Hard Money Loan And Short-Term Loan Program With Sean Pan
Episode 494: Hard Money Loan And Short-Term Loan Program With Sean Pan
Sometimes, we need a little financial help to close that real estate deal. When you can’t depend on financial institutions, then a hard money loan and a short-term loan program might be your best option. Join Mitch Stephen as he talks to Sean Pan, real estate investor, hard money lender, and podcast host of The Everything Real Estate Investing Show. Sean talks about hard money loans and why they are an option that you need to consider. He also discusses the intricacies of hard money and short-term loan programs. Listen in and find out more about financing your real estate investment.
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I had some storms down at my ranch, knocked out a bunch of things, including internet, so I had to drive to a small town and get some internet connectivity. I’m doing this show from the truck. The lesson that we learned from it is we do what we have to do. We adapt, we overcome, and we get it done. It doesn’t matter because you don’t care if I’m sitting in my truck, if I’m on a boat in a Hawaii or wherever, as long as we’re delivering some content out here that’s useful to you, and that’s the point. I have Sean Pan on with me. He specializes in doing rentals all over the nation from wherever he’s at. We talked about that on a show with him a while back. We’re going to talk about hard money lending and a rental loan that they have.
With no further ado, how are you doing, Sean?
Mitch, thanks for having me back on the show. It’s a pleasure to be back on here.
Give a little bit about your background. Some of the new people don’t know where you’re coming from and then we’ll get started.
For those of you who haven’t read our other episode, my name is Sean Pan. I’m a real estate investor based in the Bay Area. Most of my portfolio is in out-of-state rental properties. My girlfriend, Sharon and I, own around 22 rental properties across the nation. I flip homes here locally as well. I bought about 4 or 5 properties. I also work as a hard money lender. Most of my days are fielding calls from other investors and giving them money to fund their dreams.
Let’s start with the hard money lending side. I’m a hard money lender, too since 2005. I have my own reasons why I got into the business. I didn’t want to go in the business. I had to do it out of necessity. I’m using a mixture of my money plus private lenders’ money. I’m borrowing the money at a lower rate. I’m lending it out at a higher rate with some points, fees and stuff. I needed to become a hard money lender because I had too much private money and I couldn’t find enough deals at my underwriting criteria to spend all the money but if I didn’t keep these people’s money out or I left them on the sidelines too long, they would go away. I invented the hard money loan business to give short-term loans to lenders who are quick flipping so that I can occupy the money until I could get to it. That’s what I did. That’s what I’ve been doing for years. Tell us about your hard money business. How did you get into the hard money loan business? Are you using your money? Are you using other people’s money? How does it work?
Unlike you, it’s not my money or my own friends’ money. What we’re doing here is I work for a company called Conventus Lending. We’re a nationwide lender. With that, we have a lot of funds. We probably do on $100 million of loans per month. That’s again sourced from bridge loans, which are typically hard money loans as well as our long-term rental loan program. The way that I got into the industry is because I was a flipper myself. As a flipper, I used several different hard money lending companies. This was the one that I liked the most.
They had the best rates and best service. When I became somewhat of a small influencer with my YouTube channel, podcast, and Meetup group, they said, “Sean, why don’t you work with us? You are referring us with all this business anyway.” I figured, “This is in line with my industry, so I might as well work there.” Even though I used to be an engineer back in my past life, I hated my full-time job. I thought I would never have another full-time job. This one aligns with everything I do anyway, so I’m like, “It sounds good.” I work with them full-time.Hard money lending really is for people who probably just can't get a loan anywhere else. Click To Tweet
I have eight businesses. I didn’t start out wanting to do those businesses but what happens is you’ve got a certain kind of exhaust that runs out of your tailpipe when your engine’s running. Let’s say, you’re a sawmill. You make trees into boards. If you’re making trees into boards, what do you have a lot of? You have a lot of sawdust. You can either pay to have that sawdust thrown away or figure out what can be made out of that sawdust and sell the sawdust or create another product like laminated boards or poison it with ant poison, put it in bags, and you spread it out for ant poison. You may end up in the insecticide business. It’s a whole different thing but the reason why you’re there is because you have this residual. You’re in this business of flipping and you’re around investors all the time. You’re probably working 24/7 for that company as you’re walking around because you are going to tell those people about that company anyways. You just weren’t going to get paid.
Before I was doing this, I was doing a podcast, YouTube, Meetup group all for free. I had nothing out of it. Podcast is just for fun, talking to people, learning, and sharing information. The same with YouTube. I’ve been doing YouTube for years. I have 4,200 subscribers, nothing too crazy. It pays me about $300 a month but because I’m doing YouTube videos about real estate investing and hard money loans, we get so many leads from that. It’s very synergistic with what we’re doing that we would have done for free anyway.
You probably use some affiliate program where you have a link that they run through. They already earmarked this and if they make it to the website and fill out something, they know that they originated from your show or they’re coming from you. Your company knows to pay you.
I basically tell people to schedule a call with me. I always have my LinkedIn description somewhere and then they book a call with me. We have a one-on-one session to find out how we can help them with their properties.
I like that better because face-to-face service or talking to people in person always does better than go to my website and sign up or read. I don’t like to do that. What kind of loans are you giving? What’s a loan scenario look like? Who was a good borrower for you? Why are you good for the borrower?
Typical loans for new investors and people who have no experience, we can probably go up to 80% of the purchase price and up to 80% of the rehab costs. Depending on the location, that’s going to be around 8.5% and it’d be 1 point for origination fees. Our rates are pretty competitive, even for people who aren’t super experienced. The more experienced you are, the more repeat business you do with one company like ours, then the rates go down, terms get better, and do more leverage. I would say, in general, we can fund most of the states in the nation. There are some places we can’t because of licensing. If you fit in those areas and your purchase price is above a certain threshold, then you’re a good fit for us.
You’re nationwide for the most part. That’s one thing. I’m going to have all your information over at 1000Houses.com/Pan. It’s real easy. If you want links, connections or you want to learn about this company or the name of this company and where you can go to get an app and fill out an app, go to 1000Houses.com/Pan. It will all be over there. It probably has contact information for Sean himself. We’ll make it real simple for you to get connected. The key to the real estate investing business is number one, you got to find deals. If you don’t find a deal, nothing happens. Number two, you have to fund the deal. You have to find a way that this deal is going to get funded and then you got to sell it. Funding is always a major source and is usually what causes the selling for a lot of investors. They can’t do any more business because they don’t know where to fund any more deals from.
Hard money lenders can be that bridge. It can fill that gap. Sometimes, people will go, “When I was borrowing money from hard money lenders, they want it 12%, 14%, 16%.” It didn’t matter though. Sometimes the cost of the money is the least of the worry. That was 16% annual interest with a couple of points. I was only going to have that property for 30 days or 60 days. I was going to pay a fraction. Instead of making $30,000, I would only make $28,000 but it was either borrow the money from an expensive place or a hard money lender and make $28,000 or make zero. The interest rates that you named sound pretty competitive. I started my whole career 10% and 12% from private people, so I wasn’t paying any points but I was paying more.
Hard money lending is for people who probably can’t get alone anywhere else. If they mean they can’t do the deal, then that’s too bad. I’ll give you my example. When I first started flipping houses, I was working a full-time job as an engineer. I had some pretty decent income over six figures but the thing is I already had a property here in the Bay Area and properties out-of-state, so my debt to income ratio was high. A normal lender like Wells Fargo or Chase wasn’t going to give me a loan for another flip property in the Bay Area, even though it was a slam dunk deal. This property they had been for $865,000. The property right next door to it sold for $950,000. It was in worse condition than the one I have. I was like, “This is a slam dunk deal.” I couldn’t get a loan from a normal bank. Thank goodness for the ability to get hard money loans because we were able to buy the property, fix it up and sell it for an enormous profit.
It’s not always the cost of the money. It is oftentimes the availability of the money because if your deals are good enough, they will absorb the costs or maybe you pay a little bit. I always have to shake my head when people are passing on deals because they’re not going to pay 12% for that money. Go ahead and make nothing. We could have made $50,000 but you’re missing the whole point of creative real estate investing which is get creative and make some money.
The money that you pay for hard money loans, even though it is higher than conventional financing, consider a cost of doing business. You rarely complain when a contractor goes in and fixes your house, so why complain about paying for the funds to do the job in the first place?
You made me think of another one. It’s not just the availability sometimes. It’s the availability and the speed of the money. Trying to get a loan from a bank for a house that’s going to be foreclosed on in four days is hopeless. It’s never going to happen. The hard money lenders understand, focus on and specifically are searched out for because they move much faster and they understand downtrodden or distressed properties, properties that have broken windows and missing doors. Banks want the house after you’ve got that all straightened out.
That’s usually what typical bank wants until you get a relationship with them. It’s usually not even a big box banks that will do it. It’s usually a community bank that you need to go to get a relationship with because Wells Fargo is not going to have a relationship with anybody. You’re a number. Period. If you don’t fit in the box, you don’t fit in the box. That’s the other thing that hard money lenders are good at. You go up and you size up a deal. How much risk is this for your company that’s loaning the money? There’s not much risk that the loan gets pretty easy. If you’re pushing the envelope on risk, they might get a little more tedious and ask for a few more things because you’re pushing them hard. How long does the average hard money loan take with your company?
We say 10 to 14 days, generally speaking for the new clients who aren’t familiar with how hard when it works. They don’t have their docs all in order. We say we put fourteen days on your offer to be safe but I know for some of our top tier clients who have done multiple business deals with, I’ve closed in five days.
They have to have the title commitment, the insurance, and someone is got to go out and look at it. There has to be a desktop appraisal or whatever it is. You can get most of that stuff out of the way from the very beginning and already be on deck with your hard money lender, which means on deck saying they already have all your paperwork and all your files. Don’t wait until you find a house to get this stuff to them. If you know you’re going to go out there, try and be looking for a house, you need to get with Sean or someone like him. Get your fil and get your stamp of pre-approval. They know who you are. They know your social. They run your stuff, whatever it is they need to do. They might not even be running socials if they’re a collateral-only based lender. Are you all checking people’s credit or are you collateral only?
You notice that our rates are low. The reason is because we are in between that private lending and institutional lending. We still do a lot of due diligence. We check their credit but we’re not concerned about their income, debt to income ratio, or tax returns. We do want to see that they’re a good borrower, then we can give them the best rates.The money you pay for hard money loans, even though it is higher than conventional financing, is considered a cost of doing business. Click To Tweet
For those of you who don’t know this already, if you have poor credit, it’s killing you from everything, from the insurance rates you paid, car loans, house loans, and hard money loans. If you have bad credit, go to work and try to fix it. The stronger you are credit-wise, the easier things get and the less expensive. Many things that you may not even think of are costing you extra money because your credit is not good. That’s a whole another topic but while we’re there, I thought I would throw that out. Have we covered the hard money lending? What do you want to say about that, Sean? Go to 1000Houses.com/Pan. All the information is over there. Check it out. We like to let people know how effective and how much reach our show has. We’ll go through that little gate but then you’ll get over there and you’ll find out everything you need to know. Pretty much nationwide, there are a few little pockets that can’t but you’ll figure that out real fast.
I would say some things to consider. Even though we’re a hard money lending company and we do pretty much have “unlimited funds” what we can give to you depend on how much money you already have. I can’t give someone a pre-approval letter for a $10 million fund if they only have $20,000 in the bank. They need to have enough money to show that they can pay for the down payment, closing costs, rehab costs and possibly six months’ worth of interest payments. We want to make sure they have enough money to succeed, complete the project and not run the money halfway through.
You’re looking at someone who has the wherewithal to see this deal through. Deals take money and there will always be surprises. They’re looking for a little cushion. You can’t just be dead broke trying to borrow money and hope it all works out in five days.
That’s why I say for anyone who is interested in getting a hard money loan, feel free to contact any of us first. It’s best that you talk to a loan officer, have them understand your situation, and what kind of deals you’re looking at. By talking with them for ten minutes, you’ll understand what you can and can’t do and maybe you can get a pre-approval letter to start making offers for deals.
Tell us about this other program you have.
We have a Long-Term Rental Loan Program as well. This one is probably exciting for some of your readers. For hard money loans, people generally understand what it is and what it’s used for but the Long-Term Rental Loan Program is a relatively new concept that many hard money lenders are starting to do probably as of 2020. Typically, in the past, when people want to buy rental properties, to do leverage, they would go to a conventional bank like Chase, Wells Fargo, or whenever and they put 20% down. For the first four loans, everything was pretty easy. After you get ten loans, the banks will cut you off. They think you’re too much of a risk and they won’t give you any more loans, so then you’d have to do a portfolio loan or you’d have to get one giant loan of one property and cash out your other properties. Maybe have your spouse taken on another ten loans or go through private money lenders and pay 8% or 10% for more rental properties.
This is frustrating. People who are real estate investors also want to lower their income as much as possible because they don’t want to pay taxes. They take depreciation. They do all these different things to show that they have no income but because of that, the banks say, “You don’t have income.” We go back to this debt-to-income ratio issue where the banks say, “You don’t have enough income to support all of these rental properties.” Long story short, banks were hard to do rental properties if you want to scale big time without going to commercial loans. These hard money lending companies like ourselves created this long-term rental loan program. We can give 30-year fixed loans for investors as long as the property is self-cashflow.
Instead of looking at the individual’s debt-to-income ratio, we look at the individual properties’ debt-service-coverage ratio. Does the income support the minimum payments? Does it support the principal and interest payments for the mortgage, the taxes, insurance and HOA dues? If it passes that check, you can still get great 30-year loans for around 4% to 5%. It’s going to be higher than conventional financing at 3% or 4% but it’s still something that enables you to scale your portfolio to an unlimited amount without being take on private money loans at 8% or 10%.
Don’t trip over the pennies on the way of the dollars. When something is easy but it costs 1, 1.5, 2 points or more, it has no limits. You got to outrun your problem. I made a lot of money paying 10% and 12%. I said it before and I’ll say it again. I built a whole career on what you all would consider very expensive money these days. If you haven’t been around for years like I have in the business, I’ve seen rates as high as 14%, 15%, 16% and 17% for fix and flip deals or for creative real estate investing deals. I was still able to make good money. These rates that Sean is talking to you about should make you giddy because they’re fantastic opportunities.
One thing is for sure, you got to jump through these windows when they’re open because these windows don’t stay open forever. I’m going to guess that at some point, things change. I don’t know if that’s tomorrow, next week, next month or next year but when interest rates are low, you need to go through and refinance or financing. You need to do as much as you can and get as much of that pie as you can get because nothing stays the same. That’s the whole point of this whole world. We keep changing all the time. It goes in ebbs and flows and we’re at a great place to borrow money.
Even in 2016, 2017 when I was buying my first rental properties, I was okay with paying 5% for my investment properties. This is with conventional financing too. To get nonconventional financing at 4%, it’s a pretty good deal. A lot of our clients are happy with it.
I took a home equity loan out for a lot of money at $1.87 million. I didn’t even know what I was going to do with it but at $1.87 million for fifteen years fixed, I said, “I’ll find something to buy that makes more than $1.87 million. I promise you and I’m going to buy it.” Eventually, the rates got so low. I always valued having my home paid off free and clear but at $1.87 million, it’s like, “I don’t care anymore. I’m going on debt in my house.”
On your point, it’s a HELOC. It’s not you took it out. It’s a revolving line of credit that you have access to whenever you need it.
If you’re going to go ahead and set it up, you need to spend it and get what you’re going to get so you can start making money on it. They approved me and it was out of the account within days. They were approving me and I was out trying to figure out what am I going to do with it. It’s all about cashflow, rental loan, appreciation, being able to hold on the houses for long periods of time, and keep adding on. Anything else we should talk to these folks about before we probably wrap it up, Sean?
That’s basically what I want to come onto the show and talk about regular hard money loans, how they work and introduce them to the concept of the Long-Term Rental Loan Program. Long-term rental loans are amazing. Our clients love them. There are some small intricacies here and there. They might be a bit too complicated to go into in full detail on this show here but I invite any of your readers to go check out my YouTube channel. I have a bunch of videos on hard money loans, the long-term rental and program and real estate investing tips in general.
If you want to go to his YouTube station, go to 1000Houses.com/Pan. All that stuff would be over there. I appreciate you taking the time, Sean. This backdrop wasn’t as pretty as some backdrops but who gives a damn.Long story short, banks were hard to do rental properties if you wanted to scale big time without going to commercial loans. Click To Tweet
I don’t think your show readers can see your backdrop anyway, so it’s all good.
It’s all about the content though. It doesn’t matter. I’ve gone and sat in a lot of uncomfortable chairs to find one nugget that I could get so I can go home and make some good profit. We’ve been speaking with Sean Pan and talking about his hard money loan company that loan is pretty much across the nation. One last time, 1000Houses.com/Pan, go over there and find out if this program is right for you. The money is dang sure cheap for us. See if you can fit in the mold. If you can, you’re going to get some great loans.
I like to thank LiveComm.com for sponsoring this episode. LiveComm was invented to solve the problems that I was having in this industry that a lot of other people weren’t addressing, so I addressed them. I average four days on the market with my houses. I put out no signs. Not one sign. Not anymore. I’m done with signs. If you go over to LiveComm.com, you’ll figure out how I did that, plus many other ways to use mass texting effectively, legally. It changes your business, your lead sources, how you sell, how you find and generate leads.
It works for almost any business. It can work for a lot of businesses. If you have a business that’s out of the box and you want to strategize on how LiveComm could work for your company, just call me, (210) 669-4020. I love putting my marketing brain to your business. I’ve been doing this for a while, so when you tell me about your business, I can probably find 2, 3, 4 or 5 ways you can use the system to change your bottom line. I want to thank you all so much for stopping by to get you Sean Pan. We’re out of here. See you later, Sean.
About Sean Pan
Sean is a real estate investor, hard money lender, and podcast host.
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