JF1341: Putting Together The Best Loan Package To Secure Better Financing with Heather Dreves
Heather is the Director of funding at Secured Investment Corp. She has helped many investors secure revolving lines of credit, and has over 15 years of experience. She also invests in real estate herself and has a lot of tips for how you can get better rates on your lending. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
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Heather Dreves Background:
-Manages Funding with Secured Investment Corp and provides private lenders and real estate investors
-Manages the loan-processing administration and originated $8 million in revolving lines of credit for hard-money
-Provides private lenders and investors the ability to connect and build powerful and profitable strategic alliance
-Based in Coeur D Alene, Idaho
-Say hi to her at www.securedinvestmentcorp.com
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Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.
First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment for you called Situation Saturday, and here’s a situation – you’ve got an opportunity and you need a loan, so the outcome of our conversation today is to help you learn how to put your loan package together and sell not only the opportunity, but also sell yourself to the prospective lender.
With us today to talk through that is Heather Dreves. How are you doing, Heather?
Heather Dreves: I’m doing great, Joe. Thank you for having me.
Joe Fairless: My pleasure. A little bit about Heather – she provides funding to private investors. She manages the loan processing administration, and has originated three million dollars in revolving liens of credit for hard money. With that being said, Heather, first do you wanna give a little bit of context for your background and then we’ll dive into the loan package and selling ourselves and the package?
Heather Dreves: Absolutely. Well, as Joe said, I’m the directory of funding here at Secured Investment Corp. We currently have revolving lines of credit that I’ve raised money into actually exceeding 8 million dollars collectively. In just shy of six years that I’ve been with the company, I’ve deployed over 30 million dollars in notes. I have been in the private money industry for a little over 15 years. I have done everything from servicing notes, processing, originating, but most of my time has been in packaging the notes and selling them to prospective lenders. So that’s just a little bit about my background.
I’m also an active real estate investor. I have been active in fixing and flipping, and most recently in acquiring rental properties.
Joe Fairless: So as our Best Ever listeners want to put together a loan package, and they’ve got a deal and they wanna sell themselves and ultimately the opportunity, will you talk us through the process for how we should approach that?
Heather Dreves: Sure. I think that things have actually changed a lot in the private money industry. Back when I got started, most investors – and I call the investors the end lenders, so the end lenders used to look at the equity position. After the markets crashed, I think that people look at notes a little differently now. it’s not always just based upon the property and the equity position, but there’s a lot of emphasis put on the borrower and their ability, so I think it’s really important to show the benefit in the property as far as the equity position and the potential for an equity position if it’s what we call an after repair value loan – that’s what we do a lot of here.
COGO and Secured Investment Corp provides funding for purchase transactions, and then also on the other side of that provide the rehab funds to rehab the property in order to increase the value, and a lot of end lenders can see that upside. So I think it’s important to point out the condition of the property as it sits. I think it’s very important to paint a very clear picture of what the rehab is gonna entail and how that is gonna increase the value in the property, and then ultimately show the end result of the rehab.
I also think it’s important to sell yourself, whether that’s yourself or someone else you’re trying to obtain funding for. One of the things a lot of our end lenders wanna know is “What is the past history of this person? Have they done this before? If they haven’t done this before, what kind of education have they gone through?” We here at Secured Investment Corp provide education on how to find the deal, how to rehab it, how to be a broker… So if they don’t have experience – or you don’t have experience – it’s important to explain or show what education or training that you’ve been through to help you be successful as a real estate investor.
The other thing that a lot of people and lenders look for is ‘What is the borrower’s financial strength? Do they have the cashflow to (number one) service the debt?” Our notes here – we require people to make payments, so it’s important to display that they have the ability to make the payments. A lot of rehab loans are what they would call reimbursement style loans, meaning the borrower has to front the cost of the rehab, they go to the lender and say “Hey, I’ve completed this on the project, and I’d like to get reimbursed for the money that I’ve fronted…” So they have to have the ability to pay contractors, pay subcontractors, buy materials, whether that’s through liquid funds that they have… Some of our borrowers borrow through their IRA’s, so they need to be able to have the ability to pool many other IRA’s to front those costs… Or on credit cards, a lot of them are active real estate investors; they have Lowe’s and Home Depot cards that they use… But basically, they need to show that they have the ability to front those costs, and show that they’ve been successful at it.
I don’t think personally that credit score is as important, however a lot of our end lenders like to see people’s credit reports to just see if people have had hiccups and have low credit scores is it something that was a one-time situation? And let’s be honest, it’s not uncommon for real estate investors this day and age to have some hiccups, especially if they were active in the market when it crashed… But they need to be able to explain it. Or is it just a habit? Do they just always pay everybody slow, and they have judgments and liens? Those are things that are harder to get over, but really just building your strength as a borrower, and showing “Hey, I can be successful at this”, whether that’s because you’ve done it before, you’ve been through training, you have a mentor or you’re partnering with someone… But really showing that you’re gonna be successful and you’re gonna be able to exit the loan successfully. I think most end lenders’ biggest concern is are they gonna get their money back?
I can’t tell you any end lenders that I deal with that are really looking to foreclose, and that worst-case scenario, but really building the strength and the equity position in the property, and building the strength of the borrower are the two biggest things that I see end lenders looking for really in a deal.
Joe Fairless: The two high-level things then is showing the potential in the deal, and that you’ve thought through the details, and then showing that you know what you’re doing, and hopefully having some proof points to support that. Is that accurate?
Heather Dreves: Absolutely. When I get borrowers that come to COGO Capital that say “Hey, here’s some deals I’ve done, here’s some HUDs” – that is proof on the pudding. Having a deal like that with the exhibits that I can go to an end lender and say “Hey, this guy/lady has done this before. Here’s a couple HUDs where they’ve shown that they’ve made profit”, and some examples… If you are an experienced real estate investor, put a portfolio together, put a couple HUDs in there, put a little one-page loan summary of deals you’ve done to show that you’ve been successful, and that goes a long way with end lenders.
So really just putting a professional package together and saying “Hey, here’s all the facts, here’s the things to support what I’m telling you, the exhibits… Do you wanna fund my deal?” Those are the kind of deals that I get funded very quickly here; the ones where there’s just unanswered questions, you’re not really sure if they’ve done it before, they don’t really have any evidence that they say they have – those are the tougher deals.
Joe Fairless: The loan package that is put together – what are all of the sections? And we just went through high-level and got some specifics, but what are all the sections of the actual package?
Heather Dreves: When we put a loan package together at Secured Investment Corp to sell our note — first, it’s important to understand these are notes that we’ve already closed on our equity funds, so we ultimately have two opportunities to deploy money with our company. One is through one-off notes, just buying one note here and there, or you can go into our equity fund. Those are for passive real estate investors that have some money to deploy; they don’t want to deal with foreclosure, they don’t wanna deal with picking and choosing what note to fund, but they like the security of the note. Those are our equity funds. So there are notes that we’ve already closed. That means we’ve fully underwritten them, we’ve closed the transaction, we have filed a lien against the property, a first lien; then my department goes on and we put what we refer to as a loan package together.
We take all of the information that we collected at underwriting and we put it in a very matter of fact order. So we put application in there, we show evidence of the entity, that it’s in good standing, we provide evidence about the personal guarantor, so the individual; we put credit in there and we put their bank statements to show their cashflow. We wanna see three months of bank statements, because as a real estate investor, we understand there could be some months that are better than others, so we assume that taking a three-month sample of the most recent bank statements will at least show an average. Banks statements are in there.
We provide the end lender with a current appraisal, so we require all of our loans to have an appraisal ordered on that, and if it is an after repair value loan, we need to show as-is values and comps to support that, and then also after repair value comps to support that.
Now, the only caveat to that if you’re trying to do this yourself would be if you’re dealing with a local end lender. A lot of those guys will just drive out to the property and make their opinion what the value is, but I personally think an appraisal looks a lot more professional. It shows that you’ve gone the extra mile to do your due diligence.
In addition to the appraisal, you’re gonna see the rehab bit in there. We wanna know exactly what they’re doing to the property. Our end lenders like to see that – “Okay, great, they’re replacing the entire kitchen, and flooring…” They wanna know exactly what’s being done. And then another added level of security that we do in addition to the appraisal is we do what’s called a baseline inspection, and Bill (our manager at COGO) might have told you a little bit about this… If it is a bid of more than $20,000, we will send a company out with a contractor’s bid and give them instruction to let us know if they believe that the bid is viable… Meaning “Do they have enough money in it?” Because the last thing that we wanna do – and it’s important to get our end lenders the rate of return they’re looking for on notes, but it’s also important to make sure we’re putting our borrowers in a good deal, that they’re gonna make money. The worst thing that we could do is close a loan and they don’t have enough money to finish the rehab.
So the baseline inspection company will go out there, they’ll come back and say “Hey, we think everything’s in line, they can get this done for this”, or sometimes they come back and say “You know what, we think it’s a little light. We think they need a little bit more in these areas.” We’ll work with the borrower, see if we can get them enough money to get it done if there’s enough equity in the deal, and adjust the bid accordingly. So that baseline inspection is included in there, and a lot of the end lenders really like that, because they have concerns with that, too… “Hey, do they have enough money in there? Is this really a $30,000 or is it more likely that it’s gonna cost 60k?”
So all that information is put in a nice, big PDF, and we send that to our end lenders and providing the checks and balances in there – those types of deals get funded really quick. If there’s a lot of unanswered questions, those are the deals that tend to get longer to get funded.
Joe Fairless: On that note, on the ones that have a lot of questions that are harder, can you tell us a story about a tough note that you’ve worked on?
Heather Dreves: Sure. We’ve had one recently where we had an individual come to us, had a great deal, there was a ton of upside in the property, he’d had it under contract for a great price, so he was gonna make a great profit, but he was the challenge. He had extremely poor credit, he had foreclosures in the past… However, he had gone through some education, so we know that he had at least a vested interest in being a successful real estate investor. But because of his credit and his financial situation, it was really tough to get over that hurdle with him.
What we ended up ultimately doing is going back to him and saying “We believe in your project, but unfortunately because of your credit issues and lack of finances…” He was the concern. He actually went out, found a partner, someone that had successfully done this, partnered up with him, and we were able to close the deal. He found someone with better credit, more strength, more financial resources, and we felt comfortable about doing the deal. He was the biggest issue. And providing he is successful at this… He has up until now made his payments, he’s working on the project, but once he exits the loan, then we take it back; we have a lender committee, and then at that point we can say “Hey, this guy did what he said he was gonna do, and we have a little more confidence in him.” We call that reputational capital. He’s done a deal with us, he has paid as agreed, and he paid us off. So his credit issues moving forward are things that we may be able to overcome, but he was the big issue.
And sometimes it’s vice-versa – it’s a strong borrower, but a really weak property. More often than not, it’s one or the other. So that was a real situation that we just dealt with a couple months ago, but we were able to get a deal done for him; he was able to bring in a better partner, that had better credit, and we felt more confident in him being successful at this than we did with him just being on the loan.
Joe Fairless: What’s your favorite part of your job?
Heather Dreves: You know, I must say that it is helping our real estate investors that maybe not a bank would put their neck out there to help them be successful. We have people coming to us from all walks of life, whether they are at the end of their professional career and they’re looking to just do something in retirement, or create wealth for their family to leave a legacy…
I think the most fulfilling thing that I do is helping them get the funding that they need to accomplish their goals, for themselves and their families, because it’s really important. They may be the type of borrower that a bank isn’t necessarily gonna lend on, and especially in an ARV situation, most conventional banks don’t do that. But we’ve had a lot of success, and we see people that will make 20k, 30k, 50k on a deal, and they come back and they’re doing their second and their third deal. That is what is fulfilling for me – helping them accomplish their dreams and build wealth for themselves and their family.
Joe Fairless: What’s your least favorite?
Heather Dreves: Well, I have to say I also oversee our servicing department, so… [laughter] I manage the collections department, and that’s a tough one, because you’re torn; you’re dealing with a lender that trusted you enough to buy a note that we all thought was a great deal; we wouldn’t fund it if we thought it was a bad deal, right? And then you at times have borrowers that have gotten themselves into a sticky situation.
I have a lady right now that I am trying to help her, and she got a loan from us, she did a cash-out refinance on a property that she owns, she trusted her brother, gave him the money, he took off with her cash, and she cannot exit our loan, she can’t refinance, her credit is too poor, she doesn’t have the cash to pay us off, and I come to find out her son’s actually living in the property. She doesn’t have the heart to sell the property, because he has nowhere to go.
So those are the kinds of situations where you’re trying to do the best for the lender who owns the note, but we all have a heart, and… She trusted a family member, and leveraged her property, and unfortunately it didn’t work out the way she thought it would.
Those are the kinds of things that are hard, because we have a fiduciary duty to our end lenders to do what’s best from a servicing perspective, but you also don’t wanna take someone’s home, so you have to work with them to help them exit it, and we’ve got some ideas to help her get out of it, but those are the hard situations.
Joe Fairless: Anything else that we haven’t talked about as it relates to preparing to get your deal approved, with your loan package, and preparing to showcase yourself in the best light?
Heather Dreves: Really just do your homework. Make sure it’s a viable deal. Make sure there’s profit to be made in it. If you can show that and express that, and express that you have the ability to finish the project and exit the loan and present yourself in the best light, that’s the best that you can do, because a lot of end lenders are looking for that. Sell yourself.
If you have the experience, highlight that like crazy. Like I said, put a portfolio together of deals you’ve done. If you haven’t done it before, highlight that you’ve gone through some education. Maybe you’re being mentored with somebody, and if you are interested in those types of programs, we have those here at our company… But really sell yourself. I would say sell yourself before the deal almost, because it’s a relationship thing, and I’m here to tell you, if you can get in good with a lender, especially one in your local market, that is your golden ticket. They will do deals for you all day, because there’s a lot of people out there looking to deploy money, a lot of one-off lenders that like to fund notes, and if you treat them well, that will be your golden ticket to be able to do multiple deals.
Joe Fairless: How can the Best Ever listeners get in touch with you?
Heather Dreves: You can reach me a tour corporate office at 800-971-5988, or you can e-mail me at email@example.com. You can visit our website at securedinvestmentcorp.com, we have all of our notes available for funding to be able to be purchased, uploaded on there, so you can actually click through them and get quite a bit of information. If you have interest, you can let me know and we will send you out that full loan package that I spoke about. We encourage our end lenders to do the due diligence before making a decision whether they wanna fund something.
Joe Fairless: Outstanding. Well, certainly from a loan package standpoint and selling ourselves, we are better off having had this conversation than not, from learning the main things that we need to pay attention to and include in the loan package… Basically, show that there’s opportunity in the deal, and back that up with substance.
Then from a selling yourself standpoint, proactively thinking about what will the objections be of a regular, reasonable person if I were to ask them to let me borrow money for this, and then I proactively address those or mitigate some of those by partnering with others, as you gave the example of what that one borrower did… Or just being transparent about it and saying “This is what I’ve got” and then see what the lender has to say about it.
Thank you so much, Heather, for being on the show. I hope you have a best ever weekend, and we’ll talk to you soon.
Heather Dreves: Absolutely. Thank you, Joe.