Epic Real Estate Investing - How to Find Funding for Your Income Property | HTH 015 | 528

Episode Date: November 28, 2018

Are you wondering where to find funding for your income properties? We are going to spark your creativity and give you the ideas which will allow you to get the best deals and pay less of your money for them. Learn what portfolio loans are and how they work, how to present a deal to a potential money partner, and what the seller financing options are. Learn more about your ad choices. Visit megaphone.fm/adchoices

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Hold that house. Your host's Matt Andrews and Matt Terrio. Yeah. Hello, welcome. Welcome back. And if this is your first time here, welcome. Glad you found us. Flipping houses, it can make you rich, and it has made a lot of people rich.

But holding those houses will make you wealthy. In fact, it's made more wealthy or more people wealthy than any other industry, any other investment strategy. And that's what this show is all about. This is the Hold That House show. I am Matt Terrio, and over there is Mr. Matt Andrews. Cuckoochoo. There he is. And before we begin, got a great show for you today, but before we begin, we've got a free gift for you.

Go to Hold Thathouse.com and download the four. hour work month. Inside of this one-page document, it's really short. It's sweet. But don't let that dissuade you from its value, from interpreting its value, because it really is filled with the Ten Commandments to managing property managers. And these Ten Commandments are just that. There they are the key ingredients to financial independence through real estate, through real

estate investing. And it's the stuff that, you know, people just don't tell you about. But I'm telling you, after the hundreds and hundreds of properties that Matt over there and myself have operated and managed and cash flowed, after all the mistakes that we've made, after all the mistakes that we've seen other people make, you know, we really narrowed it down to if you follow these 10 commandments, you can minimize your risk to a place where I'd darn near say no risk. Absolutely. The shortest distance between two points is a straight line, right? That's right. That's what this does for you. You know, we did not arrive at these Ten Commandments by going in a straight line.

No. You and I, right? We definitely did the squiggly line. We did the squiggly line. But you guys don't have to do that. That's the point. Right. And so take advantage of our mistakes.

You know, don't make the same ones we did. Right. Just, you know, just one or two of these that we implement now have saved us. Oh. Yeah. Have made us or saved us thousands, tens of thousands. There's one in particular there that. It's a $100,000, $100,000 lesson to me, six-figure lesson.

And it's your. yours for free. You don't have to pay a down thing for it. Damn thing. Listen to me. Listen to me talking all foul. You ain't got to pay a damn thing. Go to hold that house.com and get the four hour work month. It's yours for free. Hold that house. All righty. Today we're talking about a subject that's on everybody's mind when they first get into real estate and that's money. Like where am I going to get the money to actually buy an income property or to acquire an income property or whatever that may be? How am I going to start building my cash flow and how am I going to continue to do it long into the future. So we're going to go over various funding sources for your income properties. Yeah, man,

let's, let's break it down. Let's talk about the different types of funding that are available for, you know, all different investors and people that buy properties, right? Not every one of these are going to be right for you, but let's kind of make a list of all the different types of funding that you and I have taken advantage of at different points in our career, different markets and different deals. You know, the funding has to fit the deal. It has to fit the strategy. So we're just going to break them down for you right now and just kind of define and give you examples of the types of funding that we're talking about and what's out there right now. So the first one is just, you know, your basic conventional funding, right? It's conventional funding, not really investor

funding, you know, it's the kind of funding where, you know, first time homebuyers use conventional funding, right? A Bank of America loan, of Ocovia Bank, you know, standard 15 or 30 year amortized loan, right? Now those for the most part in this day and age are not for investors. really, right? I mean, you can use some conventional financing, but not a lot. A lot of stipulations after the crash have changed conventional lending, you know, have really made it more of just a consumer, non-investor type lending. But, you know, in 2000, 2001, 2002, I started my business on conventional lending. You know, you could have, I forget how many loans it was at the time in your personal name. And, man, I took advantage of that back then. You know, they were

giving out loans to everybody. There was an unlimited source. There was no one. shortage of people willing to give you money. There wasn't. We used to joke around if you could fog up a mirror. That's right. You know, like, wait, is there a heartbeat? He gets a loan. Yes.

Let's get him $400,000 right now, you know? And so, and in Florida especially, I don't know what it was like, you know, here at the time. California was very much the same. I mean, I felt like everyone in their grandma owned eight properties. Right. You know, because they were just able to get funding effortlessly. And a lot of that was adjustable rate mortgages and all kinds of things. Negams.

I don't buy into this whole predatory lending thing. or, you know, I don't, look, everybody is responsible for what they do. And no one put a gun to your head to sign that document. Yeah, predatory, just the term predatory lending. It's like, you know, I think about like, you know, like there's like a lion looking for you. He's a predator and you're just a helpless gazelle or something. Guys, no one put a gun to anybody's head and made anybody sign anything. Now, you know, where some people maybe coerced or, you know, misled, sure.

And that's always going to happen in all business. That's happening today. That's happening today. And it will keep happening. You know, people will mislead people. But let's not get into this thing of, oh, well, you know, it was terrible what happened to these poor, helpless people now. Most people signed their loan docs, and they knew what they were doing, and they knew what the stipulations were. Now, a lot of that also caused the crazy upside-down nature of real estate for a few years, which really kind of made it good for investors like you and I am at, right?

Because we were picking up properties super cheap because of all these defaults. But conventional lending was viable back then for investors. Not as much now because banks, on the whole, and correct me if I'm wrong, banks really don't want to lend conventionally to investors right now. We have one person at cash flow savvy. We have one preferred lender that we go to. Just one. We just haven't found anyone that was as accessible and as investor friendly.

So you'd love to have four or five. I would love to. But we have one. And, you know, knock on wood, so far it's been enough. And, you know, we still can do portfolio loans and blanket loans. And they come down, I think, to a 60. thousand dollar limit where most lenders won't even look at you under 80 or a hundred sure multiple loans more than 10 I don't know how they do it but they've done it for our clients and

but that's one so conventional lending is it's a tougher game that's at these days and it's not scalable and I think that's really right you know the the main point here if the point is to amass a great portfolio of buy and hold properties that that produce great cash flow this is probably not the lending method for you right it's this is not highly scalable. Even back when I started my business, I think, you know, eight loans or something like that was the limit, at least the way I was doing. I'm pretty sure that's what it was. Maybe it was 10 at one point, but still not really scalable. And today, it's, you know, even less so. Right. But you mentioned portfolio loans. Talk a little bit about what that means because I think,

I think people have heard that terminology, but a lot of people probably don't understand, you know, how a portfolio loan works. And that's something you've used a lot in your business and also helped a lot of other people with. Sure. Portfolial loan or blanket loan, They kind of exchange interchangeable. What it is is, you know, when you go acquire a property, you get a loan on that one property. And when you say build up your portfolio to 10 properties or 20 properties, 30 or over 100, like my buddy Matt over here. Oh, what is your number? 40.

It's over 50. Over 50. 100 is the number I'm going to get to within the next day. I gave you my time frame for that. So I'm heading there. But yeah, I want to be careful. Just over 50. Embellished too much.

But I knew you got a lot. Yeah. So if Matt wanted to, he could take and consolidate those loans that he has on the individual properties and consolidate them all into one loan and get a loan on the entire portfolio. And why would I do that? Typically, one payment. So just ease of payment is one. You can pull out a larger chunk of equity out of all the properties and use that cash to purchase more properties. And I don't know.

Am I missing something? Well, why would I pull that money out? What am I going to do with it? To want to buy more property. Right, exactly. Yeah. Utilize your leverage and some people like, you know, depending on your tolerance or how you were raised,

you might think debt is good. You might think debt is bad. One thing great about this market right now is you can go into a property in many market or get a property in many markets utilizing no debt and still get a double-dage return. And for a lot of people, that's a good, comfortable place to be. Absolutely. I got no debt and I still getting 10, 12 percent cash on cash return.

nice and easy. Sure. But, you know, to really progress and move forward, you want to utilize as much debt as possible. Absolutely. Responsibly, of course. Yeah. And so, you know, the large-scale real estate investors, people that are operating at a high level, they are leveraging their current portfolio to grow the portfolio.

Right. And there's a way to do that. And there's, you know, different schools have thought on the best way to do that. But the idea is that, you know, the best investors learn how to be almost technicians of that process. You know, how to study the market at the time, how to study the options available to them at the time. And, you know, by getting loans on multiple properties at once, you do open yourself up to a lot of additional options that you wouldn't have if you were looking at one property and looking at a kind of a conventional type scenario with a bank. So portfolio loans, especially for a lot of you that are listing, I know that we have a lot of veteran real estate investors. I know a lot of you have some, you know, a lot of properties, a lot of units, you know.

So if you aren't taking a look at the options, if you're not taking a look at the options for portfolio loans, you need to because you might be, you know, just losing an opportunity to drastically increase your holdings. Right. With smart debt, you know, with smart leverage, like you said. Right. So, yeah, portfolio loans. Then there's hard money. Let's talk about that for a minute. Hard money.

It's an interesting way that they call it, you know, because it is kind of hard sometimes, right? Yeah. Well, hard money or in some cases, transactional funding is what we would call it sometimes. right. Those are generally loans, not so much for buy and hold investors, unless it's on the acquisition side and you just need some transactional funding to make it, to make the transaction go through so that you can then refile it or something like that. But hard money loans are typical, typically short-term loans, typically very high interest. A lot of times pretty high points, pretty high penalties, sometimes even penalties for, you know, paying it off too soon. And that's usually,

it can be from a lot of different sources, but a lot of times it's through like a private source that's offering that funding, right? So, you know, Matt, you work with a lot of investors all over America. You know, what are some of the types of transactions that they use transactional or hard money for? Even in buy and hold real estate.

What's a scenario that you... Well, there's three. One would be, transactional funding specifically, would be if they're having a challenge with their title company doing a concurrent close or a double escrow, I know there's a lot more resistance happening with regard to assignments.

So a lot of companies are, depending on the source of what you're purchasing the property from, you may be required to close on that property first before you can resell it. And that's where one of these shorter term loans would come into play. That's one place. Second is maybe this property is going to be a fix and flip for you. And you plan to take a couple months in fixing it and you're going to unload it afterwards. So maybe that short term money might work. It's just a math equation.

Yes, it's expensive. But do the math equation. if you bought the property low enough and you can still pay the fees on the money and still acquire the and still flip the property for a profit. That's the second. The third way, which is probably the way we use it most frequently, is being a position to seize a deal. You know, sometimes the deals will come across or come along and you're not in a position

to seize that opportunity at that very moment, depending on what the rest of your money is doing at that time. And so, you know, go ahead and acquire that property. and then, you know, go ahead and let it sit for six months, eight months, because after a property, you've owned the property for six to eight months, after you've proven that its performance, it's much easier to get that conventional financing and go into that longer-term lower interest rate loan.

So it's a tool. You know, it's really, it's a tool that allows you to execute your strategy. And to acquire properties you otherwise may not have the opportunity to it. If you can't, if you don't have that cash right then. Thanks for sitting tight while we pay our light bill. We'll be back. right after this. If waiting for your investments to grow feels like waiting for paint to drive,

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So, I mean, a good example of that would be, like we talked about, in one of the previous episodes of, you know, buying properties at auctions. You know, I mean, you have very little due diligence time, but if you know your number, you can bid on it. If you get it, you know, and a lot of the auctions that I've worked at, you've got to put down 8 or 10 percent that day. That day. And then, you know, many times within 48 or 72 hours,

you've got to come with the entire amount. Right. If that's not sitting in your bank account ready to go right now and you're going to lock down that property, then hard money would be an option for that, right? And maybe you just need a stop gap to be able to then get that money together and you pay off that hard money loan.

Or maybe you wait six, eight months, and then let some options open up, let it season just a little bit and have some other conventional type sources that could refi you out of it or something. But the bottom line is you're able to acquire that property when you wouldn't have been able to before. So for hard money, your numbers have to be right on.

Like Matt said, you've got to have, you've got to know exactly what the numbers are. And hard money can eat you alive if you're not looking at it realistically. And I use hard money early in my career. And it does put you under the gun a little bit. You know, I used to use it for a lot of my rehabs that I did. You know, and we're working with, you know, our own funds now. And so that's, you know, we've opened that up a little bit.

But I try not to lose that sense of urgency. When I am flipping a house, you know, we've got to move quick. But hard money are paying 15% or 18% or something like that. Right. That'll keep that fire lit underneath you to keep that property deal moving. So that could be an option for some of you on the acquisition side, you know, but make sure you know what you're doing with hard money. That is not for beginners and certainly not for novices and not for, you know,

not for kind of laid-back investors that take their time to do things because that's money out of your pocket. For sure. So that's hard money, and that's why they call it hard because it's hard sometimes. Yeah, it's hard on your wallet. They should call it harsh money. It's harsh sometimes. Yeah, exactly.

Relatless unforgiving, for sure. Exactly, exactly. Okay, so another source would be, and this is one especially lately that I know you and I have liked a lot, and that's private lenders or, you know, we can call them money partners. Okay, so what's a private lender? Well, it's just like what it sounds like. It's somebody who privately will lend you money for an agreed upon amount or split or percentage to let you go into a deal, you know. So a money partner could be somebody who, you know, funds the entire deal for you, and then you own it together as a rental, and there's an agreed upon split. of the profits there. So you're, you know, rehabbing the property, you're renting it out,

you're taking care of it. Well, your money partner is providing the money. So you come to an agreement there of some sort. And that could happen, I mean, that could be set up a million different ways. You know, you could have a straight equity split. You could have, you know, a service fee that you pay to borrow that money, just a fixed rate of return. A lot of different ways you could do that. And certainly a lot of different ways you could offer that to people. The way I like to do it, And the way I approach it is, you know, there's a whole world of people out there that have money that are making 1% in a mutual fund. Right. Or, you know, in a CD or, you know, if they're really good at stocks, they're making 4% or something like that, you know.

And rock stars make 4%. Rock stars make 4%. Right. And I offer my private money partners, you know, 7, 8% money a lot of times for the right kind of deals. You know, so, you know, your ability to market, reach out and network and find people to, um, to, be a hard money or to be a private lender for you, you know, it's really only limited by your ability to go out there and explain it and find people, you know, and really the way I offer it is I'm offering an opportunity that they wouldn't normally have. So it's not like you're going out

saying, well, you lend me money. I want to, I want to buy this house, you know, and I need to borrow your money to do it. I want you to come in as a partner. It's more like, hey, I've got a fantastic deal. Right. I know you're investing in some other things. I'm sure you're not getting this rate of return for doing absolutely nothing. I'd like to offer you this opportunity. Right. You know, and isn't that a stronger position than, can I please borrow some money?

Especially with newer investors, they come in and they think that they can't invest because they don't have the money. And so they go out and look for the money before they start the investing. And with every single funding resource and funding source that we've talked about today, you have to find the deal first

before the conventional lender to have a conversation with you. Before you ever, obviously you have to have a deal before you could ever do a portfolio loan. You have to have the deal first before the hard money lender is going to give you the money. And with the private funding, just like you talked about, it's so much easier. So don't be so concerned with finding the money and then if you find the money, then you can find the deals. It's infinitely easier to find the deal first and the money will find you. Absolutely.

You know, if you truly have a deal, if it is a deal, and that's where a lot of people get confused, is like, I found a deal and no one is going to give me the money. Well, maybe you don't have a deal. That ain't a deal. That ain't a deal, right? Because there's no shortage of money for deals. Absolutely. Right?

So that's a great point. Find the deal first and the money is so much easier. Absolutely. And you're only limited by your ability to reach out and explain the opportunity to people. Right. So really cool, you know, really cool option. I work with a lot of different private lenders and money partners on different deals in different ways.

So it's just, you know, again, you know, your creativity and connection. of those people is the only thing that will limit you there. Existing financing. Let's talk about that one. Yeah. You paid attention to last episode where we talked about finding deeply discounted properties. We had those three realms. And we're specifically talking of the third realm where you're dealing directly with property owners, private property owners.

And when you find distressed property owners, you find distressed properties, a lot of those situations, there will already be a loan in place on that property. And there's something called a subject to transaction where you take over the property subject to the existing financing. And this could be old. This is kind of old school too. It is very old school. It is very old school. And, you know, this method right here is probably responsible for at least 25% of my portfolio is accessing it this way. And it's creating a structure of where you take ownership entitled to the property, but the financing, the actual loan, stays in.

the owner's name. And it's very, it's the perfect solution for the right situation. It's not, it's not a one size fits all situation. It's not something that you're going to be able to implement in every single deal that you come across. But when,

when speed is of the essence or ultra motivation is there, you know, this is something that is just so, so perfect. And it really does help you. how to do this will help both both parties involved the owner excuse me the seller and the buyer piggybacking on on financing that's already there yeah yeah really really awesome strategy which leads us into the next one is accessing or asking the actual owner of the property to provide financing right and that can be whether there's existing financing there and they can add a second or a third level of financing a

second mortgage that's one way or if they own it outright they can provide the whole enchilada financing, and varying degrees of that. And a lot of people think, like, yeah, but who owns their own property? Actually, over 30% of all properties in the United States are not encumbered, do not have a mortgage on them. So yes, they are out there. And I buy them at least, I've come across one or two, at least a month, and at least one of those will take a seller-financed option. And there's all kinds of options there with people that own free and clear real estate to do different scenarios within seller financing, right? We talked in one of the last episodes about, you know, direct mail and about using bandit signs to attract

distressed sellers, right? Well, some of those distressed sellers guys will be people that own free and clear properties or people that own properties with loans, but still have quite a bit of equity in them. That gives you some room to really negotiate, you know, some people, you ask them what they want, hey, I need cash from my house, I need it three days, okay, well, that's one type of situation. But as you talk to people and as you are asking and figuring out, because it's seller, you know, motivated sellers and dealing with them is all about finding out what they want. Right. Finding out what they need, right?

And then you providing that to them. So, I mean, it could be, you know, hey, they say they want 50 grand cash for their house and you say, well, you know, what is it that you really need? What are you trying to do? Well, I've got to have at least, you know, $2,000 a month to live and I got to have this. Well, okay, if I could give you $2,000 a month and then pull back a note, hold back, you know, would you hold a note for this amount? you know, maybe you've solved that problem for them. And it could, and it will make them even more in the long run if they've got that time to wait. So many times it's just about asking the right questions of these distressed sellers and then figuring out,

what is it they really need? Did they need 50 grand cash in the bank right now? Or do they need $1,000 a month to live and be willing to make 55 instead of 50 in a year or two year or whatever it is? So it's just really probing and figuring that out. And that's what we call creative real estate. Right. You know, that's being creative. And like Matt said, on some level, all real estate investing is problem solving.

Right. You know, so you're finding out what do they really need, and then you're solving that problem, you know. And that really breaks down the ways that we have, you know, done most of our funding. Now, there is another way. I'm not sure if I'm supposed to mention this one yet, but the acquisition assistance program. What you and I are what you and I've been working on? Yeah, we can talk about that. Okay.

Why don't you tell them about that one then? Well, I have a rather easy way to find funding for. your deals, as we've talked about with private owners, is through accessing their existing financing or asking them to carry a note and provide financing, is that we've made an arrangement through many of our turnkey allies, our turnkey associates and affiliates to provide financing for that acquisition. It's short-term financing. It's kind of like a cross between the long-term or the conventional financing and the hard

money, so it's kind of a middle ground that allows you to acquire a property, to be able to cash flow it for up to three years and then look for an alternative source or a more long-term situation to hold that property. And so that we've arranged that and we've created one website where you can access that and get access to all the biggest and best turnkey providers in the country and that's at turnkey allies.com. And yeah. We've created another option, haven't we? Yes, we have. We have. We're ready to go with that, by the way. And, you know, we were talking about creative financing or creative real estate, you can use a combination of any of these. I mean, we've named what, six, seven, eight different options for financing. And you are really only

limited by your own creativity. And just to give you an example, I own over 200 rental properties, a combination of single families and multifanilies, 200 units. And I haven't used one dime of my own money to acquire any of that real estate. Awesome. And it really comes from a combination of all of these different resources that we've shared with you today. So that's an extreme example, but it is what's possible. It's not even in the realm of unprobability. It is definitely possible, and it just comes with experience. It comes with a little bit of creative thought and, you know, just kind of honing your

skill of being a problem solver. Absolutely. And just not doing things the way everybody else does them. Right. You know, if you're willing to, you know, step outside of the box or even just, you know, stick dynamite in the box and blow it up and not even acknowledge that the box exists. and get out of the normal way of thinking, that's what we're talking about,

we talk about creative real estate investing. So, I mean, 200 units, none of your own money, you used your creativity. You leveraged your creative thinking to make that happen, right? There was no one that was just going to spell that out for you, at least not when you started doing it. Now, we spell it out for people, and we show them how to do that, right? But when you started, when I started,

there was no one teaching that or exactly how to do that, at least not the way we do it. So, I mean, it really is about using that creativity, And the more creative you get, the more out of the box you get, the more problem solving and solution oriented you become, the better these deals can be. And the less of your money you'll have into it, the more you'll be able to scale up. Right. Absolutely. So that's it, guys.

I mean, that really breaks down, you know, the primary options right now. And each one of these could be a whole podcast on its own, especially private lending, existing financing, seller financing. And, of course, what we just talked about, acquisition assistance program at turnkeyallies.com, all of those things we could experience. expand on. But this just gives you an inventory now to let you know this is what's out there. And I know a lot of you listening are thinking, okay, I could see I fit into this category or this category. And that's why we're doing this. You know, we want you guys to to know the possibilities so that you can start thinking creatively like we do and you can start scaling up that business, put more properties into that portfolio and cash flow. Amen. That's it for today.

Flipping houses, it can make you rich. Holding them will make you wealthy. We'll be back next week And until then, remember, don't wait to buy real estate. Buy real estate and wait. Hold that house. Contrary to popular belief, a lack of funding is not the biggest barrier to starting a business. It's excuses. But don't let a lack of funding be your excuse. We are epic fast funding, and we'd like to fund your business with up to $150,000 in revolving credit lines.

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