I want to share how you can use commercial lending to take a large step forward toward financial freedom!

The Real Estate Guys™ Radio Show is a real estate investing talk program for investors and has been broadcasting weekly on conventional radio since 1997. Left to Right: Russell Gray, Billy Brown, Robert Helms.

Billy and Chris Martenson, PhD (Duke), MBA (Cornell) is an economic researcher and futurist specializing in energy and resource depletion, and co-founder of PeakProsperity.com (along with Adam Taggart).

G. Edward Griffin is a writer and documentary film producer. Author of Bestseller “Creature From Jekyll Island” exposing the Federal Reserve He is well known because of his talent for researching difficult topics and presenting them in clear terms that all can understand.

Billy and Robert Kiyosaki. Robert Kiyosaki is an entrepreneur, investor, motivational speaker, author and also a financial knowledge activist. He is very popular for his series of books called Rich Dad Poor Dad.

Billy and Brandon Turner. Brandon Turner is a real estate entrepreneur and the VP of Growth at BiggerPockets.com, one of the web’s largest real estate investing communities. He is also the author of The Book on Rental Property Investing, The Book on Investing in Real Estate with No (and Low) Money Down and several other books.

This In 2009, after failing to raise enough money to go back on the pro golf circuit, I was given the opportunity to work for Churchill Mortgage as a residential mortgage lender. I couldn’t spell “mortgage” at the time but they still hired me (and trained me) The owner turned out to not only be a friend but also a great mentor. In 2014, I left the industry to pursue opportunities related to real estate investing. After failing at that, I was mentored by a great investor and commercial lender. He taught me commercial lending and how to use it to be a more profitable investor.

I thought owning real estate made me an investor. After “House Hacking” a few properties, we were living for free, but

I realized the path was longer than my remaining sanity. With my mentor’s help, I learned the truth!

For the last 4 years, I have been sharing this knowledge with a small group of investors

through my weekly newsletter. This list has now grown to several thousand subscribers with little advertising. However, even with this knowledge I had not yet syndicated an apartment

In Feb 2019 I boldly proclaimed at a Music and Money Investors (view video at 28min) Group, a local meetup just outside Nashville that I sponsor, I would syndicate a 100 unit apartment complex that was an 8 CAP by June 30th 2019.

I failed. It was only an 81 unit and we closed on the property July 8th! We followed that up by doing a like kind exchange (1031) from the sale of one property into an office complex in my wife’s hometown. It just so happens to have a national corporate tenant on a 7 year triple net lease (nearly a 10 CAP)! All totaled, we acquired nearly $5MM in positive cash flow producing properties within a few months of each other.

Now, here is WHY this matters and HOW real estate done correctly can change your life. The acquisition fee we earned off the apartment paid off the medical and credit card bills from my daughters birth 2 years earlier. It also paid off my wife’s car. In addition, the cash flow from the office not only more than pays for the semi annual trips

to see the inlaws, but is also a tax write off everytime we visit! This doesn’t even factor in the tax savings from the bonus depreciation!

Along with my weekly educational newsletter, these two acquisitions got the attention of Robert Helms and Russ Gray, the co hosts of The Real Estate Guys Radio (established 1997) They invited me to be not only a regular contributor but also part of their Syndication Mentoring Club!

With the unprecedented opportunities that are about to unfold, I want to share how you can use commercial lending to take a large step forward toward financial freedom!

Is Commercial lending that much different than residential?

 Yes and no.

 The fundamentals of lending (discussed throughout the book) are not different.

Mortgage Loan Officers (MLO) are typically transactional based. They know they won’t get another loan from you for 7 years. Commercial lenders are relational. They are typically personally responsible for their book of business (loans plus deposits for bank lenders) and must be able to vouch for you and the loans they put on the lender’s balance sheet.

The commercial lenders you want to get in front of have decades of experience and also a vast network of relationships. The lender typically does not need MORE borrowers. Just by their existing relationships, they are able to hit their quotas and be able to hit the golf course whenever they want. Yet they are the exact ones you need to get to know. So how do you get their attention when it doesn’t appear they need you??

First off, what exactly is commercial lending? How is it different that getting a mortgage for a rental property?

A commercial real estate loan is a mortgage secured by a lien on commercial property as opposed to residential property. Commercial real estate (CRE) refers to any income-producing real estate that is used for business purposes; for example, offices, retail, hotels, and apartments or portfolios of 1-4 unit rental properties. Investopedia.

Borrowers can be individuals, entities or partnerships. Typically the lender will want to see the asset is able to adequately pay for all the expenses and loan by itself. Any asset that produces cash flow can be classified as CRE.

As an apartment syndicator, coach and founder of Investors Capital Group, a concierge commercial loan brokerage, I do have an inside track on how this process works. But before I was in this business, I had no idea. I kept seeing people I knew acquiring larger assets and wondered how they did that? Back then, I couldn’t even get a car loan in my personal name without my wife co signing.

I’m going to give you exactly what you need to know in the following pages. This isn’t just theoritical. It is necessary. The time invested

now will produce larger profits once complete. You will have the confidence and knowledge to ask for the exact lending you need for your next larger investment that will begin to change your family’s financial future!

My day job as owner of Investors Capital Group is to help strategize, sequence and execute that strategy on matching the right lending to my client’s project to maximize profits.This includes Bridge Lending, Commercial Real Estate Lending, as well as some Small Business Administration (SBA). I speak with borrowers and lenders every day.

I know why lenders will fund one request and turn down a near identical request from another borrower

The following pages will dramatically increase your probability of getting a YES from great commercial lenders.

To give you a simple overview of how banking works, for every $1 of deposits a bank has, they can lend up to $10. Your deposits are a liability to them. They make money from loans and fees. A bank’s cost of funds is usually a blend of the interest they pay you on your deposits and the cost to borrow money from the FED. They will add a margin to that cost which determine their profit. 2-3% spread is typical depending on the size of the request.

If the current banking relationship cannot fund the borrowers request, the borrower will be looking to other institutions. One of the first documents the next lender will want to see is a Personal Financial Statement. The lender will not only be looking for financial stability but also how much cash you have that can be poached.

Bank B will say, “We would be happy to lend on that project, but we want a relationship” What that means is they want your deposits – so they can multiply that by 10 and lend it out to another borrower. To get a loan from a depository lender, you must be willing to give them your depository relationship.

Did you know that there are other lenders out there who don’t care about your deposits?

Here is how they operate. Their source of funds are compiled from hedge funds/family offices and warehouse lines of credit. They will typically fund the loan with those borrowed funds, then combine the Notes into large bundles of $200-$300 million and sell the paper for a profit 30-60 days after closing to a larger institution.

The rates you pay are largely dependent on the institutions that buy the Notes.

The payment servicer could be the lender or it could be a third party. Yes, those servicing rights do get sold as well, but in today’s world there are plenty of paper notifications as to where to

send payments. These are legitimate institutions and have many fantastic benefits including longer amortization as well as ability to borrow money without a personal guarantee. We won’t discuss that here. The point is that you have many more options. But the FUNDAMENTALS of lending do not change.

Your credit score doesn’t meet their minimum requirement.

You don’t have enough down payment and reserves.

You and your team don’t have the experience.

You are requesting a loan from a lender with a subject property that is out of their geographic lending area. I.e. you live in Tennessee, but the property is in Ohio.

The asset that you are buying is in their geographic area, but you are not.

The asset is not something they lend on. I.e. mobile home parks or self storage.

The loan amount is too low or too high.

The bank doesn’t have enough room (aka money) left in their “bucket’ to loan you in that asset type.

The banker and underwriter are unclear about your loan request or don’t understand your financials.

The underwriter or other leaders had a bad experience with…. asset, area, cousin of your realtor, etc. The bias does happen. Insane as it sounds, we had a loan turned down for a stabilized multi family apartment in Florida in early 2020 because the underwriter didn’t like what happened to the area in 2008. Location or borrower bias cannot be overcome, you just have to call another lender.

Your credit score doesn’t meet their minimum requirement.

You don’t have enough down payment and reserves.

You and your team don’t have the experience.

You are requesting a loan from a lender with a subject property that is out of their geographic lending area. I.e. you live in Tennessee, but the property is in Ohio.

The asset that you are buying is in their geographic area, but you are not.

The asset is not something they lend on. I.e. mobile home parks or self storage.

The loan amount is too low or too high.

The bank doesn’t have enough room (aka money) left in their “bucket’ to loan you in that asset type.

The banker and underwriter are unclear about your loan request or don’t understand your financials.

The underwriter or other leaders had a bad experience with…. asset, area, cousin of your realtor, etc. The bias does happen. Insane as it sounds, we had a loan turned down for a stabilized multi family apartment in Florida in early 2020 because the underwriter didn’t like what happened to the area in 2008. Location or borrower bias cannot be overcome, you just have to call another lender.

Do you feel like FICO seems to be in charge of the lending world? First off, you have to understand what a score represents. It’s the likelihood of you going into default within 2 years on a loan based on your history and credit usage. MYFICO.com for more details.

PULL YOUR CREDIT AND CREDIT SCORE FROM EXPERIAN PRIOR TO TALKING TO A LENDER.

NO IT WON’T AFFECT YOUR SCORE.

Lower score means you are more likely to default, higher score is less risk. If you have had any negative data on the report such as bankruptcy, foreclosure or late payments, especially on credit cards or student loans, it will quickly deteriorate your score and take time to rebuild it. Not much a lender can do until those are caught up and at least 2 years removed from the negative history.

However, if the information is inaccurate, you can dispute that and have the credit reporting agencies pull off that information. Once pulled off, then your score will need to be re-pulled and it should go up. How much will depend on numerous things too long to discuss here. The process can take up to 60 days.

The most important factor in your score is your credit card usage. This can depend on also when the report was pulled and if you made a payment on the card. The fastest way to improve your score is to pay down your balance to no more than 25% of the available limit.

In this new lending environment, how likely do you think lenders are going to want to work with borrowers with little skin in the game? Some bridge lenders (aka Hard Money) may lend on a higher Loan To Value, but there are specific times and reasons to use that type of lending.

What we are discussing here are ways to attract relatively inexpensive lending from outstanding commercial lending teams..

YOU MUST HAVE A DOWN PAYMENT TO GET A LOAN FROM A REPUTABLE LENDER!

 100% FINANCING is what got us into the mess we had in 2008. Banks and other great commercial lenders will require you to have anywhere from 20-30% of the price as a down payment. This can be from a single family investment property all the way to a large apartment complex. There are always EXCEPTIONS, but they are exceptions. Remember, the point of this ebook is for you to become the ideal borrower and ATTRACT commercial lending to your projects so you have MULTIPLE lending options.

Where do you get the down payment?

Besides checking and savings account, here are some alternative sources of down payments acceptable to banks:

• Loan from 401k/IRA. CARES act allows for up to 3 years to repay your 401k. Check with your advisor.
• HELOC-Home Equity Line of Credit
• Loan from Cash Value of Life Insurance   
• Sale of an asset
• Margin Account
• Cross Collateralization of existing assets. The lender can take first lien position at lower loan to value across all assets, including the asset you are acquiring. Or you can just refinance the portfolio and use the cash. For more information on this strategy, listen to my podcast with The Real Estate Guys.
• Partnerships
• Seller 2nd (investor still needs to come up with 10% to 15% of your own of own money and the property still must cover both debts)

Not acceptable forms of down payment

• Cash that can’t be sourced
• Foreign money from overseas
• Loans from credit cards

This matters more than you realize.The lender wants to know that you have the experience to not only run this profitably, but also handle the fires WHEN they arise. If it’s your first larger asset, then you can mitigate this by having a more experienced partner on the loan as well as a detailed list of who is on your team. From contractors, to insurance to realtor, etc. Don’t get upset if the lender doesn’t see how successful running 2 rental properties equates to running a large self storage.

If you don’t have the necessary experience the lender requires, be prepared to have someone that does sign on the loan.

Lenders will refer to this as “Footprint”. Footprints are determined by the lender’s charter. Most of the time it is determined by proximity to their headquarters in terms of drive time or miles.

When it comes to geographic limitations of banks and asset buckets, those are things you can’t control.

“Buckets” refer to how much money the lender has budgeted for each asset class they lend on allocated by a percentage of deposits. Most of that money is already earmarked for those borrowers they know and trust. They do reserve a small portion allocated for new relationships. In reality you are only fighting over a small piece of the pie.

“A confused mind does not act”

 Assuming the lenders do lend on the asset you want and have room in their bucket, the final most common reason for decline can be overcome if you follow my suggestions below.

All lenders get frustrated with borrower requests when they are unorganized and slow with their documents, when the documents are not legible, and when the loan request isn’t clear/clean or concise. I encourage you to write out your loan request for the lender answering the 5 W’s and the How Who, What, When, Where, Why, and How.

If you do nothing else but what I suggest below, you will double your chances of getting the money you need.

SEND IN 100% OF THE DOCUMENTS IN ONE EMAIL! Do not drip them in over time!

Great commercial lending teams see great lending opportunities every day from great borrowers. Why would they want to deal with messy loan requests from unorganized amateurs? Make it easy on them.

99% of the documents needed is still 0! Lenders will not submit loan requests to their underwriters until they have 100%. This is the top reason loans die and borrowers are frustrated!

YOUR LOAN WILL BE SET AT THE BOTTOM OF THE LENDERS PILE OF REQUESTS UNTIL THEY GET ALL THE DOCUMENTS.

Create a folder in a secured cloud service like Dropbox or Google Drive called Financials.

Create a subfolder and LABEL THEM AND THE DOCUMENTS.

The easier you make it on the lender, the quicker you will get a decision on your loan.

These need to be in a PDF format.

Identification

The front and back of your driver’s license as well as another form of ID such as a Passport for you and your spouse (if they are a borrower).

Pay stubs

Most recent 90 days for all borrowers.

Tax returns - Business and Personal

Last 3 years and label them each year. This includes all schedules as well as business returns.

W2/1099/K1

Even if you have a side hustle that lenders can’t use for income because you don’t have 2 years of history, the lender should see it.

Personal Financial Statement (PFS)

Keep your own PFS in excel then update it as needed. I recommend updating quarterly. The PFS is your personal balance sheet that shows your assets, liabilities as well as your cash flow. Many lenders have a guideline that the borrower has the current net worth that aligns with the new loan request.

Either 1 to 1 or a percentage. Filling this out incorrectly will blow your chances of getting your loan approved. If you need additional help, I cover the importance of this document and how to fill this out correctly in my course.

Bank Statements

Last 90 days of EVERYTHING you have, from IRA to checking, savings, business accounts, etc. There is no such thing as too many assets in a lenders viewpoint. During the loan process, you will need to provide all updated statements from your accounts as they come in.

Entity Docs

If you have an LLC, you will need to have your Operating Agreement, Certificate of Existence and EIN. If there are more than one member of the LLC that is the borrower on the project, the lender will need to see all of the above for each owner of the LLC.

Business Financials

Include your Balance Sheet, Profit and Loss Statements, and schedule of debts for each entity.

Team Information

Investing is a team game. If you don’t have a team, start to recruit now! Lenders need to know contact information for your:

• Insurance Agent
• CPA
• Bookkeeper
• Assistant
• Commercial Realtor
• Attorney
• Title attorney
• Property Manager

Why? Because lenders can ask your team for the documents directly! This saves time and frustration.

Leases and Schedule of Real Estate owned

Leases are legal contracts. The lender will want to know if the property will be going vacant soon. The longer the lease on the property the more secure the lender will feel. This is also why lending for co-working spaces and short term rentals are difficult.

If you have at least one rental property you will need to create a Schedule of Real Estate Owned. This is something simple to do in excel. Make a column with the following labels; Address, City, State, Zip, Property Type, Date Acquired, Purchase price, loan amount, current value, rent, taxes, insurance, HOA.

Bio

This is a quick 1-3 paragraph background on you, experience and vision. Adding a professorial photo or 2 does help. Social proof may not sway the lender, but it will help open the door to a more serious conversation. This is an introduction of yourself to the lender and underwriter to highlight that you have the knowledge and background to captain the ship as well as be a good steward of money.

Contract

If you are under contract, upload executed contract as well as all addendum.

Insurance

Declarations page is important to make sure the insured amount meets the lenders requirements. If not, the insurance agent can fix it easily. On your existing rental portfolio, I suggest increasing coverage every 2 years to cover loss of rents and the increased value of the property.

Pro Forma, Rent Roll, Profit and Loss, T12

Once you have the property under contract, you will need Profit and Loss statement and a Trailing 12 from the seller, which is the last 12 months of Profit and Loss broken out by month from the seller. If the seller can’t provide this to you, it will be difficult to get lending (not impossible) but it is also an opportunity to negotiate a lower sales price.

This is the part where I love to hide behind the lender when negotiating with sellers if they can’t provide adequate information in a timely manner. Also remember that your loan underwriting does not begin until the lender has this information. Whether the asset is stable or needs improving, you will also need to provide a Pro Forma (in excel), which is a projection of income and expenses by month for the next 1-3 years. If you need more help or templates, I recorded a video on this topic for the course.

As humans, we are naturally wired to connect with those that act and speak like us. Learning to properly communicate with a lender will give you a leg up if you can come into the conversation hitting the main points and keyworks they are listening for.

I won’t go into all the keywords and phrases, but if you have the following, along with being organized and timely in your documents, you will increase your probability of getting a YES!

Down Payment

Lenders will want to see 20-30% down payment and to know the source. Is this money that you have or will it be coming from a partner or family member? Is the money coming from a sale of an asset (1031 exchange) or cross collateral of equity in existing assets? It must be documented.

Loan to Cost

This refers to the cost of acquiring the property as well as any improvements. Lenders will usually only issue you up to 70-80% of the cost of the property when you buy or refinance no matter how good a deal you get. Some exceptions apply, but they do want to see a significant skin the game.

Again, the point here is by following these guidelines you attract great lenders and teams not to be the exception and limit your loan options.

Amortization

How many years is the loan amortized. Are the payments interest only? 20 years is typical, but some exceptions you can get longer amortization. Some lending such as larger multi family lending and CMBS loans for non recourse rental portfolios can go 30 years. Other loans for land and mobile home parks may only be

3-10 years. The shorter the amortization the higher the payment, which will affect your Debt Service Coverage Ratio.

Loan Length

Even though the amortization is 20 to 30 years, the term of the loan may be only 2-5yrs. Lenders typically want to see the loan mature quicker so they can evaluate the asset and the borrower’s performance, especially in uncertain economic climates. If it will take you 3 years to stabilize the asset, don’t sign on the loan for a 2 year loan!

As Is Value

As the property sits right now, what is it worth? This is based off an appraisal.

As complete Value/After Repair Value

After you improve it and make it pretty, what is it worth? After you stabilize the rents in the multi family, what is the new valuation?

A lender will do an as completed appraisal and will need your full scope of work and budget for what you plan on doing to the property to determine this value. Your appraisal and your loan WILL BE DELAYED until these vital documents are received.

Total Rehab/Construction Costs

How much will it take to make it pretty and more valuable, include in there all 3rd party costs and interest carry.

Seasoning

If you are refinancing, how long you have held the property before the lender can use the current market value for lending decisions. This can range from 3 months to 2 years depending on the asset class. Recapitalizing and stipping equity going forward will be quite different than before Covid-19. Don’t expect to buy something for cheap with no money then refi

it because it was a good deal aka BRRR method. You must be able to document improvements. Yes, some lenders I work with do have shorter seasoning requirements, but this ebook is about how to get the best terms from the best lender teams.

This is not about how to get exceptions. If you have no money in the investment, the lender is likely to see that as a very big risk.

When troubles hit, you have no incentive to right the ship. This book is about seeing real estate investing through the eyes of the lender. The lender brings their money and team to partner with you for only debt and none of the upside.. If you do want to refinance, you should phrase it as recouping some of your initial capital investment, not cashing out the equity.

Net Operating Income (NOI)

This is THE MOST IMPORTANT CALCULATION!

The key part of this equation is knowing what vacancy rate and expenses a lender will apply. Want to know what expenses are factored in for larger investments from a lenders point of view?

Debt Service Coverage Ratio (DSCR)

This is the key ratio for a lender! Net operating income divided by total debt service. For example, suppose Net Operating Income (NOI) is $120,000 per year and total debt service is $100,000 per year. DSCR would be 1.2. Lenders will be looking for a DSCR of 1.2 to 1.25. As the economic outlook is less positive, they may want a minimum of 1.3 or higher. A HIGHER DSCR means the loan amount would be lower, and you would need to bring MORE money for down payment.

The simple translation of this is for every dollar of debt payment, the asset will produce $1.20 of income!

Global Debt Service Coverage Ratio

Including income from the project, plus all your other sustainable income, lenders calculate your personal ability to service your existing debt plus proposed debt. Unlike a mortgage lender that uses Debt to Income ratio, most depository lenders lenders work off your gross income and factor in income taxes as well as family expenses. Each lender is different, but they normally will deduct $10k for each adult and $7k for each kid. The ideal ratio varies, but a 1.15 or greater is usually ok. Anything 1.5 or greater makes the lender feel more confident in you.

Knowledge Test: What would the Global Debt Service Ratio be if the couple above had 2 kids? (hint, add $14k to expenses)

Reserves

As investors, we have believed that cash is trash and that our money should be employed making money all the time. We were taught as investors reserves were not needed because cash flow would cover all the expenses. As we just saw, those that had ample reserve could weather the storm.

Reserves are not lazy, they are your SEAL TEAM!

 Reserves matter to great commercial lenders. If/when the asset stops producing cash, how many months can you make the payment? What about other assets? The more debts you personally guarantee the more liquid reserves you need. How much? 12 months is a great start.

Are some lenders going to be ok with less? Yes, but the point of this book is to not find the exception, its to be the lenders IDEAL!

Know exactly what you are requesting. Sometimes circumstances don’t allow for precision, but narrow down as much as possible.

Ms Lender, I’m looking for 75% loan to cost on a 20 yr amortization, 5yr loan to acquire this asset (ie multi family, self storage, etc). that debt services at a 1.2 right now. I project in 3yrs when I’m able to increase rents it will be at 1.4. We have the down payment coming from the sale of our rental properties and we will have 12 months of payments in reserve.

All this just so you can have a conversation with me or another lender? Yes!

Ask yourself this if you were a lender. Would you rather work with a borrower (and their team) that is over prepared or under

prepared? This is precisely the point of this book! Professionals are prepared. Professional Commercial Lending Teams only want to work with professional investors. In fact, those commercial teams SEEK OUT professional investor teams and compete for their business! Commercial lenders have the least expensive money to borrow along with the most experienced teams! Why wouldn’t you want to partner with them?

If you are ready to take your real estate investing to the next level and have professional Commercial Lenders compete for your business?

I’ve recorded a video series that will help you eliminate the 3 biggest fears that hold investors back from acquiring larger, more profitable assets:

The FEAR of overpaying

The FEAR of being declined for your loan

The FEAR of screwing up the process and embarrassing yourself

 You WILL have the CONFIDENCE to quickly write an offer on that life changing investment which allows you to invest more time in those that matter most.

Billy Brown is a commercial lending specialist, debt strategist, CCIM Candidate, and a successful Real Estate Investor. A native of Stillwater, OK, Billy attended both Oklahoma State University and University of Tulsa on Golf Scholarships. He jokingly says he ran away from home in 2003 and moved to Nashville. Now he calls it home.

He and his wife own and sold several investment properties in the area.

They just recently syndicated their first 82 unit apartment complex in Lexington, KY. They also just completed an acquisition of an office complex with a Triple Net Lease in WI. Billy is also founder of The Golf Sanctuary, the first of its kind private indoor golf and country club in Brentwood, TN.

He is a sponsor of Seth Mosley’s real estate meetup for musicians and investors called Music and Money and has been featured on several podcasts on investing including The Real Estate Guys. Billy will be completing his CCIM designation in 2022. He was also be featured in 2 Amazon Best Selling books: Success Habits Of High Achievers and Bringing Value, Solving Problems and Leaving a Legacy.

As an investor, you need a lender that can partner with you to help create and execute strategy to maximize profits, not just be an order taker.