All Forum Posts by: Mike Klarman

I would try and leverage the 10k into more money first.  Immediate thoughts are use it to build credit.  Either card stacking, or rolling over balances.  I'd invest the 10k into the possibility of unlocking 100k for myself which is what I know I would need.  You're not gonna do anything with 10k other than lose it as a deposit or get yourself so far over your head that you get foreclosed on and lose your borrowing power.

You're way better off looking into card stacking and business credit cards and rinse and repeating the 10k through some cards which will allow you to apply for more cards, with higher balances, and 12 month interest free promotions.

The BRRRR is no guarantee. If you sell 20% less than you think, and the project cost 20% more than you thought then you may be under water. People find themselves having to either lose all their invested capital or in a true nightmare scenario bring money to closing on a Sale!

The seasoned investors who are very successful at the BRRRR can keep their project costs low by buying in cash and then executing the financing after the fact. And their cash buys are at least 20%+ off of market price so they get to start under market and then these investors are usually heavily connected in the market for subcontractors and they can get a job done without a GC and hiring subs themselves. So a rehab that costs a new investor 80k, the seasoned guy gets done for 60k - 70k.

One project cost is 75% ARV and one is 55% ARV. One has a huge saftey net and one a narrow doorway to fall into.

The relationship to the money. If the money is coming from your private life, it is private money. If the money is coming from a Stranger lending his own money through some lending LLC that has Private Money in the title is no different than Hard Money. This stranger lending the money will want 3 points and the rate will be 12%. Why isn't that Hard Money? I always wondered why people thought Private Money/Hard Money was determined by marketing, I guess? To me, Private Money comes from your private life and it usually has comfortable terms because the lender has a personal relationship with you or with someone you know.

I guess it's how you look at it:

If the Marketing determines it for you, then they get to say what they are... 

If the rates/terms determine it for you, you will see they are virtually twins...

Remember too, Hard Money is backed from an asset.  You can ask a rich uncle for 100k so you can maneuver in the markets using financing.  That's backed by nothing but a relationship.  

Someone who has great property sources, good financing, the ability to get rehabs done, a few great sales agents is almost there.  All they need from there is capital.  And that's the kind of scenario you want to get into and in that scenario the only way to get a hold of 100k/200k is through your private life because the loan will be backed by nothing other than faith and trust in you.

Is it out there for a brand new investor? If it is, I'd love to see the loan cap, interest rate, and origination.

So, at big box lenders I know of two that have the 100% program with the loan cap at 70% ARV. To get in that program you need 30 exits in last three years. The door gets shut in your face there.

Would a private lender do 100% financing for a new investor? All I can tell you is, if you find 100% financing from Private Money for new investors, forget about taking out a loan, tell the PML that you'll be a broker and sell his money cause that would sell like hot cakes. I know there is a lot of discussion about Private Money on here and I have dealt with quite a few in my time, they are no cheaper/better than HML. Door closed here.

Local HML - these are your best shot at the high leverage loans. They know the market, the assets, the agents. I hear they will sometimes go to 100% financing but with fine print and conditions and you need to qualify and the project needs to have a good deal spread.

I agree jay.  I always get back to people and in a timely manner and that's just for random calls, for clients I always answer/text/email within minutes of their contact.

Something that has also increased by volume is to help bridge the gap between good deal and investor.  Most investors need some getting in front of a good deal.  Need help choosing a market and setting up a network.

Most think that this can be done through mass marketing, cold calling, and then sitting back and waiting.  It's a much tougher grind than that.  

You're looking for your 5+/10+ per year guys but they are few and far between and most times you need to steal them from their current money source by doing something outside the box, lowering your price, or coming to the rescue with emergency financing.  

As a broker, you make 1% let's say.  So if a loan is 250k then that's 2500, you need like 4 of those every month at all times all year long.  There's always a min/max to the monthly as a broker.  My worst month last year was about 6k, my best was 27k.  It usually hit at around 12k - 15k.  And to do that, which is not volume by any means to the top brokers of this industry, but to have my brokerage do that volume and I am a one man show, I work 7 days per week and am in a constant A...B...C if anyone knows Glengarry Glennross.

This is a huge misconception. Pure Asset Based lending meaning ignore all other factors, does not exist. The loan cap: 65%ARV - 75%ARV is set by credit, experience, deal spread.

Inside that cap, is where your terms have to fit.  If a lenders max terms are 90%/100% and inside a loan cap of 70% you can afford to get 90%/100% and still be under the loan cap then you will get them if you meet the criteria.

This is the situation that DOES NOT EXIST that most think does:

You get a pure steal under contract.  This thing is worth 250k all day and you bought it for 100k and after it's fixed up for 80k it's worth 450k.  So now you want 70% of the 450k in a loan right?  315k.  That means you get funded 100% on property, get 100% rehab funded, and the lender puts 135k in your pocket.  

However, in this scenario, the loan cap is 315k so of course max terms will apply but now you can't get a pure ARV valuation for the loan amount. What you pay for it is a kew variable in the loan amount.

So, most states do not require a license for HML, it is still a good to have next to your name and then you can also do conventional as well, but for HML you do not have to have an NMLS number.

How do you do it? Well, the actual logistics is to research who the national, big box lenders are. Call them and tell them you are a broker and want to sign up with them. You'll have to lie a little and say you have some volume but are looking for a new out. They'll want all your LLC info for your brokerage and all the info on you and you'll fill out a w9 form and then they will create a user/pass for their portal for your company and now you'll need to learn this portal. It will allow you to price deals, analyze deals, upload deals, get UW feedback on deals, provide conditions lists, etc.

Now, you need to learn the products of this industry and know them better than the investors cause they can't be answering your questions, you need to be answering theres.  I'm lucky, I started at a lender as a cold caller, and then graduated to processor, and then was promoted to loan officer and by the time I got to that position I knew the loan products very well and I also knew how to sell them and who to sell to.  Lots of trial and error and also stealing what has worked for others.

Building up an active client roster is the hardest part.  Everyone dreams of having that pipeline that always has 10 loans in it throughout the year but You need 100+ active clients for that.  Most are a one a done for the year or maybe two, some try to get two done in a year, your 3+ per year guys are your stars, and if you have a 5+ guy you become his best friend and never let him go, and if you should come across the unicorn 10+ per year guy.  You just make sure you pick up his ever call, answer all his emails, there are no business hours for him.  He can call you Sunday 7am and you better answer, cause someone else will. 

Yes, it's out there.  Most do not touch rural for the obvious reasons, the exit is more unpredictable in case you ever needed to sell.

I've done a two or three of these for people. The lender I use for this specializes in rural and especially STR rural.

Depends.  Is this an as-is sale?  If so, what is the closing time?  If they are giving you 4 weeks then it shouldn't matter but if they want to close in 10 days then they are expecting a real cash offer.

try to go to 125k for the misunderstanding and ask for the 4 weeks.

in cali, I'd bet more especially for a first deal.  That market is not your little mid western market where deals are less volatile.  For a first deal, be prepared to lay out 25% and if you get less, it's a win.