The Good Stewards

Long-Term Financing Deep Dive

Episode Summary

Your long term financing plan is the secret to scaling your business more quickly than you would just with private money. The Good Stewards dissect what options are out there, who the best partners are and the way to set your best foot forward when developing a relationship.

Episode Notes

Community and Local Banks:

2:45: primarily your local and regional banks have the lowest interest and the best terms.

4:15: your options are somewhat limited when you're looking for the kind of cash out refinances that we're talking about. A lot of it comes down to whether or not they like you or not.

7:12: Go to REIA’s to ask for bank referrals. You can also use ListSource and DataQuick to find the loans that have been made on properties for non-owner occupied, investor properties.

11:15: When banks review your portfolio, they’re going to look at your appraisals and Debt Service Coverage Ratio (DSCR) of about 1.25-1.5%.

13:26: Be persistent and don’t quit. You’ll likely get told no a lot, but remember that it’s important for the banker to be your advocate when they go to the rest of the decision makers at the bank.

Interacting with the community/local banks:

15:00: Remember that these banks are used to working with ma and pa type investors who are largely unorganized. By being organized and having everything in one place for them, it really sets that professionalism standard.

17:36: Does the bank your speaking with provide loans in the county you’re operating in?

19:27: from the beginning when you're talking to the bank, don't beat around the Bush about the fact also that you might be looking for a cash out refinance

22:19: If you need to challenge an appraisal, don’t be shy about it, but be respectful.

24:32: investors tend to forget how small this community really is so try to operate in a position where you're without blame.

27:13: Ask the bank if there are any seasoning requirements? When are they willing to lend on the appraised value?

28:10: On the topic of the DSCR, this applies to your whole portfolio, not just the property. Ryan has seen a lot of investors try to fudge a deal and if you do that consistently, you may get to the point where your own portfolio is hurting your ability to get loans for yourself.

30:19: maintain a perfect record with the banks you have loans with, it’s a mutually beneficial relationship.

Options outside of Community/Local Banks:

31:45: Each type of bank has different lending criteria. Credit unions usually don’t like the cash out refinance type loan, sometimes Fannie and Freddy will play in this space. Regional and state banks would be the next step up. After those, come the big banks, which do not like this niche loan type product.

32:40: National banks not funded by deposit money would include hedge funds or the Lima One-type banks. These also have their own criteria.

Connect with the Good Stewards:

Episode Transcription

Amanda: From the beginning when you're talking to the bank, don't beat around the Bush about the fact also that you might be looking for a cash out refinance because that can turn banks off too. They want to lend money to you, but they also really want to control your company and they would really like for you to stay exactly who you are the day they sent that loan to you.

[00:00:23] Jandy: Welcome to the good stewards podcast, the only podcast dedicated to seasoned real estate investors who want to maximize the cashflow potential in their business. We are buy and hold investors with a thousand plus properties and markets across the U.S. who bring an insider's view into the nitty gritty details of real estate investing. If you're looking to develop the mindset teams and systems that can dramatically build your real estate business and net worth, you're in the right place.

[00:00:57] Ryan: Welcome to this episode of the good stewards podcast. I'm Ryan Dossey.

[00:01:01] Amanda: I'm Amanda Perkins.

[00:01:02] Bill: I'm Bill Syrios

[00:01:03] Andrew: and I'm Andrew Syrios.

[00:01:05] Bill: Hello, and welcome to the good stewards. Uh, you can find us at thegoodstewards.com. But I'm excited today because we're going to talk about longterm financing, and if I had a hero or a somebody that I've really appreciated. Uh, it's a guy named William Nickerson, and he, uh, said the road to riches is paved on borrowed money. That's really what we're going to talk about today. Borrowed money and particularly longterm financing.

[00:01:36] Now longterm financing can happen right up front when you purchase a property, obviously you can, uh, start with a loan from a lender. Usually you have to put down 20 to 25% down unless, you're buying a residential property. But we're going to talk mostly about buying commercial properties or buying residential properties with commercial loans today. Or you can do what we often do, and that is the BRRRR method and so your longterm financing comes at the end of the road. You probably borrow either seller financing or your own funds, or you use a private lender up front for your first loan, and then that's the buy part. Then you go to RRRR that is rehab, rent, refinance, and that's when you go back to longterm financing and repeat. So that's what we're going to talk primarily about the BRRRR method and establishing longterm and securing longterm financing today.

[00:02:34] Ryan: I loved all your R's. I think I'm gonna make that a ringtone. Sounded like a pirate.

[00:02:39] Bill: ARGGGG. Right, the BRRRR method. So there's some really important things you have to consider when you look at longterm financing, and you're talking with banks again. Uh, banks are partners with us. They're the ones we go to because they have the lowest longterm interest. That's the reason we're going to them. Now, there are other lenders out there and we'll get into that, but primarily your local and regional banks have the lowest interest and the best terms. And the reason simply for that is because they're using money, deposit money and their paying, well, if you've been to the bank recently and you've taken out a CD or uh, you have your money stuck in a, in their interest bearing account, uh, maybe you're getting 1%, I don't know, something like that.

[00:03:27] So they're taking that money and they're uh, loaning it back essentially at 5% interest or somewhere in that neighborhood. And they make their money on the margin. And the reason they can give us a better deal than many other lenders is because they have access to that lower interest money that's sitting in their deposit accounts. And when they talk about a relationship. With you that they'd like to establish and many lenders want to, as they start to loan you money, that relationship involves you putting your accounts with them because again, they're going to be drawing on those accounts with many others to help fund the money that they're going to turn around and lend to borrowers like yourself.

[00:04:11] Ryan: It can be a little bit of fun establishing that relationship. In my experience, sometimes it doesn't really feel like our relationship, it's more like we want to know everything about you, see how much money you have, and give it to us and then we'll determine if we want to work with you. So, um, the local community banks, I mean you do kind of have to realize cause your options are somewhat limited when you're looking for the kind of cash out refinances that we're talking about. Um, you've got to play by their rules. And sometimes their rules are, they woke up on the wrong side of the bed and a compliment you paid them, they took as an insult that you then get to do damage control on. So, you know, just be aware, um, when you're working with these local community banks. A lot of it comes down to whether or not they like you or not. Like a lot of it is, um, you know, do they think you're a good fit? Do they think you have the track record? It's kind of how we buy houses a little bit. Like if I go to a house and I don't like it, they're going to get a much lower offer. Right? If it's kind of sketchy or the lights aren't on, or the HVAC isn't on, my numbers just naturally gonna go down. Even if it's on the subconscious level, they're kind of the same way. You know, if you show up late, they're kind of like, Oh, this guy's not gonna make his payments on time. They may not think that out loud, but that could be going on in the background.

[00:05:30] Bill: Yeah, and there's more than one person that you're really interacting with, even though you don't interact with more than usually one person you're interacting with, essentially the loan officer, and that person is usually on their side because they get paid on a percentage of the loans that they bring in, but then there's the underwriter. And that person you usually never see or talk to. And there's a reason for that because he or she is the bad guy. They're looking for every reason to turn this loan down. The, uh, your loan officer, however, is your advocate and, uh, the one who's promoting you and this loan. But then finally there's the referee, and that's the committee. The loan committee and that committee is the final arbiter that takes all the information given to them by the loan officer, takes the grief given to them by the underwriter and puts it all together and say, yeah, I think this will work. Or, no, this isn't gonna work for us for one reason. Or this is what we'll have to have in terms of, uh, uh, some more documentation.

[00:06:31] Um, one way you can find out. You know where to go to just to start out with is, is ask fellow investors. Other people who are getting longterm financing on there. Rental properties, uh, REIA meetings or a variety of places you can just find who the banks that you're going to and, uh, nobody minds giving up that kind of information, uh, about, uh, the, the banks that are easiest to work with, with uh, investors. You know, Andrew, I know you've had another method that you've used to find a cause you've found over a dozen lenders in the Kansas city area. Tell us about some of the methodology you've used.

[00:07:12] Andrew: Well, I think the primary way I've gone about it is simply asking for referrals or just meeting people at like a REIA meetings or CCIM. I mean, some banks go to REIA meetings or CCIM meetings. Um, there is one method I've used before that I think is somewhat creative and that is, um. Basically when you're looking for properties, a lot of times you'll use like DataQuick or ListSource to search certain types of  like generally like property, you know, another podcast. But properties with a lot of equity that you know are owned by out of state, absentee owners or whatnot. Find people to mail to potentially buy from you and use the same sort of method to find banks that like to lend to investors. So we pick. So what I do is I look at an area that we invest a lot in at a price point we invest a lot in. So, for example, Grandview, Missouri is an area we invest quite a bit in as a suburb of Kansas city, and we pick properties with a, with a loan value of, you know, basically. 50,000 to a hundred or there about and loans made to non owner occupants, so investors, in the last year.

[00:08:16] And then we get a list of all those loans that have been made, uh, to non-owner occupants and last year in that area at that price point. And that any of the banks there, I mean, private lenders is not gonna help or hard money lenders knocking the help. Any, the banks there, I've obviously stated they're willing to lend to investors who buy in these areas at our price point, so right off the bat, and we know that it's not a bank that's immediately going to turn you down because they're not interested in investment loans, they're not interested in that area or whatever. Um, you are, you automatically have, you've sort of vetted them in a certain way. They are interested in that type of loan product, or at least to a degree. And so that's one of the, one of the ways we found a couple of banks that we like to use.

[00:08:57] Ryan: I would also throw on, um, your company filter. Cause if you just do absentee owners, there's a lot of banks that will loan to you as an individual. And those are typically products that are going to be sold on the secondary market, like Fannie, Freddie backed. And those are more conventionally like your 25% type downs. You'll snag some of those. But what we're looking for typically is alone that's issued to the company itself, not to the individual. So by throwing on that filter too, you're going to further kind of whittle it down.

[00:09:29] Bill: Yeah. And just to clarify that when you're first starting out, you really have, uh, an advantage of sorts and the advantages that. Uh, Fannie Mae, I think allows up to four and Freddy Mac 10 non owner occupied loans. So you can get longterm financing at low downs if you've got good credit and you've got a, the finances to back it. And if you don't, there are other alternatives and that is to bring in people who do. Uh, but that allows you the kind of a residential loan on a residential property and they, they are open to do that because they can sell the loan to like an insurance company or another entity on the secondary market. So they get rid of that loan. It gets off their books, but they make money on it. Now the loans that we're talking about is once you max out on that four with Fanny or that. 10 with Freddy, uh, in your name, you have that many loans in your name. You can't borrow those, uh, residential loans on residential properties anymore. You have to go to commercial loans on residential properties, and that's where, uh, a lender will start looking a little bit less like this. Is your, a residence in any way, shape, or form in a little bit more like this is a commercial property. When they look at it as a commercial property, it's all about the numbers. What kind of return are you getting? And I know, Amanda, you've run into a lot of that before because you've done a lot of that heavy lifting for us. You absolutely. Thoughts on it?

[00:10:58] Amanda: Yeah, I mean, basically it boils down to, it's, it's bank specific. But, um, so, so what will happen is you'll get down the line, you'll find this a bank that's going to make the type of loan you want, which would be typically a cash out commercial loan on a residential property. Or maybe you're putting it over eight properties and you've packaged them together. What they're gonna do is they're gonna make sure that you qualify. Globally, meaning your entire portfolio qualifies you as a lender, but then also specifically on the property, maybe your appraisals come in great or where you want them to be. But the next thing you might be up against is what the lenders call, debt service coverage ratio, or DSCR. and what that means is after the rents are collected and you pay, um, repairs and maintenance management fees, expenses on the property, they want you to be at a certain ratio to qualify. To pay the mortgage. And typically it's around 1.25 meaning your rents minus expenses, including taxes and insurance, leaves you 1.25 worth of money left to cover the mortgage.

[00:12:11] So they don't want you to be just covering the mortgage. They want there to be a cushion there. And sometimes that can be flexed up to 1.5. And the other thing that they can do is if you're a lot of these commercial, um. Loans aren't going to be, they're not going to be over a 30 year fixed term. Typically it's like they'll give you a five year fixed term and then after that, you know, as a 10 year loan, your loan can be dependent on what's happening in the market and it's usually tied to a specific rate, but what they'll do too. Qualify that debt service coverage ratio is flex your loan rate up higher than the current loan is, but typically by a lot. So really what they're trying to do is leave themselves the largest margin possible because they want to make sure that you can make your loan payments and, um, sometimes it doesn't work out great. So, you know, you can take your appraisal and go onto the next bank. Maybe they have different. Uh, qualifications. But that's something that we've run into. I mean, we've been reduced down. They've offered us like a 39% loan to value before, so not a great loan. We're not that interested in it. So it's just like, no thanks, we'll go somewhere else and you know, it's just because they've really flexed it higher than it needed to go. So it's just one of those things.

[00:13:26] Ryan: I think the point there is like, you're gonna probably get told no. Don't give up. It just means kind of keep chatting. Um, we had an experience with a lender who was like, Oh my gosh, we'd love to work with you guys. We'll do these all day long. And we actually had two of these, moved our funds over for like a year, had a very, very high balance with them for a long time. Tons of good cash flow. They were our main operating account. And then they're like, well, actually. Um, we don't do those. It was like, I mean, we even met with the president of the bank and we were like, this is the whole reason we've been here for a year. Like what on earth. And then we moved to a different bank that said, yeah, we'll, we'll do these. And then as we kind of got like down the road, it got more and more and more unfavorable where we actually had to close that account and find another bank to move towards. So it's kind of like if you've ever seen the stories of like, Oh, these entrepreneurs pitched their company to 50 VCs before they got a yes. Your banking experience may kind of be like that. You're going to have to go chat with people.

[00:14:25] Amanda: Like an all dressed up with no place to go, sort of situation.

[00:14:28] Andrew: And the loan officers will always, always talk it up better than it actually is, or

[00:14:34] Ryan: Oh yeah, we do these all the time.

[00:14:36] Andrew: Not always. A lot of times they'll shut you down immediately, but uh, you do want them. It is important for them to be your advocate. They're, they're the one that like advocating. To the underwriter, to the committee. So you want to be on good terms with them. You want them like you talking, all that, stuff like that. But at the same time, they're going to give you an overly optimistic appraisal. So don't, don't assume anything is for granted, just because the loan officer says it's going to happen.

[00:14:58] Ryan: One of the things Andrew is really good at is kind of schmoozing the underwriter. Well, I don't talk to the proxy through the loan officer. So how do you do that? Right. It's having all of your ducks, all your documents in a row, putting them all in one place, like the Google drive or Dropbox and flicking them over. I think that was one of the most impressive things I saw with Andrew's operation is like, they're typically dealing with these like mom and pop kind of buster investors, right? That have like nothing together. Like, Oh, I don't know how much money it pulls in. Let me go look at my deposit statement. So when we hit them with very good documents, everything they want in one place. And they'll still come back to you and be like, Hey, where's your operating agreement? That's in the folder I sent to you three months ago. But having all of that in one place, I think really kind of sets that professionalism standard. That translates over nicely, um, to kind of the underwriter, the committee of like, these guys have their ducks in a row, and a lot of the times that's not the case,

[00:15:55] Andrew: by the way. I would just send it to them again, not be like, Oh, go check this. Go look for it.

[00:16:01] Amanda: As much as it is tempting.

[00:16:02] Andrew: I sent it over and be like, um, you know, there's a lot that you can also give them a reminder about the, you know, the, our business documents or in this part of the network or the folder that we sent you, the Dropbox folder or whatever. But, uh. Worry. Yeah. Yeah. Be be as helpful as possible. Um, even if it's choice. So like they're just asking for things that you don't think should matter.

[00:16:21] Ryan: It always is.

[00:16:22] Bill: I think we should realize that what we're asking for is a niche loan product. So that's why you might sometimes feel like a pariah because some banks just aren't interested in this niche loan product. Again, what it is is commercial loans on residential properties. Uh, not, not every bank is going to do that or even interested in that product, but there are some that are. and that's where the search process needs to happen. You will find that partner. It just might take a while, and it might not be in your extended community, it might be in a larger metropolitan area that would, that would include your community where you're investing as a, as part of it's a geographical footprint, and some banks will do it throughout, you know, the corner of the state, and we'll just do it in that County. Some will do it in the entire state, some will do multi-state. It's kind of a process of getting to know the bank and what they're willing to do. And it starts with conversation with that loan officer and being really explicit about the kind of loan product you're looking for. And again, if you've maxed out your residential loan potentials of the four to 10 with Fannie and Freddie. Then you're looking for a commercial loan on a residential property.

[00:17:36] Ryan: To just touch on Bill's point there, a lot of these local community lenders only operate in their County. Um, we ran into that with the first first bank here we mentioned that was like, Oh, we don't do that. Well, they told us they covered all nine counties. We were in. And it was like, well, no, we'll only do stuff in our own backyard. So we ended up finding a different community bank that's like totally out on the fringe from where most of our assets are. And they're like, Oh yeah, no, well, we'll go down there all day long. Right. So I would say when you're having conversations with the loan officer, that is something I'd be extremely explicit of of, have you guys went in this area? Do you operate in this County? For some of you guys, you know, you're in just like a massive County that covers everything. In central Indiana, we operate in like nine counties, so it's something we have to be super clear about.

[00:18:26] Bill: And sometimes I would go beyond the loan officer to tuck. By the way, who's, you know, who's the vice president of this or who? Who is your a supervising person? Just to, just to get that, one time, Ryan and I were actually in a bank in Indianapolis, I remember, and we brought in The guy above the loan officer who is all giddy. The loan officer was a doing business with us. The guy above us, it's the riot act about what they would, and

[00:18:50] Ryan: It was crushing. I mean, it was one of those like, well, we'll give you a 49% loan to value at 37% interest. I mean, it was like. This is not like we just got two very different stories here,

[00:19:04] Bill: but it was really nice to be given the facts, so we weren't, uh, you know, spending

[00:19:08] Ryan: before we built the relationship

[00:19:12] Bill: exactly. Uh, you know, Amanda, I know you've had just so, so much, uh, history with, uh, dealing with banks, said just, you could probably talk for this entire podcast, but please, uh, enter into our dialogue a little bit more. Cause I know you have a lot to say about it.

[00:19:27] Amanda: Well, one thing that I was going to talk about is, ah, one thing, like from the beginning when you're talking to the bank, don't beat around the Bush about the fact also that you might be looking for a cash out refinance situation because that can turn banks off too. Banks they want, they want to lend money to you, but they also really want to control your company. And they would really like for you to stay exactly who you are the day they sent that loan to you. So, and that's because they're really concerned that you're in a take the cash and run. And I don't know exactly what you're gonna do with it, but our, I mean, our whole goal, and we never mince words with our bankers, we just tell them we're trying to get the lowest amount of low interest financing that we can get to grow our operation. So we're going to be leveraging the equity out of our current properties to try to grow our portfolio. And we would like your, you as a partner to do that with. So we're not just trying to refinance exactly the dollars that we currently have on the, on the property or what we're into it, you know, we want. We really want to max out our loan to value of the appraised value. So we're really honest with that so that they're not, there's no questions about it. When you get to the end and they're like, Ooh, you know, we don't, we don't really do cash out. Well, we're going to go somewhere else than, because we, you know, we are really looking for that cash out so that we can go grow our company with their money. I mean, that's, that's the business for us.

[00:20:57] Ryan: A lot of the times they'll, they'll kind of be like, Oh yeah, you know, based off the, a 75% of the cash you have into the deal. And it's like, no, I got a good deal for a reason. You're, you're going to give us 75% of the appraised, we're going to go somewhere else. So that's typically what they'll say is they'll kind of be like, Oh yeah, you know, based off the cash you have in. And it's like, no, it's the appraised value. That's the important thing. Um, and I think kind of the. I know we talked about it and some of the BRRRR episodes, but the key point here is you've got to get a good deal, or there is no cash out to pull. It'll be a cash in for you when you go to try to do a cash out refi or, I mean, you know, Amanda, I know you guys have ran into this of wa as well of you just get crappy appraisals and you know, sometimes you can fight them, sometimes you can challenge them, but sometimes that ends up where you have a particular deal you are expecting to get cash out on and you actually have to put cash in to close. Um, you know, I know we had one that we did really, really well on as a portfolio of about eight properties, but there was a couple that it was actually like, it costs us a grand or two, but then we had a couple of good ones in it. So as a whole at balanced out as a really nice cash out refi. But that's, you know, just something to be aware of.

[00:22:14] Andrew: I would say. You can challenge appraisals. You need to get the lenders approval to go to talk to the appraiser about it. Um, and I certainly recommend doing it. Don't be shy about it. Be nice and respectful, but like, you know, I, I. You know, my opinion, this is, you know, this, these, you know, should get a little bit more attention over these comps. I'm not sure. Don't say like you're wrong on this or something like that. That being said, even if they are becoming, uh, the most I've ever increased, it I think was 10,000, and it's usually zero or five. So you're not usually going to get a ton, but you might get some. Uh, with the exception of one time where we had an appraiser, we had drive by appraisals for some reason. Um, we were like, okay, that's fine. And he just assumed that all the properties had never been worked on at all, even though they were, obviously we'd, we rehabbed all of them.

[00:23:03] And so he basically just appraise them at what we bought them for. And, uh, that one we did get do, we actually said, we don't even want to use this appraiser. This is, uh, this is a joke. We can't trust this guy, so we went and use another appraiser, you actually had to pay. Um. Well, we negotiated down his fee a bit, but I had to pay more than a full appraisal. But yeah, so, well, I guess the thing there is you can challenge appraisals that you can should also, I recommend getting interior appraisals don't sell for exterior ones that usually my experience coming in a bit lower. Um, the appraiser is being more conservative. So we'll get the interior appraisals and you can challenge them if, if the night come in well, but just don't expect it to be a big raise.

[00:23:39] Ryan: I think the good point Andrew has there is be gentle. Them them agreeing to change this number is the equivalent of them admitting professionally that they were wrong, right? So it can be a little bit of a like ego blow, but of just explaining, you know, Hey, like I don't know if we missed this comp or maybe if this foreclosure you had in here was pulling this down, but I'm like, how to win friends and influence people is your friend in this instance.

[00:24:06] Andrew: Refer to it as an Adjustment, not a change. They didn't get it wrong, you're just adjusting based on some other information.

[00:24:12] Ryan: Just a smidge.

[00:24:13] Amanda: And especially in the Eugene market, we have a limited number of appraisers, so we can't be too, even if we're upset about what came in, we can't be too hard on them because in three or four weeks, they could be showing up to another one of our properties and they will hold that against you.

[00:24:32] Ryan: Uh. Well, I think the other thing to note too, like, um, investors tend to forget how small this community really is. Like, don't get me wrong, there's millions of people buying property, but in a market, if you trash and appraiser, he may know the loan officer at the bank you're talking to. Or could, no, the loan officer at the next bank, you go to her could know the next appraiser. You go to these people. I mean it's kinda like real estate investors. We run in circles, same things with insurance brokers, presidents of banks, etcetera. So, um, I think trying to operate in a position where you're without blame or you're being very polite, very respectful, you can be from, or you can say you disagree with something, but always, never do it in a way that you're burning a bridge. Cause like Amanda says. That guy gets called out by your next bank on your next appraisal, and he's going to remember, Oh, I know this guy.

[00:25:22] Bill: Well, last week we, uh, had to have an appraiser go back in because there's a large property you have to understand, but he missed an entire floor, four bedrooms he didn't put on the appraisal. And uh,

[00:25:36] Ryan: but that lowered your appraisal just a smidge.

[00:25:38] Bill: Yeah, we think so. Key are reasons to pull appraisals. We had an another, uh, occasion, just very recently where we were doing, we're redoing entirely four appraisals because we just didn't get anywhere near a, what we felt was legitimate numbers back.

[00:25:56] And then there's the other times when you're dealing, dealing again with what Amanda brought up before the DSCR. I say that right? That service coverage ratio and some banks, that's a really big issue. Um, many banks, it's true. Some banks, it's not quite as big an issue. So let's say you don't have as good a rents, but the property appraises higher than maybe the DSCR would legitimately let you to pull money out of it. There's some banks that have a little bit more lenient, see with that. So you might have to find those in that case. And that might mean re assigning an appraisal to a different lender. One thing we haven't brought up too is this seasoning aspect, uh, that many lenders require, not all, but many in the Midwest in particular, that I've seen require a minimum of six months and often a year. So, in other words, you've owned the property for a minimum of six months to a year before they will, uh, you know, before they'll set up a, uh, a loan. For you and that that's an issue just to be aware of this seasoning issue.

[00:26:58] Amanda: Well, they will likely loan. It just won't be the terms that you want. It would be more based on your purchase plus repairs. And again, we're just, we're honest with them we're looking for 75% at least of that appraised value because that's what we're trying to hit there.

[00:27:13] Andrew: You just need to ask them, you know when, what is your seasoning requirements? When are you willing to lend on appraise value? And we've had banks to it as soon as the property is rented, rehabbed and rented. We've had others that want a two year period of seasoning. And so just make sure you know what that is going in and know, go through the whole process before realizing, Oh wait, you gotta wait another year before they're willing to lend out, um, on your appraised value.

[00:27:35] Amanda: We had a bank, make a dozen loans, and then the next one we gave to them, they said, we have a three year seasoning. And it was like, really since when? Well, it's always been there. Oh, okay. Didn't apply to the 12 loans you just did. But now, you know, and some of that has to do with maybe you reached a limit and you moved into a new criteria. Maybe you borrowed $1 million and now you're looking to borrow the next million, and the criteria can get a little stiffer, or it's under a different set of underwriting requirements. That kinds of thing happens. Um. Banks change their mind.

[00:28:10] Ryan: I would also mention with regards to the DSCR that we've kind of touched on a number of times here. Um, as Amanda mentioned, this applies to your whole portfolio, not just the property, which is one of the reasons why we have rules in purchasing criteria. Um, you know. I've seen a lot of investors try to fudge a deal. Like, man, I've been hearing about this real estate investing thing. It sounds really cool. I get like private messages and emails and stuff from people all the time off social media that are like, Hey, I've got this deal. You know, I'm pretty much buying in at re at a, at retail. Um, but you know, I think it'll cash flow like 100 bucks a month. And the problem is if you start to make those allowances of, let's say you're trying to be all in at 75%. And there's a house you really liked, so you go up to 77 and then you'd do that a couple of times. You may get to the point where your own portfolio is hurting your ability to get loans for yourself. So you want to ensure that you have rules, you stick to them. Um, you know, like with us in Indianapolis, it's 75% all in.

[00:29:14] When we're making offers, it's 75% minus repairs minus what we have to pay our acquisitions team minus what we anticipate in holding costs, right? So these are really good deals that we're getting. That being said, um, that protects me from the bank coming back and being like, Hey, remember all these deals you bought? Cause you just really wanted to get started in real estate that don't really cash flow? Well, that's hurting your entire portfolio now. So I would just say be, be conscientious of that, of if you start to kind of fudge your numbers a little bit, um, or buy a couple of deals, you shouldn't have. It can start to, uh, have consequences.

[00:29:52] Bill: I mean, banks are looking out for their best interest and their best interest is that they get paid back. And that you have the, uh, amount of cash flow coming in from your portfolio as it grows to, uh, cover the basis. And they want to make sure not only is their loans, but all the maintenance and the management and the property taxes and insurance and unintended things that come up are all covered.

[00:30:19] And, uh, then, then they're all good. They're all good. And as you go along, if you have a Sterling silver record with them, they're going to be just like your private lenders and say, well, I think we'd like to do more business with them. I mean, in Kansas city particularly, I've seen a longterm in it and in Eugene to where we've just cultivated longterm relationships with lenders over time that, that really like us and let us come back to the well, repeatedly. And even increase their limits with us on a regular basis.

[00:30:51] Ryan: It's never a bad thing. When your bank calls you and says they want to give you more money,

[00:30:56] Bill: we're glad that you, uh, hung with us today with, uh, again, William Nickerson. Uh, if you want to pick up his book, he is actually a, his first one was how I turned $1,000 into 1 million in real estate in my spare time. And then that was in 1959 in 1969, it was thousand dollars into 3 million. In 1980, it was $1,000 into 5 million. That's when $1 million really meant something. Right. And, uh, he, he is really, uh, the person who turned me on to the power of borrowed money. Again, the road to riches is paved with borrowed money. And the best money we can get because we're very sensitive to lowering our cost of funds, is local and regional bank money. They give us the best, we haven't really talked about other options. There are some out there. As you look at your options in banks to go to, um, there are the local.

[00:31:52] Well, let's start with credit unions. Oftentimes credit unions don't like this kind of product that we're talking about. However, if you have a relationship with them, they might be the place to start.

[00:32:02] Ryan: Unless it's like Fannie, Freddie, they'll kind of play with those I've seen.

[00:32:06] Bill: Right? Right. If they can sell it on the secondary market, then they might do the loan with you. Then you can move to a small banks local, and, uh, you know, almost city banks, they have one, one place. So one outlet back. Then there's the regional banks, then the more state wide banks, and then there's the big boys on the block. The bank of America is the Wells Fargo's the US banks. Those folks are the big commercial banks that are probably not going to loan this niche loan product to you. They have very exacting loan criteria. And the, because they are as big as they are, they find, you know, their, their money, their, their profit in other ways. And it's probably not likely going to be with you. There's finally one other product that some of us have explored pretty closely, and that's national lenders that aren't tied to banks. So they get their money from, uh, not deposit money, but from some other sources, uh, hedge funds and other sources, and those banks are going to, uh, the, the Lima ones and the, I think community of America is another one. Uh, you can certainly explore those options. Usually there's a little higher interest and there's going to be where maybe at your local bank, your regional bank, you're going to pay half a point. They're going to charge you one and a half points and also have some other criteria. But the good side of it of dealing with some of them is they have 30 year amortized loans, whereas local Midwestern banks and regional banks usually, uh, will not extend it beyond a 20 year loan.

[00:33:38] Now we do find in more expensive areas like the West coast that, uh, you can find 30, 25 and 30 year loans. Again, commercial loans on residential properties. So that's just something to be aware of as you go out there in your search for a longterm financing. And again, thank you for being with us. We are the good stewards. We do have an ebook for you. If you go to thegoodstewards.com and it's a place for you to leave your comments and questions, we really appreciate those because that's a, that feeds us for the next, uh. Next few, uh, podcasts that we, uh, put so thanks for being with us today and have a good one.