A Painful Reminder About Private Money
I'm sitting here wrestling with a painful reminder. There's this long document with check boxes, blank spaces with empty dollar signs - staring at me - all waiting to be filled in. What is this heinous document?
It's a personal financial statement.
And, I'm required to fill out this statement by the commercial bank (a local one) where I took out some loans to by investment properties a few years back. It's their way of saying: "hey, we want to make sure you haven't become insolvent" since we last heard from you. Sort of like a checkup, I guess.
At the time I got these loans, I thought it was a great deal. I remember feeling like such a big shot walking into the bank. Leather-folio in one hand, clean suit on. Slightly nervous feeling. "This was going to be great, I thought." But, looking back I could not have been more wrong. Let me explain...
Before I went to this bank, seller financing options and conventional mortgages were the main way that I bought my real estate investments. The financing process was easier back then (sounds like I'm an old-timer). With a good credit score, a modest sum of liquid cash and some patience and you could get financing for most investment properties. Then, the banks put a cap on how many 'non-owner occupied' mortgages you could have. Leave it to the bankers to sit around at cocktail out and figure out a way to use their government connections to put the squeeze on everybody.
Enter: lines of credit.
These worked for a while, then when those got maxed out I turned to this local bank in my area who would finance single-family houses under commercial loans. 15 year amortization. 5 year balloon. Prime plus. Low fees.
Sounded like my kind of gig.
So I got a few loans through them. Even pulled cash out of a few of 'em.
And then....credit started to get tighter. Lending standards started to go up and LTV's started to go down.
Crunch time.
Enter: private money.
Right at or around this time, I finally figured out some sure-fire ways to consistently drum up private money. Which was a good thing, because pretty soon the financing spigot at all these banks was shut off (here in Michigan). Not long after that the big national banks started to get into trouble. Bear Stearns evaporated into the middle of the night. AIG, Fannie, Freddie ran into the open arms of cuddly Uncle Sam.
You know the rest.
Anyway...
As I sit here looking over this personal financial statement that is required of me, I almost feel violated. "Why do I have to do this?" I wondered to myself shortly after I got the letter from the bank in the mail. One of the main reasons I feel incredulous about this is that I haven't had to tap dance for a banker in a long time. With private money, many of the onerous requirements of banks and institutional lenders are gone.
* Form 1003 (uniform residential mortgage application) - gone
* Personal financial statement - gone
* Cross - collateral/mortgage against your personal home - gone
And, good riddance!
Now, I'm not saying that any of the factors on the docs required by institutional lenders won't matter to your private investors - sometimes they will. However, if you set things up right, you won't have to even give a second thought to this stuff when you use private money. The shackles are gone.
But, wait a second...
A lot of people look at this and say: "sure, Adam...you can get private money because you've done so many deals, etc." blah. blah. blah.
Not so.
Let me tell you straight up - there's no coronation ceremony. So, you can fire your waltz instructor and forget about doing the bow.
There is no 'Society of Real Estate Overlords' to which you apply and who review your application to "be dutifully ready to adopt and use other people's money in your real estate investing enterprises." There is no certification that deems you able and competent to use private investor funds.
There's no ceremony. Nobody's going to crown you.And I think this is a BIG PROBLEM with real estate investors everywhere.
Listen, maybe there was a high school graduation, bar mitzvah, or whatever where a bunch of people got together to signify that you were a grown up and ready to tackle the world without training wheels. This doesn't happen in the business world. It's still a "jungle out there."
You have to crown yourself ready to get private money. Nobody's holding you back except...you.
Some people get this right away. Just like some people take some basic real estate courses and go out and start doing deals and making money while countless others feel like they have to keep learning to get ready so that one day somebody can give them their official money making certificate that deems them ready to profit. Complete nonsense. This is stuff that is put in your head by the education system, the "establishment", the losers out there who want to bring you down for trying to do something they could never do.
Pay them no mind. (if you want to make money, that is.)
Here's something to ponder: how many painful reminders about the importance of private investor funding for your business do you need before it starts hitting you over the head like an anvil?
I really hate putting on my "rah-rah" guy hat - like one of those phony life coach types. It's really not in my personality at all. However, I feel it pretty darn important to convey this "harsh reality" to everyone who wants to profit in real estate.
Ok - the rah-rah hat is off and we're back to business. In fact, it's time for me to go make some deals happen.
How 'bout you?
It's a personal financial statement.
And, I'm required to fill out this statement by the commercial bank (a local one) where I took out some loans to by investment properties a few years back. It's their way of saying: "hey, we want to make sure you haven't become insolvent" since we last heard from you. Sort of like a checkup, I guess.
At the time I got these loans, I thought it was a great deal. I remember feeling like such a big shot walking into the bank. Leather-folio in one hand, clean suit on. Slightly nervous feeling. "This was going to be great, I thought." But, looking back I could not have been more wrong. Let me explain...
Before I went to this bank, seller financing options and conventional mortgages were the main way that I bought my real estate investments. The financing process was easier back then (sounds like I'm an old-timer). With a good credit score, a modest sum of liquid cash and some patience and you could get financing for most investment properties. Then, the banks put a cap on how many 'non-owner occupied' mortgages you could have. Leave it to the bankers to sit around at cocktail out and figure out a way to use their government connections to put the squeeze on everybody.
Enter: lines of credit.
These worked for a while, then when those got maxed out I turned to this local bank in my area who would finance single-family houses under commercial loans. 15 year amortization. 5 year balloon. Prime plus. Low fees.
Sounded like my kind of gig.
So I got a few loans through them. Even pulled cash out of a few of 'em.
And then....credit started to get tighter. Lending standards started to go up and LTV's started to go down.
Crunch time.
Enter: private money.
Right at or around this time, I finally figured out some sure-fire ways to consistently drum up private money. Which was a good thing, because pretty soon the financing spigot at all these banks was shut off (here in Michigan). Not long after that the big national banks started to get into trouble. Bear Stearns evaporated into the middle of the night. AIG, Fannie, Freddie ran into the open arms of cuddly Uncle Sam.
You know the rest.
Anyway...
As I sit here looking over this personal financial statement that is required of me, I almost feel violated. "Why do I have to do this?" I wondered to myself shortly after I got the letter from the bank in the mail. One of the main reasons I feel incredulous about this is that I haven't had to tap dance for a banker in a long time. With private money, many of the onerous requirements of banks and institutional lenders are gone.
* Form 1003 (uniform residential mortgage application) - gone
* Personal financial statement - gone
* Cross - collateral/mortgage against your personal home - gone
And, good riddance!
Now, I'm not saying that any of the factors on the docs required by institutional lenders won't matter to your private investors - sometimes they will. However, if you set things up right, you won't have to even give a second thought to this stuff when you use private money. The shackles are gone.
But, wait a second...
A lot of people look at this and say: "sure, Adam...you can get private money because you've done so many deals, etc." blah. blah. blah.
Not so.
Let me tell you straight up - there's no coronation ceremony. So, you can fire your waltz instructor and forget about doing the bow.
There is no 'Society of Real Estate Overlords' to which you apply and who review your application to "be dutifully ready to adopt and use other people's money in your real estate investing enterprises." There is no certification that deems you able and competent to use private investor funds.
There's no ceremony. Nobody's going to crown you.And I think this is a BIG PROBLEM with real estate investors everywhere.
Listen, maybe there was a high school graduation, bar mitzvah, or whatever where a bunch of people got together to signify that you were a grown up and ready to tackle the world without training wheels. This doesn't happen in the business world. It's still a "jungle out there."
You have to crown yourself ready to get private money. Nobody's holding you back except...you.
Some people get this right away. Just like some people take some basic real estate courses and go out and start doing deals and making money while countless others feel like they have to keep learning to get ready so that one day somebody can give them their official money making certificate that deems them ready to profit. Complete nonsense. This is stuff that is put in your head by the education system, the "establishment", the losers out there who want to bring you down for trying to do something they could never do.
Pay them no mind. (if you want to make money, that is.)
Here's something to ponder: how many painful reminders about the importance of private investor funding for your business do you need before it starts hitting you over the head like an anvil?
I really hate putting on my "rah-rah" guy hat - like one of those phony life coach types. It's really not in my personality at all. However, I feel it pretty darn important to convey this "harsh reality" to everyone who wants to profit in real estate.
Ok - the rah-rah hat is off and we're back to business. In fact, it's time for me to go make some deals happen.
How 'bout you?
Comments (1)
Yup....The effort to raise private money is worth it just so you don't have to tap dance for the stupid banks anymore. I recently refinanced an investment property taken subject-to a HELOC that was recast as a 30-yr note and it took A YEAR to find a portfolio bank to do it. That was painful enough to get us to put a lot of energy into building a new website to find private money of our own with A SYSTEM. What gets measured gets done....enough of this hunting and pecking for money! Let's do it the right was so that we aren't beholden to the banks anymore.
Bryan Hancock, about 14 years ago