you have some duplexes, you wouldn’t need info on How To Find Deals. Thanks Heath, I think you may have just been the instigation
    of 11 new eBooks.
    Cheers,
    Connie & Sheila

  9. Heath

    That’s great! :) Yes you may be on to something with the idea of breaking it up into specific topics

    I know that I have some experience in some areas of real estate but I have big questions in others. I’m sure that there are others in the same boat and purchasing a section or two of the program and then moving on to other sections as necessary would be great

    My main questions revolve around financing right now because that’s what’s holding me back.

    Specific examples of how (real) deals were financed would be great.. including at least some idea of where the money actually came from and how. I’ve read some books where examples were given but they’re usually really vague about where the money actually came from and who would finance such a deal

    So to answer your question.. yes, I would be interested in the financing section of the program to begin with and I think that others might be interested in specific sections as well

    I also have a couple of questions:
    When you go to the smaller/community banks are you talking to the “Business Banker” instead of the “Loan Officer” or who? And do they actually call it a rate and term loan or is this what’s sometimes referred to as a balloon or is that something different?

    I’m also interested in your First 15 Deals program. How much do you get in to financing there? And what period of time does that cover? 3 years, 5 years?

    Thanks
    Heath

  10. Connie & Sheila

    Hi Heath:
    As far as our deals, we began using lines of credit. Fortunately we had lines of credit from several different business. These are unsecured lines that total almost $300K. We can write a check for the purchase and close. We can write another check for as much as we need for a rehab. Once complete and rented we show the banker before and after pictures. We show them comps for retail sales as well as rental prices. We ask them for as much as the rent will support or up to 80% LTV. But then again, sometimes we only borrow what we have in the property. Some banks refer to these types of loans as a balloon note. It may be structured as a 20 year am with a 5 year call. Meaning the loan amount is amortized over a 15 or 20 year period (or 180 -240 payments) BUT in 5 years the note is called (or it balloons). Even though the note may balloon in 5 years, it doesn’t mean the bank will call the note. Banks are in the business of loaning money. As log as it is a good loan, and you are paying on time, they will seldom call it. We have never had a note called (knock on wood). When the note balloons, actually a month or two before the balloon date -we’ll contact the bank about renewing the loan. That set the process in motion and by the balloon date rolls around we already have a new loan in place. It usually costs us about $100-$150 for a renewal. Sometimes more because we may have to pay for an appraisal to satisfy the banker as th what the house is worth. With the down market and FMV having dropped, some bankers want to make sure they are not (or we are not) upside on the loan.

    Before we go to any small bank, we call ahead and inquire as to who the person is who would handle such loans. Often times we already have a referral so we already know who to ask for. But I’d say do not talk to a loan officer whip doesn’t understand investment property. There are a lot of them out there. They may be making $40K a year and can’t comprehend, or believe we can do what we do. So be sure and talk to someone who understands investment property. Sometimes we ask WHO has rental property. We know they will get it, more than your average loan officer. We have had so many loan officer tell us over the years, “this cannot be done.” We smile, thank them for their time and leave, knowing they are right. With their mentality, THEY could never do what we do. We have to get outside the box when it comes to lending, or we’ll get shot down every time. When we are not dealing with our credit line, a rate & term loan (or a call, or balloon) we deal with private investors. Fortunately over time we have been able to develop a nice group of private lenders. To date we have used between $2.5 – $2.8 million dollars worth of private money. Also know there are private money lenders out there. We know a couple of people who have access to a million and a $1.5 mil to loan. Private loans costing a few points plus a higher rate. Somewhere between 11-13% or 8-10% for construction loans that won’t last more than 12 months. Money is a weird thing. Once you meet people who want to place money with you, the more people come. They like having their money secured by real estate at a 70-75% LTV and they are earning 7-8% interest. Can’t match that in the market! Plus the principal may decline if stuck in the market.

    “Our First 15 Deals” ranges from 2004 – 2006. We explain the deal in whole. How we got the property, what we paid, what kind of loan we got , how much we spent on the rehab, if we sold it, what we sold it for, or if we rented it, how much we rented it for. For the cost of a cheap date night for two you can see how we did our first fifteen deals. Not a bad investment. But you may want to go on that date instead. It’s your call.
    Hope you have a wonderful night!
    Cheers,
    C&S

  11. Heath

    Thanks for all of the great info in your responses!

    I’m interested in seeing how your first 15 deals worked out so I’m going to go ahead and check that out and listen to some more of your podcasts

    We’re also going to check out our local real estate investment club

    Thanks again
    Heath

  12. admin Post author

    Heath:
    Glad we could answer your questions.

    Thanks for purchasing Our First 15 Deals! One of the best things you can do is check out your local REI Club.

    We wish you much success in your REI endeavors.
    Cheers
    Connie & Sheila

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