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From Seller Financing to Private Money: 6 Ways to Fund Your Next Real Estate Deal · The Academy Presents podcast

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  Did you know that 90 % of the world's millionaires
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  invest in real estate? Well, I'm Angel with the
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  Academy Presents Real Estate Investing Rocks,
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  and I'm here to help you if you want to go for
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  your piece of that pie. Are you new? Are you
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  new to this and you just don't know where to
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  start? It's okay. Are you someone that has invested,
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  but you feel stuck, you feel like you've lost
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  momentum, you don't know where to really head
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  from here? Are you a seasoned real estate investor
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  who is doing great, but maybe you just want to
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  hone a few skills here and there? This is the
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  place for you. The Academy Presents Real Estate
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  Investing Rocks podcast will connect you with
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  industry experts so that you can save time, avoid
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  costly mistakes, and begin living the life you've
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  dreamed of all through real estate investing.
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  You're already taking the first step. just by
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  joining us here today. Hey guys, it's Angel and
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  you're here for the REI Rocks Summit. Some of
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  you are here for multifamily, some of you are
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  here for industrial, and some of you are here
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  for residential, whether that's residential,
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  multis, or single family, and we've got you covered.
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  So my friend Adam is going to talk to you now
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  about some different ways to fund your residential
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  and your single families. So Adam, I'm going
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  to let you take it away. Thank you. And a lot
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  of this can be applied across the various asset
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  classes. I'm going to hone in on the single family
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  because that's what I have experienced in. I'll
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  show you in a little bit on the 75 plus transactions
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  that I've done. Nothing super sexy. It's just
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  a single base hit one at a time. Every single
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  deal, I've done one single transaction at a time.
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  I haven't done 100 units. I've done 75 units,
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  one unit. at a time. So I've gotten some experience
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  on the creative ways to do this, which you could
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  apply to different business partnerships and
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  other deals that you want to get into. So you're
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  going to hear a little bit about me on why it
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  might be helpful to listen. I love talking about
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  real estate. This is all I do. Quit the civil
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  engineering gig, both my wife and I, and this
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  is all we do. I love it. We got young kids and
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  this is the best thing that's ever happened to
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  us. So we're going to talk through those six
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  funding options. how you can use them with some
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  examples and then talk about what is next. So
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  specifically for me, 76 deals, 65 of them, single
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  family, MLS, commercial loans, lease options,
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  contract for deed, private money, off market,
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  joint ventures, LLC partnerships, buying them
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  all cash, doing conventional financing, hard
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  money, multi -family and seller financing. So
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  all of these through buying, selling, doing different
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  things. Like that that's why all of these kind
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  of get you know bundled up into all these different
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  things but there's one thing that I'm extremely
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  good at and is single -family financing and a
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  lot of these can be up again can go back and
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  forth but I'll try to break down what these mean
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  like single -family homes everybody should know
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  what that is buying it whether it's off the MLS
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  or off market, the difference between a commercial
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  loan and a conventional loan, maybe the difference
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  between a lease option and a contract for deed,
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  how you're using private money, the difference
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  between a joint venture and an LLC partnership.
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  So we can talk through a lot of those. And of
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  course, if you have questions, feel free to ping
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  anyone here on the team and we will dive through
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  it. And then here's kind of the... the areas
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  that I've mostly bought. So I'm up here in North
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  Dakota. So that's where a large concentration
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  is, but I have not stepped foot in any home that
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  we have bought in the last three years. So doing
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  all of this remote virtual flipping houses, buying
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  long -term rentals, our specific strategy. So
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  we haven't gone too far out West, but really
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  the Midwest, the Southeast is kind of our jam.
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  So here we are. The six funding options. Number
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  one, leverage the seller. Number two, use the
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  big banks. Three, the power of the local banks.
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  Four, the hard money niche. Five, the private
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  money gold mine. And then six, creative partnerships.
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  First and foremost, and these are in no particular
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  order, except for this first one. If you can
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  leverage seller financing, owner financing, whether
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  it's a wrap mortgage, a subject to a loan assumption,
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  like this can be one of these best options. So
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  if you're finding something off market, And depending
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  on if there's a loan on the asset already, if
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  they own it free and clear, this should likely
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  be your very first ask as far as financing. Can
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  you leverage the sellers? Maybe somebody is walking
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  around with a 2 .5 % interest rate. Fantastic.
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  Can we use that? Is there any way that we can
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  leverage that existing financing? Because that
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  just makes everything so much easier. And there's
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  a whole master class you can do on this. You
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  could Google. You know, Pace Morby, you can Google
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  a bunch of other stuff on getting into the exact
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  specifics, but specifically on the levers that
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  you want to pull. Just get really familiar with
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  what's called seller financing or owner financing.
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  There's some fancy words, but essentially, if
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  you can get the seller to give you a mortgage
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  at two and a half percent interest rate with
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  you putting no money down, take that deal if
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  you can, assuming you vet everything else out,
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  but. How great would that be versus a 7 % interest
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  rate putting 20 % down? Your cash on cash ROI
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  should be much better. Number two is the big
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  bank. So this is where most people go. So I threw
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  in Wells Fargo here, but Bank of America, Rocket
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  Mortgage, whoever it is, all of these homes are
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  sold in the secondary market without exception.
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  So these are conforming loans. They have your
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  best interest rates, the best points, the friendliest
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  terms, or your 30 -year fixed, but they also
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  come with the most stringent underwriting. You
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  got to meet certain loan to value, debt to income,
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  employment history, so they're the hardest to
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  get, but they're also the best. So this is what
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  I call the W -2 loan. If you got a W -2, more
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  than likely, you can get this style of loan,
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  which is what I got a bunch of when I was an
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  engineer. And they were really easy. You basically
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  call up anybody and they're like, oh yeah, sure,
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  you got a great credit score. you got a W -2,
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  you got stable history, let's give ADA a bunch
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  of loan because according to the eyes of the
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  bank, I am bankable. But the lend to you, not
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  to an LLC, you can get creative by buying it
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  and then deeding it over to an LLC, but we won't
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  get too fancy with asset protection. We're strictly
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  on financing this. So you would literally go...
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  they're going to originate it and most likely
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  sell it to someone. And then you're going to
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  get another originator or servicer that's like,
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  hey, by the way, we bought your loan. You're
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  paying whoever it is. It doesn't really matter.
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  It's whoever's willing to pay and service it.
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  But they're all following the same underwriting
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  criteria. It's the UAS, the Automatic Underwriting
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  System. I became a registered mortgage loan originator.
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  And all you're going through is you put it into
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  this pool and a bunch of investors buying mortgage
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  -backed securities are all buying your mortgage.
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  Number three, the power of the local banks and
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  credit unions. I don't know that people know
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  the difference between number two and number
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  three. So number three can do number two, but
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  number two cannot do number three. So you can
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  go like all thumbs are fingers, but not all fingers
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  are thumbs. And so the local banks specifically,
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  what I'm calling in -house commercial or portfolio,
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  these are different than the secondary market.
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  They're typically lending their own money. Yes,
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  they're still regulated by FDIC, but if you don't
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  have to sell this off in the secondary market
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  and get a AAA plus rating or whatever it is,
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  really the banks can, for as long as they're
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  following usury laws, can basically lend money
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  and make up their own terms. Now, I'm being a
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  little bit loose and goose with that, but in
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  general, they're lending their own bank money
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  So you can get a lot more flexible on what you
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  need for a credit score, a debt to income ratio,
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  a self employment history, how much skin in the
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  game. So these can be some of your best friends.
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  They also require less paperwork. And a lot of
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  times in general, commercial loans are more expensive
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  than big banks because they're, you know, maybe
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  backed by the government, but they can be so
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  much more flexible and sometimes they can beat
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  the big banks, but they're just so much easier.
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  They'll lend to you or an LLC directly. And what's
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  really cool is I can have 40 loans that are commercial
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  loans, some people call them in -house or portfolio,
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  and none of them are on my credit score. So I
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  show no impact on my credit score versus if I
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  bought 10 homes, you know, based on my debt to
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  income ratio gets a lot of whack and that's why
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  you have a limit. There's absolutely no limit
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  on commercial loans for buying homes. So and
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  a lot of times they can fund the rehab. So in
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  our area, this is like a gate city bank, a border
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  bank, a first community credit union. If anything
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  with credit union, typically is what I'll call
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  a non -conforming. Now remember, you can get
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  placed with a loan officer who's gonna originate
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  a home on the secondary market or you can have
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  them do an in -house portfolio or what's called,
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  you talk to a business banker and they're gonna
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  give you a business loan. Even to buy, it's weird,
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  why do they call it commercial loans when you're
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  buying a single family home? I don't know why,
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  but that's the general vernacular that business
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  bankers use is they call it a commercial loan
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  product. to buy single -family. So just getting
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  over that barrier and knowing who to talk to,
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  a lot of times can save you a lot. Be like, hey,
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  I want to buy a single -family rental in my LLC.
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  Who would I talk to? And that's going to immediately
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  disqualify you from getting placed with a loan
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  originator, unless they say buy in your personal
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  name and we can deed it over to your LLC. Because
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  a normal loan originator would say, I cannot
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  originate a loan in the LLC. The big banks will
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  tell you no flat out. Well, and I would say too
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  if you back up on that are the last two singles
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  we got we did with a commercial loan Because
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  they were investment properties and our second
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  large multifamily deal We did with a local bank
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  loan or a regional bank. So it's the flexibility
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  the amount of paperwork It's amazing. It goes
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  faster. They can do desktop valuations so you
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  don't have to pay for a bunch of third parties
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  and it's We've really enjoyed using local and
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  regional banks. Fantastic. And a great point
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  to that is you can either use a local bank to
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  buy FAR or be FAR and use a local bank to buy
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  in that location. So it kind of goes both ways.
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  Sometimes credit unions want you to be a member.
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  So as I'm buying all my homes in Texas and Florida
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  and Ohio and Illinois, and we're calling credit
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  unions, I have to then qualify like, Hey, I want
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  to buy an investment property in an LLC and I'm
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  out of state, but I'm registered as a foreign
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  entity within the state. Is that okay? So there's
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  like another layer to get onto that, but it's,
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  it's just, it's just way better. All right. Then
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  we get into hard money. So I'm going to classify
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  hard money as large brokers who are lending other
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  people's money. So I use this as like the Lima
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  one, the Kiavi. Basically, anybody that you see
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  like DSCR loans, I call all of these hard money,
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  not private money, but hard money because they're
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  basically brokering, selling them off. And it's
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  still a mortgage -backed security that they're
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  pooling these and sending them off. They're just
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  at a different terms because they're not going
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  off of purely income. there's some credit score
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  experience, and it's mostly just an asset based
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  loan where they just want to make sure that the
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  property cash flows. So can be really convenient
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  if you're investing long distance, it's not for
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  owner occupied. And there is, you want to factor
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  in both the interest rates, the points, the fees,
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  and the prepays when you're looking at these
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  because conforming and nonconforming have specific
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  rules on what they can do for prepays and points,
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  hard money. typically does not so it's it's maybe
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  the most flexible but in general from an overall
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  cost perspective it's likely going to cost you
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  more from an APR perspective and this is great
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  if you've you know had low experience you i think
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  need the minimum of the 620 credit score but
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  it's really that hey i don't have the w -2 but
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  this asset cash flows can you do a cash out refinance
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  can you do a rental property and there are I
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  bet no less than 25 of these probably fairly
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  large hard money DSCR lenders.