Getting financing in real estate is the life-blood to your business. It doesn’t matter whether you are looking to buy your first property or own a publicly-traded REIT, getting financing for your real estate business is vital.
Most of you know my story, but for the newcomers here is the quick version:
I won a stock market competition when I was 12 and have always loved analyzing investments. I joined the Marine Corps to pay for college. After college I got my dream job as a stock analyst at a hedge-fund. I love analyzing stocks. However, I came to realize that I will never get to where I want to be financially by simply investing my money in the stock market.
A lot of people think this is how Warren Buffett made his money. He didn’t, He made his wealth by owning his own company and managing other people’s investments. Eventually, he compounded his wealth significantly by buying an insurance company and utilizing the insurance company’s reserves for his investment portfolio. Or as real estate guru’s would call this other peoples money.
In 2008 I was a partner at a hedge-fund and my business partner is an executive at a publicly-traded insurance company. Together, we had over $100K in cash, made great money, and had not personal debt besides a modest personal mortgage each, our credit scores are both over 800.
After years of talking over lunch and beers, we finally decided to pull the trigger one day.
We got a contract on an empty triplex in a sought-after part of town. Projected rent was $550/unit per month. The purchase price was for $85K. We were going to invest another $10K in renovations.
Obviously, if you run the numbers this is a pretty good investment.
Here’s the catch – we couldn’t get financing! I called 5 banks – nobody wanted to finance multifamily properties.
This was 2008 when the financial melt-down was going on.
I personally knew a ton of people that were getting loans that had no cash, no job and a horrible credit score. To say I was perpelexed would be an understatement.
To be very clear – we could buy and renovate this deal in our own cash! Yet, we couldn’t get a bank to finance the deal.
Eventually, I not only got the financing but I built a system for getting any kind of bank or non-bank financing I want for any kind of property.
Fast-forward to 1/1/2014 – we have no cash in the property, Annual rent is over $20k/year and our debt-payment is a modest $500/month.
This is why I am so passionate about real estate finance.
There is a gross misunderstanding with how lenders lend and under what criteria they lend.
If you believe that they don’t lend past 80% LTV and only deal with people with good credit scores, you are not even at the starting line with where you need to be.
Two other factors have led me to be passionate about real estate finance.
1) I’m a credit officer at a bank. Basically this means I underwrite real estate deals and decide if the deal is credit-worthy and we should make the loan. For those interested, a Senior Credit Officer signs off on deals and makes the final decision. For large deals, a loan committee votes and has to sign-off on loans. Usually, these large loans are over $1 million.
2) As I stated above I have learned to secure loans with banks and non-banks. The process of learning how different banks and non-banks lend is very beneficial.
Ultimately, everyone hits a wall where there own cash and cash-flow is not-enough to support a loan. This is why its important to teach yourself the systems.
Below is a list of resources you can get for learning more about getting financing for your real estate deals.
I’ve got 2 major plans for 2014:
1) Expand my rental portfolio by at least 2 properties.
2) Teach others how to get bank and non-bank financing for their deals.
Expanding my Rental Portfolio
I don’t do flips because I don’t have time to source them, manage them and then sell them. Additionally, by flipping you forfeit all of your tax-advantages of owning real estate which is one of the biggest benefits of real estate investing in my opinion.
I just had a meeting with my business partner about our strategy for expanding and feel good about it. We are mainly going to continue to pursue multifamily properties. Additionally, we might try and acquire a property for vacation rentals.
I just got us our company a $30K unsecured line of credit and have multiple banks ready to give us permanent financing or term facilities.
Teaching Others How To Get Financing
I have seen in numerous forums that the number 1 problem people have is getting financing for deals.
This is the problem I am trying to solve for people.
I have already got a ton of success stories from people who have bought the Real Estate Finance Blueprint.
One lady, got financing for her REIT to do a cash-out refinance for a $17 million apartment complex.
One guy needed a line of credit to do repairs, I called him personally and walked him through some things, and he didn’t get a line of credit…he got 2 lines of credit with different banks at lower rates than they originally told him.
A couple of other investors learned how to get financing for their REO and note business.
For those interested, please know that everyone who buys the Real Estate Finance Blueprint – usually emails me and/or calls me with some personal consulting needs because everyones credit needs are so different. This is of-course free for people who buy the blueprint.
I’m also looking at ways I can expand my teaching. I will probably conduct a couple of free google-hang-outs and possibly a half-day seminar.
Email me if you are interested in that jimmy [at] realestatefinancehq.com
If you have any other real estate finance questions you want answered please shoot me an email as well.