BiggerPockets Podcast 009 with Ann Bellamy Transcript
Josh: You’re listening to the BiggerPockets Podcast, this is show 009.
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Josh: Hey everybody this is Josh Dorkin with BiggerPockets.com here with my co-host Brandon Turner. What is going on Mr. B?
Brandon: Hey Josh not too much, things are going pretty good.
Josh: Yeah well I tell you what I’m definitely excited about this show. This is the Hard Money show and we’re going to have a conversation with a pretty cool lady today. Our guest is Ann Bellamy and she’s actually been involved in real estate since 1996 when she bought her first duplex. I think she had mentioned it had peeling roof shingles used as siting.
So that’s pretty exciting and actually she hold multifamily commercial property in Southern New Hampshire and she’s been involved in a few real estate investing groups in Massachusetts and New Hampshire as well. Currently she provides short term construction funding and hard money loans to real estate investors in these states.
And does extensive networking in Manhattan, Massachusetts and New Hampshire as well she’s a great lady and she’s active on BiggerPockets and we’re definitely excited to have her on the show. But really quickly before we get to Ann we’ve got our BiggerPockets quick tip today. Here’s where our jingle goes right?
Josh: Quick tip.
Brandon: Yeah we need to get a jingle.
Josh: Yeah we’ll find something somewhere. But on today’s quick tip, we’re going to talk to you about BiggerPockets keyword alerts. It’s a feature that you use Brandon and I certainly do.
Brandon: I do.
Josh: But let’s talk about the key word alerts really quickly. Essentially keyword alerts, you want to pick keywords for things that you’re interested in or want to learn more about and you’ll be notified when they’re mentioned anywhere on the BiggerPockets forum. So for example if you live in Denver you might want to choose the keyword Denver.
Or you might want to know more about flipping houses so you might use the keyword ‘flip’. It’s also helpful if you’re knowledgeable in something you could set up a keyword alert and jump into the conversations about those topics and become the expert in a certain area on our site which can of course help you grow your business. For example since we’re talking about hard money a hard money lender might want to include hard money as a keyword alert and when the topic’s brought up, they could jump in, offer advice and start building their credibility up for their business. So essentially you pick a keyword that is pertinent to your business, you go in, you answer questions.
And by doing so you’re actually going to get business and the beauty of it is there’s no hard sell, you don’t have to pitch. Anyway that’s the keyword alerts, hopefully you guys start using them and we’ll have a tutorial to that in our show notes at biggerpockets.com/show009. We’ll include the tutorial and biggerpockets.com/alerts is the direct link to set up your alert.
Anyway that’s just a quick tip for my quick tip today but let’s get moving. Welcome to the show Ann.
Anne: Thanks Josh, glad to be here.
Josh: It’s definitely good to have you, we’re very excited.
Anne: Good, me too.
Josh: Yeah so alright so this show is about hard money, hard money lending. Why don’t we just start with what is a hard money lender?
Anne: Well people think that hard money has to do with being hard to get or hard arsed as they say. But it actually relates to the asset which is a hard asset. So it’s a lending decision that’s based on the hard asset as opposed to your credit score or your income or something like that.
Josh: Got you. Okay so maybe you can explain a little bit more. It’s a loan obviously, who uses these hard money loans?
Anne: Well it used to be that home owners would use them when they couldn’t get conventional financing. That has largely gone away. Most of the time now it’s real estate investors whether they’re buying a single family to rehab a distressed property and resell it or someone that is buying say a distressed multifamily that needs to be rehabbed and stabilized with new tenants. Small commercial bridge loans, large commercial bridge loans, that sort of thing also to real estate investors.
Josh: Nice, okay. And how then did you actually end up getting into this business as a hard money lender?
Anne: Well I was actually a real estate investor myself and I was on the board of the New Hampshire Real Estate Investors’ Association. And I found that I would be standing in front of the room every week and there was a roomful of people that needed money and I had an associate who had a bank account full of money and needed a place to put it. And at that time 2.25% was low interest. So we figured out how to put the two together and that’s how my business started.
Josh: It’s always nice to have friends with money isn’t it?
Anne: It is. It was really kind of handy and I thanked him for that.
Brandon: I hope to have that problem someday where I have all this money and I don’t know what to do with it that’ll be nice.
Anne: I’ll help you out if you do Brandon.
Brandon: Thank you Ann that would be great. So I’ve used hard money a few times in the past. That’s kind of how I started my flipping business back in the day. And I guess I still use it to a degree today I use a little bit more private lending which we can talk about some of the subtle differences later. But maybe we can talk a little bit first about when should you use the hard money lender actually and when shouldn’t you use it?
You said a lot of investors use it and home owners don’t anymore. So I guess what can you tell us about when to use it and when not to use?
Anne: Okay so that’s really good points. I see real estate investors using it and maybe not on their first deal because maybe they go to their Aunt Edna or their buddy that is also interested in investing. I see it when people realize they can only do one deal at a time with their own money and they want to ramp up their investing.
I see a lot of people use it because they only buy distressed properties and those maybe won’t qualify for conventional financing. And I see people use it even if they do qualify for conventional financing but they need to close in say 15 days or 12 days or whatever. And a conventional lender is never going to close that quickly. I do have a few fairly strong feelings about when not to use it and one of those is as a foreclosure bailout. I strongly feel that if you are in a foreclosure situation whether you’re a home owner or a real estate investor, that using hard money to bail you out is just going to get you in a little bit deeper.
Brandon: Yeah and you’re already buried right so.
Anne: And you’re already buried, you’re already going down and this is just going to make it worse. So I strongly feel that you should not use hard money as a bailout and I also feel you should not try to use it on a property you’re going to live in. Current hard money lenders really don’t want to do those kinds of loans anymore.
They’re not legal in many areas and you really shouldn’t be trying to get that sort of loan for a primary residence.
Josh: Wow no, that’s great; a lot of good info there. So I guess then would you say that there is maybe an ideal property type for hard money loans or does it really just depend on the lender themselves?
Anne: Well I myself use, we do quite a bit of rehab lending so we will lend a portion of the purchase price and the construction funds. I do know there are some lenders that hate that sort of thing. They don’t want to deal with construction, they don’t want to deal with the uncertainty, they don’t want to deal with open up walls.
And they don’t want to go and do construction inspections. So my particular most frequent loan is a rehab loan but every lender is different, they have their own criteria.
Brandon: So what kind of properties do you stay away from Ann?
Anne: I don’t do large commercial at all and I try to stay away from rehab properties in rural areas because there are not a lot of end buyers. Or if it’s a multifamily, there are fewer tenants so the exit strategy is more difficult to implement. So even though I’m in New Hampshire and 98% of New Hampshire is rural, we do have two or three tiny cites and I stay away from the rural areas.
Josh: Got it. And then so you mentioned exit strategies and I know that was something Brandon and I had talked about wanting to pick your brain about a little. So what do you actually like to see the most in terms of exit strategies presumably since you said your focus is rehab loans obviously you’d like somebody who’s going to do a quick fix and flip yeah.
Anne: Well the first most important exit strategy is having one. And that sounds kind of strange but it’s amazing how many people don’t think ahead to how they’re going to get out of the loan or get rid of the property. Especially when it’s a six month loan if you don’t have at least two exit strategies lined up, you could find yourself in trouble.
So the first most important thing is planning ahead and having an exit strategy. I like to work with rehabbers that are buying low enough so that they can underprice their property to the market that is our best and well liked exit strategy because those properties sell quickly. Most of my best borrowers are embarrassed if they hold onto the property beyond two weeks.
So if they’re getting multiple offers the first weekend because their property just pops and it’s underpriced to the rest of the properties that’s my favorite exit strategy. And most of them have backup exit strategies such as taking it off the market, putting new photographs up and changing the price slightly. Or even in a couple of incidences I’ve had a couple of investors that have decided to rent their properties out long term and they get conventional financing.
Brandon: When I first started on my very first flip and I can illustrate that point perfectly, I didn’t know what I was doing that much. It was in 2007 I think and we all know what happened then. So I bought this house it was like best deal in the market about $52,000, I put about 40 into it and I had a hard money lender fund the entire thing.
I mean the repairs, the purchase price everything because I think hard moneylenders were a little bit more loose back then. So I had roughly 90 close to 100 into it by the time I was finished and I put on the market at 140 to sell. And that was my only exit strategy I mean it never occurred to me that I might not be able to sell it. And the market started to drop and drop and drop and we lowered our price and lowered it. And we were down to I think 110 or 115 and still wasn’t selling it. And we tried for six months and I mean like I had no idea what to do because I had no exit strategy. I thought the guy was going to have to take it back or he was threatening. I mean it was a bad situation because I didn’t have that exit strategy. But that’s when I discovered Creative Finance.
Anne: And you weren’t in that period either. A lot of people found themselves in that. They were a little bit behind the market so they couldn’t drop the prices fast enough.
Brandon: Yeah exactly and it was a rough time doing this.
Anne: Yes it was.
Brandon: I worry a little bit about that right now because prices seem to be going up very quickly. We talked to Ryan and Al actually both from the Sacramento area. I think that was show 007 and show 008 and their prices are just climbing like crazy there. And the inventory is dropping nationwide and yeah I worry about that as well.
So if I got one piece of advice for house flippers is be careful and make sure you have that exit strategy.
Josh: Yeah and we’re seeing here in Denver, we’re seeing houses on market for a day. I mean the house is listed, it’s gone the next day. And at least in my area I’m seeing flips like that, I’m seeing primary residences going in days with multiple offers. So it’s getting crazy.
Anne: And we’re seeing the same thing in the Boston area because even though I work in New Hampshire also it’s the suburb of Boston. And all of the REOs that are on the market have multiple offers. If you don’t get your offer in within the first day or so you don’t have a chance. They’re much preferring cash offers and banks nowadays do not look at hard money the same as cash.
So, some of the investors that don’t have big fat bank accounts, are having trouble getting their offers accepted. It’s kind of pretty much everywhere. And it worries us a little bit too, it’s sort of another little mini-bubble.
Josh: Yeah definitely frothy. Really quick I know Brandon so we talked about those exit strategies for those people who’re listening, if you haven’t checked it out we’ve got the BiggerPockets Ultimate Beginners’ Guide and we’ve got a chapter in there on exit strategies, if you go to biggerpockets.com/UBG that’ll take you to the guide.
You definitely want to check that out; lots of good information and since I’m plugging by the way. This is show 009 so you can go to the show notes at biggerpockets.com/show009, back to hard money; let’s talk about rates and fees and what are the typical rates and fees that are associated with hard money loans?
Anne: Well I don’t think there is such a thing as typical rates and fees because it varies so much from geography to geography. California I understand is very competitive and they’re seeing hard money rates down as low as I guess 9% sometimes 8.5%, very few points. And we have a different situation here in the North East.
Rates in North East are in the 12-13% range as a rule, occasionally 14 for some of the tougher areas and points range anywhere from two to four as rural, it is a little bit deal dependent and deal dependent means the geography of the property and the experience level of the borrower and the amount of skin in the game. So rates and points vary by geography and by particular deal.
Brandon: Okay you mentioned skin in the game and I want to get back to that in just a second but before I do, people listening to this podcast, some of them probably don’t know much about hard money or maybe never even heard the concept before. They’re probably picking their jaw off the floor right now wonder like how could a mortgage be so expensive?
I mean 14% that’s ridiculous I mean I’ve told people that I pay that for hard money and they think that I’m being taken advantage of by some cruel loan shack with a baseball bat.
Josh: Well it’s Ann right there, she’s got a bat I’m watching her right now swinging it.
Anne: That’s right I have it in the corner of my office and I polish it up [Inaudible] [16:07]. No, the image of hard money being that way persists today but really it is just tool. The why is it so expensive; well first if all think about it; you’ve got a real estate investor that is like Brandon and has no idea what he was doing on his first deal.
And I know you just talked about. So Brandon you gave me a perfect example there of why these rates and fees can be so expensive because you have a mix of a distressed property that nobody wants and an inexperienced borrower that doesn’t know what to do if things don’t go exactly as planned. And third, the chances are that that borrower has no cash reserves to recover with and to bail himself out of a tight spot.
So the other thing is that, the other reason sometimes that people will use hard money and therefore are willing to pay more, is speed to close. I have closed deals in as a little as I want to say five days and that included a weekend. So it’s very difficult to close in less than that but speed to close is also important so you’re getting experience from the hard money lender.
You’re getting a high degree of risk from the lender and you’re getting service that you don’t get from a conventional but if you can get- sorry- if you can get the lower rates you should definitely use them. I always tell people if you can get conventional financing and you have the time to do it, do it.
Josh: Sorry to cut you off there, my apologies. Hey I just got so excited. Will you vary your rates then so you get a guy like Brandon who’s fresh off the boat, he’s got his pled shirt on he walks in and he’s like, “Hey I want to do my first flip, cool.” And versus the guy that’s done five loans with you and who’s closes are pretty quick. Are you going to offer different rates to these two guys? Or are rates fairly consistent again dependent upon property types?
Anne: Well no. what you’re talking about varying the rates according to the borrower that’s absolutely true. Not only according to the geography. So here we have a case of poor Brandon that we’re making an example of- Brandon who used all of the hard moneylenders’ money and virtually none of his own and had no idea how to get out of the deal.
And by the way Brandon everybody starts off that way on their first deal and I was that way when I did my first hard money deal too but I don’t really tell anybody. So don’t tell anybody okay? Yeah make sure to take this part out of the broadcast.
Josh: The thousands of listeners will just ignore what Ann just said.
Anne: Will just ignore that part that I was in trouble on one of my first. So but yes, so I do indulge in a little bit of relationship lending so the borrowers that have come to me that have shown that they know what they’re doing, their rates get progressively better the more they show me, the more they are willing to put their money where their mouth is and the more I know they will deliver and they have the cash reserves to get themselves out of a jam if it happens. So yes that’s absolutely true and that speaks to the point and you haven’t asked me yet but I want to bring this up. It relates to, do hard moneylenders try to just get whatever they can get? Like if a guy doesn’t know any better, will they charge them higher rates? And I can’t speak to other people although I’m sure it happens. We don’t do that and we try to be transparent and say, “Guy you’re brandy new and you have hardly any cash in this deal and your rates are going to be higher. Just letting you know that if you’re borrowing in a really shishy town versus doing a project in the worst suburb of Boston it makes a big difference.
Brandon: Yeah that makes perfect sense. And just real quick so everyone knows the outcome of that flip I did, what I ended up doing was added a partner onto the deal and then we refinanced it. Because I had no job at the time so bank wouldn’t give me a loan so I found a partner and just added them on the title, seasoned it for six months which means you just wait.
And then went to the bank and got a refinance for the full amount. So now it’s a cash flowing property like $300 a month which is great but it was definitely an experience.
Josh: Good save Brandon.
Brandon: Thank you yeah. Well I don’t want to leave people hanging.
Anne: And you don’t want them thing that you lost out and were getting out of that deal either.
Brandon: Yeah I learned creativity very quickly. So let’s go back to what; well you mentioned way earlier the phrase skin in the game; what does that mean?
Anne: It means having something to lose. So whether it’s cash of your own or whether it’s a cross collateralized property meaning let’s say you have an apartment building that maybe has no mortgage or has a low mortgage. If you put that up as additional security instead of cash you still have put your money where your mouth is so to speak. So it means not having the lender take all the risk but you’ve actually put something in the deal and your money gets lost first if the deal goes south.
Josh: Okay that protects you obviously.
Anne: It protects the lender but it also protects the borrower to the extent that they make decisions differently if they have something to lose. If someone has nothing at risk, they will make decisions much differently than if they have money to lose.
Josh: Oh yeah you’re going to be much looser if you’re playing with other people’s money. That is for sure. Alright so somebody comes up to you and says, “Hey I’m looking for a loan.” We’ll talk about the process in a second but how do you deal with somebody who is shocked at the high rates? I mean is there kind of anything comparable in other industries where rates are similar? I guess pawnshop but I really don’t want to relate hard moneylenders to pawn brokers or anything like because …
Anne: Yeah I’m thinking of those TV shows with the guy with the slicked back hair and…
Josh: I mean those guys are certainly a lot scummier. I’m not saying hard moneylenders are scummy I’m just saying those guys are way scummier.
Anne: Even scummier than scummy hard moneylenders huh?
Josh: Oh stop.
Anne: Oh yeah I’m kind of used to it. I actually was a trade show once and I told somebody what I did and he started a tirade of how I should be ashamed of myself. And I was so in shock I had no answer for him it didn’t dawn on me till afterwards that he really had no idea that I was only doing business loans. He thought I probably taking properties away from home owners and stuff like that.
Brandon: And I think people get that impression a lot that you’re just a mean bank that’s taking advantage of people that can’t get a loan.
Anne: Yeah and comparing ourselves to the banks doesn’t work so well lately because the banks are sort of not doing any better in the reputation field either. I sort of explained to them there’s not a real explanation I think people have to sort of come to an understanding by going through the process. They need to try to go and get different types of financing for what they’re trying to do.
Have people explain to them, that because the property has no roof and a failed septic system that there’s not a bank on the planet that’s going to lend to them and therefore that sort of property costs more to borrow money on. So I think people that are shocked at the rates sort of have to work through the process and then come to the realization that hard money is not someone trying to take their property away from them.
It is simply a business tool to be used under the right circumstances when the deal can support it. And if the hard money makes the deal unprofitable, you shouldn’t be doing the deal. If the deal is that thin. So and we turn down a lot of deals that we think are too thin and that the borrowers aren’t going to make money.
Brandon: Well I think you said something really key there is that it has to make sense in the deal. That yeah you just factor that in as part of your costs when you’re doing the job and if it’s going to cost you an extra $5000 to use a hard money lender, then you better have that $5000 spread in the deal to make that work and then it’s okay.
Brandon: Yeah that makes sense. Okay so let’s talk about I need to find a hard money lender, I found a really good deal; where do I go? I mean do I look up in the phone books or what?
Anne: Well I think a lot of people go to the internet and they Google hard money and they see a quadrillion listings and they end up at one of the either national companies or the websites that have sprung up lately about they sound like they’re hard moneylenders but they’re in fact just an aggregate site or something like that.
The best way to find hard money in your local area is locally. And so what I feel that you should use directories, BiggerPockets is good example where you break it down by location. And then talk to people in your local area about those hard moneylenders. So go to the rears, ask for references of lenders that maybe other investors have used.
Talk to other investors maybe, think courthouse steps where a lot of guys are bidding on properties. But I think it’s important to use for the most part lenders that are mostly sited to your projects because they’re going to be an additional resource for you number one, because they know the market a little bit. And number two, they’re not having to hire appraisers from out of the area, they’re not having to raise their rates compensate for lack of market knowledge. And they can sometimes stop you from making a mistake if they know something that you don’t. So asking around at rears is probably the first place I would start.
Brandon: I know also one of the way I found them in the past is by talking to real estate agents because the ones that work with investors anyway they tend to know some of the best hard moneylenders around too because they’re working with them on a day to day basis. And then…
Anne: Plus they, sorry I didn’t mean to cut you off.
Brandon: No go ahead.
Anne: Well the real estate agents that work with investors know a lot of those, resident people, not so much. Also mortgage brokers will usually find you a hard money lender and also real estate attorneys know a lot of them too.
Brandon: Okay well since you brought it up anyway I’m going to take a second here to plug. We just totally revamped actually the BiggerPockets Hard Money Directory.
Anne: Yeah it looks great too.
Brandon: Yeah awesome it was a lot of hard work. I know Josh and I spent a lot of time more Josh than me but the thing is looking amazing, there’s close to 200 lenders on there I think now, we’ll surpass that here in the coming days and yeah all broken down by state. So if anybody wants to check that out it’s just at biggerpockets.com/hardmoneylenders and yeah check it out.
Josh: Also another little show plug here there’ll be a link for that in the show notes at biggerpockets.com/show009. And since I’m talking once again, I’ve been sitting here dwelling and thinking I got this question I really want to ask you Ann so lots of amazing information here about hard money, hard money loans.
But let’s take this from the perspective of somebody who is kind of new at this and say, “Alright cool, I’m going to flip a house,” I go find a great property that’s I can get at a discount and then I can fix it up, rehab it and sell it for a profit. What do I do; forget the process of the flip itself but I want to come to you and I want to get your money.
I want to use your money to do this so what do you expect from me; what do I need to bring to you; is there some kind of package that I should bring? How should I organize the information that I’ve got; what do I need to present?
Anne: Okay well if you’re coming to me personally, I do have an application on my website that I ask that you fill out. It’s basically a spreadsheet and it aggregates all the information into one place. And that includes all of your contact information. So if you’re going to someone else; I’m going to talk to everybody that isn’t going to me maybe.
If you’re going to somebody else, you want to provide that lender with all of your contact information; how to reach you, where you live, the name of your company, your email, your cell phone et cetera. If you have an attorney you should provide that information also that’s important. Then you want to provide all the property information.
So any deed references, any tax map references, provide maybe the tax card from the website, the deed if you get a pdf of it or something like that. But the most important thing is comps to support the after pay value of your project. And the rehab budget of what you’re going to do to the project, it does not have to be down to the bucket of joint compounds.
You don’t have to have to have it that detailed. But you should have an idea if you’re going to put in a new kitchen how much that kitchen is going to cost you. And you should be able to document those expenses such as kitchen, roof, landscaping, a budget by line item sort of like that. And be able to put that in a coherent person that makes sense to a lender.
And a summary, what’s called an Executive Summary in the world of commercial lending that outlines what you’re going to do to the property and how you’re going to sell it. So first of all you’re acquiring it via short sale, via REO, via probate sale whatever way you’re acquiring the property. What you’re going to do to it and how you plan to either sell the property or refinance out of the hard money.
And you summarize not only what you’re going to do to the property as far as change just like adding a master bedroom or something like that, but you should also talk about your marketing for how you’re going to sell it and the process if you’re going to refinance. Say you’ve already gotten a pre-approval for a finance.
So basically the rehab budget, the property information, the executive summary, the purchase agreement, in whatever format it takes in your particular state. And frequently photographs of the property inside and out, so the lender can get an idea of what sort of condition it’s in before he or she goes out to the property.
Josh: That’s it huh?
Anne: Did I talk too long?
Anne: It’s all important stuff really.
Brandon: I had a lender one time, a hard money lender once because when I apply for a hard money loan I do pretty much what you just said and I try to make it really professional. I make it look good, I give them the spreadsheet, the pictures, everything. And I put it in this nice little packet I even picked up a plastic cover from Staples.
I mean it looked real good and the guy told me, he said, “Brandon if more people gave me presentations like this people would get a whole lot more loans funded.” He said the majority people just call him up and say, “Hey I need money,” and that’s it.
Anne: That’s right, that’s exactly right. So if you want to be taken professionally as if you know what you’re doing, then present yourself as if you know what you’re doing even if you don’t. Now I don’t mean lie, I don’t mean say, “Oh I work with a network of investors and…”
Josh: The best lie in the game right.
Anne: You’ve heard one right. And many times actually when I start laughing when people call me that way and I say, “Dude, you’re brand new it’s okay. Just say so.” And usually they’re like a little embarrassed and then they laugh and then we just have a real conversation. But the more information, the more well thought through you can show that the project is and that you’ve put a lot of time and energy into thinking this through and making sure that you have multiple strategies and that you know what your plan is, the more you’re going to impress someone.
I’ve done projects with people that haven’t done any projects before, just because they knew how to analyze the deal and show me what their thought process was. So it’s important.
Josh: Now that’s great. So I come to you, I bring this package, everything is Kosher. How long does it take to actually close a hard money loan?
Anne: From the time I get all the information, we’re usually out to the property within a couple of days and we are then closing from the time I issue a loan commitment it’s usually a couple of weeks to close. So I want to say that the whole process on average takes about three weeks. It can take less if need be and it can take longer if various factors come into play.
Such as the borrower not being timely with getting me what I asked for. Or there being title issues that hold up the closing. Or the closing attorney in Massachusetts we have to use attorneys, the closing date is December 31st and 463 other people want to close on the same day and somehow the attorney can’t quite schedule it that day.
So those sorts of things can hold it up but in general we’re out there pretty quickly and as a rule, by the time we go to a property, we’re 95% likely to do the deal. We don’t usually drive to the property unless we have a pretty good idea that we’re going to do the deal.
Josh: Oh that’s great. Now is there anything other than I guess just really being organized; anything in the hands of the borrower that they can do to speed the process up or is it just kind of have your ‘t’s slashed and your ‘I’s dotted?
Anne: Well one thing that amazes me and everybody isn’t as technical as everybody else I mean everybody has their own things that they do and some people are more technical than others. But in this day and age you need to be able to communicate electronically. So when someone says to me, “Let me mail you this package.” I’m like…
Brandon: What’s that?
Anne: Mail; you mean like snail mail?
Josh: On a donkey what?
Anne: Yeah I had somebody called me the other day and say, “I’d like to send you a brochure about who we are because we’re just getting ready to start doing deals.” And I’m like, “You want to send me a piece of paper to tell me that you haven’t done any deals yet?” and I didn’t really say it like that but that’s what I was thinking.
And I said, “Listen if you really want to send me information that’s going to have me keep you in my database, and remember who you are why don’t you fill out the ‘this is who I am’ part of my application and I’ll save that in my database. And then when you’re ready to go on your first deal then I have all of that?”
Oh, okay.” So unfortunately in this day and age you sort of need to have some ability or have someone do it for you- of using Word and Excel and pdfs and send photographs electronically that sort of stuff. I think it’s kind of important so if it’s not something you do yourself, have someone that can do it for you.
Brandon: Okay yeah that’s great. So let me go back a little bit actually there’s a BiggerPockets friend of mine, a local guy who I met on BiggerPockets who called me the other day and asked me this question. And I honestly didn’t know the best answer for him but you’re the perfect person to ask. So he asked me, “Should I find the hard money lender first or should I find the deal first and then present it to a hard money lender?”
Anne: Yes. You should be scouting around for hard moneylenders, you should be talking to people, you should be getting references. You should be having conversations if the lenders will talk to you, a lot of lenders won’t talk to people that don’t have a deal. I spend a lot of time at local networking meetings talking to people that don’t have deals and making myself accessible so that they can have time to talk to me even when they don’t have deals.
At the same time, a hard money lender is not going to commit to something that doesn’t exist yet because it’s deal based it’s not person based. So you need to have your property lined up and at least getting ready to come to an agreement as terms. At the same time that you’re deciding who you’re going to submit an application to in terms of who your hard money lender is going to be.
And that doesn’t have to only be one person because you may not be sure that your lender of choice is going to do the deal you want. So it’s not uncommon to be shopping around.
Josh: That was actually my hard money lender calling me. So when you do approach a hard money lender I guess other than the package, what other tips would you have to ensure that the deal gets funded?
Anne: Well one thing that I would like to point out, people try to hide material information because they think the lender is going to look at it and say, “Oh I’m not going to do this deal.” Most of the time the lender is going to find out that information so it looks even worse if you’ve sort of not revealed something that was pertinent to the deal.
For example, the fact that it’s a short sale. When you get to go to close, your closing attorney or title company can’t help but know that this was a short sale and if you’re trying to violate the terms of the shorting lender’s approval that’s going to be obvious. So don’t do that sort of thing; reveal everything upfront so that everybody is on the same page, everybody knows what direction you’re going.
And the hard money lender can say, “Yes I’m willing to do that or no I’m not willing to do it.” and the other thing is make sure that you ask a lot of questions of the lender so that you know what’s going to happen through the process. Ask about upfront fees, ask about backend fees, ask about attorney costs.
Ask about timeframes, ask about what you can expect and what’s expected of the borrower both at the same time. So that will help everything go more smoothly because unmet expectations are one of the most difficult things that we all run across in the course of business.
Josh: Cool, well you got me thinking about something, you just mentioned now and you actually mentioned earlier people kind of fuzzing the truth a little bit. “Hey I’ve got a conglomerate of associates and I work with all these people and the bull [Inaudible] [39:41] meter quickly rings when you hear that stuff. And the same thing happens when we hear it on BiggerPockets.
So it just kind of reminds me to share one bit or really important advice which is do not lie. Your reputation is everything, if you start your reputation off with a lie it’s going to continue going that way so I always tell folks, just be truthful, be honest about where you are in the process. People will be helpful and just don’t fuzz the truth I mean it’s so important that you not do that.
Anne: Well and it’ll usually come around to bite you anyway because the real estate investor world especially within your geography is very small. And invariably someone else will be talking about you and tell the real truth and they say, “Oh really,” and there you go. So your lies it’s going to come out eventually.
Anne: Take the highroad.
Josh: Yeah for sure. Hey what about upfront fees; you had mentioned that, I know we tend to hear people say, “If a lender is charging you some kind of upfront fees, stay away.” Is that true; is there any case in which upfront fees were okay or no?
Anne: Well I can’t say arbitrarily that upfront fees are always that because there are times when the lender is doing significant due diligence or perhaps putting up all the money and the borrower is putting up none, when an upfront fee might be appropriate. I myself we have two basic fees; one is if we had to get an appraisal which we almost never do.
We almost always do our own opinion value. And the second is that in order to start the process of pulling title and proceeding to close, the closing attorney needs a deposit. Because there are many times that the deal doesn’t happen for one reason or another bad title whatever. And the attorney is then out the money. I say attorney but in most places it’s title company but it comes to the same thing. So the title company or the attorney is then out the money that they spent to start on the title search and getting ready to close. So we do require a deposit with the closing attorney so that they know that you’re serious.
Josh: Okay and I think those are all kosher fees, I think those are all legitimate. I think we’re talking about fees that are just kind of bonus kind of add-on fees where you’ll see lenders say, “Well in order for us to fund a loan for you, you’re going to need to put a couple of thousand bucks down just to start working with us and it’s not…
Anne: Yeah it’s the application fee or the ‘I’m charging you this because I can’ fee or the ‘we always require this due diligence’ fee or whatever.
Josh: Those are junk fees right I mean that’s just…
Anne: They’re junk fees, I suppose there are times when they might be warranted. Certainly in larger commercial deals that’s a possibility but I would in general stay away from a company that’s going to charge you upfront fees unless you have friends and business associates that have successfully used that company at the same fee and successfully closed a deal.
So it’s one on one personal reference that would maybe be an exception. But I don’t charge them, we don’t do big commercial deals so.
Brandon: Okay yeah that’s awesome. Before we go on, I do want to shift gears a little bit but one quick thing is earlier you said about lying you don’t want to say something that’s not true. I just want to bring up the fact that your hard money lender knows more than you do probably if you’re a new investor. Like so I think it’s important to trust the hard money lender who’s you guys have done hundreds of deals you know that this is not a good deal.
So if you’re trying to hide something from the lender because they won’t fund the deal then you should probably not do the deal because it’s not worth funding. But let’s go on real quick to before we wrap up, people who want to become lenders. People who have a little extra money; how do you get into that, how do you start lending? Are there laws you have to abide by and how does that work?
Anne: Okay the laws are an important part of it and I do want to say that I made a lot of mistakes when I first did my first few deals. And sometimes I just got lucky as many real estate investors do. They jump in, they do a deal, they make some money they get lucky and find out afterwards all the things that could have bit them right in the butt and they didn’t even realize it.
The first thing is if you’re going to do some private lending and I’m calling it private lending as opposed to institutional whether it’s low rates because it’s to your cousin and your nephew or whether you decide that you want to lend with a hard money company. You need to talk to a good real estate attorney who is knowledgeable in the private lending space.
And I don’t mean just a real estate attorney that does closings I mean someone that specifically does private lending closings and works with a lot of private lenders because the laws relating to private lending have changed significantly in the last few years. There are mine fields out there and you need to know what to do and what not to do.
And stay away so that you don’t end up on the front page of your local newspaper as the attorney general’s proof that they’re doing their job. So you want to stay away and I’m not saying talk to your attorney so that you can side step those issues and find a way to do them legally I’m saying stay away from those issues. Sometimes you just don’t even know what those issues are when you first start out private lending. The second thing is that you need to, I recommend that if someone is going to start as a rule the first loans that they should do should probably be to someone that they know, whether it’s a real estate investor that they know in their network or maybe a family member or that sort of thing.
But if you’re part of a real estate network and you know other real estate investors and you want to lend, it should be somebody that you maybe think is already successful and you know that they have successfully completed a deal. So at least if you know the person and the deal goes south, you’ve got some common ground there to work it out and make sure that it comes together for both of you and that you don’t both get hurt.
Lending to people that you have no background on, no knowledge of, I’m all about relationship lending. I lend to people all the time that we don’t know but we form a large network and get to know people and check people out through that network. So I think that’s the safest way to start, it doesn’t mean that you don’t progress to doing loans with people that you don’t know but certainly to start with it’s a good place to start.
And work with someone either a broker or hard money company that can bring you deals that they’re going to work in your behalf and not present the deal as a typical mortgage broker might that well excuse me for saying this. But in the olden day a mortgage broker would present a deal in the best possible light to make the borrower look as clean as possible even if he knew they weren’t. And that’s not who you want to work with.
Josh: Oh that’s great, really quickly, personally I always try and keep family and business apart. I think it works in some cases and other cases it can be very scary and dangerous. So I’d just tell anybody listening to know what you’re getting into when you start doing business with family. You need to be very careful about that.
Anne: And you’re absolutely right Josh on that but it doesn’t necessarily have to be family, it can just be someone you know through your real estate network.
Josh: Absolutely. Alright so we are running out of time so one really quick thing, I know one of the ways that you’ve used to find potential borrowers is a group that you created. And maybe we can talk really briefly about this group. I know you and I had some conversations about real estate clubs and we had talked.
And we’re kind of on the level with there are a fair amount of real estate clubs out there that serve little purpose to investors other than to be a platform by which they can be sold something. And I know you wanted to go out and create some kind of group, not just for your own personal use but because you felt that there was a need to have a really good valuable club in your area, group in your area.
Can you tell us in 30 seconds or less- no, not really- you can really quickly though tell us about this group, how it got started, what do you do that’s different and what value do you get in addition to obviously the regular networking from this group?
Anne: Okay well what I did was I partnered with a couple three actually rehabbers in my area that are very experienced, very knowledgeable and had a high level of integrity. And we formed this group and it is based largely on the BiggerPockets model actually because we do not allow advertising, we do not have selling speakers. We don’t have membership fees, we’re talking about sponsorships but we don’t have them yet.
And basically we are a free networking group simply for the purpose of having us all do more deals. And one of the things that I found when I was involved with some other local real estate investor groups whether it was a nonprofit or another one that I founded, is the person standing in front of the room that is the leader of the group becomes the go to person for many different types of deals.
And that can be very profitable. So I liked that. So that’s part of why we founded this group, it’s for us to do more deals but we found that dealing from a mentality of abundance instead of trying to keep everything to ourselves just exponentially increases the network and we’ve had huge response and huge attendance to this perspective. And everybody in our area is very excited about The Black Diamond.
Josh: Nice, what’s the name of the group again?
Anne: It’s Black Diamond Real Estate Investor, we have a monthly meeting in Waltham Massachusetts and we’re just launching next week our second location in Western Massachusetts.
Josh: Nice, nice.
Brandon: That’s cool.
Josh: Alright we’ve got to run through this really quickly because we’re pretty much out of time here. So Ann what is your favorite real estate book?
Anne: That one is not on hard money lending it is on multi-families because that’s for cash flow and it is called Real Estate Investments and How to Make Them by Mill Tanzer. I love that book.
Josh: Excellent I have not heard of that.
Anne: I’ve read it three times it’s awesome.
Brandon: Cool yeah I never heard of it either.
Josh: That’s great. What about business book; what’s your favorite business book?
Anne: That would be The 4-Hour Workweek, what’s the guy’s name Tim Ferriss?
Brandon: Yeah Tim Ferriss.
Josh: Not another one
Anne: Yeah well I was enthralled I do everything he tells me as a matter of fact I probably only do 10% of what he tells me but it was still a great read.
Brandon: It is a great read.
Josh: How about hobbies Ann I know you’re the funny on the site. You always crack me up so do you do stand up on the side; what do you do for fun?
Anne: I don’t, I use humor to sort of break through the hard money ice I think and when I’m standing in front of a group laughing at myself makes me feel that other people aren’t going to do it. so that’s why I use humor. But as far as my hobbies, I’m big into dog rescue and I am into gardening and skiing. So those are my off duty.
Josh: They would call that ice skating back East.
Anne: Well yeah that’s kind of what we do here yeah. We do it vertically.
Brandon: Well the final question Ann I want to ask is I’m going to tweak a little bit. I ask everyone this but so in real estate investing there’s a lot of people who come and go and a lot of people who find success. So I’m wondering from a lender’s perspective, the borrowers that you’ve seen, what are the ones that set them apart as being successful?
What makes the borrowers actually make good money on their flips or their investments and what sets the ones that you see just come and go quickly? So what do see that sets them apart?
Anne: Persistence and the ability to learn and take in information and adapt. So that sounds kind of contradictory persistence and adapting. But you have to keep trying and keep trying. I’m not even particularly good at keeping trying. I’m one of those people that after two or three touches I have a tendency to give up until I remember somebody saying, “No until you’ve touched somebody seven times you’re not going to get a response."
So yeah persistence, keep trying and keep trying different ways. If you can’t do it one way try it another.
Josh: That’s great; really quickly what is the name of your company and where do you lend?
Josh: And we’ll link to that on the show notes and you can also find it on the BiggerPockets Hard Money Lenders Directory. Otherwise you are certainly on BiggerPockets so we’ll point folks to your profile there. Are you on Twitter, G-plus, Facebook do you connect with people over there or no?
Anne: I’m on all three and I’m not very good at any of them actually BiggerPockets is the one I do the most because it’s the most fun, yeah.
Josh: And you give amazing, Ann is on the forums helping people every day with their questions about hard money stuff so if you ever have questions and you post them on the site, the odds are that she’s going to help you out.
Anne: Especially if you put the keyword in Massachusetts even if it’s not about Massachusetts I’ll be there.
Josh: Nice. Alright Ann well listen it’s been an absolute pleasure having you, seriously fantastic information thank you so much for being on the show.
Anne: It’s been a blast guys thanks for having me.
Brandon: Yeah thanks Ann.
Josh: Alright everybody that was our show with hard moneylender Ann Bellamy. I know I definitely enjoyed the show. Tonnes of great actionable content, I’m sure you guys also got a lot of great info from it. before we go I just want to remind you guys that you could read the show notes which include links to a lot of the cool stuff that we talked about today at biggerpockets.com/show009
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