All Forum Posts by: Ben Stoodley

@Carrol Rhead great work on your first flip!! Condos can be tricky but they can also be homeruns. Glad it worked out so well for you. On to the next!

@Krishan Khalsa you've def done your homework. The FHA 203k loan would be best since it also finances the renovations, up to about $50k I think.

Only word of caution here is that you'll be fully leveraged, at 97% going in, and a decent amount lower after fixing. So you'll really want to feel comfortable with the refinance part of this transaction as the LTV tends to be about 75%, so you'll need to ensure you gain that amount of equity with your renovations. Plus, you want to exceed that amount of equity so you can cash out enough to do it again. The FHA loans are quite strict on the valuation so it'll be a challenge to find a below market value deal, especially in these extreme current seller markets we are experiencing. Not impossible , just difficult. Downside would be that you have to wait a longer period of time to do this again while you gain equity and stack capital. Plus side, you have the best rates.

Since the markets are so tough right now you may want to consider stacking your capital first. Given the SoCal prices, the unknown future effects on real estate from Covid and elections, it might make sense to continue saving up so that you can make a GREAT purchase in the near future, rather than a decent purchase now. I’m sure you could find some syndication deals for your $15k as well.

Either way is great - as long as your owning real estate! Good luck !

@Owen Dashner congrats on your amazing success thus far! Private lending has come a long way over the years. With institutions entering the industry a few years back, more products have become available to us as lenders, resulting in better products to the borrowers.

I’ve been going through lots of the same questions and processes over the past few years as well. With CA prices, it creates the need for high amounts of capital on hand at anytime, but the competition in CA is crazy too.

With COVID and politics not effecting the market YET, there are numerous more changes coming to the market that NO lender has experienced.

These reasons make it very difficult to feel good about raising lots of capital for your biz, running the risk of sitting on it, and not being able to pay the loan/equity to investors. I think about these things non stop.

Funds are very expensive and require a ton of legal management, but they provide the easiest pathways for raising lots of capital from the public. There are 3-4 types of funds that typically apply to our industry. They depend on the types of investors you plan to raise capital from - people you know vs advertising to the public , which will depict if investors need to be accredited or not. If you want to go really big , I would say this is the safest and fastest way.

LOCs for this industry are very hard to come by, although they're popping up more and more everyday. Very large lenders and institutions are starting to offer such products for private lenders. This would be an EXCELLENT solution for you in the meantime/immediate future/transitional time, in my opinion. They all work and charge you differently. They're expensive, but increase your flexibility a ton. Most take a floor rate on every loan while on LOC. Some charge low additional fees per loan/draw, some charge origination on full LOC amount upfront. From what I found, most conventional type banks would also offer LOCs but it's all based off your current assets under management. So depending on how you structure your company, if you sell your notes, etc, this maybe a better option as the floor rate will be much lower. However, these conventional options tend to be much lower total LOC amounts.

There are a few other options as well, and numerous companies that help you raise capital QUICKLY for a small fee (1-5%). Lots of people want in on this industry so if speed is your main objective than this is a great route. Most of these companies focus on $5m++ but some will do $1m+.

Hopefully this helps. It's a lot and it's just a tiny portion of all the options. I'd HIGHLY recommend going to Lending conferences like American Association of Private Lenders (AAPL) and your local version (CMA for CA) along with others like National Private Lenders Association (NPLA), Innovate by Geraci, etc. There's lots of good ones where you will meet lots of people who offer similar products. One will surely meet your biz needs!

@Mason Adelman every book you can get your hands on is worth a read! But one underlying theme consistent throughout my career that has always steered me in the right direction has been managing expectations, both your clients and your own. This forces you to focus on the most important things, not getting distracted by all possible opportunities. The book really good for this specific to real estate is The One Thing by Gary Keller. The author is the founder of Keller Williams and is fantastic business man. The 80/20 Principle by Richard Koch is another great book. Both build off Pereto’s Rule. I always highly recommend business books and personal growth books more than real estate specific books, personally. Another good one is Crucial Conversations by Al Switzler. All business especially real estate is done with people, the more you learn about how to effectively communicate, the better your business and team will become. Good luck !

@Haley Helland I’m sure you’ll hear from many local investors on this post, I would highly suggest going with referral lenders, especially when you’re getting going. Few tips..

1. Local lenders tend to be more flexible and relationship based. They know the market better and may be able to offer higher LTVs or better rates for this reason.

2. Most lenders stopped lending to newbies after Covid. Some have opened up. This means it’s even more important to have a well organized plan when speaking with lenders. Experience is the most heavily weighted UW criteria so to offset that, make sure you provide a very clear, strong, and well thought out project plan. Mitigating the risk of lending to a newbie is important so good credit and good liquidity helps a lot with newbies. And of course, the deal itself needs to be solid!

3. Don’t worry about rates as much as trust and reputation. If you save $1k by going with a less known lender, yet they foreclose on you for no good reason, you could be seriously in trouble. That’s a drastic example but most lenders offer similar rates, a few hundred in savings up front is not as important as long term trust and reliability. Look for a lender you can grow with.

4. Find some possible teammates or partners. Preferably someone with experience. Lenders will use the experience from your partner, drastically lowering the cost of the loan interest and points. Not too mention the most important factor of learning from the experienced partner.

Hope this helps and best of luck !

@Ryan Cleary I def agree with previous posts, construction costs seem high for a MultiFam and modulars are a fantastic option! That was a great suggestion.

Work with your lender to make sure they are ok financing a modular construction. It’s usually handled in lump sum payments. So depending on your current equity position in the land, you might have to come out of pocket a bit for the first down payment to the modular company. But if your lender is comfortable with the equity in your project than you maybe able to get it all financed.

So yes, sounds like it’s worth looking into!

Hi @Gracie Brown , it sounds like you've decided on the first step, to refi. I completely agree there, as @Jon Schwartz mentioned the rates are crazy low right now and HELOC is variable. I am not experienced in the traditional banking world, but I do know they have seasoning requirements for any large sums of money deposited into your accounts. So in addition to speaking with a CPA about the best way to handle the money, I would also be working with your Mortgage broker to better understand your financing options. I assume you want to hold title under your name, using your parent in laws money, so you want to make sure the deposit/purchase transaction is correctly structured. I also assume this purchase will be your primary, rather than an investment, but if it were investment I could certainly offer some other options. Either way, this is a fantastic opportunity for you and your husband to take a huge step forward in your net worths and make living in this crazy expensive state a little easier! Best of luck!

@Cyle Harris most would def agree that keeping your real estate investments held in llc or Corp is generally a good idea. Always refer to your CPA first and double check with your attorney for the best structures. Further , most hard money lenders only lend to entities, or at least strongly prefer.

@Michael Edwards I agree with reaching out before. Most lenders will want to talk to you and build a relationship. So come prepared with questions for them in case they’re busy and make sure to have a clear investment strategy. Experience is always important so if you’re new, I would suggest showing them how well planned out your project plans are with well organized details (teams in place, price ranges targeted , planned Capital investment from your end, back up exit strategies, etc). Later when they’re Underwriting your deal, the more professional presentation the better.

@Michael Crider great work on your first loan! I don’t know if any good books on private lending and my opinion is that most of it would be outdated by now anyways. Lending has changed drastically over the last 6 years with institutions jumping in. However, the basic rules and principles still apply. Here are some tips that Id recommend:

1. Keep your LTV consistent. I've seen so many lenders alter LTV to compete. This is your largest security - the instant equity produced by requiring 20-30% down, plus, the added value of renovations if you're funding flips.

2. Borrower skin in the game. In my experience, the best borrowers understand both sides of leverage, they know that higher leveraged deals produce less capital profit due to higher interest fees and other expenses. Therefore, they don't always try to Max the LTV like many newer investors looking to scale. Yes, we are asset based, but, if a decent investor is spread too thin across too many deals at too high of an LTV, things will go sideways. I've seen it happen to many investors as they grow their portfolio. Growing too fast is an absolute dagger to most businesses.

3. The more backups the better. This should be already prepared by the borrower but at the end of the day you want to have multiple exit strategies for your loan just like the borrower has for their deal. Having to foreclose on one of your first couple loans could be hugely detrimental to your biz compared to foreclosing on your first deal on loan # 100

4. Loan docs. Sounds like you have an attorney helping you draft them. I would keep it this way for a while. Every state has different laws. Every deal type may have different scenarios required to be noted in the docs. After some time you can generate these yourself but at the beginning spend the money to have them done right.

5. Quality of borrowers. This is like number 2 where the higher quality borrowers will make your life way easier. In the end you’re on the same side. If they don’t win you don’t win. Grow slow off referrals and lending to the right clients.

Hope this helps. Happy to speak more privately.