When the Bank Cut Me Off, I Had to Get Creative With Financing: Here’s What I Learned

When the Bank Cut Me Off, I Had to Get Creative With Financing: Here’s What I Learned

3 min read
Dave Van Horn

Dave Van Horn is a veteran real estate investor and CEO of PPR Note Co., a $150MM+ company managing funds that buy, sell, and hold residential mortgages nationwide. Dave’s expertise is derived from over 30 years of residential and commercial real estate experience as a licensed Realtor, real estate investor, and private lender.

Experience
Beginning his career in construction and as a Realtor, Dave bought his first investment property in 1989. After years of managing his own construction business, Dave became a full-time real estate investor, specializing in fix and flips, buy and holds, and eventually commercial projects, before moving into note investing in 2007.

Over the past decade, Dave has also invested his time into becoming a connector and educator, who helps others achieve success. He focuses jointly on helping accredited investors build and preserve wealth with his group Strategic Investor Alliance and with general audiences through the annual MidAtlantic Real Estate Investor Summit.

Dave has also shared his strategies and experiences with real estate and note investing via hundreds of articles published on the BiggerPockets Blog and with his acclaimed book Real Estate Note Investing.

Press
Dave has been featured on the BiggerPockets Podcast twice (shows 28 and 273), as well as episodes of familiar podcasts, including Joe Fairless’ Best Ever Show, Invest Like a Boss, Cashflow Ninja, and many others. He also has been a guest of Herb Cohen’s on Executive Leaders Radio, which airs nationwide.

Accreditations
Dave is a licensed Realtor with eXp Realty with CRS and GRI designations.

Follow
Dave’s LinkedIn
PPR on LinkedIn
PPR on Facebook
Twitter @DAVIDAVANHORN

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When I first started out investing in real estate, just as many do, I was taking a more traditional approach. I thought you just needed to work hard, save up some down payment money, and go down to the local mortgage lender to get a loan. Being a handy young realtor, this should be easy, right?

Well, in the beginning, it was. The first property I acquired was a duplex that I bought FHA, owner occupied. Then, I went in 50%-50% with my brother-in-law on a two-bedroom row home. I bought my next row home for $13,000 with a credit card, and so on and so forth.

What I Learned By Working With the Bank

At first, I did things like a regular realtor, a typical salesperson, who sent his clients to a nearby loan officer. Everything was good, but the banks would change the rules every now and then. I guess it was their way of managing risk.

Related: The Creative Way to Finance Investment Properties You Probably Haven’t Discovered Yet

For example, when I first started selling investment property in 1986, you could actually get an FHA investor loan with a 15% down payment. Later it increased to a 25% down payment, and then eventually the option went away, never to return.

Things went well working with the bank until I had “too many doorways,” and then they just said no… no more loans. The next step would usually be moving over to commercial financing for deals, but the risk profile changed, and it was even harder to cash flow and make money.

After the banks cut me off (I was getting turned down for loans left and right), one thing that I did learn was how they viewed risk.

What I Learned When the Bank Stopped Working With Me

Once the bank cuts you off for whatever reason — which may be anything from your debt to income ratio being whacked out, the amount of properties you own, or because they have too much of their own bank’s exposure with you — it’s time to get more creative.

For me, that meant joining my local REIA group to look for money and better financing. To be quite honest, I found a whole other world. A world that asked, “How can I?” instead of just saying, “I can’t.”

This is where I was first introduced to hard money, private money, seller financed notes, and you guessed it, notes in general. Thank God the traditional banks refused to lend money to me.

Opportunity 1: Doing What the Bank Doesn’t Want to Do

What an education it was, learning how to manage risk. But it wasn’t just learning which loans the bank would do; it was also learning which loans they wouldn’t do and why.

Why won’t the bank do certain loans — for example, why won’t they do rehab loans?

In this type of void, the opportunities begin to appear. For me, the opportunity began in private lending.

If you ever want to learn a lot about real estate investing, go find what you think is a deal and run it by a hard money lender (who by the way is in the note business), and trust me, you will learn a ton. Not only will you learn what constitutes a good deal, but you’ll learn their underwriting guidelines as well.

Opportunity 2: Being What the Bank No Longer Wants to Be

Today, I’ve come full circle — from real estate investing, private/hard money lending, and seller financed/owner financing to purchasing distressed notes directly from banks.

Related: The Top 3 Creative Sources of Capital For Investing in Real Estate

Now, our note business is essentially the type of bank that the bank no longer wants to be. Or in other words, we’re purchasing their distressed assets and making lemonade out of lemons.

When you think about it, if you’re buying assets pre-foreclosure (e.g. non-performing 1st liens) and you’re unable to come to an agreement with the borrower, you’re usually still ahead of the “I buy houses” guy, the sheriff sale gal, and even the courthouse lists.

Since real estate investing is such a finance driven business, all of the experience I had along the way is really what helped facilitate my continued wealth building in the notes space.

So, let me ask you, what bank phase are you in today?

Let’s talk — be sure to leave a comment below!