All Forum Posts by: Stephen Herbert

The misguided expectations that have resulted from consumers (myself included, go CreditKarma!) reviewing their scores online with some of the more recent scoring models (Vantage 4.0, here's looking at you) are quite painful in lending. It's can be a rather difficult conversation when trying to explain to a borrower why their CreditWise or CreditKarma scores are 60 points higher than what their true FICO Classic 5 is (what several lenders use). 

From the borrower's standpoint, I understand the dilemma you're faced with as well: "I can get a real credit report from myfico.com for $60, so I know where I really am and what I qualify for, but then the lender is probably going to require their own report... which means 2 hard pulls."

The free tools are a great resource for us consumers to manage trade lines, credit exposure and educate oneself on the basics of their credit score and what it's comprised of, but they're not a weapon to take to lenders demanding better rates and terms.

Other lenders out there - what are your thoughts on the matter?

As a hard money lender, I have conversations with investors nationwide every day, and a lot of the investors I speak with are telling me similar stories. They're talking about margin compression, lack of inventory, too many players and the inability to easily find homes with margins that work for them. The key here is margins that work for them. In today's market, you need to work for the margins. 

Gone are the days of 3 houses on a block being easy flips bought at below market value. Gone are the days of rampant foreclosures and vacant houses. Today, you have to be able to look at situations creatively to find a way in. I spoke with an investor in DFW the other day who was talking about her current strategy of reinstating loans out of foreclosure, and another in Austin who laid out his business plan of buying properties with large lots, building an ADU in the back, completing a condo conversion for the lot and then selling each unit individually (in effect, a short cut to subdividing the lot). I have buyers in NY that specifically target below-market rent properties, buy the tenants out with a cash for keys offer, and reno the units to bring the rents to market value, adding hundreds of thousands of dollars to the value of the property. I have buyers in CO that are tapping into local zoning codes to find properties that are being underutilized, i.e. basement into a rentable unit, or an in-law in the back, to maximize returns.

The deals are there, but sometimes they're hidden, and sometimes we need to work for the margins.

Hi Andy -

There are several ways to accomplish the purchase of an investment property with less than 20% down, but the reality is that any lender would require proven experience in the form of prior projects that the lender can verify. There are dozens of aspects to renovating houses that often come with experience and only experience, therefore if you lack any previous projects, you're likely looking at 20% down. If you change your mind and decide to move into one of the or bedrooms of the property, you could go with the FHA loan, but that's about your only option without any verifiable exits. 

That's really good to hear. I have clients in CO that were paying 15%/5pts with their previous HML, and it saddens me to hear that investors are still paying rates like that.

Hi Domenic - you've made a wise choice pursuing real estate! I don't have any specific private money lenders that are local to the neighborhood, but there are a variety of national lenders that are specific to investors who would be willing to assist.

Being a first time investor, if you're going to go the route of a national lender, it's reasonable to expect to pay 3-5 pts and 11-13% depending on the property type, your credit score and the LTV at which your loan is scored. These lenders are high-volume machines and will come with more process and diligence than your local REIA "rich uncle", but there's no profit share in these scenarios.

If you're taking the local private lender route, the terms of the loan can vary enormously. There might be a profit share, they may require you to use their team of contractors, they could charge 5pts and 15%... you never know. 

Do your homework and find someone that you can grow with, and please PM me with any questions you have on financing or investment properties. 

Speak soon,

Stephen

Hi Edward - 

Financing is one of the easier parts of the equation in my opinion. Making offers and getting a property under contract (and closed!) is definitely the most challenging aspect of the process. If you're looking for some guidance on how to navigate the investment finance space, feel free to DM me and we can discuss your objectives.

There are several companies that specifically lend to investors and hold properties in an LLC. I'm happy to point you in the right direction if you would like to send me a DM and we can discuss the circumstances surrounding your properties.

Options range from 3/1, 5/1, 8/1, 15, 20 and 30 year fixed terms. Rates will be higher than what you're seeing in the conventional space and with your banks, but there are commercial loans meant for investment properties. 

Hi all - I will be joining this event as a first time attendee and look forward to meeting you all and talking real estate. 

As a direct lender for real estate investors, I've been bamboozled by the number of people who are unable to identify their credit score and/or are unaware of significant derogatory incidents in their credit history. As investors, there are aspects of our profiles that instill more confidence than credit, such as experience, but credit is still a big/determining factor from a lending perspective. 

Please do me and all the other lenders out there a favor - check your credit every once in a while. There are tremendously useful resources you can access for free that will make you a more savvy investor and could save you time and money. How do you know you don't have a 700 credit score and should be paying less in interest if you don't check your score?? :)

• MyFico.com
• Mint
• Credit Karma
• Freecreditreport.com
• Annualcreditreport.com
• Creditsesame.com

It's crucial to understand how your credit impacts your ability to get a loan, and the first line of defense is knowing your score. 

Fair points from all contributors - thank you. In Cincinnati, granite is more cost-effective than quartz, and as noted, so long as its new and clean it will sell. We're putting in mid-to-high grade components and are appealing to a younger buyer (newlyweds with child coming in the next year or so) and quartz seemed more targeted to a younger demographic. 

Thank you all for your continued support.