On March 30, Jared Fausnaught, DrWCP, was asked to speak on a panel to local Keller Williams real estate agents. After the panel, the more than 60 attendees were eager to get their hard money questions answered. Here are a few of the top questions, and our responses. Please reach out to us if you would like to learn more!
Q: When someone comes to you with a deal, what are you looking for?
A: The bottom line is that the deal makes sense. Specifically, we’re looking for a property and deal that has enough margin so the borrower will make money. We want to look at the purchase price, renovation cost and ARV and fully understand all 3 of those numbers. Those are the components that allow us to underwrite the property and know whether it’s going to be a good deal or not. We also want to see someone who’s done their due diligence. For example, someone who’s pulled comparable properties to establish the ARV. We look at the location of the property since we do have geographical lending parameters. We lend in Washington, D.C., Maryland, and Virginia, however there are some areas that we focus more on than others. Much of your success as an investor will be focused on where your property is located and the confidence that it will sell at a certain price and as quickly as possible.
A borrower’s background is another piece of consideration for us. What is you experience? Have you done renovations in the past? How much liquid capital do you have for a down payment? We will use all this information to come up with a flexible solution to make sure you can successfully complete the deal.
Q: How do you separate the serious real estate investors from the dreamers?
A: It’s important to have big dreams and chase them, but when it comes to real estate investing, you have to make sure they are realistic. It’s not enough to just have the dream, you must take action and build relationships with lenders. A lot of successful people in this business started by doing just that. One thing that really separates the serious investors is the amount of money you are willing to put at risk in a property you want to flip. If you’re willing to put your hard-earned dollars at stake, there’s nothing more real than that.
You also have to have the right contacts. One of the first questions I ask a potential borrower is “Who is your contractor?” There are a lot of contractors out there, and some are better than others. I want to know that you’ve taken the time to research different contractors and that you’ve built a relationship and a plan with them. The same goes for your attorney and CPA. And maybe you don’t have all these people lined up, and that’s fine, but it allows me to gauge where you are in the process and see how serious you are about the project. Every successful real estate investor should have a “dream team” of professionals assembled to help them build, support, maintain and grow their business.
Q: What should I be doing to get pre-approved without any hassle?
A: This really depends on the lender – everybody’s different. Our pre-approval process at Washington Capital Partners is uniquely simple. You will have one point of contact from start to finish, and our loan officers will guide you through the process step by step. The first thing to do is gather necessary information for underwriting. This includes:
Comps if you have them
With this information, we can underwrite the property and get you a response within the hour. Our response will include a complete breakdown of our proposed lending terms as well as a breakdown of the funds needed at closing. After approval by the borrower, we will send you a formal term sheet and checklist of items that we’ll have to obtain prior to closing. Our ability to close on time is predicated on obtaining those items. We will need to know the settlement company and contact info for a representative to be able to coordinate with the title company for all the lending terms and get them all the documents needed for closing.
Q: What is your advice on crowd funding?
A: I would say, first and foremost, have a good attorney because you’re going to have to understand the regulations such as Reg D and the Jobs Act very closely. Fundrise is a good business model to study for crowdfunding. However If you’re looking for cheap access to capital, there’s nothing better than a hard money lender. Building a crowdfunding platform is difficult, and trying to obtain funds from multiple different lenders or equity partners will be a challenge. When you factor in that today’s investors are looking for high returns above what they can make in the stock market, you may end up paying your crowdfunding investors nearly what it would cost you, and possibly even more, to work with a hard money lender like WCP.
Q: What If you want to pay cash for everything?
A: My initial response to that is your cash on cash return is going to be terrible. Use the leverage that’s out there. So long as you have the right tools behind you and you know that you’re going to be able to finish a rehab quickly, there’s no reason why you shouldn’t go out and leverage somebody else’s money because then you can do that many more deals. The amount of money you can use as a down payment, it multiplies the number of deals you can do.