1105: Special Guest Interview (Trevor Calton - Part 4)
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00:01
Welcome to episode 5 of season 11 of the Growing Empire Show. Today I'm back with my special guest, Trevor Calton from Evergreen Capital. And we're gonna continue our conversation about how to scale and diversify your investment portfolio, and what types of financing programs are right for you. So stay tuned.
00:18
Welcome to Growing Empires. Hosted by real estate entrepreneur and trusted investment advisor, Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.
00:40
So let's talk a little bit about the different types of financing programs. So give me some differences between SBA loans and the traditional like commercial or conventional loans. Why would one want to use an SBA loan versus a traditional commercial or conventional loan?
00:57
Well SBA loans cannot be used for investment properties. So SBA loans, there's two types, there's the 504, and the 7A. The 7A is for buying a business, and you can get a loan for working capital, and for equipment. And then the 504 is also allows you to buy the real estate. Sometimes people are buying a business, but it doesn't come with the land underneath. Sometimes it does. So but either way the SBA is charter is to help create jobs help to encourage small businesses. So it's usually not an option for your average investor, that's definitely an owner user loan product. The for the investors, typically have two types of banks, you have the commercial banks, retail banks, and then you have mortgage banks. Mortgage banks, they don't do checking accounts and all of that stuff, they only do real estate loans, and they're typically going to be more streamlined, they're going to often be cheaper. I can almost always beat out the local retail bank, if it's a larger loan. I'll caveat that with loans underneath a million, or less than a million dollars, most of the time, your local bank or your credit union is going to be the best option there. But what for bigger properties, mortgage bank is typically going to have fewer options than a retail bank, but they're going to be more competitive for the investor. And this just sort of reinforces the point we're talking about earlier, which is having in your network, if you're an investor, you want to have a mortgage broker in your network, so they can explain those differences to you. Because you'll be wasting your time a lot of times getting quotes on things and you know, submitting a package to a lender, and then you wait several days for them to get back to you. And they say oh, we don't even loan on that type of property. Or, you know, that's an investment deal. We don't do that you're trying to get an SBA and you know, somebody, a lot of times somebody will say, Oh, you can get this with 10% down on an SBA loan, and people will come to us and say, Hey, I'm ready to do this deal. I've got 10%. And we'll say, actually, you're gonna need 25% plus reserves and closing costs. So you know, it. it's different every time it's different on the property type. And it's different on the use of the property as well.
03:10
Do you focus heavily on hard money loans, rehab loans, construction loans, stuff like that in your multifamily segment?
03:18
Yeah, we do all of the above. There's some challenge there, I don't like to put people into hard money loans ever. Because hard money loans are expensive. The right the best. The time when a hard money loan is the best option is for somebody that's brand new to the game. We actually just did some loans for a long time friend of mine, who has been a very successful real estate agent. And then he decided that he wants to go be a developer. And he couldn't get financing anywhere else, except for hard money. And we sat down, we looked at his projections, we looked at how long it was going to take to build and then sell and what his margins were. And obviously his margins would have been better if he had cheaper financing. But if you're brand new, you got to pay to play your if if you can get a loan at all, without experience, which is challenging, it's typically going to be more expensive. So there is a role for hard money, especially in short term investing. If you're doing house flipping, or, you know, building Hard Money plays a good role. Construction loans and renovation loans, again, it depends on the condition of the property going into it. So if you're buying, let's say you're going to buy an apartment building and you want to do some renovation, is that renovation going to require that the building be vacant, or will it continue to cash flow? If you can do those renovations without having to have vacant units, you're gonna have much easier time getting low cost renovation money. But if you're trying to, you know, completely redo a building, where you're going to have to have vacancies all over and it's going to be more like construction project, then you're going to have to have a very, very experienced team in place, that's going to make the lender feel comfortable that they're not going to have somebody that falls away middle of the project, and then they're going to have to take back a half finished building. So the the more intensive the project, the more challenging the financing gets. One thing we run into a lot is people who have acquired land or maybe inherited land, and now they want to develop it. But they've got no experience in construction and development. And they think that they're going to be able to go out and just get a construction loan. I even see people will buy land without finding out what the construction loan market is like. And then they end up sitting on land that they gotta pay taxes on that they're never going to be able to build on by themselves. So if somebody is trying to go do a ground up development, and they're not an experienced developer, and when I say experience, I mean experienced. I have students that have gone through the masters of development program, with millions of dollars in the bank, and they still can't get a loan, because they don't have any experience. So you're going to try and if an investor is going to try and build on a piece of property and do construction, there has to be somebody on their team that has experience doing that. And typically, a lender will say, either you need to have a general contractor that is going to also guarantee this. And so you might have to make them a partner. Or you're gonna have to hire a development consultant. And that's going to be a six figure addition to your budget. So if somebody wants to build and get a construction loan, and they don't have experience as a developer, my recommendation is to sell it to a developer, but maybe keep an ownership stake or so effectively, you would be partnering with an experienced developer. And that developer that has already got a track record of taking raw land to a finished product that's been leased up, they're gonna have a much easier time getting financing. I would say that first time developer has a less than 1% chance of getting financing most of the time.
07:05
Yeah, so we find that to be very true as well.
07:10
The episode will continue in just a moment.
07:13
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08:12
Do you have favorite mortgage or equity product or something that you feel is unique to the industry and to the market
08:23
The best product out there is the HUD multifamily loan. But it doesn't, it's only for certain investors. And what's different about it is it's a 35 year amortization. So the payments are lower. It comes with usually the lowest interest rate available in the market. But it's not for short term investors because it's got a 10 year prepayment penalty on it. And the first two years it's a lockout. So you couldn't refinance or pay the loan off in the first couple of years, even if you wanted to. The origination of a HUD loan takes usually about 9 to 12 months, whereas you can typically get a conventional loan in 60 to 90 days. The HUD loan takes three times as long and it costs three times as much to originate. So it is a very expensive time, consuming loan to get. But if you're going to if an investor is going to be holding on to a property for life, or you know, it's a big property where it's going to have a lot of debt on it, and it's apartments, the HUD loan is definitely worth looking at. But I would say most of the time, HUD loans aren't worth it. Unless you're borrowing over $10 million. Most HUD lenders will only they won't even look at an application under 7 million. Just because there's so intensive that they the loan needs to be big enough that it's worth their time and energy to originate. That's probably the most special loan out there. Outside of that. It really it depends on the strategy. There are really great loans for people that are going to hold, you know, three to seven years. And then that goes back to kind of what's what's your scaling strategy? How long are you going to hold this property? What are your goals? So I would say, again, if if a borrower has not sat down with somebody that has asked them what their goals are, they're most certainly not going to get the best option for whatever it is that they're doing.
10:25
Very true. So does your advice change today versus maybe what it was six months or a year ago? Since now, you know, the talk of the town is all about inflation, interest rates rising. Has your advice changed for the people that you work with recently? Or will it change for people looking to buy in the next, you know, three to six months?
10:49
Absolutely. I told you those four rules, or two of those rules are sooner is better than later, and certain is better than uncertain. Time creates uncertainty. And what we see now is inflation at one of the highest levels we've seen in a long, long time. And that is the government's and the Feds response to that is to raise interest rates, to put a little bit of brakes on the economy. And so they just make everything more expensive to borrow to counteract the fast rising prices. And there are other factors that work with the inflation in today's market that we could probably spend an entire episode talking about. But what I would tell people is that, don't wait. Because time only creates more risk for you. So whatever it is that you're planning on doing, whether it's refinancing, or making a purchase, or raising capital for future purchases, or whatever, you want to lock in your certainty now. Don't wait. So many things can go wrong. Lots of stories, not all of them are are inspiring stories. Usually they're, you know, warnings on mistakes to avoid. But I've had people that had, you know, one of their major investors passed away a week before closing and if they had closed earlier, or if they'd executed faster, they wouldn't have had everything go completely upside down. I've seen rates jump and then suddenly, the the amount of financing that you were anticipating getting goes down, and now you have got a gap and you need to come up with more money to close. So I do tell people that now more than six months ago, it's really, really important to lock in that rate. If you're in the you know, in the process of getting a new loan, or, you know, just don't wait. Just say it just becomes urgency becomes that much more important right now.
12:42
Very good. So, Trevor, how to my listeners get a hold of you? What is the best way to connect with you should they want your advice on their investment strategies?
12:53
Well, I appreciate that, or website is simply evergreen.LLC and I also have a YouTube channel where I do a lot of finance and real estate investment training. I do put a lot of my general real estate investing advice on our website for people to just reference whenever they want. People are always welcome to just contact us directly. We have a great team in here at Evergreen. We have developer. Obviously, I was a professor of real estate. We have a residential lender, who does both residential and commercial. So we are able to help people that are transitioning out of the residential space, and they're just getting, you know, into commercial. So we're really able to give people a lot of advice. And I would just say, reach out. One of our favorite things to do is to help people come up with solutions. And that's part of the reason I like the financing better than I liked, say real estate sales. Is because every new client, every new property is like a new brain teaser. It's like a new puzzle that, you know, usually has a solution. Not always. But if there is no solution, that's what you want to know also. You want to know that you're not wasting your time. So yeah, just people can reach out to us, Trevor@evergreen.LLC. And we're always happy to help.
14:12
Well, thank you so much for your time.We have spent over an hour conversating and I have zero doubts that we could continue for more and more hours upon hours about this stuff. So I will definitely make sure your information is in our show notes page so that our listeners can get a hold of you. They weren't able to catch your email or your website. But I again, I really appreciate your time. You were an incredible wealth of knowledge, and it was very valuable. So I think
14:42
Jen, I appreciate you having me. Thank you so much.
14:45
I hope you enjoyed this four part segment with my special guests, Trevor Calton from Evergreen Capital. trover has an incredible wealth of knowledge and he had an awful lot to share. So if you happen to miss any of this four part segment, I highly suggest you go back and listen to all of them. And Trevor and I spent a great deal of time discussing how to scale your investment portfolio and more importantly, how do you do so without using your own money. I hope you got a lot out of these episodes, and were able to get some guidance regarding your own real estate investment strategies. Until next time, take care.
15:19
For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit growingempires.com