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Ask The Expert: Funding Real Estate Investments Without Hard Money or Conventional Lending · All The Leads Mastermind Podcast

• 0:00
  Chad Corbett: Alright, welcome back to another episode of Ask the Expert guys today we have rick roll from navigator, product capital, this conversations valuable if you're a broker or an agent, this can be valuable to you because it's a difference in getting a deal funded and especially in a tumultuous environment, or in a house with with that needs major repairs. This is a way for you to capitalize investors, even if they're new investors. And we'll talk more about the the way they kind of underwrite based on experience level and, and whatnot. But I think that whether you're an investor or in brokerage on listing this, the Rick and these guys, they have a program for just about anything. As you guys know, in this series, ask the expert, we always look for people outside of our wheelhouse, that are experts in their own space, but can benefit both our company and more importantly, you guys and your business and the consumers you're serving. So Rick has a background in brokerage. He's got investment experience, banking, mortgage banking experience, and private money experience. So Rick, I'll let you tell a little bit more about yourself. And then we'll jump in.
• 1:15
  Rick Rall: Chad, thanks again, for the invite, we greatly appreciate it. We did search you out. We'd like the product, the platform that that you've developed, it's very much of interest to us. And it fits a lot into what we do. So let's start out with who we are and what we are. So we started this in 2005, we were looking for an opportunity to serve primarily our investors and through them, or realtors that we help with to get funding in about two to three weeks, you know, from start to finish on properties that are in disrepair. Really the base of our business is we have an investor that comes to us realtor brings us an investor who has a dream for a property could be a single unit could be multi family could be big apartment building. And they want to go in and make a difference. They want to redo the house, put out a good product. And then they want to sell it where they may want to hold it. But let's say they're going to sell it, and they make a nice profit. And ultimately, there's a family or an individual put the house and it makes a difference in that neighborhood. That's what really makes us tick, we give back that way. We never do any joint ventures, we don't take any of the profits, we just want to make sure that our clients are going to be profitable. And that's really what differentiates us from hard money. We've never had a prepayment penalty, we never will we don't have any adjustable rates and the fixed rates, terms go from 12 to 24 months, whatever the client needs. And we get in the box, that's okay, because that's really what we do. It's our money. We're not answering to a bank or a hedge fund or anything of that nature. We've done thousands of these in the traditional side, our concern is that our investors get out making a profit or get out refinancing and keeping the property. So in a nutshell, let's see I was in the traditional mortgage business for 14 years and on my own lending company and brokerage company. It a lot of FHA loans on a VA Fannie Freddie made it through the crash liked it, but it's good not like all these restrictions that came along with the government loans. There's nothing wrong with them just we saw when I had two other business partners, a need in the marketplace. For reliable, consistent funding that was the wasn't being served by traditional lenders. And a lot of people called hard money. We took about three or four years developing our product, our back end systems and raising capital. So we started the company about five years ago. I'm also a licensed real estate broker, I'm a past president of local board of realtors, in Toronto County, Maryland, we have roughly about 3000. Members, so very familiar with the realtor needs. And I know that that takes a segment of your customer base that I think we could serve very well. We obviously serve investors, but we also had a title company at one time. So really, from the real estate side, the title side and the lending side, we had a long background, upwards of 2530 years of peace between the three of us.
• 4:22
  Chad Corbett: You've got diverse experience in real estate, you've been able to see the challenges and frustrations from the angle of investor a broker and the banker. And now you guys kind of fill in the gaps and all those kind of my perception of what you how you see like your profession now. Right like you can serve all the places you've been you can serve with where you are now. And I think you know, that's something that what I liked about our first conversation, you know, not just anybody get those these calls with us. We try to make sure that you know the companies or the peep and the people are good value fit and You know, just like we teach all you guys, you know, there should never be a time where you can't provide a service and be paid no matter why your phone rings, like if there's a, if you have a junk lead in your business and you ran out of skill set, you it's not a junk lead, you know, they're not going to be as competitive on rates and costs as a community bank might be. But they're also not going to be such a pain in the ass and underwriting. So there's a balance with everything. And there's there's a use, you know, having a good understanding of all the financing available to you and to your clients is really important. And you guys have heard me You know, we've had estate advanced companies we've had, we haven't had any community banks on here, but you've heard me on my soapbox talking about community banks. And this is somewhere in between, right, like or hard money. And this is something different that I think it deserves some some space here. So let's talk about the different programs. I mean, when you explain it to me, I kind of see this as an EQ, like an X axis, a Y axis and the z axis. So x would be the amount of experience you've had, you know, what, how many deals Have you done, y would be your credit score, and z might be you know, the loan amount to kind of settle in on on the, you know, the the origination points and the rate of a particular loan product. That's just like, just the way I kind of digested it as you kind of look at multiple variables and choose and basically customize a loan product for each person skill set and situation. But tell us about what it looks like and how you think brokerage, you know, someone who's in who's dealing with probate sellers who typically have a home and has, they're not, they're not in complete disrepair. Typically, they have you know, functional obsolescence or just, you know, they're just dated. So they need light rehabs. A lot of times, you know, landlords love these, but a lot of times they're great flips, especially in areas like yours, but just kind of give them an understanding of how you would deal with you know, that house that hasn't been updated in 20 years. And some ways they might use your program.
• 7:08
  Rick Rall: Sure, let me let me first start by this, since I am on the broker, and actually in Maryland, glad to have Southern licenses. So I have an associate broker's license with Keller Williams, we do a lot of businesses with realtors. And we're allowed to come in house and a lot of lenders a lot of brokerages will have in house vendors that they don't want to bring in someone else because they're running a desk or space. And that's just part of a business model, which I agree with. And I like we don't compete, I've yet to find any brokerage that we compete with their in house lenders, we just augment their services. So, you know, if you want to talk to a manager, or you know, this is what we can bring, we really help realtors close more deals, and we can do them quickly and efficiently. So let's talk about the hierarchy of what we're looking at for a deal. And you had indicated you know that we are not a community bank. And you know, if we are one thing, we are brutally honest, which is their community bank is going to be cheaper, conventional loan is going to be cheaper, our rates range from eight to 12%, one to three points. But we're always looking to work with our clients, those are fixed rates, just interest in when payments. So it really not, we're not hard and fast. If we need to make a movement on a rate four points to make the deal work, we're going to make it work because we're in the business relationship business, we just happen to lend money. So we want to show that we value our clients. And in doing so the services that we bring, but the cost can we can we work with those numbers with them. And doesn't mean we're going to do every deal, because I'm not going to give every deal. But we're really giving every deal a good look to ensure that it's going to be profitable for the client and that we're protected, and they're protected. So when it comes to the clients, we've been doing this a long time. And we really have a hierarchy of what determines whether someone's going to be successful. And the first thing is experience. So we basically have three experience levels, which is one I have done this before I watched HGTV This is so simple, how can I how am I ever going to lose money. And then we have an honest conversation with them. And while we like that to be the case, you know, oftentimes the realist and every one of us knows who's done this, that is not the case. It actually takes a lot of diligence and a lot of hard work to make this work. But we do first time flippers and so that's that was someone has no experience, then we have a second level, but so that's really zero to one depending on the size and the capacity to deal meeting, you know, within a large rehab, is it a medium rehab, is it a you know, just some lipstick on a pig as we call it, you know, some paint and carpet and then we have so that's that's no experience and then we have moderate experience which is anywhere from two to three deals.
• 15:28
  Chad Corbett: And so you like we've we've spent most of our time so far talking about your, your fix and flip product. And I think it's important to, to recognize that there's a lot of opportunities, I'll tell you, you know, when I think back over the hundreds and hundreds of houses that I've represented other people on mainly the ones I've passed to my investors, I think about all the opportunity and all the equity, I sold off into somebody else's balance sheet, right. So the other the other thing that was really interesting to me is you guys have a really attractive long term buy and hold loan. So it's just to get this clear in your in your mind, guys, you know, traditional hard money lender, their their fix and flip quick turn capital. And typically, when we're looking for long term buy and hold, we're going to potentially use hard money, but then we're looking to refinance as quickly as possible. I prefer doing that with community banks. The benefit and working with with Rick is they kind of have it all in house, you don't have to go scramble to refinance because you're getting, you know, acceptable terms on your acquisition. So let's talk a little bit about how you know like a realtor who's who's like, oh, man, I could list this place, but I wouldn't mind owning it. This is in the right schools on the right zip code. And this is, you know, I'm asking you guys like, are you? Are you willing to step out of your comfort zone? If you've got someone that's willing to take that risk with you? Like, are you willing to make more than a 6% Commission on this house and turn it into an annuity? And how do you do that? And I meet so many realtors who and it man, it pisses me off when brokers do this. But so many brokers, you know, they condone everyone buying real estate, because they get paid on commissions, but they don't want their own agents buying real estate and having a portfolio and doing deals. And I have a problem with that. But I think that more realtors should be engaged and we shouldn't be passing these deals on all the time. Like, it's great to say, Oh my god, I sold it in a day. That meant it was probably underpriced. And you maybe you should have bought it right. So what for the folks that are listening that that do want to start building a portfolio and do want to take advantage of some of these deals are finding and probate because a lot of times, we have opportunities to buy these at, you know, 80 cents on the dollar all day long. You know, and then obviously, there's there's opportunity to buy them, way less than that. But most families are okay, taking 80 cents on the dollar. So let's talk about the the kind of the long term buy and hold programs you guys have that might benefit them?
• 18:01
  Rick Rall: Certainly, so there's there's really two paths with that. And you're 100% correct. Now, a lot of the realtors we know, and still a realtor, it's a transactional business and you've got to eat, you got to get paid. And you're looking at, you know, getting a 6% commission or 3% Commission, because it's a big chunk of change versus You know, I'm going to get you know, I'm going to make $200 a month and overage on my rent. So it's really about having an honest conversation with the realtors and saying, you know, you just want to be a transaction guy, what did you do for me last month? Or do you want to have continual passive income coming in to Gilson gives you tax advantages, which is huge. And that's really big to us. So we have really two different paths for this. The first one would be, you know, you buy it, it's in disrepair. And we are the reasons we reached out to you is we love your model. We do a lot of business with Estate Attorneys, but yours is scalable, and it's already scalable. That's where we genuinely appreciate this opportunity. But you know, if grandma lived in the house, okay, two duplexes or single family or an apartment building, but it needs you know, bringing up today, maybe you're going to click on section eight in there, maybe you could use some type of government housing, you have to get a company code. So we could provide the financing. In the first scenario, which would be up to 85%. To do the fix, you know, of the property, maybe up to 24 months to do the repairs. And then you could refinance out and get the money to buy the buy the loan, excuse me buy the house and get the money for the repairs. And then we could look at long term financing for you. And that's the second part of this equation, which is let's say the carpet is okay. It doesn't really need anything, you can go and put some paint on it, maybe a little bit of carpet, do it yourself out of pocket, no problem. That product is going to be 25% down payment, but it just qualifies on the asset itself, which is everything That requalified line. You know, it's one thing I didn't mention in the qualifications part is, we look at your credit, but I don't, we're not looking at your tax returns, we're not looking at your debt to income ratio, we're looking at the asset itself. And on the long term die, what we're looking at is the ability for the property to sustain itself, we're looking for a one to 1.2 ratio. So if you're buying the house, you put 25%, down, you would, let's say you're all in payment was $1,000. And your rents were 1200. dollars, you qualify, I don't care about your car payments, I don't care about your regular mortgage, I don't care about your other investment properties, I'm concerned about this asset, that there is enough money in overage, that you have a profit in it. Pre COVID, we had a one to one ratio, which I thought was very aggressive, and that has not come back, it may come back. But this ensures you're going to have some some spending money, you know, have a little extra money if the water heater breaks, or you need a handrail, things of that nature, we can offer a three year five year seven year and 10 year arm, those rates are very attractive, they are roughly in the mid on the arms, mid fives to low sixes. By the 30 year fixed rate, the yield curve on it is so close that the 30 year fixed rate is in the 6% range. So low sixes to high sixes for 30 year fixed. And that's not conforming rates today, which are in the 3% range, but it's still historically exceptionally good. And it makes the money so affordable, that it really keeps those monthly payments down and your ranks are continuing to rise in most areas. And it helps you be able to afford properties. It's a great avenue we do include on that on that product, you must have your property taxes and homeowners insurance escrowed which is nice. You're not chasing around looking, making sure you made your insurance payment, where your property taxes, everything's included. So it's just like if you have a traditional mortgage through Fannie or Freddie, it's just like that 30 year fixed.
• 22:10
  Chad Corbett: Yep. Yeah. So hopefully, it's clear to you guys, I mean, you've got hard money lending on one side of the spectrum, convention or community bank financing on the other. I think these guys hold a hold a really strong position right in the middle. So you can almost I won't say that it's it's mentorship, but you know, just like with a community bank, you've got somebody that's underwriting you know, asset best asset asset based underwriting, I'm Tongue Tied today, that that's really making sure you don't get yourself into trouble into an unsustainable position. And I will say that, like your your terms are more generous than the community bank right now. I mean, a lot of a lot of community banks went from, like 1.2 to like 1.33, or 1.35, debt coverage ratios, you know, during COVID, and, and everybody seems to be rolling back their ltvs, right, like people were willing to give less and less. A lot of hard money lenders I've spoken to, they've actually rolled back to 65 ltvs. On on everything GSE lenders like Fannie and Freddie, some of the multifamily properties, we were refinancing, they went from an 80%, LTV on a cashout refi to 65, LTV to a 40% loan to cost at the closing table after docs were notarized. So lenders are tightening their belts, it's harder to get your investors qualified through even you know, even sources where we thought we had sound finance strategies, a whole world kind of shifted in the last three months. And I think a lot of banks aren't, aren't admitting just yet, but we've got like over $10 trillion, and basically junk grade corporate debt that these banks have to struggle with over the next two or three years. So having a lender the cat quickly and doesn't have a lot of a lot of distressed assets on their balance sheet can be the difference in getting a deal or not. And I believe we're headed into an environment where it's going to be important to have those those relationships with multiple lenders. Because I think in 12 months, you're going to have more deal flow than you have cash for sure. And you're going to have opportunities. Yeah, even if you're in brokerage, you're going to look at this and go my god if I could have only bought it for that a year ago. And if you don't have your own capital, you should have a relationship with somebody like Rick where you're in a strike position, like you should have lines of credit for your downpayment, you should have money saved up you should have capital reserves in your business for that 25%. So, literally in a matter of a couple of weeks, you could change that the outcome of your career, you know, you can you can grab one of these rental properties instead of passing it along. Take that hundred thousand dollars in equity by stepping up and and it starts with having a good finance strategy in place and having a real relationship with with a lender and Again, we don't invite just anybody to these calls. I think Rick is the kind of person we want to introduce you guys to he's someone who has similar values to you. We all you know, he was attracted to us for the same reasons you were. So, Rick, I'm gonna just instead of trying to take care of it in the video, I'll just say in the show notes guys below the video that you're watching right now we're going to give you a link to with with Rick's contact information, a link to his website and programs. And can we put an application there to Rick, can they? Can we link directly to the application?
• 25:37
  Rick Rall: Yeah, we can. And if I could just real quick. So everything we do is 100% automated, we have a Salesforce, we want to talk to individuals who want to work through these because oftentimes you need to see what the scenarios are. But 24 seven, you can go once you sign up as a member, which gives you access into your account, you can get proof of funds letters, which basically indicate specifics of what you are looking to do with property, you know, ABC lenders wants to buy 123 Main Street for $100,000, your investors can put that information in there. And once we have their signed up and we have their info, it'll come out, they can put you as a realtor, as the context will be immediately out. So if you need to submit an offer, you have a timeframe issue, it'll go directly to them and to you or you could do it yourself at no cost. It's free. Your borrowers and or yourself can go on and do a pre application, the pre application comes over to us. thing our two were contacting you and saying let's talk about your deal. What are the particulars of it? Where do you need help? Is it just straight up or you know where the sticking points, and then we send out what's called a conditional approval. And the conditional approval on a pre application is based off of what you're telling me, this is my score, this is my experience. And we're going off of that we're not pulling your credit, we're just giving you your terms. For those of you that have an investment or or mortgage background, it's like a light do or LP approval, very simple gives you your interest rate, your loan amount, your cost everything soup to nuts, there's a link of documents, which is one thing we didn't talk about, we only link to entities for business purpose ones. So we won't link to an individual. So we need Corporation docs, and purchase contract. And we need insurance. And that's really getting this form, there's a link for that and a link to pay for the appraisal that comes out and you can have it your district
• 27:28
  Chad Corbett: for anyone who doesn't have an entity and if you don't go get one Shame on you, but I know some people don't. And also if you don't want to want to blend, you know if you are in brokerage and you don't want to blend your your rental portfolio with your brokerage business. As far as forming a single member LLC, all you need is five to 10 minutes and 50 to $100 to form your own single member LLC, you don't need an operating agreement, you can just you know, you can send the articles through I mean, that should be all you need, right or just the the formation articles. And now and when I first formed my first LLC on time that it was in Virginia, it took seven minutes. And it took me like a week and a half to get my Ei n number back from the IRS. But so and before I could get a bank account, now you can do it. I've timed myself, I've created companies in under three minutes. And you can have an Ei n within the hour because IRS now they now have a an online system for that. So if you don't have an entity, don't let that be intimidating to you. It's your 50 bucks and 50 minutes from having from form founding, you know, your next company. So for anyone who's like, Oh, don't let that turn you off, you should have an entity I prefer for me saving for real estate, I like single member LLCs taxed as s corpse. And then you you know, buy an umbrella insurance policy to cover for additional liability coverage. But and then within within that I do a lot with land trusts. And that's something I haven't asked you, Rick, are you willing to close into a land trust?
• 29:00
  Rick Rall: We have done them. But I'll be I'll be frank, because each one of them are unique, independent in the states where that you're in. And we are the only states that we do not do at this point would be California, North and South Dakota and Nevada. Everything else we do. So we would need to see the land trust itself and give it to counsel just to make sure that we're protected. So the answer is yes. But it depends. We want counsel to look at it just to make sure that we're protected. And because if it goes sideways, you know, because a lot of times in the Land Trust, there's a lot, maybe a lot of fingers, you know individuals in it. And we want to make sure that what we where we've had problems go in the past is there's disagreements among the individuals who were in that trust, that have caused us some issues. So we just want to make sure that if it's going sideways, we have the ability to remedy it. That's all
• 29:48
  Chad Corbett: but anyone who doesn't have an entity, if they're applying with you today as a person, and you come back and be like, Hey, we need an LLC I mean they're you're literally within an hour of getting that done
• 29:59
  Rick Rall: right? You got it perfectly okay, the only thing that we would tell you is this is after years and years of experiences, when you're buying the properties, you know, a lot of these would be through these states. So you shouldn't have an issue. But if it is, say a bank owned, or Yo, that if you put yourself personally as the buyer, again, take everything you know about traditional lending and throw it out the window, when you give us an event and then put your name on it, we don't care, we're still ready to fund. The problem is if the asset managers say Sage acquisitions, or somebody else handling Fannie or Freddie or VA, and they, they want to change it, they want to change it to your LLC, they may have the problem because they didn't sell it to the LLC, they sold it to the individual. So up front to come in with a contract, it's got your name on it, no problem, but I'm not going to lend you individually just give you a dent in changing it to the LLC, we don't have a problem. Just want to make sure you protect it upfront, you're not doing all this work. And then the seller says no, now we can't sold on LLC because it didn't meet the timeframe, you know, of when it was only offered for primary residence and not to investors. That's the only thing I was saying. And the LLC is your duly pointing out. It's very easy to set up in that corporate umbrella, especially if you get an insurance policy protects you from so much. And really want to make sure you're doing this. If you're trying to buy properties to prove to build generational wealth or passive income from you, you need that protection. And as your indicated you do as an LLC and do it as an S corp taxes. An S corp gives you a lot of confidence. You still
• 31:26
  Chad Corbett: Yeah, so like I do LLC, single member LLC taxes an S corp, you set up payroll and pay yourself a regular, you know, reasonable payroll, and you're saving 7% on fica almost 7% on fica right off the top. And then you know, there's there's many advantages to doing that. So don't don't be intimidated by that if you're anyway, that that was just a thought it was kind of a rabbit hole. But I know a lot of folks don't have entities and we commonly get those questions. And it's not, it shouldn't be a big intimidating thing. Now, if you have partners, if you have more than one person, you do need an operating agreement. And you do need to have counsel, in my opinion, don't go to legal Doom or some online service, when you get more than one person involved in an entity that should be carefully structured. But if it's a single member, and it's just you like most of you guys are probably solopreneurs just you can do this in a matter of minutes. And be and be lendable. So anyways, just wanted to take make make a point that you're not disqualified just because you don't have an entity today.
• 32:31
  Rick Rall: If I could mention one thing, too, we're ultimately concerned, our main goal is that our borrowers are successful. And we've done this for so long in one of the kind of overlooked but very important issues that we deal with is title. We don't allow any general exceptions. So you know, if the utility company comes in, and they have an easement for utilities, or whatever, we want to see that. And we'll see this a lot sometimes on the states, we've definitely seen on foreclosures, where there's all types of exceptions on the Schedule B. And we don't take that we'll take exceptions, but for our protection, and really for our bars, reprojection. We want to make sure that there is not a bunch of garbage in there. When we get unreleased tax liens and things of that nature. I'm like, No, you have to remove these, because we want to ensure that when if you're either going to refinance it, or you're going to sell it, that you have an insurable property, you know, we get a lot of stuff with, you know, survey exceptions. Why are you buying a property that your neighbor's shed isn't one, because when you go to sell it or refinance it, you're gonna have a problem. Let's resolve it. Now, I promise. We're, ultimately I'm very much concerned with your ability to do what you want with the property. And a lot of times the federal conference would say, we're not going to take care of that we're not going to do that. Okay, fine, we'll take it to another title company. And it gets resolved, because they're perfectly willing to sell you a title insurance policy, but it just doesn't insure you for that. And that figure comes in when it's down the road, you've done the project, you're moving on with your life, you're selling it and you never resolve it. And you don't have a policy that you can pass on as an owner's policy. It sounds very much into the weeds here. But this is a very important thing that we do for all of our clients to ensure that you have marketable title. When you move on with this property. It's not just lend you the money and move on. We want to make sure that long term you're protected, which ultimately protects us too. But it really is a lot of legwork up front that we handle most of the time or barbers don't even know it. And then we say hey, all these exceptions, you know the 35 that they busted us we're now down to seven which are actual