Podcast Summary
Pulling Back the Curtain on the Lending Industry: Jimmy Moncrief, a real estate investor and underwriter, shares insights on getting loans for deals and the unique perspective of approving or denying loans, along with the opportunity to buy a turnkey rental property with no money down through Rent to Retirement.
The Bigger Pockets Podcast has reached a significant milestone with 1,000,000 listens, and in this episode, they are featuring Jimmy Moncrief, a real estate investor and underwriter, to pull back the curtain on the lending industry and provide insights on getting loans for real estate deals. Jimmy's unique perspective is valuable as he is responsible for approving or denying loans. Additionally, Rent to Retirement offers an opportunity to buy a turnkey rental property with no money down, making it an attractive option for investors. This episode promises to provide valuable information on real estate investing and financing.
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Discovering Real Estate Investing Through a Rental Property: Starting in real estate can be as simple as turning your own home into a rental and exploring potential cash flow and ease of management.
Starting out in real estate can be as simple as turning your own home into a rental property. Brandon shared his story of how he accidentally discovered the potential of real estate investing through his first rental experience. He and his wife made the decision to rent out their house based on the potential cash flow and the ease of managing a rental compared to selling and dealing with two mortgage payments. This experience led Brandon to focus on real estate investing and eventually led him to invest in a multifamily triplex. The cash flow from this investment was impressive, bringing in $16.50 a month per unit from a $80,000 investment. Brandon found this deal through old-fashioned methods like looking for "for sale by owner" signs in less traveled areas. While this method may not be systematized or online, it has worked well for him. This story illustrates that starting in real estate can be as simple as taking the first step and exploring the potential of your own home as a rental property.
Finding real estate deals on dead-end streets: Understanding financing is crucial for real estate investors, despite unconventional deal-finding methods.
The speaker, Jimmy, shared his unconventional method of finding real estate deals by regularly checking dead-end streets for For Sale By Owner (FSBO) signs, which he believes is a labor-intensive but effective strategy. However, he also shared a frustrating experience of being unable to secure a loan despite having a high credit score and significant liquidity at the time. He attributed this to the complexities of the banking system and the challenges investors often face in financing their real estate deals. Jimmy's story underscores the importance of understanding the financing process and approaching it in the right way, which is a key theme of his platform on BiggerPockets.
Building relationships with financing contacts and bankers: Interview six financial institutions to build relationships and understand their loan offerings, treating the process like a sales process to increase chances of securing financing
Building strong relationships with financing contacts and bankers can make a significant difference in the success of real estate deals. During the financial crisis in 2008, many investors focused solely on finding deals and neglected the importance of developing financing structures and contacts. Instead, investors should approach bankers as potential partners and interview them to understand their loan offerings, rather than just asking for loans. By treating the process like a sales process and being the prize, investors can build stronger relationships and increase their chances of securing financing. A simple action item for listeners is to identify six financial institutions, including community banks and credit unions, and reach out to commercial bankers to interview them about their loan offerings. This approach can lead to valuable connections and better financing opportunities.
Empower yourself by seeing yourself as the prize for professionals: Changing your mindset to see yourself as the desirable borrower can lead to better relationships and outcomes with professionals, like bankers.
Shifting your mindset from being in a position of need to being the prize can significantly change your interactions with professionals, such as bankers. This mindset flip can make you feel more empowered and in control of the situation. Instead of trying to sell yourself or your property to them, you should interview them and understand that they work for you. This perspective can lead to better relationships and outcomes. As a bank credit officer, I am the one who decides whether to approve or deny loans. Being on the other side of the table, I can attest to the importance of this mindset shift. It's essential to remember that lending money is a commodity, and you should work it to your advantage. By reversing the dynamic with your lender, you can position yourself as a desirable borrower and potentially secure better terms.
Understanding the 5 C's of Securing a Loan: Lenders assess character, capacity, capital, conditions, and collateral when considering a loan application. Building a good relationship, demonstrating ability to repay, having sufficient capital, considering market conditions, and providing collateral increase chances of approval.
When it comes to securing a loan from a bank, there are five key factors, or "5 C's," that lenders consider: character, capacity, capital, conditions, and collateral. Let's break down each of these: 1. Character: This refers to your reputation and standing in the community. Building a strong relationship with your banker is crucial. 2. Capacity: This is where analytics come in. Lenders assess your ability to repay the loan based on your personal or business debt capacity and liquidity. 3. Capital: This refers to the amount of money you have invested in your business and the overall financial health of your balance sheet. 4. Conditions: This involves considering the economic and market conditions at the time of the loan application. For example, buying raw land during a recession might not be a good idea. 5. Collateral: This is the tangible asset that secures the loan. Lenders will assess the value of the collateral to determine your lending capacity. Mastering all five C's will make you an attractive borrower and increase your chances of getting approved for a loan.
Networking for Referrals in Real Estate: Networking with real estate investors, landlords, and professionals can lead to valuable referrals and introductions for loans. Emphasize collaboration and mutual growth to overcome hesitancy. Research and interview banks to find the best fit for your loan needs.
Building strong relationships and getting referrals can significantly improve your character and standing when applying for loans from banks. This was discussed during a conversation between Jimmy and Zach, where they shared their experiences and insights. According to Zach, attending meetups and networking with other real estate investors, landlords, and professionals can lead to valuable referrals and introductions. However, some people might be hesitant to share their contacts due to a scarcity mindset. Jimmy suggested that this issue can be addressed by emphasizing the value of collaboration and mutual growth within the BiggerPockets community. Additionally, it's essential to understand that not all banks offer the same types of loans, so it's crucial to research and interview various banks to find the best fit for your specific needs. Overall, the key takeaway is that building strong relationships and seeking referrals can make a significant difference in your loan application process.
Credit Scores May Not Tell the Full Story: While credit scores are important for loan approvals, they don't always accurately reflect an individual's financial situation. To increase chances of approval, ask lenders what concerns them about your score and explore potential solutions. Maintain good borrowing history and liquidity ratios to improve capacity for debt.
While credit scores are a common requirement for loan approvals, they may not accurately reflect an individual's financial situation. The speaker, who is a commercial underwriter, shares his frustration with the reliance on credit scores and the potential for misinterpretation. He encourages those who are denied loans based on their credit score to ask the lender specifically what concerns them about the score. This can lead to a productive conversation about potential solutions. Additionally, the speaker emphasizes the importance of managing borrowing history and maintaining good liquidity ratios to increase capacity for debt. For larger loans, such as buying an apartment complex, the property's ability to hold the capacity becomes a crucial factor. The speaker encourages individuals to ask questions and seek clarification when dealing with loan approvals based on credit scores.
A proven track record in real estate increases chances of securing larger loans: Starting small and building a reputation can increase chances of securing larger real estate loans. Personal financial stability and operational experience are also crucial factors.
Experience and a solid track record in real estate, particularly in multifamily, can make it easier for individuals to secure larger loans compared to smaller ones. This is because lenders view larger deals as less risky when the borrower has a proven history of successful real estate investments. However, personal financial stability and operational experience in the specific type of real estate being fined are also crucial factors in securing larger loans. Starting small and gradually building up a reputation and capacity can increase the chances of obtaining a larger loan in the future. Ken McElroy, a real estate expert, even suggests starting with single-family homes before moving on to larger multifamily projects. While HUD loans for larger projects were not specifically discussed, it's important to note that understanding the specific requirements and nuances of various types of financing is essential for successful real estate investing.
Securing HUD loans for large multifamily properties: HUD loans offer long-term, fixed-rate financing for substantial properties with low down payments, but the process is time-consuming and requires extensive paperwork. Consider using First American Exchange Company for 1031 exchange services or Connect Invest for passive income through short-term notes.
HUD loans can provide attractive financing structures for large multifamily properties, offering long-term, fixed-rate loans with relatively low down payments. These loans, which can take several months to secure due to the extensive paperwork and government requirements, can be beneficial for real estate investors looking to acquire and hold substantial properties. However, the process is not without challenges, and it's essential to consider the time and effort required to secure these loans. Additionally, investors interested in 1031 exchanges as a tax-deferral strategy can explore the services offered by First American Exchange Company to help navigate the complexities of this process. Lastly, for those seeking passive real estate investment opportunities, platforms like Connect Invest offer a simpler alternative, allowing investors to earn regular income through short-term notes without the burden of property ownership or management.
Simplifying the mortgage process with Host Financial: Host Financial offers a streamlined approach with light documentation and common sense underwriting guidelines, prioritizing both parties' investments and considering property value and balance sheet over cash in the bank.
While securing a mortgage may seem easy, the process can be lengthy and complicated with traditional lenders. Host Financial, however, offers a simplified approach with light doc and common sense underwriting guidelines. Another important consideration is a lender's stance on your financial situation and the health of your business. They want to ensure that both parties are invested and at risk, rather than just draining the company's resources. While cash in the bank is important, the appraised value of the property and maintaining a strong balance sheet are more crucial factors in securing a loan. Building relationships with lenders can also lead to smoother transactions and better outcomes.
Compare loan terms with competitors: Research competitors for loan terms, speak with their bankers, and focus on improving your asset's value to enhance your loan application.
When negotiating with banks for a loan, it's crucial to do your research and understand the competition. Try to find a direct competitor of similar size and ask to speak with their commercial banker to get a rough idea of the loan terms they're offering. This information can help you negotiate effectively with your current bank without making both parties upset. Additionally, when applying for a loan, always ask to speak with the right person - a small business or commercial banker, rather than the front-line representative. Conditions, such as the economic climate, are mostly out of your control when applying for a loan. However, the bank wants to see that you're improving a productive asset. So, focus on enhancing the asset's value to increase your chances of getting approved for a loan.
Pledging assets as collateral for a loan: When applying for a loan, showing collateral can increase chances of approval. Be aware of potential complications like prepayment penalties and difficulty refinancing when pledging assets.
When applying for a loan, it's important to show your lenders not only a steady cash flow but also sufficient collateral to secure the loan. If your appraisal comes back bad, you can consider pledging other assets, such as an investment account or a paid-off car, as collateral. However, be aware that cross-collateralizing can make it difficult to refinance or sell assets later on, and there might be prepayment penalties involved. A more recent trend is to pledge investment accounts, such as stocks and bonds, that generate a dividend yield, effectively turning them into a low-interest loan. But always keep in mind that pledging assets increases your risk, as you could lose it all if the investment performs poorly. Ultimately, it's essential to weigh the benefits and risks carefully before making a decision.
Presenting financial information professionally to lenders: Preparing and presenting organized financial statements, tax returns, and other relevant info to lenders saves time, builds stronger relationships, and enhances reputation as a serious investor.
Being organized and professional in your approach to real estate investing, particularly when dealing with banks and underwriters, can significantly improve your chances of securing funding for your deals. Providing a well-prepared presentation of your financial statements, tax returns, and other relevant information can save time, demonstrate your level of professionalism, and ultimately help you build stronger relationships with lenders. By following a proactive lending strategy, similar to how we approach our investing strategies, you can make the process smoother and more efficient for everyone involved. This not only makes it easier for underwriters to assess your application, but also enhances your reputation as a serious and reliable investor. So, take the time to gather and present your financial information in an organized manner, and watch as opportunities for growth and success unfold.
Perspective of Borrower vs Lender in Choosing Mortgage Type: Real estate investors lean towards long-term fixed mortgages, while lenders prefer shorter-term fixed loans. Negotiating a low variable rate can lead to great deals, especially for those with cash. Foreign commercial loans may require dealing with local banks, and portfolio loans for multiple single-family houses are gaining popularity.
When it comes to choosing between fixed and variable rate mortgages, it largely depends on your perspective as a borrower or a lender. Real estate investors generally prefer long-term fixed mortgages, while lenders aim for shorter-term fixed loans. However, negotiating a low rate on a variable loan can lead to extraordinary deals, especially for those who can handle the risk and have sufficient cash. No money down deals with traditional loans are rare and require creative financing strategies. For those outside the US seeking commercial loans, dealing with local banks might be necessary due to the underwriting challenges of foreign tax returns. Portfolio loans for multiple single-family houses are not unicorns but require proper presentation, equity, and a good position from a portfolio perspective. They are becoming increasingly popular, and financial institutions like Blackstone are targeting this market.
Shift in focus towards single family spaces and importance of organization in real estate investing: Successful real estate investors prioritize organization and build systems around investments, as emphasized in 'Millionaire Fastlane' and '80/20 Sales and Marketing'. Organizational skills help secure loans and negotiate deals.
The real estate market is experiencing a shift in focus towards single family spaces, and successful investors prioritize organization in their business dealings. Jimmy, a guest on the BiggerPockets podcast, shared his favorite real estate book, "Millionaire Fastlane" by MJ DeMarco, which emphasizes building systems around real estate investments. He also recommended "80/20 Sales and Marketing" for those looking to scale their businesses. Jimmy enjoys hobbies such as hunting, fishing, and skiing, and sets himself apart from less successful investors through his organizational skills. By presenting comprehensive plans and maintaining a high level of organization, investors are better positioned to negotiate and secure loans. The BiggerPockets podcast, show 55, offers valuable insights from Jimmy's experience and expertise in real estate investing. Listeners can find out more about Jimmy on BiggerPockets and his personal blog, real estate finance hq.com.
Engage in BiggerPockets community for valuable connections and potential financial gains: Engaging in the BiggerPockets community can help you learn from peers, ask questions, build relationships, stay updated on industry news, and discover new opportunities.
Engaging and participating in the BiggerPockets community can lead to valuable connections and potential financial gains. Whether you're a new or experienced investor, creating a profile, introducing yourself, and actively engaging with the community can help you learn from peers, ask questions, and build relationships. By getting involved, you'll not only stay updated on industry news and site updates, but also expand your network and potentially discover new opportunities. So, make sure to create a profile, introduce yourself, and actively engage with the community on BiggerPockets.com, Facebook, and Twitter.
