Well, things are changing pretty quickly aren’t thing every week things are changing and I wanted to throw a little note because the podcast today actually courted a couple weeks ago and it’s on financing which I think is as important as ever and it will continue to be and it will always be a very important piece for any real estate investor so I think everything I recorded a couple weeks ago still stands it’s still pertinent I have reached out to mine lenders recently just to get their feeling on the market it’s just kind of swing and up and down you know that they dropped interest rates so they had a big boom but now there is a potential risks that people may not be able to pay the rents and that of course scares banks but we don’t know that yet we also have funding that’s potentially coming out and also this isn’t the first huge hit that lenders have had recently you know if things come to the point where they aren’t able to receive their mortgages so they’re a little more open to the idea I think of working with people so hopefully we’re not in mortgages that are way overhead that have very thin margins but I know as a short term rental investor a lot of our units were short term rentals and those are getting hit hard so let’s just buckle down everyone let’s cut some expenses where we can but I’m confident that we’ll get through this and I’m pretty sure short terminals are going to be more profitable than ever at the end of all this we just don’t know how long it’s gonna take so let’s buckle down this be prudent where we can in the meantime let’s use some of this time to learn new things and catch up with loved ones I wanted to share a book that I recently read it’s called the man’s search for meaning and it’s by Victor Frankel is an Austrian psychologist that lived through the **** concentration camps so book was written in the forties but it is powerful if you want a new perspective or maybe been bogged down by all the news your. Here day in and day out if you want a new perspective on how we’re living today read this book man it’s powerful a couple main notes that I took away from it he reiterates that. Forces beyond our control can take away everything from us so he entered the **** concentration camp he lost everything he was in there for years his family you know it was awful we’ve all heard the stories and seen the pictures but him as a self colleges living during those times had a lot of time to reflect on what allow people to get through this and it really came down to how people choose respond to situations so everything can be taken away from us but it’s how we choose respond in the situations and also what we do the reactions we have in regards to what happens to us so if we lose some tenants our gonna respond to that I think we can come back from the stronger never let’s just take it week by week and check out that book for perspective I think you’ll realize how lucky we are all still we never had to go through anything like that so don’t further do let’s get into today’s contact.

Welcome to short-term rental riches will discuss investing in real estate with a specific focus on short term rentals quick actionable items to wire. Scale your portfolio I’m your host Tim Hubbard.

Welcome back ladies and gentlemen to short-term rental riches podcast as always I’m happy you’re here to learn a little bit more about. S. in real say in general but always with a specific focus on short term rentals today we’re gonna talk about something that’s important to every single real estate investor. Really it should be important to every real estate investor some investors.

Prefer not to take advantage of this but if you don’t. Your opportunities to scale and leverage will be incredibly diminished and what are we talking about today we’re talking about financing so we’ll do a deep dive on financing some of the difficulties that you may have getting loans for properties the basics you know the fundamentals what these lenders are gonna be looking for both with residential properties and multi family properties a couple things that you can do along the way to help you to get loans are to become more attractive I should say to lenders to banks and then we’ll talk about financing short term rentals because that is the focus of the show and it’s a big big gray area for banks a lot of them don’t know what to think about it it wasn’t very long ago when you said Airbnb and they didn’t have any clue what that is but now a lot of them are using Airbnb so it’s becoming more familiar it’s becoming more known and it’s becoming easier to get loans for short term rental riches I’ll tell you about a couple of my recent loans when we talk about financing this is ever changing it’s always changing you know right after the crash 2008 2009 which was because of mortgage loans for the most part it was very difficult to get a loan and I know first hand. Because that was me. Little old tem.

Never invest in real say before just finishing college and trying to get a loan in an economy where banks did not want to give them. And. So when I got started. I was working as a contractor which made it even more difficult and a lot of you are probably going through the same thing so as contractors we wanna write off all of our expenses anything that was work related. We want to write that off so we’re not paying taxes on income. That we don’t need to we want to avoid as much taxes as we can legally so that’s what we do a lot of times as contractors and so even if you make a lot of money if you have a lot of expenses when the bank looks at your financials Alexis your statements they may think you’re broke. And actually. I remember going to a big bank and. I tried to get alone with this guy before I got that just so you know I’ve I’ve been denied more loans than you can imagine.

Well not that many but but I would say like dozens probably you know and that’s something that gets easier throughout your investment career I guess it should get easier as long as your investments are doing well but starting up man it was tough you know was back and forth different lenders really trying to make sure everything was perfect and I remember going into a bank it was one of the big banks and I sat down the guy’s name also happen to be tem and I remember looking out my finances I had everything very well organized and I was trying to get pre approved for a loan so if you’re buying a residential property you can get pre approved which means the bank will say sure tam will lend you up to X. amount. To buy property you just need to find a property now that’s going to be different if you’re buying a commercial property because that loan is gonna be based more off the property then your personal financials but we’ll get there in a quick second. So I I’m sitting down here at the bank and he looks at me after looking at my my paperwork and with a straight face he says Tim. Are you doing okay. Like I like I just wandered off the streets or something. And I’d laugh because if you really looked into the financials you would see that yeah I was doing well. But a lot of big banks have very rigid policies and they want to consider they really can’t workarounds in these big policies so. One of the things that would have helped him recognize that I was making more money than it appeared would be the fact that a lot of my income was written off by depreciation I’m not sure if we’ve talked about this before probably yeah we have a little bit of tax benefits depreciation is amazing because you are not actually paying for it it’s a it’s a ghost expense so if you have a whole bunch of depreciation because you’re on a bunch of properties you could write off a lot of income and not actually have that as an expense so some lenders will add that back in knowing that that’s not an expense that you actually paid so that wasn’t the case with this banker and needless to say I never actually ended up working with that banker. So you know when I was first getting started though that was common I’m trying to work with big banks and they just couldn’t budge on the policies so I ended up working with a broker and a mortgage broker is someone that’s gonna broker your loan so they will shop around for you and now they usually charge you know a little fees for this but they can uncover some good options for you and I use brokers quite often now where does this all start the where do you start with your loan of course you want to make sure that all of the basics are in place and and what are the basics going to be well you need to have some sort of credit history so you need to get credit cards or an auto loan or something like that and be paying on it and I would recommend having several different lines of credit so even if their credit cards or whatever it is it’s not bad to have multiple lines of credit it’s only bad to use more than you should which I often hears maybe 3025 to 30 percent of your available credit and I’m talking in regards to things like credit cards you know stuff like that so you don’t want to use too much of your available credit of course ideally you want to pay these things off every month so that you’re never paying finance charges at all you know a lot of them have all the side benefits of giving you points and giving you cash back so if you just use that instead of a normal debit card or cash you’ll build your history you’ll get great points and it’s also more secure if you ever you know there’s any fraud or anything you just dispute itself I think most of you know that but basically you want to have good credit and then banks are going to look at your debt to income ratio. And that is essentially how much debt you currently have versus the income that you’re making so if you made $10000 a month and you owed $4000 a month in debt on whatever it happens to be then you’d be at a point for. And most lenders at least traditionally in the past what I’m used to and again all of these things constantly change and they’re different with every lender but I think most lenders typically don’t like to loan you know to see an individual that has more than 4045 percent of all their income I used up in debt each month so that’s a big thing that sh you’ll want to monitor.

Every lender is totally different and so you want to shop them around especially if you’re getting a loan for 30 years not that you can’t refinance it but you you might as well get the best loan available in the beginning remember the first time I was investing in out of state out of California where I’m originally from found a cool property. It worked well for what I was doing I had some history already renovating small multi family properties and things like that I flew out did inspections on the property was great everything was moving forward the lender who I’d never met in person everything seems great until essentially the very last minute and remember I had already flown out there done my inspections working with the seller and we were good to go green light and then I get a phone call sorry tem we couldn’t do it we can approve you they had pre approved me but then after going through underwriting which is the process you know where they’re gonna really go through all of your financials and all those things they just weren’t comfortable doing it. And I was pretty bummed out as you can imagine I mean it already invested money a lot of time into this and it was a good deal I really wanted it and I called a friend that was in the market and I said told her the news and she said oh why don’t you try my lender so I give them a call with a shaky voice I’m sure and said Hey I got that you know this great property I’ve actually already done inspections. And I am looking for a loan. And he said okay I can do that. And what what was even better is he I was going to renovate this building he said do you need money for the renovation and I’m like. Yes as a matter of fact I do need money for the renovation he made it super super easy we close quickly and I still work with a bank today have multiple loans with them and so that just goes to show every lender is completely different don’t get discouraged if one denies you if multiple banks tonight you shop around use a broker and find the best deal but then maintain the relationship you know if you’re in a market where you want to do more and more it’s good to be in a good relationship go out to lunch with your bankers and you know talk to him on the phone to go for coffee and this is gonna be more important the relationship with your banker if you’re doing commercial properties as residential ones that kind of fit a mold for the most part the big banks have a mold you know they they don’t budge on all of these big policies like I said but when you get above 4 units when you get a 5 unit or larger or any commercial property banks are all different my best experience has been with local banks I just close on a deal recently that was. The bank didn’t distinguish between an investment property and a personal property typically when we buy a personal property what we’re gonna live in we get the absolute best interest rates this bank that I just close on a multi family property with they didn’t distinguish between that so they gave me the rate as if I were going to live there 4 percent 4.05 percent for 10 years fixed which is amazing first time ever working with US bank and I’m sure I’ll be working with them again I’m talking with another mortgage broker right now about refinancing another deal that I have that’s a commercial deal a lot of commercial loans are going to have shorter terms which means they’re going to want you to pay them off earlier or they’re gonna want you to refinance them so 5710 years is pretty uncommon usually but I just talked with my mortgage broker who said she has a 30 year fixed loan product available.

So we are looking into that and that would be ideal that saves you from any interest rate risk for 30 years really because we have amazing interest rates right now 4 percent you know even lower but around there for 5 percent is really really good and if you can fix that for 30 years which means even though your property may be making more money your loan payments going to stay the same well I think that is ideal okay so. To sum up on lending just in general you got to make sure your ducks are in a row you you want to have good credit mate you’re paying your bills that stuff’s all pretty obvious I don’t want to bore you with that but it can help to have a resume a real estate resume and perhaps if you’ve done a lot of real estate before these are things banks are going to want to see anyways so have something that shows your past projects have a personal financial statement which shows all of your assets all the income that you’re making all of your expenses all of your debts and then another piece that they will want to see is an RTO schedule so real estate owned and if you own multiple properties this is good to have regardless because on this document which can be an excel sheet or whatever you want just go on excel and typing their template you could find a aria schedule on there pretty sure but it’s going to have your loans the amount you owe on them the interest rates the terms and how much those properties are typically making and and the expenses on there so it’s basically just a summary of all of your property so I have one of those on hand and just updated every time that you. Get a new property or you refinance a loan it’s kind of like you’re living in a lifeline summary of all of your properties I guess in it it really helps you stay organized so I have your ducks in a row with the credit your expenses have those couple extra things just because they’re gonna wanted anyways but it also helps you stay organized and now finally financing for short term rentals there are options available now I mean this was a gray area it still is a gray area for a lot of places but I can tell you that I have got multiple loans now.

For properties I owned that are operating all the short term rentals and one way that they’ll do is take 2 years tax returns so 2 years. Your operating income and expenses on that property and then they’ll divide it by 24 and you’ll have an average each month so a lot of banks are going to be more comfortable with that Airbnb actually has a verified income. A report or summary I guess you could call it that they will provide you so if you go under your Airbnb account and you pull up the tax section or the revenue section and remember quite where it is there is a verified income sort of document that you can request and they’ll give you and that will be a huge help for your lender.

Another small lenders popping up just a financial terminals so you’ve got that I mean I was just on Google check in some of these out but you’ve got crammed capital it’s K. R. A. M. capital sako truck capital S. O. C. O. T. R. A. and really you could just Google online and there’s going to be more more lenders going forward as well there are a lot more comfortable with this idea I mean let’s face it they’re seeing the numbers they’re seeing the demand these things are staying occupied you can make huge huge box N. as long as you can show some history.

I think you’re gonna be able to find someone’s pretty easily so I talk about financing quite a bit because it’s a big piece of the puzzle I think it’s important for every real estate investor especially if you want to scale quicker and leverage other people’s money you’re leveraging the bank’s money so long as your buying properties that make sense and your being conservative with your dad go for it shop around check with your brokers don’t give up if you get denied because I’ve got denied more times than you can imagine I still do occasionally actually I just got denied last week I mean this is like a constant thing I got denied. It was a new property it’s a totally different commercial property and. They just didn’t want to loan for the construction piece I’m gonna do some construction my broker called me said Hey I got another one bom. And they’re doing it it’s moving forward so don’t be discouraged take advantage of the best interest rates available in history if you’re here in the US and stay out there.

Keep on working with it keep on growing that portfolio. Catch you next time.

Want to get on the fast track to financial freedom through short term rentals what all searching the properties you. You want to make sure that you fired right. To give you my. Yes there is no charge to you for being one of our subscribers just the rest methods. R. E. S. T. methods.com

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