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

by | BiggerPockets.com

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.

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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!

About Author

Dave Van Horn

Since 2007, Dave Van Horn has served as president and CEO of PPR The Note Co., a holding company that manages several 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, a real estate investor, and a fundraiser. As the latter, Dave has raised over $100 million in both notes and commercial real estate. In addition to his investments and role as CEO, Dave’s biggest passion is to teach others how to share, build, and preserve wealth. He authored Real Estate Note Investing, an introduction to the note investing business, helping investors enter the “other side” of the real estate business.


  1. Curt Smith

    Hi Dave, I’d be interested in more details about you saying you’re now buying NPN’s directly from banks?

    I heard Eddie Speed talk to my REIA 3 months ago meaning his info was recent, he said that the shaddow inventory we all heard about but assumed was largely sold off really hasn’t been sold off and there’s even MORE notes stuck inside big banks. His claim is that going forward there will be an opening of the flood gates for these performing and non-performing notes as the banks start dumping their problems instead of running them through forclosure into REO.

    Eddie’s sales pitch was pay him alot of money to be on his inside track list to get a shot at these notes. Maybe you’;d rather PM me with details on how to move from paint and toilets to fixing paper via channels you are aware of? Or share with BP how you’ve built a notes business? Sounds like a salable ebook to me? 🙂

    • Dave Van Horn

      Hi Curt,
      Thanks for your comment!
      Although I can’t predict the future availability of notes, I do know that the market isn’t lacking, as we’ve purchased more notes this year than we did in the previous year.
      Brecht Palombo at DistressedPro offers a subscription service that tells you the quantity of distressed assets on various banks’ books. However, this data may not necessarily tell you if the banks are going to release those notes.
      It’s funny that you mentioned the ebook idea, because that’s actually something we’re working towards.
      Please feel free to PM me with any questions you have about breaking into the notes business.

  2. karen rittenhouse

    Hi Dave:
    We buy about 8 houses per month and haven’t used a bank since 2008. When we started full time investing in 2005, the banks would finance up to 8 mortgages in your name so I did 8 in my name, then we financed 8 in my husband’s name. After that, like you, we hit a wall with the banks and figured out how to get over, under, and around it.

    It’s absolutely amazing how many ways you can buy real estate without a traditional banking institution. And what really trips me out is how banks convinced an entire population that they are the way to borrow. Believe it or not, there was actually a time when there were no banks and plenty of properties changed hands. How did these institutions manage to take over our bartering system like they have?

    What we’ve come to learn is, we’re not only in the real estate business, we’re in the finance business. We simply use real estate as our bartering tool.

    Thanks for your post.

    • Dave Van Horn

      Hi Karen,
      You’re definitely right; real estate is often a finance driven business.
      Just as you said, the average person doesn’t realize that the traditional bank isn’t necessarily the way to borrow. Most folks believe that they need the bank in order to buy a house.

      Now I feel that I’ve come full circle, in a way. I’m making money off of the bank’s assets, instead of the bank making money off of me, and it’s somewhat of a less understood strategy.
      Besides just buying assets from the banks at a discount, sometimes when we do foreclose from a junior position, we’ll take a property subject to the first. And, although a subject to deal is relatively rare in real estate, it’s fairly common in the notes space.

      Thanks for sharing!

  3. Dusty A.

    Interesting read Dave. I personally never seen this before – “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.” This would be a great way to really know if your deal makes sense or not! Thanks

  4. sean ploskina

    I have just hit the first level of rejection. I have four loans and now being told I can’t get the rehab loan I need for another duplex. I am now starting to talk to the commercial side to try and get funding.

    Where did you start with private lending Dave? I have heard family and friends but none of them are in positions to lend

    • Dave Van Horn

      Hi Sean,
      I was a real estate agent and contractor, who started buying properties with credit cards as well as traditional financing until I had a track record.
      By that time, I was running a real estate investor group, and was able to do more private money deals.
      Most people start with hard money until they build their private money list. In fact, my next article will be on that topic.
      I hope this helps!

  5. Brooks Armstrong

    Hi Dave ,I am from Canada looking for a hard money lender in the florida area,I have started to set up financing with a bank in florida but reading some of these artical looks like a hard money lender is the better way to go.I am new to the real estate game ,I have two rental properties in canada and now looking in florida to buy distressed multi units to rehb and rent out.I would like more info on buying notes.

  6. Shiva Bhaskar

    Dave, great read. I’m a newer investor (based in LA), working with a mentor who’s a real estate broker as well as longtime local investor himself. Still getting approvals from the bank (focused on 1-4 family right now), but I can see them putting the breaks on this in the near future, so looking forward to figuring out the hard money world. Note buying seems like a huge opportunity, so excited to read more of your articles and soak in your knowledge here. Happy New Year!

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