Roadmap to raise 100% financing for a rehab/refi

I am simply going to cut and paste the discussion points I had outlined in the other forum:

Hi Everyone, my name is Nathan Biggar. I have not spoke up on this site before and am just realizing how great the conversations are.

If you were at the event last weekend, you saw me speak about getting financial support from local banks and also individuals. In a time where large banks are not lending money to investors without at least 25% down, you need to be creative. I have had a number of people contact me for some quick tips...here is #1.

1) Find a local bank ("mom and pop bank" as some say with less than 5 branches) and develop a relationship with a VP or someone with authority to issue business loans. These are banks that are not held to the extraordinary lending rules right now that the ones you hear about on TV are (i.e. Wells, BoA, etc.). Don't get me wrong, they have stricter rules than 2 years ago, but they will work with you if the deal makes sense. Tell them you invest in properties already discounted 20% - 50%+ off market value (not tax value)...then tell them you want a loan of 80% of that already discounted price. They might say no at first, but once you develop the relationship with them (send them cookies...ha ha) and show that you are a serious investor...they will be smart to come around.

If anyone is interested in how to get the other 20%...I'll give you my Super Tip #2...

Keep up the great work everyone...great meeting a bunch of you in Phoenix last weekend! What a treat that was, huh?

NB

Tip #2: Advertise to Friends (local or online) and Family to come up with the other 20% on your first couple deals. You are not selling soap and candles here...you are selling yourself and the raw numbers. If you get into doing multiple deals at once or very large deals then you'll need other sources, but by then you will have a portfolio of success to attract money from all over.

I'll use my last deal as an example. I bought an REO for $85,000 that had comps in the area from $155,000 - $175,000. It was a mess and needed serious attention before getting anywhere near the market again. My rehab estimate was $35,000...but that was irrelevant if I could not secure the deal.

I took the deal to the bank I outlined in Tip #1 and had $68,000 (80%) ready to be wired in 3 days (like I said...the small banks can move quick). That left me $17,000 + about $3,000 in closing costs for a total of $20,000 to get to the closing table, and then another $20,000 for the rehab in the first month...I knew I had at least 90 days to worry about the final $15,000...that is Tip #4.

First - You don't have to get the whole $40,000 from 1 person. Break it up into 5 or 6 people. I never ask for more than $15,000 from any one person.

Second - Talk about yourself and your integrity...after all, if you are going to cheat people or be shady about things, you will never get anywhere and might as well not even start. You need to show your passion and let them know that your word and reputation are your biggest assets...why would you trash that? Put a 1 page guarantee together telling them that when you sell the place (or refi to pull the after-rehab equity out) that you will not pay yourself a dime until their P & I is paid back in full. I attached a template.

http://www.deangraziosi.com/ufiles/Investorform.Nopassword.doc

Disclaimer: This is not something an attorney put together...it came out of my head and I am certainly not practicing Law.

I don't care if it is your uncle or best friend or twin brother...it is professional to lay out the plan in writing and both sign it...no matter what. If nothing else, just so your CPA does not throw a file at you for having lousy records.

Third - Show the numbers. After all, no matter how bad the market is, you are buying a house for less than 60% of the lowest comp in the area and making $35,000 in improvements. You could put a complete rehab back on the market for 85% of the nearest comp...and still make money. Remember in the last paragraph where you are signing your name to the statement with your word that they are first in line for their money? What are the chances that you sell this place and make no money? Pretty slim.

BIG Question??? How much interest do you pay and how do you calculate it?
I can give you a simple map to follow, but this is already 3 times as long as I planned. I'll cover that in Tip #3.

More later...

Nathan

...So now assume (picking up from tip #2) you have a group of 3-10 people you know who have $5,000 - $15,000 they are willing to loan to you for the project(s) you are working on. You have clearly defined for them what you are going to do with their money and why the risk is relatively small. In my case I like rehabs, but if you need some quick cash to secure a property before you can assign it or so you can get a sandwich lease going (like Greg Murphy has been so successful with), this would be a good route to go for those as well.

2-3 years ago when you could throw a dart and hit a mutual fund that was paying 12-15%, my borrowing technique would not have worked as well. But right now, if you gave someone $10,000 and said that they needed to guarantee they would make money in the market over the next 6 months, where would they put it? In a CD...getting 4% if they were lucky...but not going backwards either.
I pay friends and relatives 8% - 15% depending on the circumstances. Again, the perceived risk to an outsider is very high, but in reality, when buying properties like Graziosians do, the risk of selling a place for less than you bought it is very low.

I base the rate on how flexible they are. If they can get me a check in 7 days and I do not need to pay them back until the day after I resell the place...I pay 15%. If they need 30 days to get me the money and they need it back in 120 days regardless of where I'm at with the project...I pay 8%. Any combination of these things pays something in the middle. Your call.

You may be thinking I'm nuts to pay 15% APR. They may think so too. But we are talking about a short time frame here...ideally, less than 6 months. When the time line is short, CASH IS KING...the rate does not matter as much. So if you have a killer deal in front of you that you need quick cash for and you can pay a friend or relative 15% on their money in this economy...I call that a Win/Win.

If you have a project that you feel could make you $20,000 in the next 4 months, but you need $40,000 in cash now to make it happen...pay the 15%. If you don't attract investors, you lose the deal...plain and simple. So they WIN with a 15% return...here is how you WIN.

A 15% APR on $10,000 is about $510 over 4 months (compounded monthly). So then $40,000 would be about $2,040 over 4 months.

I don't know about you, but I'd rather pay out 10% of my profit on this deal to investors than not even get in the deal in the first place. You took their $40,000 and turned it into $60,000 in 4 months...any idea what that return is? For those of you that said 128%...you are right. That is how YOU WIN.

If you have a financial calculator, you can follow the 15% calculation by entering: N=4, I=15, PV=(10,000), PMT=0, Solve for FV...you get $10,509.45.

If you don't have one, they range from $40 - $100 at any office supply store...get one so that you can have the confidence to work the numbers on your deals. Once you know how to quickly calculate interest rates and returns you will be surprised how often you will be reaching for it...I use mine almost daily.

Another long one for you, but when it comes to numbers, the profit is in the details.

Nathan Biggar (from lovely Minnesota...you betchya)

Keep the tips coming!
It's nice to get tips from someone who's already proven them to work and been "down that road". Thanks for the roadmap. Financing is definitely at the top of the priority list in this game!

Rina

Thanks for this...this is good for ALL of us.

I have a simple question that reverts to the beginning when you find the deal.

You lock it up first, prior to going to the bank right?

What is your escape clause in case you can't get the cash? Also whats your time frame(could you please attach it, or type it word for word) thx!

D

Thank you for taking the time to write your tips, and post them in another forum so we have them peace by peace...Great tips btw...Look forward to more hopefully

If ou were going to pull this and start a seperate post Nathan.. I am glad you did. Too much good info to loose.

BTW that investment into a calculator is well worth it. I never leave home without mine. Thanks for the tips.

This is great information. I will keep this in the file. Enjoyed you at the conference as well.

Great Stuff
Denise

Kudos for this thread Biggar!! I'm a newbie and needless to say - this I'm sure will be rewarding for many of us.

One thing... for a person whom is pretty good at math, I'm kind of stuck on how you get that 10,509.45 with a 15% APR. Can you make that clear on paper for me?

Concerning the bank, I actually had the relationship in place with the bank before I made the offer on the first property with him...becasue I needed a letter from the bank in order to even make an offer being it was an REO in heavy demand. So I gave the VP all the numbers with examples of the work I had done on the previous one (I used traditional financing on that and said I would not do that again for a rehab) and then he agreed to type a letter for the bank I was trying to buy it from. So I took that letter and turned it in with the offer. The letter said that I was approved for 80% of the purchase price and no inspection, appraisal, or property conditions (i.e. mold) would stop the loan...there were 4 other offers that day and they took mine becasue of this letter...I think anyway.

There was no escape plan...I was in these to rehab them from the start and had no intention of assigning them. This also makes it a stronger offer if you know you are going to be the one showing up at the close.

My realtor works with a lot of REO's, both on the buy and the sell, and he said that in the ones where the bank makes a massive drop in price to pull in offers, any offers with traditional financing go in the trash...becasue they usually fall through in the end anyway. Cash is the best offer, but at least having a letter from a bank saying they are loaning the money without an appraisal or inspection is key. Traditional lenders typically need a place to be "habitable" before loaning money...they do not look at potential...only the present.

Let me know if this helps.

NB

You need a financial calulator to do it fast...for $40 you can save yourself a lot of headaches for years (mine is 10 years old and works great still). That is the short answer.

Long answer:

$10,000 x 1.0125 x 1.0125 x 1.0125 x 1.0125 = $10,509.45

15% is the annual rate and so you divide by 12 to get the monthly rate...then multiply by that number for every month you need to pay interest. This is a compound interest formula.

.15 / 12 = .0125

Now imagine running scenarios like this back and forth changing interest rates and time periods with a pencil and paper. Not my idea of a fun afternoon.

What I wrote out above I did on a financial calculator in literally 6 seconds. OfficeMax, Office Depot, Staples, etc...they all have them. Also, imagine trying to calculate the P & I on a 30 year mortgage if you are working on how much rent you will need to charge to cover your costs...the formula would take a hour. Financial calculator = 10 seconds. It is worth the investment!

NB

Note: I always use compound interest because that is how I would want to be paid. Simple interest in this case would be $500 ($1500 would be 12 months, so 4 months would be 1/3 of that or $500).

The examples above begin to show the power of compound interest...maybe not after 4 months and a $9.45 difference, but in 10 years, simple interest would turn your $10,000 into $25,000, but compound interest at 15% would be $44,402.

In 20 years: Simple = $40,000, Compound = $197,155. Powerful, or what?

I appreciate you taking the time to give the details. When I looked at some of these HML which mentioned 15%, I just thought $1500 on every $10K. This is good to know.

I have to make this short, because I have to get into the office, but I'll be picking your brain soon enough. (Don't worry, I won't drive you crazy)

Have a great day!

Great post Nathan! I was at the "Gain the Edge" conference and i enjoyed your presentation. It's amazing because i've been using the same methods you have been using. I live in a small town and i've opened my business accounts with all three small local banks of which i have them compete for my business. I totally agree with you that you have to bypass loan officers and go directly to the vp or bank manager about securing financing, and i have found that to be very successful. Once you have closed a few deals with them, and have a great relationship of trust with them, they will mostly likely to be your financial backbone in your real estate investing.

I just met with the bankers again last week and proposed another scenerio. I've asked them that if i could secure properties for 50%-60% off the appraised value, are they willing to lend me the money? They said most definitely because they know that is a no brainer. I've also informed them that any offer that i will present to the sellers will be cash, i will take the property as is and close in 30 days. They like my enthusiam and motivation and they have given me the green light to make it happen, cool huh! I just thought i would add that to this post and hope some of you out there could benefit from it. One thing i've learned from Anita was never be afraid to ask questions. The worse you could get is a no, and yes could open up a whole new world of opportunities for you. Now go out there and close a deal!

Lloyd

congrats and much success!

Naye great info! I like the cookies statement,I know we all chase the dollar still you want too get as personal as possible...I can not sell a dollar;But i can sell a person! I also like how you get the final money that is needed to get the deal done.If i need a dollar then i just ask four people for twenty-five cents... That makes the dollar!And they will get back more than they put in.The cookies present talent over money.

rand
2for1
"action over cash"

Great advice. These are exactly the TIPs I have been searching for! Great job and keep up the good work! I hope to apply these same tips in my location.

Were the banks aware that you hoped to buy the properties for 40% - 50% off of appraised value and that your actual "down payment" would be zero?

Thanks.

Bill Mullica

thanks nathan for the detailed info. your obviously on your game!

Thanks for the great and thorough information...I plan on approaching some of the small banks in my area. One question, though...did the VP's take a look at your credit, or did they not even bother to consider it? If they did look, and your credit is good, then this may not work for others that have less than solid credit. If yours is poor like many of us (myself currently included) this strategy is even more powerful! Thanks again!

Darryl

Nathan!!!! Thanks for all the detailed information, this has put a lot of the pieces together in many questions I've had. This should get a lot more people taking steps...

Nathan,

Thanks for the great information. In an earlier post you mentioned a tip #4 about not needing the other $15,000 until 90 days later. Can you explain what you meant by this?

Thank you for taking the time to list all the tips. I think is is a great subject and I hope the string goes on to become large with other great information. The financing that is available can be my biggest challenge. Thank you for sharing your insight. Good luck on all your deals. Believe and Achieve!

pls i need to know if any one has invest washington metro area md,dc,va.Thanks guys.most especially Mr paul miller.

Nathan,
This is great information. Thanks for sharing with the DG community. Can you answer the question posed earlier of whether or not credit was an issue in dealing with the smaller banks?

Thanks

Hey guys,

My calculator (on my Centro) comes up 10,379.70703125

fyi: I input payments/year=12

Where am I going wrong?

Hello everyone. I wanted to share some meaningfull experiences I had this week with seeking a refi on an investment property that my wife liked so much we downsized from our big house of 11 years into it ourselves!!!..Oh hey. .more time for RE investing. It's fitting us well;
Ran into some roadblocks..Sec. Market lenders bascially laughed at me for small amount of money needed AND that we haven't lived as primary residence here for a full 12 months;(by the way, one joker pulled my credit report on the phone with me without asking me for permission. . . only to tell me about the 12 month thing.. watch out for the jerks)
for Our orignal plan was to refi after this total remodel and upgrade and pull our money back out, but as you know investment property interest rates/terms/points are different from primary residency..What. . . to. . .do. . . ?
THIS GETS LENGTHY, but I think you'll find this helpful.
Approaching a local "progressive" community bank, they were eager and told me of a lump of $ available for inhouse/local loans but having a letter of rejection from a 2ndary market lender was one of the criteria. . imagine that. . .the process, the loan officer described was to purposefully go seek a rejection. .then come back. I worried about a FICO hit, but three different mortgage brokers and a mort. banker all agreed it wouln't ding my excellent credit.(incidently, these are the guys Dean's referred us to for help in all 50 states. . these folks are armed with some dynamite info and anxious to help)
ANYWHO, while all of these machinations were going on, I went back again and sat with the guy who's become OUR BACKBONE in getting loans...yep. . .Nathan and the others, my . .. local. . .banker. . who after 15 months and 8 deals takes us seriously.. This is the movement fellow Graziosians . . Within 3 days, after all my fretting and digging into our slush fund, he approves the loan, orders the appraisal and sends me a copy of the Good Faith Estimate..He only charged the standard 1 percent total fee to borrow the money and gave us a 30 year @ 6.5%..We were pleased. ..
more later...out looking crosstown' for another deal.

Oh by the way, forgot to mention that this same local banker, loaned us the orignal purchase money, including a $10,000 supervised contruction account to get started; no payments for 6 months!!!
The mortgage banker I spoke with in Utah, said to me, " you just confirmed what I'm starting to believe is that investors such as yourself are going to find your salvation borrowing from local, mom and pop banks."
P.S.
I took the E.D.G.E. advice and went to two other banks intending to open another buiness account with my LLC, borrow some $ against it, and continuing, to build business credit. When the Pres. I met with learned that we'd been giving all our business to one of his competitors, and following a nice covivial chat, personally walked me over to one of his loan officers and instructed him to "set me up". I opened a bus. account(#3) and applied for a credit card with up to $15K limit with only my EIN and LLC info!!!!
Great Idea ya'll. .. . thanks for turning me on to it..
mas luego....Grady Corbin

This is a great string, just wanted to say thanks. A mom and pop lender spoke at our REI club meeting this week and I'm definitely going by their office sometime in the near future for a "get to know you better" chat.

Thanks again,
Steve

I called 12 differnt local banks (community)on Monday asked if i could get a loan for 70% of the true market vale not the purchase price was told no way by all but one said that if i could do 3, 20% down on the (purchase price) witch we all know will be about 40-50%of the T.M.V and showed all three were renting and make some positive cash flow we could work some thing out. that is a start i hope to have it come true in 6 months.on Tuesday i put out 100 e mails to brokers i live in N.Y. 50, in new york and 50, in P.A. got one hit that said he has worked with re investors for 17 years and he could loan 70% of the true appraised value. we are scheduled to talk tonight i hope it is for real cause it would mean no money down and things will start rocking.
this is the last part of our team we need and finding it to be the hardest but we will never ever stop trying (good luck to all) ill keep you posted

bob & sandy
topaz solutions inc.

Sorry for the delayed response. I had some things come up and have not been back to this site in awhile...shame on me!

Patrickflemming - I would work it out with some of my rehab partners to give me 90 days before I have to pay them. I could find other investors by that time if needed.

Questions on Credit - I have a 720+ credit score...which certainly helps when dealing with banks and wanting them to take a risk on you. If your credit score is below 650, it will take more convincing and eveidence of previous success.

Good luck everyone...the #1 thing is that you have to believe in yourself before anyone else will.