How to get 100% HML (Canada)

Question

I am on my 12th transaction and I am very good at evaluating deals.  I network like nobody's business but I still have supposed hard money lenders who tell me that they will finance 100% as long as the purchase price for the property is less than 70% of the evaluated price and then when push comes to shove they will back out at the last minute.  This in spite of the fact that they have witnessed me get deals that they have lost out on in the past.  What am I doing wrong and how can I make sure that somebody who verbally tells me that they are going to fund my deal doesn't turn around and screw me over at the last minute.  Up to this point I always close the deal but I must be doing something wrong to not be convincing these people to finance.  Do I need to be more cocky and less humble?

Jeff S. · Answer

You might be missing a point, @William Johnson. I see in you are a wholesaler and call yourself a "Transaction Engineer" in your profile. With transactional loans, double closes, assignments, assumptions, multiple escrows, etc., etc., in a wholesaler's bag of tricks, these deals are not normally for the feint of heart.  Perhaps they didn't understand the details of a deal they initially committed to, because you only focused on the numbers with them? Is it possible you haven't made your entire process clear? I'll share that we avoid lending on wholesale deals because they can be mind-numbingly complicated compared to the amount of work involved in a simple purchase and sale (REO, probate, private party, etc.), for the identical return.

If it is the numbers, I still don't see the problem as your lender not knowing how to evaluate a deal, especially if they gave you their criteria, as you indicated.  Instead, it's up to you to show them that you know how to do this.  (The rule of thumb is actually 70% of the ARV minus repairs, not "70% of the evaluated price.") Perhaps instead of a rule of thumb, which I agree with by the way and use all the time, you should show the associated detailed cost breakdown and resulting profit to indicate to them you have a handle on all of the costs.  Since you're wholesaling, shouldn't your buyer, the borrower, be doing some of this? Or, are these AB-BC same day transactional loans to you?  Your question is a bit unclear.

Please don't misunderstand; I'm not at all suggesting you're being disingenuous and of course, I don't know how you structure your deals.  You might be focusing on solving the wrong problem though. When you ask these individuals why they changed their mind, what do they say?

Ann Bellamy · Answer

How are you finding these lenders?  Are you getting them word of mouth from people who have completed deals with them?  Sometimes that is the best way.  You can dial for dollars all day long, but without a recommendation from someone who knows the lender, you are taking a chance.

Do you have REIAs in your area?  Attend these, and ask around.  There are lots of lenders around, some are better than others.

Also, part of the issue is that you are looking for 100% financing.  I don't do that until I've done LOTS of deals with the person.  So it's a lot easier for a lender to be cautious when they are taking all the risk, and you are taking very little.

William Johnson · Answer

@Jeff S.  I didn't change my profile but I have branched out into flipping and buy and hold as well, the wholesaling side of things there is absolutely no problem with I can wholesale my deals without any problem.  I also can always buy my properties because I have associates with financing who are always ready to partner with me because they know that I have very strong appraisal skills.  I am, however learning how to create my own relationships with HML because I consider it to be a core skill that I need to develop as an investor.

The reasons I recall being given up to this point in not being willing to finance me are the following:

• The building looks scary because of all of the renovations and they don't feel comfortable about getting their money back because they were not sure about my evaluation (the person who I wholesaled it to made more than 100,000$ profit without doing one renovation)
• On a six plex three different lenders said that it was not profitable and they wanted me to put skin in the game as well in order to feel comfortable (I had an offer accepted at 450k and it had a basement with a nine foot ceiling that had room for two more apartments).  I ended up wholesaling it for 15k and they are anticipating a very big profit.
• On a property that I recently acquired the lender backed out at the last minute without really giving a reason, this turned out to be a good thing because I ended up setting up a Sub2 that allowed me to get it for monthly payments.

I should mention that I have not reached out to every lender from my area either, so far the ones who I have spoken with were not strong on evaluating properties.  My next step, subject to change depending on what I receive as responses on this thread is just to call every lender that I can find and asking everybody in my network as well.  Maybe I just have not fallen on the right one.

William Johnson · Answer

Account Closed I am working with both, I am looking for a repeatable formula that has been shown to work.  Also I would like some possible methods to be able to verify whether they actually know how to evaluate a deal and decide quickly or whether they risk getting cold feet at the last minute.

William Johnson · Answer

By the way I find it easier to appraise the as is value and offer 70 percent of that which is generally pretty close to seventy percent minutes renovations anyways. This way I automatically have two flip based exit strategies immediately available.

William Johnson · Answer

@Ann Bellamy

Thank you for taking the time out to respond.  Very valuable advice and I appreciate it.  Honestly wholesaling is great but does not represent the challenge for me that it used to be.  When I have a great deal that I have removed all of my conditions on it then it is because I know that I can wholesale it very easily.  Why can I have somebody buy it off of me very easily for a wholesale fee is because it is a great deal that represents an acceptable risk to the investor because there is a minimum of 33 percent gross return on cash investment built into the price.

The fact of the matter is that I am very, very good at finding, appraising, negotiating and closing deals.  I have closed every deal that I have gone into and I will eventually achieve what I am looking to because I simply will never give up on anything until I get it.  I just thought that I would present it to the people on Bigger Pockets who are further along down the road and are capable of telling me how to achieve what I am looking to do.  My business model is dependant upon being able to use my money that I make to pay salaries, marketing and overhead and having people interested in making a return on their investment lining up to make a competitive return on their money without needing me to put skin in the game every deal (other than the skin I am implicitly putting into the game through all of the costs to bring the deals in through marketing, manpower, overhead etc...).  Having to put skin into the game for every deal is a gigantic bottleneck that does not allow for a scaleable business model.

I have multiple associates who have what I am looking for but they seem to have fallen onto these people almost by accident.  I am looking for a repeatable process to be able to recruit, verify, persuade and add these people as investors on a regular basis.  This thread was created as a proactive way to both solve a problem that has not stopped me from closing transactions (but is still a puzzle to solve). It will eventually in the very foreseeable future become a greater problem when the deals come in faster than the new money to finance them.  I could still wholesale all of these deals but it would not maximize the profit like I would like to do.

Ann Bellamy · Answer

William, I think you are asking the wrong people.  If a HML wanted to partner with investors, they would simply do that.  For the most part, they don't want to.  For multiple reasons.  Try talking to other investors in your area.

If you can wholesale it without a problem, then simply assign the contract.  If you can't assign the contract, because the seller won't allow it, then use a single use LLC and add your buyer to the LLC as a partner.  Understand this is not legal advice, I don't know anything about the laws where you are, so have no idea if this is even feasible in Canada.  Perhaps someone else can chime in.

But it happens that frequently the wholesaler who thinks they can wholesale without a problem, runs into more problems than they expect.  And if that wholesaler is so good at this, why would that wholesaler have no cash or equity?

So my answer is no.  But that shouldn't matter to you, because I don't lend in your area, or even in your country.

William Johnson · Answer

@Ann Bellamy @Jeff S.  I think I need to ask a better question to get the answer I am looking for...

If somebody had nothing to their name, not one cent of equity but, they had a deal under contract that you knew they could wholesale no problem and they told you that they wanted to buy and flip it.  Is their any way that you could feel comfortable financing this property, I am not just talking about securing your financing against the property and having to repossess it if they person screws up, any way of financing it. An example I have heard of is a partnership agreement where the non financing person only gets a percentage and they have specific performance clauses that they need to fulfill in the partnership agreement in order to hold their shares in the partnership.

Ann Bellamy · Answer

Sure, cross collateralizing another property with significant equity, preferably in first position.

How to get 100% HML (Canada)

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