#239 How to finance your next deal with a local credit union

0:00What type of loans do you offer to Real Estate Investors is it like the dscr type of loans that that you see with like more National lenders or what what's what's the primary thing yeah sure and and and I'll even throw you a little bit of a spin there we're owned by 13 Credit Unions but we work with over a 100 Credit Unions Nationwide got it okay so we have all over and and I would say a lot of what we do you know probably about a third of our business at least is the traditional single one to four family residential investment properties whether it's in your name you know 98% of our deals are in an LLC name and those are very traditional loans you

0:48Know to we we'll we'll go up to sometimes 80% you know in today's world sometimes at 75 or 70 to make the numbers work you know we we and we really look at it from a global basis as far as getting your financials seeing what you have now what this property is going to contribute to your income or what's the viability to get there a and in that world we have seen we do short-term rental properties we do student housing we do larger multifam but also if you're a real estate investor and have a small business we do all sorts of small business loans on trucks and vehicles and SBA Loans up

1:36To what would be considered you know larger scale real estate where we've done deals up to $40 million wow wow that's incredible so so for the we'll just say average person you know like a yeah somebody who maybe they're working at W2 job maybe they they are primarily just you know working in real estate either flipping Properties or doing something active in real estate to to pay the bills and building a rental portfolio are you requiring them to have like W2 income to support if they want to get a rent a a loan on a rental property is it based off the performance of the property itself or is it based off of their their personal income yeah

2:24The answer is all of the above okay we we really work if if you're brand new into this Venture and just starting to get in you know a a very very common loan for us is somebody who has a W2 job they have an account at the credit union and they're starting this journey towards rental properties maybe it's just supplemental income maybe it's to build a portfolio towards retirement you know whatever the C maybe they're they're working towards that retirement and it look looking at this as a way to to get some income that is a very common occurrence for us and in those situations we're going to make sure that you have the ability to manage that

3:13Property and it's reasonable you know one of the biggest mistakes that we see people I if one property is good well 20 must be better that first year or two and and and and and it really can overwhelm people so we're going to want to make sure that what you're doing is reasonable for you it's good for us and we're all on the same page together now as people develop we have many many investors who that's their full-time job they're either into commercial multifam they have a large set of single family rental units and this is their profession this is their they have a website they have a company this is all they do is a real estate investment business

4:02And and everything in between so you know we we really you know at at a credit union level we're really about serving the people who have account holders and in that community so that's really a broad range of people that we want to work with you know it's there there are some banks hard money kind of that soft money lenders where they want to to be in and out of a deal you know we want that relationship you know we're looking at this on terms of what can we do for you now but also what we can do in the future for this business and real estate piece but also for you personally yeah that makes sense and will do

4:50You do loans on on fixers as well like if people want to do sort of that bur strategy would would do you yeah we we do plenty of properties on the fix up basis if you want to do you know if you're doing a groundup construction we do some of it it's not our biggest strength is that straight groundup construction but almost every property that somebody buys is going to you know whe when you walk into that perfect property that needs nothing you probably can't afford to buy it and rent it out and make some money exactly yeah it's a it's a tradeoff there yeah no that makes sense I see so you'll provide some some of the financing for the the rehab portion as well sometimes yeah yeah and we we'll have some people where you

5:38Know maybe after they've been at it a little while we just provide a line of credit so they can do what they need to do and then term out some stabilized financing got it okay yeah that makes sense and is there anything you recommend to people that you see come up as red flags when they're trying to qualify that you would recommend getting an order to to be in the best position or most favorable to lend to from a you know from a borrower's perspective like things that they can can get in order in advance yeah and and the first thing is credit analysts are very smart so they're very good at you know and most of them kind of have that personality of a computer programmer it's

6:27Very dry they're very by the numbers so if they give you feedback or ask questions take it as free Consulting they're they're usually going to say oh this rental projection is way off of the marketplace because this is what we're seeing show show me what we're missing show because we want to lend the money to the community but we also want it to get paid back and don't want to put you in a position where it's going to in a year or two so if if you when those questions are raised you know make sure that you don't take it you take it for what it is of somebody trying to want to understand your business the second is if

7:16The there's there's that hair on the deal maybe you've had some bumps in the road on your credit in the past maybe there's something going on with this property just disclose it on the front front end because it's eventually going to come up and all it does is slow down the process and it's much easier to know what we can work with but all the the biggest piece is every lender has a checklist that says here's the items one through eight that we need don't think of it as a suggestion or recommendation get them items one through eight whether you agree with it or move on or not get them items one through eight and

8:05It's going to make your deal much easier now now the first time you deal with any lender you know I I always say it's kind of like an eighth grade dance you know we're staring at each other and nobody knows quite what to do but just keep it organize get us everything we need to do in the process we're trying to learn you not for this particular transaction but for the long-term relationship because that's what we want that long-term valued relationship where the first one maybe it's a little rocky maybe we're asking some questions where you're like what the heck are these people doing but we're not lending in a box you know we we have to make the numbers work

8:54But we also want to understand you we want to make sure that you're a fit for the credit union and you're a fit for where you're a fit for us on where you're going that's a great point and if if you're new to this too you know it pays to just pay attention to what's being asked and and organize that in a way that's easily easily accessible in the future because it's like time and time again you're going to go through the same process pretty much similar regardless of the lender to where you're going to have to provide these documents and so having a Google drive or a system to where you know you've got your a copy of the front and back of your ID you've got your you know Ein documentation and your operating agreement

9:43And all that stuff that you are being requested over and over again have that available and it it makes the process so much easier than Reinventing the wheel every time but to your point too about you know the the lender providing feedback and maybe it it sounds you know it's frustrating to hear especially if you're new and and you think you've got a grand slam deal and and you're getting what feels like negative feedback but that can be the best advice in the world because if lender after lender is telling you you shouldn't be doing this deal you should probably listen to that you know and instead of just trying to find somebody that that will say yes to something that might not be a smart decision so I think those are those are such great points you make you know you mentioned that you do small business loans

10:32As well so could a real estate investor borrow for operating expenses as well and what what type of loans would that look like yeah usually the small business loans are typically when you're making a product you're selling a service you're a dentist office you're a carpenter you know you you you're a farmer you you have something that you're you're making or selling if it comes to your real estate business usually for a small business loan usually that's the to that point to where you're a real company you're you're a real company we don't do too much if you're just an investor and needs some working capital you know we call that your Equity position

11:20Into this but maybe you're buying a a real estate franchise or you have a real estate office and that's where you need to expand that and hire some more people that's usually where we see that but a lot of our Real Estate Investors have what I'll call their day job as a small business owner doing something yeah yeah exactly and that that you know a lot of what I've seen is people try to vert vertically integrate to where you know they're they they were just buying properties and hiring a contractor but now they create their own Contracting Company you know so that they can hire themselves and then take on other people's jobs as well and so to your point that would be sort of

12:09Like the day job where they're making their active income in the Investments or sort of growing their their passive income and net worth as as they continue to operate that that day job so if you have something like that you could potentially tap into other financing sources as well through through the credit union here so that's interesting yeah you you mentioned something important that that I think it's really good and important for people to recognize their skill set you know there there are many people that we deal with who are contractors they're very good at what they do they can fix up you know for for when I had some rental properties I was the exact opposite you know I I am the money guy I'm the deal guy I'm the accounting guy and

12:57Let's cross our fingers nothing breaks because I am calling somebody to do it so that that is very you know you you you don't have to be an expert in everything you got to build a nice team and as you grow that becomes more and more critical you can't do everything to everybody you know th those people are few and far between who are the handyman I can take care of this but also the the money people and know the deals and the finances too so yeah yeah that's so true you don't want to overextend yourself trying to save you step over a dollar to pick up a penny they say so it makes a lot of sense and based on all the changes in the market since covid happened how

13:45I guess how has this impacted lending you know on on investment property specifically and where do you see things going from here you know Market wise yeah sure you know we we've seen a big big shift in the short-term rental markets because we have seen some areas boom and then as travel pattern shifted they pulled back just as quickly so you you need to be careful you if if that if if the short-term rentals are your model you know make sure you understand that Marketplace and the trends and is it more of a you know I I live up in the mountains of Pennsylvania

14:34And every place around here was packed because they were trying to get away and this was you know they were doing the regional vacations and it's really slowed down a little bit you know other areas haven't missed a beat so so we're we're really seeing and and and we we are seeing and I truly believe there is an inherent lack of housing in this country so under the the the the the you know normal long-term rentals those are very very solid now the challenge has been when rates were three in the threes you had a lot of room to make really good margins with interest rates going

15:23Coming up quite a bit we have seen a lot of people you know they're not making the money they once were on these newer deals but what you're doing is you're making what we would call historical averages preco so you know when when your rate goes from three and a quarter to 7% you know that because you were trying to maximize rents and that all that does is eat into your bottom line but if you look at it you you can still make some money but they're just not quite what they want were and and and we think you know hopefully hopefully hopefully rates have peaked and we're going to see a little bit of a of a creep downward

16:12Inflation was a big big cause and the number one reason why we weren't seeing new units come onto the marketplace if you're going to build something ground up there's opportunity to rent it okay first of all who's going to build it and do you know what your prices are going to be so so those are the challenges that we've seen in the new construction and as population shifts new people come into the workforce people are locked into their homes with long-term rates and people aren't selling homes which is really kind of creating a death spiral in Supply that is tough but liquidity among financial institutions has also been a challenge and we think it's

17:00Going to be a challenge for the next year or two you know the strangest thing is for you to go to your lender with the big marble pillars and you know has Bank in their name and say do you have money to lend we've always made that assumption that says they have a big stack of cash and can just lend but for the past one to two years a lot of lenders have really struggled when interest rates Rose and they are intentionally altering their credit box to cut down on lending you know they're not cutting down on lending just because of interest rates they're cutting down on lending because of liquidity and that's the industry's Dirty Little Secret