All Forum Posts by: Doug Smith

No offense, but absolutely, positively in no way shape or form would I, as a lender of over 30 years, provide a loan to someone with no out of pocket capital. There are two types of borrowers that fail at a much, much higher statistical rate than any other...1) borrowers with little experience, and 2) those putting nothing or very little down. There is a reason we lenders require "skin in the game" and experience. As for strategies, do you have any other skill set that you can bring to an experienced operator? Perhaps you can barter that for experience and, perhaps, a taste of the profits and then, later when you're capitalized, do what you're suggesting but now with experience and skin in the game. That's what any good, legit lender is going to tell you. 

A terms sheet will tell a pro whether you know what you're talking about and give them a structure of the deal you propose, but it won't establish credibility with respect to your financial ability to pull off the deal. As lenders, well issue a prequal/preapproval letter if we've analyzed your income, assets (bank and brokerage statements to establish that you have the liquidity to afford the down payment, closing costs, and reserves), review credit of the guarantors, review the relevant experience to ensure that we're not throwing our money away on newbies that are wandering around in the dark, and have put together a reasonable plan of attack for the project. Over my time (over 30 years), if your lender will make a call to the seller/seller's rep to explain the level of due diligence we've done on the buyer usually goes a long way. Do you have the Capacity/Ability to close, do you have the Character/Credit to close (including relevant experience), and do you have the liquidity to properly provide enough collateral (are you injecting enough into the deal). If you can convince them a bona fide lender is on board, that's 90% of the battle. 

Number 1, Always tell the truth and deal fairly. Number 2, a lot of wholesalers forget that building a business is a long-term thing and they get greedy leaving no room left in the deal, #3, make sure you've disclosed evertything to all parties. Investors want a person that they consider a good "business partner", but most of the wholesalers I see come of as borderline crimnals. Be a pro, be honest, be fair, be consistent, communicate, and you'll do well from an investor's perspective. 

 A legend in my own mind, my friend!😂😂😂

I was in banking for a bajillion years and now own a lender that specializes in this type of financing, so I feel I can answer the question. Most lenders are going to want to see a few big things from the ownership group. 1) The borrower will be the enitity (LLC, S-Corp, etc) and any owner with usually 20% or more of ownership in the entity will be expected to guaranty the loan, 2) We'll want to see some experience doing similar projects from at least one of the main owners, 3) We'll want to see bank statements showing liquidity enough to cover the intial cash injection (down payment), the closing cost, and some cash in reserve. I would note that some lenders don't like "layered" ownership structures. Let's say John owns Johnco, LLC and Mary owns Maryco, LLC. Each entity then owns XYZ, LLC, the borrowing entity. That's layering. They might want John and Mary to directly own XYZ, LLC. That's up to the lender, but many don't care for layered structures. I would also note your mention of not wanting liability, but offering to "co-sign". From a lenders viewpoint, we consider "co-signers" to actually be co-borrowers or co-guarantors having full liability for the debt as a guarantor. If you will be a large equity partner or if you hold the experience to do the deal, the lender will likely want you on as a guarantor. I do hope I didn't miss anything and that this helped a bit.

I think you have to ask yourself what you're trying to achieve by refinancing at this point. Why are you wanting to do it? Is it to lower rate? Bleed out equity? Understanding that would be a huge help. You would also want to ask what is your current rate, what rate can you get, what are the closing costs that are involved including points, ect. If you oversimplify it and take your total cost to close the deal / monthly savings = # of months to Break Even. If that time is relatively short, then a refi might make sense. If, however, it's a longer term, perhaps staying put might make the most sense. There are many variables that were not in your post that we would need to know to point you in the right direction. I really hope that helps you. 

Hi @Ian Porter. I love that area! I recently financed three new builds in the Jasper area near Big Canoe and I'll be heading up with my family shortly after Christmas for a "tour". We decided to make a mini-working-vacation out of it and grabbed a STR outside of Blue Ridge. One of our biggest clients plans on building more up there and meeting another GC or two would certainly make sense. Congrats on the project. I hope to connect with you soon.

Wow, Stephen! What an interesting post. Thanks so much for sharing. I had not thought of that, but it makes sense. I wish you well in solving the issue. 

Hi Shawn, When I left banking during the last major crash and started this company, we primarily were a commercial bridge lender, but we also were a real estate investor. The forelcosure auctions in my home State of Florida are all online. They are also filled with newbies that just paid $10K for a course and the Days Inn from someone that doesn't, themselves, really know real estate...otherwise they wouldn't be teaching it, they would be doing it. When we did it, we did score some great deals, but what we found was that we were visiting so many properties to understand our "strike price" (the maximimum we would pay for the property when taking into account rehab costs, hold times, interest on any debt, closing costs, real estate commissions, a contingency reserve for "unexpecteds", etc) that the math started to not make as much sense. We found that we were often outbid by novice investors or that the bank set a reserve price so high we couldn't make the numbers work. On most deals we bid on, the bidding would start way, way above our strike price. "How in God's name do they plan on making a profit" would come out of my mouth all the time. Personally, we saw some great deals, but there were others with different modeling that we have that had us winning very, very few bids. We found ourselves wasting an obscene amount of time doing our due diligence where we doubt that the vast majority of bidders actually understood the costs involved in the rehabs. I know that's not what you asked, but that's been my experience. Good luck with your investing business. If I can answer any questions please let me know.