Financing Your Real Estate Investments | PREI 014
In this episode we talk to Aaron Chapman, an 18 year veteran in the mortgage industry with a focus on real estate investors, about financing real estate investments.
Some of the topics we discuss include:
- The investor’s mindset and why that’s important.
- The landscape of mortgage loans for investors.
- What is loan sequencing.
- Mortgage loan products available today.
- Qualification requirements.
- How to finance more than 10 properties.
You can visit Aaron’s website at www.BighausChapman.com.
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Financing Real Estate Investments | PREI 014
Welcome to Passive Real Estate Investing episode 14. I’m your host, Marco Santarelli. Today’s show is about financing your real estate investments. This is a very important subject matter because real estate is an investment class that allows you to finance up to 80% of the purchase price using other people’s money at historically low rates and control that property over the course of 30 years under a mortgage that is paid off by your tenant. This is incredible. Nowhere else in the world can you do this like you can in the United States.
Financing is a confusing subject because regulations are thick, they continually change, mortgage terms and interest rates fluctuate. It’s hard to keep up on everything that’s going on and the changes in the industry. There are people out there who really know their stuff and can help you in understanding and navigating this space in terms of strategizing your mortgage financing to getting the best product to help you finance those purchases. It’s critical that you work with the right people.
Today on the show, we have one of the mortgage brokers and portfolio lenders actually that we work with to help our investor clients finance their purchases, not only just get a loan but strategize on how to best finance all their properties and build their portfolio. The focus is beyond one property. You really should have a focus that encompasses your goals and where you want to go with your financing, where you want to go with your portfolio. It’s not enough to say, “I’ll just pick a property today and I’ll think about buying another one next year and we’ll deal with the financing situation then.” It’s better to look at the big picture and just see where you have to go.
For example, we have some clients that want to purchase fourplexes and we have some clients that want to purchase single family homes. I advise that they start off by purchasing the fourplex first because the down payment amount on his first four mortgages would be five percent lower than the down payment on it as if he had purchased it later after purchasing the single family homes first. The net result to him was a down payment that was five percent lower by starting off with the more expensive property. Many investors know this but it’s surprising how many investors really don’t know what is referred to as mortgage sequencing. This is just an example.
Today, I wanted to bring on one of the companies and one the people that we work with. Very smart guy, understands this space of mortgage financing for investors very, very well. He’s an eighteen year veteran and his name is Aaron.
It’s my pleasure to welcome Aaron Chapman to the show. He’s an eighteen year veteran in the financing industry with a focus on real estate investors. He has a team of eleven total staff members who help him finance investment loans. He’s been married for nineteen years, has four children. Here’s an interesting fact, he’s with the local sheriff’s department and he’s with the rescue unit and he has been there for six years. The part that he’s in is the technical off-road and helicopter rappel rescue technician. Hopefully Aaron, I explained that correctly. In either case, welcome to the show, Aaron.
Thank you, Marco. Good to be here. There’s only really one slight correction I wanted to add to that, was the helicopter rappel rescue team. We’re the ones that get flown in, rappel out into really rough terrain to connect with a patient that may be is in some pretty bad shape, hook them up to a helicopter long line and get yanked out.
How do you get involved in that? Out of curiosity.
Interesting thing. In 2008, I was in a motorcycle accident that put me in a hospital for several weeks, in a wheelchair. I had a lot of rehabilitation to get back up. Prior to that, I would do marathons, climb mountains. You name it. I was very active. It was all for me. When I was blessed to get all my systems back and able to walk again and I was able to start hiking again, I wanted to something for somebody else other than myself. That’s why I decided … I stumbled into a person that was with this rescue team, asked him what they did and where they’re at. They mentioned a mountain that I used to spend a lot of time at, in the Superstition Mountains of Arizona. I investigated it and thought if I can go up there and hike again, I’m going to do it for the purpose of somebody else.
That’s great. For sense of geography, where are you located?
I am located in the Phoenix Dolly of Arizona. My office is in Mesa.
Great. Today’s subject is financing your real estate investments. This is not the same thing as what a lot of people seem to think in terms of financing your owner occupied home. In fact, I’ve heard a stat, maybe you can correct me on this, but only three percent of mortgage loans made out there are actually non owner occupied. If that’s true, then there’s really a big difference between what people typically see and the types of investments loans or mortgage loans that investors go after. Maybe let’s begin by describing the landscape of mortgage loans for investors, because it’s a different animal.
You’re definitely accurate there. The thought process that you just presented on the percentage of loans on a global scale that are investment versus owner occupied, you’re right. It’s very small percentage for investors. That in itself would make one take notice of who they’re going to work with on that, on the loans, because there’s so few that are done when you’re talking about the global scale. It’s a very specialized thing. The landscape becomes very different than what a person would be used to. A person who’s bought multiple owner occupied homes, sell a home, buy another one. Their experience doing that is going to be vastly different than when they decide to buy investment property. There’s different things that are taken into consideration. In the onset, it looks somewhat similar but in the background, what we do is the lender is vastly different. That’s one of the reasons myself and my partner, Steve Bighaus, we decided to, independent of each other, we did this years ago, we decided to focus on the investor. Because it’s a crowd that doesn’t have a lot of people focusing on it. It seemed like a niche in the market.
The investor mindset is considerably different. Maybe you can talk about that. I know we spoke about this before and it’s quite a fascinating conversation. Maybe talk to us about the investor mindset and how that differs to any other type of mindset.
As we just spoke about, most people’s experience will be buying their owner occupied home. When you’re doing that, we have been programmed by the marketing that’s been created out there. You name the numerous lenders that put their advertising out, in print or on television or on radio, you name it, internet. The thing that they differentiate themselves between the different lenders is interest rate and cost. That’s what the majority of the planet is aware of is, “I need to shop around and find the best lenders that will give me the best rate and the best cost.” Makes sense, I understand that.
When you’re talking about an investor, somebody who’s going to buy a multiple piece of property to get a cash flow that’s going to help them expand on their assets, the mindset definitely does need to change. That’s the foundation of being an investor. The ability to get the loans complete is probably going to be their most paramount step that they need to be looking towards. Anybody can close general loans. When you’re talking about the investor being so specialized and so much work that has to be done, not anybody can really get it done effectively.
The other part where we’re referencing the mindset is you’re not necessarily just buying property and financing property. You’re buying a business or those investors are buying a business. They are either starting it or they’re expanding it. Starting it, meaning they’re buying their first investment property and stepping into that world. Or they’re expanding on a portfolio where they’ve already started with one or two. When you’re thinking about that mindset, the argument of, “I’m shopping for the best rate and the best cost,” kind of goes off the window.
What I mean by out the window, you’re not putting yourself in a position to be taken advantage of where somebody’s going to give you extremely high rate and extremely high cost. You’re looking at it for somebody staying in the general realm of that, get to that point, understand that the lender is giving you an interest rate that makes sense within what’s advertised and move beyond that to really looking at becoming an owner of a company and a company that’s sole purpose is to own cash flowing investments, cash flowing real estate. Those investments are driven by real estate.
At that point, it’s a matter of acquisition. Acquisition of cash flowing properties that are going to keep adding to the bottom line. When this really starts to make a big difference is when you start reaching these caps. Fannie Mae has a cap of ten financed properties. Those are broken down where you’ve got, for financed properties, a person is allowed to put 20% down on a single family and 25% on multi units. Once you break that for financed properties, that goes up by five percent. It’s 25% down on single families and 30% on your multi units. There’s several different things a person has to put into consideration with the business and sequence these loans properly where they’re able to maximize the amount of money they’re using. You get into what I’m talking about, this investor mindset and has a business owner, you’re not financing properties anymore. You’re bringing on a partner in reality.
I’ve illustrated this bringing out a partner thing by using an analogy. You have a family that’s going to get the other for dinner, the host, his brother and his family and his sister and her family, he presents them with the pasta that he made. Everybody’s going off on how great his pasta sauce is, that he should start his own tiny restaurant. He of course is going to respond back with, “I don’t have the capital to do that. It seems like it’d be really difficult.” His brother in law states, “Hey, I’d be more than happy to pitch in 50% of the capital to start your business. I think you’d be very successful.” Now, he’s going to start his business but he’s got a partner who owns 50% of his business. He has a partner who gets 50% of the say in what happens in his business and a partner that gets 50% of the revenue.
The other part of the aspect that’s really rough about this is is the partner is not involved as far as the business operations. He’s just putting up the money yet he gets to have half of everything. You as a real estate investor, buying single family properties, you can now get a partner through us that we represent that’s going to put up anywhere from 75 to 80% of the capital for your business. We’re not demanding, or at least your partner is not demanding 75 to 80% of the ownership, not demanding 75 to 80% of the cash flow, not demanding 75 to 80% of the say of what happens on the day to day.
All they’re requesting is a return in let’s say four and a half to five and an eight percent return on that investment broken down in twelve monthly installments annually. That’s it. They’re out of the picture in reality. On top of that, your investor partner has consultants that will assist you in this process as well in the form of myself, my partner and our staff. This is what we do, we finance investments. We get to consult with you on different ways to go about getting this completed. Not only is it about our ability to close loans. We’re good at that, we’ve been closing loans for years. There’s a lot of people that can’t close loans.
We also have information in a sense that we work with thousands of customers, thousands of investors buying real estate. Those thousands of investors has spent millions of dollars on various different ways that they’re going about building their little empire. Whether it’d be legal fees, whether it’d be fees with their CPAs, ways that they designed with S corps. We were privy to all that information. We have a capability to at least give you some ideas. It’s ultimately up to you, you got to talk to your attorney, you got to talk to your CPA, you got to decide how to run your business. We at least have some information to provide.
Another thought process here that steps from what we just discussed is you are now the CEO or the investor is the CEO of his company. Most companies have a CEO, a chief executive officer, COO which is the chief operations officer, they have a CFO, a chief financial officer. When you look at that type of setup, an investor doesn’t quite have that. When you change the mindset a little bit in a way that they do. Marco, your group ferrets out investment properties all over the country. You partner up with different specialists in those areas that will find the best potential properties in the area for your customer.
On top of that, they have other people within the area that help to maintain these properties. That’s a whole lot operations division that your investors get. They have a chief operations officer, an entire division working with them. Let’s talk about the CFO, the chief financial officer and their division. You have myself and my partner Steve. We have our staff. Everybody here that has been doing this for … We’re approaching probably 60 to 70 combined years of experience in just investor financing that we are able to also work with them on the finance side. Different things that they can do and different ideas that they can incorporate into their business and run that financial division. I argue, what expense was put in to have those two divisions within their corporation?
Let’s think about that. If they didn’t work with us, they would still go buy a piece of real estate that has commissions being paid to whatever the realtor are, whoever the realtors are. If they went to go finance with their credit union or any bank across the planet, there’s still going to be closing cost and an interest rate, correct? Since those are there, those costs are still being paid, those expenses are still going out there regardless of who they work with. We have that same expense as far as … Same fees and interest rate being paid on the financing side. In reality, they’re choosing to work with professionals in those areas and keeping those relationship strong and really get the operations division and the finance division of their corporation for free. It costs them nothing to have those people connected with them because they have the same expense regardless of who they work with.
The mindset here is to consider your mortgage broker, your lender as a partner and someone on your team. They have resources and knowledge that you can tap into at essentially no extra cost because the cost is the cost you’re going to spend one way or another but you have that expertise available to you as a member of your team. On top of that, you have different kinds of loan products out there that you can help an investor fit their current situation and their credit profile. That comes down to how many loans they have because there’s a four limit cap, a ten limit cap and then you get into portfolio loans. It’s not just about the interest rate. Am I summarizing what you’re saying correctly?
You’re accurate in your summary. Yes, there is definitely a lot of programs, a lot of options out there. If you’re not working with the individuals that have a lot of history specialize here, you could risk going from point A to point B at a bunch of different routes and not getting there as simple as you should or in some cases, will be unsuccessful.
We’ve had clients over the years that have brought their own lenders to us. I’m not going to name names. Some of them were large institutional lenders and some of them were their favorite local, regional or city banks. They just didn’t have any experience or very little experience in dealing with non-owner occupied properties. In other words, investment properties. We have found that many times, not always but many times, those loans would end up falling apart at the eleventh hour. Because they would come to the table with a request, such as how long has the seller of the property seasoned that property?
In other words, how long have they held that property from when they acquired it and renovated it? Or they might ask questions such as, and I think this is silly, what did they spend to renovate that property? Why do they really even care? The property is newly refurbished, it’s like new, it’s appraised at full retail price. These situations come up. I know that this rarely comes up with working with a company or firm like yours. We work with several of them. I don’t see that happen. Maybe explain that situation. Why does that come up with other lenders that don’t have that experience?
Initially, that comes up one, because it’s an experience situation that you’re just referencing. The other is it’s actually starting to come up more and more regardless of how much experience you have because there is something else referred to as a uniform collateral data portal or the UCDP. What that is, when appraisal comes in, it’s been going on, I think it’s two years now, my mind doesn’t bring up the exact amount of time. When the appraisal comes in, we’re required to submit that appraisal to this portal. It will score it and send it back to us and tell us the reason for its score.
Parts of these scores are … It is taking all the information on that property over the last however long it’s been tracked. If there is a significant difference in the previous sales price versus the current sales price, it’s going to require that we have some sort of information, a backup as to why that there is such a big discrepancy between the two. It’s not a matter of the appraiser just making a note. In some cases, we have to actually to start gathering more data. To your point, we’ll have to ask, “Show us what was done to this in a spreadsheet. Give us the total cost of this so we can prove there’s a reason why there’s this vast difference between the two.”
The experience does kick in there in the sense that we know why it is and what we can easily use to get over that. For the inexperienced person in this, even when the person is asking the right questions, they don’t know the reason for the question or the reason that they’re looking for the answer, then it could also be detrimental in the sense that they don’t like the answer to the question and they’ll turn themselves away, try and deny the loan because it still seems a risk to them. Once you understand why the question is being asked, you can limit, at least the risk doesn’t seem as daunting in that type of situation.
One of the reasons that we work with the firm that we do is this particular firm, during the whole mess that was going on with the late 2000s and the slide within the economy, a lot of banks were forced to buy back a lot of loans that went sideways. A lot of them were upside down. The loan balance was much higher than what the house is valued at that time and people stopped paying, the banks were forced to have to take that on. This firm had to take on over 3500 of those properties back. That would cripple a medium sized company. They had decided at that point, they need to figure out something to do with these properties.
Rather than going into the chapter 11 type steps that many banks may have considered, they decided to form a division that would go out and take a look at all these properties beside what needed to be done to them to make them habitable. Once they were done with that, they rented all 3500 out. It’s 3500 and change. Slowly start selling them as the market came back. They made a very large return off of the sales and they still retain over 500 rentals. The firm that we work with directly and that we hang our license with understand the investor because they are one. They understand what the investor goes through, they understand also that there is, in a way, doing investment loans is kind of a hedge against risk because it’s not as risky as it used to be.
Investors today are buying for cash flow. They’re setting up a business, they’re changing their mindset. Loans is not a debt to them, it is an asset because of the way they’re going about it. They understand that because they’re doing the exact same thing. They are encouraged by this and like to have these investor loans, they like to fund these investor loans. Majority of your banking institutions out there, when I talk to them and they try and recruit me and I bring up the fact that 99% of the business I do is for investors, they take a step back in the recruitment offer.
They started saying, “That’s risky. We’re not sure if we like that. I say, “Tell me what your risk is?” It’s like, “We have to take back all these investment loans in the past because people were speculating.” I said, “Do you know what the mindset of the investors is now? Do you know what they’re doing with their investments today?” “It’s just too risky for us. We lost way too much.” The scar has yet to heal for them. For the firm I work with now, the scars healed. They saw that this is actually a really good scar to have.
That’s a really great point. A lot of investors today, especially our clients, are focused on buy and hold investments property for the long term because they’re more focused on the cash flow and the cash on cash return that they get from the property, not as much on the appreciation potential. Even though they’re in good markets with solid growth, it’s not hyper growth and so they’re going to get that too. They’re going to keep this 30 year loan. Here’s another comment about 30 year fixed rate mortgages, which I think are incredible. You mentioned the loan being an asset. It is, it’s an asset to somebody and a liability to another person.
One of the great benefits of having a 30 year fixed rate mortgage, which I’m a big fan of, is the fact that that loan over the years doesn’t adjust for inflation. It depreciates, it becomes worth less and less as time goes on because as every month and year goes by, you’re paying it off in cheaper and cheaper dollars. Effectively, you’re paying off a diminishing loan. It might be worth $100,000 this year, but if there’s four or five percent headline inflation, that loan, at the end of the year, is only worth about $95,000. It keeps going down year after year. I know a lot of people don’t talk about that. I’m sure you understand that. We talk to clients about that all time and I think that’s a great benefit of fixed rate mortgage loans.
It’s a huge benefit. I don’t think people realize exactly how powerful that is. What you’re bringing up here should really be something focused on as a podcast on itself in the sense that they can pay their mortgage that they got in 2015 with, say, $2022 that are worth a heck of a lot less in 2022 than they are in 2015. If you go back into history and start looking at how things have been stacked up, there’s a really big change in how things work. I know that Robert Reich, he was a labor secretary for Bill Clinton, he talks about what has happened in the economy. He talks about the peak median income for the average worker was peaking up like 1978.
That to me is an amazing thing because what has happened to the cost of living since 1978?
Sure. The cost of living has gone up but the inflation adjusted median income has stayed relatively flat. Most people don’t realize that so they’re actually getting poorer and poorer.
Exactly. Every single day, people are getting poorer and poorer. That’s another thing I always like to point out to the investor. A lot of times the investor, they will get that inspection or they’ll get that appraised and they’ll look at the property there in contract and say, “I’m not sure about that because I had never … I don’t know that would live in that property.” That’s not necessarily something that needs to be really stressing over. Somebody is going to live in that property, especially we consider what’s happening with people in our nation are getting poorer and poorer every day because of what’s happening with inflation and what’s happening with wages. We’re opening ourself up as an investor to a larger percentage of the population by buying lower of the median income housing rather than buying something that maybe the investor would prefer to live into. That’s a smaller percentage of the population.
You know what, we’re going off on tangents here, which is fine. Here’s another point to your point. If you buy good property that cash flows in good neighborhoods, B and A class neighborhoods, but you’re right around the median sales price of that market, you don’t have to worry about that property from your perspective as to whether you would live in it or not. Because the fact is as economies change, people will move up and down on the socioeconomic scale. People who once couldn’t afford that property in good times might now be able to move up into that property. The reverse is true as well.
In times where you have a slower economic cycle and people that are living in more expensive homes or renting more expensive homes now can no longer afford that price point, they move down into your property. If you’re not buying on the high end or the low end, you’ll always have a rental pool of people that will be able to rent your property. If you got that fixed financing in place, that never changes. What may change is the rental amount, but you’ll always have tenants to pay off the mortgage for you and that makes a prudent investment.
Correct. I think the main point of all of that conversation or tangent was is a sense that the way that our economic system is setup, there is no way you’re going to be run out of a market.
Let’s talk about mortgage products, because your industry has a lot of regulation and it changes all the time. The qualification and the products change frequently. This is really two questions. What kind of investment loan products are out there for investors today? This is a broad question because you can have someone who’s just starting off, they’re buying their first property. It’s their very first loan and they qualify for 20% down. Then you may have someone who’s already got 40 or 50 units and they might need some other type of mortgage products. Maybe just take us through what the mortgage product landscape looks like and the qualification for those products.
Probably the best way to go about that is to reference some of the people that I have worked with in the past and paint the picture of how they were able to accomplish what they have. We have investors that got, they’re still working on their first ten financed properties, others that have properties in the 40s, that they have 40 plus properties they’ve financed. To start off with, there’s getting in and using just the vanilla Fannie Mae type products, like indicated earlier. It’s 20% and 25% down on the first four depending upon whether it’s a single family or a multi-unit. Then you got five to ten financed properties, you’re putting a 25% down on a single family and 30% down on the multi-unit property. Those are going to be your best lot, it’s going to be your best interest rate, your cheapest down, your lowest cost.
That’s going to give you the option to get in in a more reasonable type of rate in return when you’re talking about those smaller amounts of a portfolio. Anywhere from one to ten. Then you start getting beyond that. That’s where the main questions come. The investors that are coming out of the woodwork now really want to know, what do I need to get beyond ten? How do I have more properties that I don’t have to pay cash? We have worked with people that have successfully utilized commercial financing to take let’s say the ten financed properties they had and they lump them together into one loan and put it into an S corp. Then they now, in a way, don’t own those properties anymore because their S corp does.
The commercial financing blanket them all into one loan and then finance them in the name of the S corp. Now, they’re free to purchase ten more individual properties using Fannie Mae money. There’s been some question in the past where people say, “Can I just it in my LLC? I’ve been instructed I should put them in the name of my LLC.” That doesn’t quite work so well. An LLC is a phenomenally great, good instrument when it comes to using that for protection from other things that could come about when it comes to owning real estate or other investments. But it’s not separate of you. It’s like wearing gloves. You are still the person wearing the gloves even though you have the gloves on.
An S corp however, the way it’s structured … You definitely need to talk to your CPA, talk to your attorney to validate how to set this up. It’s a separate entity and a whole separate individual if you will. Doing that gives you that capability to purchase again. Now, the reason we want to use, at least we have seen them use, to reset and start over again with the Fannie Mae ten financed properties is it gives them the capability to be picky about what property they purchase. Able to buy them one at a time and find the different markets that make the most sense for their plan.
If you want to try and use commercial financing to buy the future properties one or two at a time, it doesn’t quite work so well. Sometimes commercial financing can be very expensive. The rate aside, there may be some cost that put it to where it’s not as cost effective to putting together into bulks of ten and move them and then buy one at a time using Fannie. That’s how I’ve seen some people be very successful and continue to expand upon their ownership and build that little empire if you will.
Makes a lot of sense. I guess to summarize part of what you’re saying, beyond ten loans, if they’re going to have ten mortgages on their credit, going beyond that, you’re typically working with a portfolio lender or some sort of private lender in order to get the financing. Because once you’re outside of the government subsidized loans of Fannie Mae, Freddie Mac, you really don’t have a choice but to work directly with private and portfolio lenders. True?
Correct. You’re going to have to find a bank that has an appetite for the commercial side of things as well as be able to understand what you’re planning on doing. Some may not have an appetite for investment properties in the residential realm. There are some people that we have worked with in the past, just because the nature of working with so many clients, that we are very familiar with the banks that like to do that kind of thing. We’ve had a lot of conversations with them to understand what they’re looking for and understand who can accomplish this. As a part of what we bring into a conversation with our customers, depending upon what it is that they want to do with their investments for the future. What we like to say is, “You tell us what the last page of your investment book looks like, let us help you write the rest of it all the way backwards to the table of contents.”
Good analogy. What about stated income loans? What’s your comments on that? I see that they’re starting to come out of the woodwork again. I don’t know if that’s a good sign or a bad sign because the last time we saw stated income loans, growing popularity, we knew that it was the beginning of the end. What are your comments on those?
I do tend to agree with you on that. They are coming out a bit. We actually do have access to some. They’re not very pretty, they’re not the ones that can get you those really aggressive rates and costs but they do exist. I am not 100% sold that it’s the best path to take. If a person is in a position where they have to use that, I think that they do need to use caution and understanding where are they at in their finances that a stated is required and are they really in a position or have the ability to repay? An ability to repay is something that we’re heavily charged with proving. The federal government requires that we look very closely at one’s ability to repay and not saddle them with a situation where they could potentially experience loss. Having that product out there to me, it is a little bit frightening that they’re making a comeback because I just don’t believe that they should have any place in it.
Sure. We get clients coming from Canada, Australia, UK, occasionally in the Asian countries. What about foreign national financing? I know that usually requires a higher down payment with higher interest rates but it is an option versus paying 100% of the purchase price all cash. What kind of products are out there today for foreign nationals?
I’m not 100% certain of what all of them are that are out there but I know we do have access to one. We do have one that we keep in house, we put it on our book, all the books of the firm that I work with, that my license has held with. They have created for the foreign national. Yes, we do have access to that. It’s typically about a 35% down type of loan and then the rates, it’s all dependent. It’s something that we always get in to individually discuss the rate and cost associated with that particular loan or any loan.
Last question regarding mindset and sequencing. I’ve talked to many clients and I suggest to them, of course I recommend they talk to someone like yourself, if they’re looking to purchase 20, 30 properties over the next few years, I always recommend or suggest that they try to put each loan on their credit individually of their spouse so they could at least theoretically double the number of properties they purchase. Is that a wise practice? I would assume so. I’d like to get your feedback.
That’s how many of the customers we work with have accomplished the larger portfolios of financing and larger portfolios of financed properties in such a short period of time. Because both they and their spouse could qualify independently, they purchase them independently. They pretty much built a wall between the two of them so that that way they could have two independent portfolio. It works very successfully. I know that there’s also a little bit of a mindset that has to come in there. In some instances because they are, when a person joins in marriage and you have that kind of partnership there, that it seems kind of counterintuitive separate themselves in that respect. When you consider the long term end goal and what the end game is supposed to be, the mindset is easier to change into an understanding that it’s a huge benefit to separate, to be able to purchase like that, because there is. It’s a double multiplier is what it is.
Financing is the one thing about purchasing investment property that I think is liked the least by most investors. It’s not the thing they look forward to, it’s not the thing they like being involved in but it’s a critical piece because you can leverage up to 80% of the purchase, control 100% of the property with only 20% down. Financing in the United States is fantastic, especially when you can get 30 or fixed rate mortgages, which from my understanding is pretty rare. You can’t find it anywhere else around the world. We’re pretty unique in that sense.
Agreed. I agree with everything that you said in the sense that this can be the most miserable part of the experience. Especially the first time around. The first time a person decided they want to start getting investment financing, it’s a lot more daunting than they anticipate. I paint that picture up front. This is not going to be fun. It can be very miserable. I definitely have hopes that it’s not so darn miserable when we’re getting the loan completed for them. They need to at least have an expectation that’s realistic. As far as the whole sequence of all of this, it’s a matter of finding somebody that you want to work with, that you trust that’s going to help you get there regardless of how tough it is. We’re going to have to gather a ton of paperwork from them. We have to uncover a lot of these things.
The reason that we have to is not because we enjoy it. What you hate to give, we hate to read. To understand where the money comes from is what really helps one get at, at least understand why it’s such a difficult process and why it can be such a miserable process. This is Wall Street investment money. This is not bank’s money, this is not government money, it’s not my money, it’s not Fannie Mae’s money. This is investors from all over the world putting their personal money into something and expecting a return.
Much like a prospectus that a person would receive, I have various different investments that are in the market and I will look at that prospectus and they’ll tell me how safe my money is, where my money is invested, what company that might be invested with. Being that I can pull up that company’s history and pull up a data on them and how strong they are as far as the returns and anything that I would expect to get back in that, I know how safe my money is. In the same respect an investor that puts their money up into a Fannie Mae mortgage bank securities pool should be able to reasonably expect a return on investment based upon how we have been directed to lend it. It has to have certain credit scores, certain amount of money down. We have to approve their income in a certain way. We have to prove their assets in a certain way.
If there’s any variance, we have to explain why those variants are and we have to be very detailed in that. Because of that, we now have an investor that’s confident he’s going to get a return on the investment of his funds and not end up having to take a property back. Because that’s not what they want. They just want to get paid their normal rate of interest and leave it alone. We have to prove to them that they’re going to get that normal rate of interest down because of their guidelines if you will. That’s what we have to look at as our guidelines. That’s their prospectus. Their prospectus is the guidelines we have to follow.
Great information, Aaron. Is there any question that I didn’t ask you that I probably should have or any closing comments?
I don’t have any real questions that we couldn’t have covered. I think there’s so many questions out there. If we keep going, this podcast could end up going for days on end. When it comes to each investor, I know that everybody’s got their own points that are the most important to them. When it comes time to make that choice, take an extra moment and really get to know who that individual is. Again, it’s not a consumer and a banker anymore. This is a partnership. This is a team of people working for the same end.
Well said. Tell our listeners how they can get a hold of you. We’ve got listeners in 63 countries now. How can people find out more about you and your company?
The best place to go would be to our website. It is www.BighausChapman.com. When you go to that website, the very first thing that pops up is a quick little video we did introducing the investor to getting started with investing. We’re going to do a series of that. You can also go in and look for our specific contact information. Of course, always have to throw out there. There’s myself and Steve. My NMLS, number 267844. We’re with the Security National Mortgage Company.
I’ll put that in the show notes to make it easy for people to find your page. Aaron, appreciate your time. This has been a very informative. I know we can go on for hours but I think we’ve probably reached our time limit here.
I can imagine.
Appreciate having you on the show. We look forward to having you on again.
Thank you for inviting me on, Marco.
I hope you enjoyed today’s episode. Hopefully, it was useful and helpful for you. If you have any questions, be sure to contact our office. We can put you in touch with the right people depending on the state that you’re investing in and the situation that you have. Also, remember to download our free report if you haven’t done so, The Ultimate Guide to Passive Real Estate Investing. If you haven’t subscribed to our show yet, please do so. It’s easy to do in iTunes and Stitcher Radio. We thoroughly appreciate the ratings and reviews we’ve been getting even with our international listeners. I was actually surprised a few days ago, I had a retired gentleman call me out of the blue who does not work but has a fairly significant amount of savings. He called me to thank me for the podcast. He found us via one of the episodes when he was looking for some information on a particular subject. He wanted to reach out and say thanks for the great content, keep it coming. I appreciate all the good feedback. It’s very motivating. As always, thanks for listening. We appreciate you all being here. We will see you on the next episode. Continued success to you.
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