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You Don’t Fit The Mold: Why Real Estate Estate Investors Struggle

by Kevin Perk on December 30, 2013 · 29 comments

  
Fit The Mold

I have been investing in real estate for over 10 years now.  Almost 8 of those years have been as a full time investor.  I always thought that once I went full time, real estate investing would become much easier, and in many ways it has.  But in a lot of ways, I had to change direction or find totally new ways of running my business.  I was not ready for that.  I was not ready for the fact that real estate investors do not fit in the mold.

The mold is not made for the real estate investor.  The mold is made for people who work 9 to 5, who commute, who have W-2 income, who own one, or perhaps two properties.  If you step outside of these criteria, you become weird.  You become something that does not fit, something that simply does not compute.

It is simply not “normal” to be a real estate investor.  It is not “normal” to own a bunch of properties.  It is not “normal” to have rental income as your primary income source.  Yes, you are a professional investor, which on the face of things should make things easier.  But many times it does not.  Being a professional is seen as a risk.

This perception of risk actually can make your job as an investor much more difficult.  You would think that it would get easier to get bank financing as you grow and become more experienced.  Not so.   Many financial institutions now see you as a risk and the funding will stop.  You don’t have a “job” anymore so how can you possibly pay the loan back?

You see, as a professional investor, you no longer compute.  You no longer fit into the bank’s molds.  As an example, I once had a loan processor at a major bank tell me he could not process my loan refinance application simply because he did not have enough slots for property addresses on his computer form.  You do not compute.

Insurance companies will see you in much the same way.  Insurance is of course all about risk and because you no longer fit the mold, you have become a higher risk.  You would think that the opposite would be true as you grow your business and become more experienced.  Not so.  Insurance can actually become quite a concern as you acquire more and more properties.  Insurers perceive more risk and can significantly bump rates or drop coverage all together.

So as you go through your investing career remember that the world likes to put things into neatly organized boxes and you simply are not going to fit.  That does not mean however that these problems are insurmountable.  What it does mean is that you have to work, sometime a little sometimes a lot, harder than the next guy.  It means that more barriers than you realized are going to be erected to try and force you back into one of those boxes.  It is a pain and it is frustrating, but you have to just go around or over them.  The path may be more difficult but the reward at the end is greater.

What experiences do you have not fitting the mold?  Let me know with your comments.
Photo Credit: JD Hancock

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{ 29 comments… read them below or add one }

Jeffrey Gordon December 30, 2013 at 12:34 pm

Kevin, great article! With a few years processing/originating mortgage loans I had to chuckle about the comment about not enough slots to put your properties onto the application, more than likely a problem with the individual than with the form/software, but I dont think I ever worked with an application with more than 8 or 9 properties. I have a few pals who own over 25 but they are all real estate professionals who worked full time in the industry while building their portfolios today they are very very well set to say the least, as Jeff Brown likes say and I echo, every retired stock market investor I know is a bit uneasy to say the least, but none of the retired Real Estate investors I know are the least bit worried.

j

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Kevin Perk December 30, 2013 at 10:01 pm

Jeffery,

I am sure there were some “individual” problems with that application as well. I got the feeling that guy just wanted to get rid of me rather than try to help me. Which gets back to my point that you just have to go around these road blocks or find a new route all together.

And yes, I agree with your last point. The future looks good. Finding ways around the road blocks are worth it.

Thanks for reading and commenting,

Kevin

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Dawn Anastasi December 30, 2013 at 12:53 pm

I also had the issue of not having enough ‘slots’ on the form to fit all my properties.

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Kevin Perk December 30, 2013 at 10:04 pm

Dawn,

I’m glad I am not the only one. :)

Thanks for reading and commenting,

Kevin

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Lisa Phillips December 30, 2013 at 7:34 pm

Great article.Makes me feel a little better about myself in my “abnormal” lifestyle of trying to get financial independence.

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Kevin Perk December 30, 2013 at 10:08 pm

Lisa,

Thanks for the kind words. Keep trying you will make it!

Thanks for commenting,

Kevin

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Stephanie Dupuis December 30, 2013 at 8:45 pm

I plan to have the problem of not enough slots on the form sooner than later.

Nice article, Kevin!

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Kevin Perk December 30, 2013 at 10:13 pm

Stephanie,

I like your thinking! Good luck!

Thanks for reading and commenting,

Kevin

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Brian Gibbons December 30, 2013 at 10:04 pm

If you buy some traditionally with banks, and some non traditionally on sub2, wraps, cfd, private first mortgages with free and clear properties etc., slots don’t matter.

I’d rather be a Real Estate Entrepreneur than a Real Estate Investor.

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Kevin Perk December 30, 2013 at 10:22 pm

Brian,

Good point. Learn all you can about the various ways around the road blocks.

Thanks for reading and commenting,

Kevin

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Roy Schauer December 31, 2013 at 10:25 am

Brian,
Been trying to figure a better phrase than “real estate investor”. Strange how people’s responses change after that phrase is mentioned. I like the real estate entrepreneur!

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Brian Gibbons January 9, 2014 at 11:22 am

Roy, How about Real Estate Problem Solver?

I hate “investor”, sounds like “opportunist”.

I want a problem to solve!

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Roy Schauer January 9, 2014 at 11:28 am

I generally just say “our company works with people in distressed property situations and I’m the head problem solver, so tell me how things got to where they are now.” It’s straight forward and non confrontational and gives the appearance I work for the company instead of being the owner. Technically I do, but my title is manager/investment researcher. But maybe I should change it to Problem Solver on the next batch of cards I order! Lol! Although I’m sure it doesn’t come with a pay raise.. ;-)

Roy Schauer January 9, 2014 at 11:30 am

Or even “Chaos Engineer”. Sounds like a military job description.

Kevin Perk January 10, 2014 at 8:28 pm

Brian,

You might be on to something here.

“I am in real estate.” I provide real estate solutions.”

Kevin

Gene Hacker December 30, 2013 at 10:55 pm

I have been dealing with the same issues. My wife and I are up to 16 properties and financing has become very elusive in recent years. The new rules which virtually eliminate collateral based real estate loans is an issue that I didn’t run into last cycle when I was in acquisition mode (2000 to 2003). We have found creative solutions to keep buying.

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Gerald Harris December 30, 2013 at 11:11 pm

Being Creative is a great thing Gene

Its funny, I was recently asked by a local investor on how to keep buying property. He said is Debt to income ratio for the bank was just way too high and there was no way he could get a traditional loan. I told him Owner Financing. Its a a great way to get a piece of property. The main way to qualify is your down payment. Sellers are and will become more flexible if interest rates keep increasing. If they are truly motivated the market will play right into your hands.

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Kevin Perk January 1, 2014 at 8:31 pm

Gene,

Seller financing is one way to go. Another is to find private lenders and there are a whole host of other methods out there. The key is to make a win-win situation for you and the seller.

Thanks for reading and commenting,

Kevin

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Kevin Perk January 1, 2014 at 8:29 pm

Gene,

Good for you. If you want to keep going in this business you must get creative. Care to share what you did?

Thanks for reading and commenting,

Kevin

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Roy Schauer December 31, 2013 at 10:28 am

Kevin, good article and good points. I believe you have to be really comfortable in your skin, or learn to get comfortable, if you plan on working with real estate in any manner more than just dabbling. Thanks for putting into works what almost all of us have experienced at one time or another.

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Kevin Perk January 1, 2014 at 8:33 pm

Roy,

Very good point you make. To work with sellers you have to have some confidence and you need to learn how to talks and negotiate. Sure some of that comes with experience but you can learn new and creative techniques as well.

Thanks for reading and commenting,

Kevin

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Clifton Stone January 2, 2014 at 12:21 pm

Great article. Finding financing was one of my biggest hurtles to overcome as an investor. Ive never missed a payment in my life and could not believe it when I first got denied a loan! I definitely did not fit the mold with only commissions and rental income. The best advice I got was to put together a three ring binder with all of my financials. Everything a lender would ask for and also include success stories of previous investments I have made. I included pictures and details of retail flips and a detailed rent roll with pics of my hold properties. I scheduled meetings with a number of small local banks in my area in hopes of selling myself as an experienced low risk investor. I eventually landed on one that liked my story and developed an invaluable relationship with them!

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Kevin Perk January 2, 2014 at 11:45 pm

Clifton,

Great comment. The exact same thing happened to us and we actually did the same thing. We called it the banker’s book and shopped it around. I talked a bit about that here: http://www.biggerpockets.com/renewsblog/2013/09/02/shopping-commercial-loans/ Most banks will say no, but one or two will take a chance and say yes. So the moral of the story is to keep trying.

Thanks for reading and commenting,

Kevin

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Pete January 2, 2014 at 2:08 pm

@Kevin Perk- Great article, every loan makes it harder to get another one. What are some ideas when getting a loan is no longer viable? Owner financing? Commercial? Cash? Portfolio loans? Local Banks? 1031s? What strategies do you use and why?

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Kevin Perk January 2, 2014 at 11:52 pm

Pete,

Short answer to your question is “yes.” :)

We have done all of those things for different reasons. I would suggest that you have all of these things lined up so you can be creative in your offers. If you have bank financing and private loans, you can offer all cash and close quickly. If you do seller financing you can negotiate terms. Commercial loans from local banks are one viable option when other avenues are closed (see my response to Clifton above). A 1031 is a different animal all together but is a good tool to defer taxes.

As I said, develop all of these options so you can get creative in your financing and in helping the seller.

Thanks for reading and commenting,

Kevin

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Geoff January 4, 2014 at 2:59 pm

I was hoping there would be more input regarding the insurance issue as well, now just the finance issue. :-)

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Kevin Perk January 10, 2014 at 8:22 pm

Geoff,

It has been my experience that many of the more “popular” insurance companies do not like you when you get to many properties. They either raise the rates significantly or just plain drop you. Heck I had one drop me 30 days after closing!

The key for me has been to find an insurance broker that will shop around to many different companies and to NEVER, I MEAN NEVER UNLESS IT IS A CATASTROPHE, MAKE A CLAIM.

What have others out there experienced?

Thanks for reading and commenting,

Kevin

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Shaun January 7, 2014 at 12:08 am

It is odd that when we are just doing a “little” bit of investing everyone seems okay with that and will lend you money and all that without much issues.

Once you actually get GOOD at it you are risky. HUH???

At one time I did think that the banks had to know something and were pretty smart. Woke up from that delusion in 2008. They are obviously pretty stupid in regards to this stuff be it their own fault or government mandated stupidity they just do avoid anything that isn’t the most vanilla stuff out there to avoid criticism.

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Kevin Perk January 10, 2014 at 8:25 pm

Shaun,

Some bankers are pretty good and understand the RE business, you just have to search and find them.

Once you do, they can get creative in structuring things.

But yes, your everyday retail banker will pull the plug once you get going. Just another obstacle to go around.

Thanks for reading and commenting,

Kevin

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