Here are our questions for Nghi Le
1. Share your background with us and how you got started in real estate investing
2. What is your focus at this time in your RE investing business?
3. Can or should you get pre-qualified with a HML before you have a deal?
4. Do most HML’s require the same paperwork & process to get pre-qualified? Is a credit check required? Do all members of LLC need to qualify?
5. How are FEES different than “rates” in regards to hard money loans and why is it important to make a distinction between them?
6. Some HML’s will finance wholesale fees and some will not. Why would an investor choose to work with a HML that will not finance a wholesale fee?
7. Where does the length of the loan term fit into the “pecking order” of hard money loan components for investors to focus on? How much more does a 12 month loan term cost than a 6 month loan term and which line item does that cost/fee show up?
8. If you were going to do a paint/carpet flip, what type of loan terms would you go for?
9. Let’s break down the components of evaluating a HML, Some things to consider are fees, length of loan term, how many partners must qualify for loan, if wholesale fees can be financed or not
If you are a NEWBIE, will any of these components be more challenging for you to get the best terms on?
10. What are the loan terms a NEWBIE should be shooting for when they get started and which terms can they expect to work their way up on as they gain more experience & deals under their belt?
11. What is the difference between working with a national lenders vs a local lender?
Checkout the full show transcription below
Joe Bauer: Welcome to another edition of the Seattle Investors Club Podcast. My name is Joe Bauer, and I have my cohost, Julie Clark. How are you doing today, Julie?
Julie Clark: I’m good. All good over here, Joe. Where are you at?
Joe Bauer: I am next to a lake, actually, and it is just outside of Sequoia National Park, hanging out in the van. Got an internet connection. Cool stuff. Where are you at?
Julie Clark: Living the good life. I am sitting over here also looking at … I’m looking at Puget Sound, actually, from my location, which would be my kitchen. Where are you at? We haven’t even introduced our lovely guest today. Why don’t you do that, Joe?
Joe Bauer: Yeah. We have Nghi Le on the podcast today. Nghi, how are you doing today?
Nghi Le: I’m doing pretty good. I work from home full time, so my commute to my office is about 10 seconds.
Julie Clark: Nice. That’s the way we like it, right? Everybody’s got their freedom. That’s the good thing. Joe, with no kids, on the road, has the most freedom. Nghi and I were just talking about how his daughter … Daughter, right, Nghi?
Nghi Le: Yep.
Julie Clark: Little girl is wrapping up feeling being sick for the last week. My third grader poured a bunch of water on her pants on the way to school and screamed at me the whole way about wanting to change her pants. So that’s our morning. Joe woke up to beautiful crispness of, what, a campsite on Lake Something?
Joe Bauer: Yeah, right next to a lake here. I think it’s called Pine Lake.
Julie Clark: Nice. What state are you in?
Joe Bauer: Oh, excuse me, Pine Flat Lake in California. So, yeah, kind of central, I think, California.
Julie Clark: Nice. Good stuff. Well-
Nghi Le: Man, I’m jealous.
Julie Clark: I’m jealous, too. I’m-
Joe Bauer: Hey, we got a second bed, guys. You can come and hang out.
Julie Clark: Awesome. Well, we’re probably going to roll out there and meet up with you guys at some point this summer.
Joe Bauer: Heck yeah.
Julie Clark: In the meantime, we’re going to crank through some deals, and we need to know … We have somebody on the line with us today. How do we correctly pronounce your name, just so we don’t butcher it?
Nghi Le: It’s Nghi, like K-N-E-E. My nickname in high school was Elbow.
Julie Clark: That’s hilarious. That’s so funny. Joe, did you have a nickname in high school?
Joe Bauer: [crosstalk 00:02:58]-
Julie Clark: Well, Joe is your nickname, right? Isn’t that sort of your nickname already?
Joe Bauer: Yeah. First name’s Michael, middle name’s Joseph.
Julie Clark: Whoever is a SIC member, we’re going to have a trivia at our end-of-the-year Christmas party. So, hopefully, here are two trivia questions for you guys that you can win if you’re listening today. See, it’s always worth to listen because now you don’t know what kind of wonderful prize is going to be offered if you win the SIC trivia Christmas party answers.
Julie Clark: One would be what … We say it Lay or Lee? Nghi Lay or Lee?
Nghi Le: Lay in Vietnamese, but Lee in English.
Julie Clark: So we’ll call him Nghi Lay-Lee.
Nghi Le: That’s one way.
Julie Clark: We want to make up our own name for you. So his nickname in high school was what? Oh, was Elbow, right?
Nghi Le: Yeah.
Julie Clark: Joe’s nickname is Joe because his real name’s Michael. My nickname in high school was Buddy. Isn’t that weird? Yeah.
Nghi Le: Really?
Julie Clark: Yes.
Nghi Le: That’s interesting.
Julie Clark: Yeah, because when I was younger, I looked a lot like an old … Well, I guess I would say recovering alcoholic. Maybe she’s recovered by now. Have you guys ever heard of Kristy McNichol? I’m older than you guys, so you might not know who that is. But Kristy McNichol was a movie and I’ll say TV person back in the day. She had a show called Family with Tatum O’Neal.
Julie Clark: I’m dating myself compared to you guys, but when I was younger, I looked like Kristy McNichol, and her name on the TV show was Buddy. So everybody used to call me Buddy. It’s kind of yucky. But now I have a dog named Buddy, so there you go. We’ve come full circle.
Julie Clark: We’ll wrap up that segment of our show right there, and we will jump into what we want to talk about today. It’s a much talked about and debated … And everybody wants to know all the right answers, and everybody wants to have direction. And that is some tips for evaluating hard money lenders. We have our boy Elbow Lay-Lay on the line with us today. No. We got Nghi Le on with us today, and we’re super stoked because he has made it his business to become, we’ll say, an expert. He’s doven really deep into finding out … talking to … How many hard money lenders have you talked to now at this point?
Nghi Le: Somewhere between 150 and 200 for now.
Julie Clark: Wow. It’s crazy, man. That’s a lot. There’s some super insight there. Joe, kick us off and let’s get this party started.
Joe Bauer: Yeah. Jumping right in here, we obviously know that you’re a lending expert, but let’s get a little bit more of your background. How did you get into real estate investing or the lending side of things? What led you to where you are today?
Nghi Le: Awesome. I think I’ll start really young in some ways because … So I came to the US with my parents when I was six years old. Obviously, we came here to find the American dream, and we struggled financially the entire time just because we had nothing when we came here. I kind of grew up in [White Center 00:06:38] in I guess what you would call the projects and went to a school called Evergreen, but they called it Ever Ghetto, was one of the nicknames. White Center, it was nicknamed for that city. I don’t know if you guys know that.
Nghi Le: But I like where I came from. I think that being surrounded by people where I was, I definitely found an understanding for others and a lot of sympathy and compassion on how people are and how they live, and also gained kind of an attitude of gratitude as well. I think that’s what pushed me as well, is that always being thankful and knowing where you came from. I think that helped me when my [inaudible 00:07:24] down.
Nghi Le: But, yeah, when I started, when I reached the minimum age to make minimum wage … That’s what I call it. I started working at McDonald’s-
Julie Clark: Nice.
Nghi Le: … and [inaudible 00:07:35] family. I worked there for about a couple years. At that point, it’s just like I kind of realized I really hated to see people like my family struggle. So I kind of vowed at that point I would get to a place where we would never have to worry about money again.
Nghi Le: I think from that point, I kind of became a workaholic. I went to college. I worked about two or three jobs during that time, just kind of pushing through and helping the family financially. And then I graduated, became just a worker in the workforce. I’m an IT consultant. My major was computer science and business, and mainly because in college I tried to do some things. I did some ventures. I think I lost about $10,000 total with that, money I didn’t have; I just [inaudible 00:08:24] came up with it.
Nghi Le: I realized, “Maybe I need to learn a little bit about business.” So that’s what that second degree was for. When I graduated, I just got into the workforce, did IT consulting. Made decent money at that, but I kind of figured, like, “Huh. This isn’t enough. How do people retire comfortably?” Because if you kind of research what the average Joe … Sorry to say that. What the average person does, 95 percent of people don’t retire well. They’re still working or relying on someone else for their debt or they just don’t retire well.
Nghi Le: So I’m like, “How do I figure out what that five percent is?” During college, I went to a Rich Dad seminar. That’s really where my interest in real estate started. I’m like, “Hmm, I don’t have time or money for this right now, but I’ll keep it in the back of my mind.” So after I entered the workforce and I got more stable and became more, I guess, a more seasoned consultant, and then I actually went back to school to get my master’s because being part of a Vietnamese family, your parents are always like … Aside from [inaudible 00:09:39] saying, “Oh, you should be a doctor or an engineer,” they always want you to get the highest degrees possible.
Nghi Le: So I went and got my master’s while still working full time. After I graduated for my master’s in IT, I started a real estate company right away. That’s where things kind of … You have your degree in IT, but why did you start something completely different? I wanted to test it, and so I got started on another real estate seminar. I can’t reveal their name because I kind of negotiated with them to get some of my money back. But that’s really how I got started. From that seminar I got some information, and then I found bigger pockets. Then I found out about the local community.
Nghi Le: The Seattle community in real estate is pretty awesome. I’ve heard about other communities in other places, and they’re not as open to sharing as here. It’s a huge community, but it’s also very small. Small and the people are just so welcoming and so easy to share their experiences. I actually found Seattle Investors Club back in … I think when you guys first started, back in 2014. Jimmy [Tang 00:10:43] brought me in. I found Jimmy Tang because he was wholesaling a deal, and I’m like, “Oh, interesting,” and we just got to talking more.
Nghi Le: This is how introductions get made in real estate in Seattle. You just find people and they take you to places. Jimmy’s been a good friend and somewhat of a mentor, as well, for me in the past three or four years I’ve been in real estate. So we basically got started in 2014. We started doing flips in [inaudible 00:11:09] County. I say “we” as my partner, [Kahn 00:11:13], and my wife. The three of us, we all worked full time and did real estate on the side. [inaudible 00:11:20]-
Julie Clark: I remember when you guys got started. You guys went pretty gangbusters out the gate.
Nghi Le: Yeah. After we did our first flip, we started raising private money, and we were so confident of ourselves that over across a period of six months we got eight more deals. We pushed eight more deals as well. Things kind of went downhill from there, I would say. It was almost a [inaudible 00:11:44] ownership now with Kahn my wife, but we had another partner in the deal who was a contractor who I would say kind of screwed us over. There’s a lot of stories behind that, but again, I learned recently in real estate, last year, that you should always take ownership of everything that happens. So I’m going to say it’s our fault and it was a lesson for us. And we-
Julie Clark: I think we just did a podcast on that exact topic, on who’s responsible for a bad deal. I don’t know. Have we even put that one out yet, Joe?
Joe Bauer: Yeah. I think it’s out.
Julie Clark: It’s out.
Nghi Le: I think I saw the title recently. I haven’t listened to it yet, but it’s on my list for sure. I think it’s really important, is that I don’t think you can really move forward in real estate or anything in life unless you take responsibility for things that happen.
Julie Clark: I think it’s interesting what you say about how, definitely, Seattle is a helpful community with, I’ll say, all of us real estate investors, and yet I think that maybe on the flip side of that, on the other side of the coin of that … Because that is definitely what Seattle Investors Club is all about, is openness and sharing and not withholding information from anybody because a) there’s enough to go around, and unfortunately, b) most people don’t do a lot. That’s the truth.
Julie Clark: So you should be helping all these people as much as possible. There’s no need to hoard information, and it actually feels good. We all need to learn from each other because nobody has all the information. But on the flip side of that, I think because Seattle seems like such an [inaudible 00:13:25] and open book, maybe that’s a little bit of a downfall for people who are new where they kind of feel hook, line, and sinker welcomed into certain environments only to rely too heavily on the guidance of others initially rather than still realizing it’s really all on them to make the right decisions.
Julie Clark: Part of this podcast, the reason why we even have this podcast, is to be able to spread the word to help people even more without having to have people, for example, call me. Seattle Investors Club, people start calling you and say, “Let me have help with this and that.” I’m happy to do it, but it’s hard to reach everybody. So this is a way for us all to help each other on a broader scale. But my main point there is that Seattle’s such a helpful place, as you say, but still you need to be wary of the fact that it all lands back on you as the investor to do your own due diligence and make your own decisions and rely on nobody else, really.
Nghi Le: Totally. Yeah, and I’ve definitely learned a lot of hard lessons on relying on people as well, especially thinking that they were credible sources. The contractor partner I told you about, I found him on Bigger Pockets. Some other people who’ve helped us … I say that with question marks. One of them has even been a Bigger Pockets Podcast guest, and he kind of screwed us over as well.
Nghi Le: So just really be careful about people, and just ask for reviews. Just ask, “Hey, have you worked with this person? What do you think?” Just always ask around, because again, people are open to sharing on that.
Julie Clark: Right. Exactly. Let’s go back. What are you up to now? What’s your focus at this time? You were in IT, then you jumped straight-up full time into real estate and you were doing flips. How about buy-and-holds?
Nghi Le: Yeah, we did flips primarily for three years. Last year is when I first started … Last year changed everything for me because that’s when my daughter was born. You would think people have less time after they have a baby, but somehow I started doing more when I had a baby. Last year was the first time I started even thinking about rentals. My wife and I acquired about 16 units last year-
Julie Clark: Wow.
Nghi Le: … in a couple of different states. And last year was the first time I started doing out-of-state investing, too. Right now, I’m in about five different states doing flips and rentals.
Julie Clark: Are those part of an investing group or all on your own type of deal?
Nghi Le: Everything that I do is with a partner, and the reason for that is because … One is that everything I do involves rehab, so whether it’s a fix-and-hold or fix-and-flip. And I can’t do the day-to-day management. Working full time, it’s pretty hard for us to do that.
Nghi Le: So I rely on them, and also, for me it’s always nice to have someone else watching your back and in the game with you so that … As many perspectives as you can get, that kind of helps protect the deal. That’s my philosophy. I believe that whether I’m doing real estate two doors away or 2,000 miles away, I want to be pretty passive on it. I never actually want to see it or hear about it. I just want to get it done.
Julie Clark: Nice. Well, that’s a good … Everybody has their own niche. That’s for sure. You’ve been talking a lot … The reason we’re having you on here, one, we could probably … We should have another podcast with you about out-of-state investing. I think today, though, we’re going to kick it off with … You’ve become kind of locally here, your voice is starting to rise in regards to all the research you’ve done on hard money lending.
Julie Clark: So let’s start talking about that. What does that look like for you right now? What are you doing? You’re calling all these lenders. You’ve talked to 150, 200 lenders. Why are you doing that? What’s your MO behind that, and what wisdom can you share with us today about everything you’ve learned?
Nghi Le: A lot of things to talk about, but I think how I got started on this track was because I had a deal … Actually, obviously, I talked about the eight deals I had with that one partner. They all went sideways. Everything was over budget and over time after he left us. So I had to do a lot of extensions with hard money. That’s number one.
Nghi Le: Secondly, there was one really bad one where I had a flip that was supposed to take six months that turned into two and a half years.
Julie Clark: Oh God.
Nghi Le: So a lot of learning lessons for that one, but for that one deal alone, I paid about $280,000 worth of financing costs.
Julie Clark: Oh my gosh.
Nghi Le: So three different hard money lenders on there, a few different refinances. I kind of vowed again from there that “This is not going to happen again. I’m going to reduce my cost with capital and then go out on a search to do that.” So that’s what kind of drove my research into hard money because I just wanted to do things better. I was essentially chasing rates and terms.
Nghi Le: I started with just a lot of the local vendors I did that with, just calling everyone up and saying, “Hey, what do you offer?” Especially things people don’t ask because I think a lot of flippers are very optimistic. I honestly think if you get a very short-term loan, like a five- or six-month loan, it’s pretty optimistic. People don’t think enough about what happens when things go wrong.
Nghi Le: So extension fees are one of those things, and I think that people should always ask about that when they talk to a hard money lender. Right?
Julie Clark: Right. Let me ask you, can you get … We’re talking to everybody here. We want to start off a little slow, and then we’ll go dive deeper into some of these topics. But let’s just say, first of all, can or should you get prequalified with a hard money lender before you have a deal? How does that work?
Julie Clark: Obviously, I think even if you’re a wholesaler that you need to be qualified with a hard money lender because you never know when a good deal’s going to come along. And nobody should wholesale 100 percent of the time because that doesn’t show your intent to actually buy a property if you never buy one. That’s a whole nother topic for another day. But as a rehabber, should you get prequalified before you have a deal? What’s your take on that?
Nghi Le: This is a common question as well. Do you find the deal first or find the money first? I believe that you should find the money first. Get prequalified. The reason is that when hard money lenders qualify you, half it is on you yourself as an individual and your personal financials, and the other half is on the deal. So a lot of things come up in underwriting that can mess up a deal, and if you can get that out of the way beforehand, that really ensures your chances of going through with the loan.
Julie Clark: Isn’t that the point of hard money loans, is that it’s asset-based and not based off your personal credit and things like that? Or is that a myth?
Nghi Le: It is true. They are lending primarily on the hard asset, but they want to know what kind of borrower you are, too. So they’ll ask things like credit. I’d say 98 percent of lenders will ask for credit because credit is the single most important indication of what kind of a borrower you are based on your previous borrowing experience.
Nghi Le: Most of them will also ask for bank statements, and some of them might even ask for personal financials to figure out what kind of your net worth is because, basically, even if they don’t lend … There are some lenders who will lend on any credit, even 400 or no credit. But they have different kind of terms or different kind of credit tiers.
Nghi Le: So it’s yes or no that they sometimes might lend on you whether or not you have bad financials, but you get better terms by having good financials.
Julie Clark: Right. Let’s clarify that because we might have a lot of new people here listening today that are like, “Oh my God. Well, wait a minute. I thought that I could get into doing rehabs and just rely on that.” The point is that you still might be able to get a loan, but your terms might not be as favorable as long as it’s a good enough deal.
Julie Clark: Is that fair to say, or have things changed in the last few years, that it’s even tougher and more scrutiny to get a hard money loan than it was before? Or are you primarily pointing out the credit checks and your financial position as an individual in regards to how good your terms are that you can get? Is it …
Nghi Le: Hard money is pretty flexible. I would actually say that money is getting easier and easier, that right now it’s not money that’s the issue; it’s the deals. There’s a lot of people wanting to put their money to work, so they’ve definitely gone easier on their terms. There is a hard money lender for everything, I believe. If you want a loan with no bank statements, no credit reports, they’re out there. I know of a few as well, but they’re not necessarily the best terms, like I mentioned.
Nghi Le: So, for me, I chase rates and terms. It’s pretty important to me, and I try to make sure my entire profile is always financeable or lendable. So I try to focus on that. But going back to what exactly they’re looking for, sometimes it’s not just you. Again, most lenders will ask for bank statements and credit checks. They’ll also ask for entity docs to make sure that you actually have a valid business.
Julie Clark: Yeah. That makes sense.
Nghi Le: A lot of this is outside of the deal itself, too. Again, a lot of these times … I mean, lenders care about things like if you had any bankruptcy, so if you had any late payments, because, again, that tells them how good of a borrower you are. Right? Because-
Julie Clark: Okay. Let’s say that, then. I’m trying to go deep here. When we say “credit check,” is it a credit check to just make sure you don’t have bankruptcies and defaults and stuff, or is it a credit check to base a loan off of? You know what I mean? To me, it would seem more like just to make sure that you haven’t had any bad financial experiences, not necessarily what your credit score is, because this … We don’t want to scare people off by them thinking that they don’t have a chance if either they’re just getting started or … Just I want to be super clear on that. What do you think they’re checking the credit for? Or maybe it is both. Maybe it’s a little bit of both, but-
Nghi Le: It usually is both. They will mostly usually check for, again, foreclosures, bankruptcies, all of those kind of delinquencies because that scares them. That scares most lenders. The second thing is credit score usually is a factor, and it depends on what type of lender. Some lenders have a pass or fail. If you’re above a certain credit score, and I’ve seen things like 550, 600, 660, 680, stuff like that, where it’s you get a loan or you don’t. The terms don’t really change.
Nghi Le: There are other lenders where depending on what your score is, that puts you in a different tier and puts you in different rates. So, essentially, there’s a lender for everything. If you want to buy a car with bad credit, you can still get a loan.
Julie Clark: Right. Right now, what we’re talking about is flip, rehab-type loans, not buy-and-hold stuff, just to be clear. That’s a whole nother topic, is buy-and-hold lending. And borrowing for a buy-and-hold is going to be a bit different than using hard money lending for a flip, correct?
Nghi Le: Yes.
Julie Clark: Okay. So do all members … If you have an LLC and you have partners, do they all need to qualify?
Nghi Le: You won’t like this answer, but it also depends on the lender. Some lenders say, “I only need one qualification,” and qualifying being credit and personal guarantee.” They usually just require that. So some lenders will just take one person. Some lenders will take everyone above 20 percent of ownership in the LLC. So it really just depends, and that’s something, again, that once you get … If you’re going through the prequalification process, you’ll know this up front versus thinking that you can get into a deal without talking to a lender that you will get a loan no matter what. This is kind of the safer route that you take.
Julie Clark: Okay. Jeez. My gosh. It’s starting to make me nervous. Well, let’s talk about fees. What’s the difference between … How are fees different than rates, I guess I’ll say, in regards to hard money loans? And what’s the distinction between fees and rates? I think those are two different things.
Nghi Le: Rates are usually the interest rates. When hard money lenders advertise, they usually advertise two things: the interest rate and the points. The points are somewhat … If you’re doing a conventional loan, they’re called origination fees. That’s just the cost of doing the loan. It’s a flat fee, whereas the rates are kind of pro-rated based on how long you take to have the loan. So if it’s 12 percent interest rate, then you pay one percent per month.
Nghi Le: So that’s interest rate and points. There’s also another fee beyond that that lenders don’t ever really advertise, and I think it’s a little bit sneaky because they range from somewhere between $0 and $5,000. I’ve seen them across the-
Julie Clark: What is that? What is that?
Nghi Le: It’s just like … They call it a processing fee or underwriting fee or admin fee or doc prep or attorney fee. I kind of lump them under something called the category of junk fees, in a way. Most lenders, if not all … I think right now, every lender I know has this. It ranges, like I said, from … Well, no longer zero, but probably somewhere between 300 bucks and, around Seattle, probably $3,000. That’s the range I’ve seen.
Nghi Le: Some of these fees are [inaudible 00:27:36] fees, or if you’re only getting a purchase loan versus if you’re getting a rehab loan, then there’s more fees. A lot of these fees I don’t agree with necessarily, but you can’t really change that because that’s the fixed fee that they have. A lot of times, they call it an attorney fee, which is really weird, too. But people can label these junk fees whatever they call it.
Julie Clark: So we’re talking about you have points. You have interest rate, right? Would the interest rates range from … What do they range from that you see? What’s the lowest to the highest range that you see on interest rates?
Nghi Le: For a fix-and-flip?
Julie Clark: Yeah.
Nghi Le: I’ve seen somewhere between seven and a half to … In Seattle, I don’t think it really ever goes beyond four percent, but in the Midwest, I’ve seen them, like, 15 percent.
Julie Clark: Okay. So seven and a half to 12 percent. If you’re outside the Seattle area, maybe up to 15 percent. That’s interest rates. Then you have points. What are the range on points that you see normally?
Nghi Le: I’ve seen from one … and sometimes even less than one, sometimes for really large loans. But I’ve seen between one and five. But usually, around Seattle, it’s usually between two and three.
Julie Clark: Two and three percent or up to five percent. So we’re saying those are two line items, and then after that, we’re talking about these junk fees, as you call them, the admin fees or whatever they’re charging on top. I think that people probably, if they aren’t totally savvy, might be missing those fees on their deal analyzer, the impact of those … We’ll call them junk fees. Why would they range? why would it be from 300 to 3,000 or so on those admin fees? What’s driving those fees as far as whether they’re at the low range or the high range? Is it deal size, or do you know?
Nghi Le: It’s definitely not deal size. These are usually fixed fees that are applied to every loan. So I think, one, it’s arbitrary whatever the lender decides to charge, and sometimes they make profit off of it as well. The other one is that it also depends on what their costs of operations are. If it’s kind of a big shop of hard money lenders, they might have a lot of people to pay, and so some of that goes into how much they charge as well.
Julie Clark: Is that fee category … Is that an accumulation of a bunch of stuff, or is it a one-liner type of thing?
Nghi Le: It can be both. It’s usually one line item on the [HUD 00:30:14], but it can be broken into, “Oh, here’s what we have for …” I mean, there’s also things like an appraisal fee which we don’t really talk about, but that’s usually not controlled by the hard money lender, usually. Usually, you pay that directly to an appraisal company.
Julie Clark: And you’re getting appraisals on hard money loans? I guess if they’re out of state, maybe.
Nghi Le: Yeah. So I would say … And here’s the thing about appraisals that I’ve noticed. Local lenders here, they don’t usually do an appraisal because they’re here. They know how to analyze deals in this area because they’re very familiar with the area. When you’re using a national lender, even in Seattle, because they’re a national lender, they tend to have kind of a hard policy on every single loan where you either can have a BPO or an appraisal.
Julie Clark: How does that work with timing of the deals? It seems like it sure slows things down if you need to close fast.
Nghi Le: Exactly, which is why usually when you’re using a national lender, you want to set closing dates at least two or three weeks, or usually between two and three weeks. I know a national lender who can still fund within a week, but they still do an … And this is, again, going back to the tier thing. They will only do those for experienced borrowers. They still do an appraisal, but they do the appraisal after the closing, which is weird. But they do it because they can see the loan, and one of the requirements for selling the loan is that it is attached with an appraisal.
Julie Clark: What if the appraisal comes in lower than the value?
Nghi Le: That I’m not sure about. They might just have to keep the loan.
Julie Clark: Oh my God.
Nghi Le: That’s why they only do this for experienced borrowers who they are pretty confident knows how to evaluate deals. The other thing, too, is you still have appraisals … If that was a conversation [inaudible 00:31:57], what’s faster, a BPO or an appraisal? Usually a BPO is faster, but I also know another lender who does an appraisal on every single loan and they can close in four or five days.
Julie Clark: Right. It’s a lot of work. Sounds like a full-time job, though, to … Like you said, you’ve called 150 different hard money lenders. That is in itself probably not something most people are going to do, so maybe we can talk at the end if there’s a way for them to work with you to figure this out. But let’s keep going on the fees and stuff.
Julie Clark: We’ve got interest rates. We’ve got points. We’ve got some sort of admin fees or some fixed fees that get tacked on on top of that. Another thing that might impact your underwriting, everybody, is whether or not a lender will finance a wholesale fee. What do you find on that? Some will; some won’t? Why would an investor choose to work with a hard money lender that won’t finance a wholesale fee? Tell us about that.
Nghi Le: I’ve recently … This is kind of my own recent discovery, too, is that I think all lenders have policies regarding wholesale fees and whether or not they will finance that. I actually don’t know of a lender now that will finance 100 percent of a wholesale fee, guaranteed every time. They usually have some kind of policy where if the wholesale fee is within 10 percent or … It’s usually around 10 percent of the purchase price. Then they will [inaudible 00:33:23] that and finance. If not, then it will have to be paid out of pocket.
Nghi Le: There’s some lenders that won’t finance a wholesale fee at all, and some people might choose to go to them because the rest of their terms are pretty attractive. But, again, this is like … A couple weeks ago, I had a wholesaler complain because he had a deal that was $150,000 and he had a $70,000 wholesale fee, which is insane. For me, it’s like I don’t really care what the wholesaler is charging as long as my numbers work. And if they’re able to get a price down that much, props to them for being a good negotiator, and they should be rewarded for that.
Julie Clark: I don’t know. I have mixed … Honestly, I’m an agent investor, and I sure have mixed feelings about that. Unless it’s like a land deal that they added some value to, they should never be wholesaling a deal like that. They should close on it. I don’t know. That seems … I don’t know. It’s against … My gut feeling says something seems odd there if it’s not a land deal.
Julie Clark: Land deals are different, but you get a person that’s in retirement or in some sort of distress and you’ve made a $70,000 wholesale fee … I don’t know the situation, so we won’t go into it. But wow. Yeah. That seems understandable. Who knows? That’s … You know.
Nghi Le: What you just said is a reason why lenders have this policy of only allowing a certain percentage of wholesale fees into the loan. It’s because they are afraid that someone will go back and sue somebody, either the lender or the wholesaler or the buyer or whatnot, that they wronged them, especially in this state where the law kind of favors distressed homeowners.
Nghi Le: So lenders are afraid of that, and I think that’s why the policy is in place. The other reason I’ve heard about it is that sometimes they don’t really trust that the buyer and the wholesaler are third parties and there might be some kind of pocketing some money through the loan by having a huge wholesale fee. So those are the two reasons I’ve heard.
Julie Clark: So, as far as an investor choosing to work with a lender that won’t finance wholesale fees, whether they do or they don’t, there’s more to the story, which is basically what the rest of the terms are. So there is no one thing that determines whether something is a good deal on a loan or not. I think usually people … We have a topic at Seattle Investors Club, and I call it Which Lane Are You In? When it comes to your investing, are you … How many tools do you have in your toolbox, and which lane are you in? Because when you start out, you might be in the slow lane, and then you work your way over and get in the middle lane, and then you get in maybe the faster lane.
Julie Clark: As you work your way up, everything costs less or the terms are better on things that you do. But you gotta work your way up. It sounds like when you are getting started as a newbie that there are also lanes that you’re in on what terms are going to be available to you. You might get the least favorable terms. You might be able to get a loan, but you might have the least favorable terms as you get started.
Julie Clark: That’s another reason, guys, when you are getting started in investing to partner up with somebody more experienced, so maybe they can get the loan and you can get some experience under your belt and onto your résumé and onto your schedule of real estate without having to start on your own with the least favorable terms. Does that make sense what I’m saying, Elbow? Hey, Elbow, does that make sense?
Nghi Le: I completely agree with that.
Julie Clark: We were getting a little serious here, so we gotta shake it up for a second. You call me Buddy; I’ll call you Elbow. But we’ll call Joe Joe. Hey, Joe.
Nghi Le: I completely agree with that. For me, everything’s about risk. If you’re partnering up with someone, especially someone with more experience, you don’t have to go through as much of the pains that a newbie usually has to go through. The loan side is one thing. You get better rates and terms. But just like being screwed over by contractors or not seeing a lot of things that you should have caught. So I think partnering up with someone … I actually recommend everyone partner up with someone when they first start out.
Julie Clark: Me too. But that goes to answer a question because you’re a smart guy. You did partner up, but you didn’t partner up in the beginning with somebody more experienced than you.
Nghi Le: Exactly. I regret that.
Julie Clark: Why did you go the route you did when you got started? Did you just not even think that anybody that’s more experienced would partner with you? Why do you think new investors don’t go after partnering with more experienced people when they get started? Maybe they just don’t even think that’s available to them, and now we’ve just started preaching about it a lot, so …
Nghi Le: Yeah. Two things. Back then, I didn’t even think it was an option. It hadn’t even crossed my mind that we could partner with someone who was more experienced. I don’t know why. One of it might be we were just very proud and very arrogant in some ways, I think, when we first started. That’s why we’re in the trouble that we are now. The second reason is that maybe we think there’s nothing that … Especially some new investors, they think they have nothing to offer [crosstalk 00:38:49].
Julie Clark: Right, which is just so not true. Which is so not true. We actually did a … I don’t know if it was a video or a … I think it was a video on a tip of the day for Seattle Investors Club, where I talked about what is the very, very first thing you should do as a new investor when you’re getting started out? Most people say, “Open a file with a hard money lender,” or they’ll say all kinds of stuff. But to me, the very, very first thing-
Joe Bauer: [crosstalk 00:39:16].
Julie Clark: Huh?
Joe Bauer: Get your LLC.
Julie Clark: Yeah, get your LLC going. Get your website up. Stuff like that. But for me, the very first thing somebody should do when they’re getting started is sit down and assess, “What do I bring to the table? What do I already have that somebody else might need?” You guys can look up that video, or maybe Joe can find it. We’ll talk about it and put a link on this podcast that you guys can watch that video. But it basically says that everybody brings something to the table, whether that is … Maybe you’re an agent getting started, or maybe you’re a contractor getting started, or maybe you have money that you can offer to a deal to partner with somebody, or maybe you just got major hustle, because that is something.
Julie Clark: We won’t go into that today, but if you guys haven’t got the message now, what we’re saying is go partner with somebody more experienced so you can get out of the beginner lane on these financing terms. Get some stuff under your belt. Get some stuff on your résumé or your schedule of real estate that you’ve done. And get over to skip the worst terms that you might be able to get. And then, also, you don’t get in trouble with … Maybe you’re sidestepping having to do a bunch of bad deals by yourself to learn the hard way. But that’s my advice.
Julie Clark: Hey, Nghi, where does … One important item … We’ve been talking about fees and interest rates and wholesale fees and stuff like that so far. But I think one of the big ways to save yourself that we haven’t talked about yet when you’re getting a loan is the length of the loan term. Where does the length of the loan term fit into, we’ll call it, the pecking order of the hard money loan components that investors should be focusing on? You say you’re a rate and term … What’d you say? You chase rates and terms? I don’t know what you said. Is that what you said? Are you still there?
Nghi Le: Yes. I definitely chase rates and terms, but I’m pretty aware of everything else.
Julie Clark: Loan term, what are we talking? What’s the … Six month is an average loan term? Let’s talk about that for a minute.
Nghi Le: The local lenders, usually five or six months is the local terms. My personal opinion is that I wouldn’t get in any loan under nine months. I usually go for either 9 or 12 month loans. The reason why is just based on experience. We’ve had things … Like I said, I think people who get five- or six-month loans are pretty optimistic because there’s a lot of things outside of our control as an investor, the market obviously being the big one.
Nghi Le: But things happen, and I can tell you that even if it’s a two-week cosmetic flip, I still try to get a one-year loan if I can. It’s because I had a loan where we finished a flip and we listed it. Right when we listed it, there was a sign that went up across the street. It was as big as one of those Land Use signs. It said that “Tent City is coming to you.”
Nghi Le: It had pictures of these colorful tents, and we can see it from the living room of our flip. So, basically, we lost all of our buyers and we sat on the market. This was out of our control. I mean, there was an empty lot across the street. You wouldn’t think that homeless people would just move in. But that’s what happens, and we had to hold it for a while and get an extension. Those hurt.
Nghi Le: Always ask this question when you talk to a new hard money lender: “How much are your extensions?” I’ve seen some where it goes three-quarters of a point per month. The good lenders, I would say, are either one point for every three or six months.
Julie Clark: Yeah. So yeah. There’s lots of components to look at here. There’s rates and fees and what the credit qualifications are. If you were to choose the leading factor of when you are choosing a lender to work with, if you had to pick one thing, is that even possible? Or is it always a combination of things?
Julie Clark: Some people, when they’re just getting started, they’re like, “Well, I only have so much money.” That’s how I feel like people look at it. They’re always focused on, “Well, what is the required amount in? How much down to I have to put? Is it 10 percent? 20 percent?” And because they are focused on how much funds they have available to them, they focus on the equity requirement on the deal, and the rest comes secondary, is how I feel like people come at me when they’re talking about this with me. What do you think?
Nghi Le: This is a question I always ask someone when they’re consulting with me for a loan, is that, “What’s more important to you: rates and terms, or down payment, or how long the loan is?” It depends … A lot of people are doing the [bird 00:44:23] technique, where they’re refinancing after six months for a cashout. Those people usually want more than six months, usually 9 or 12 months.
Nghi Le: Outside of that, no one really thinks about the loan terms. If you’re just simply flipping it, you’re usually thinking about … If you’re a new investor with not a lot of money, then you’re thinking about down payments. If you’re a more seasoned investor or [inaudible 00:44:45] where money isn’t an issue, you’re usually chasing rates and terms.
Nghi Le: There’s one thing I would have to say about down payment that most people don’t realize, is that when a lender advertises a very low down payment, like 10 percent, even 5 percent … I’ve seen those before. Down payment is one thing, but you need to have more in the bank than just down payment. There’s the cash to close, and there’s also liquidity requirements.
Nghi Le: So lenders will look at this as, well … So when they ask for your bank account, they want to see that you have enough to cover all the cash to close and also some money in the bank to cover at least a few months of interest payments so that they know that you can actually survive the loan and have some extra funds for the rehab, because most lenders, if they give you a rehab loan, it’s usually on a reimbursement basis. So you need to have some funds to start the rehab or have some funds for “We have overruns.”
Nghi Le: So lenders will check for this. Even though a lender will say 10 percent down, you might still need to have 20 percent in the bank, if that makes sense.
Julie Clark: Right. That makes sense. I think that people are … Yeah. It’s sort of a little bit of a surprise to them, maybe, sometimes. Again, another reason to partner, guys, is to … That’s just one way to think about it going forward, is maybe when you’re choosing a partner is thinking about not only what does that person bring to the table for you as an opposite skillset, but maybe as an opposite borrowing capacity. Does that make any sense? I’m just making this up as we go here, but that … I just kind of never thought about that before until this moment.
Julie Clark: I’m always focused on, well, “What’s your skillset?” when you’re picking a partner. But maybe just as important, or not maybe, but just as important, yes, is to understand that partner’s borrowing capacity, or whoever you’re seeking out to partner with, what their borrowing capacity is. Right? Does that make sense?
Nghi Le: People partner for different ways. Usually it’s for money, like one person brings in the money and the other one does the work. Money is always an important part of every deal, which is why I care about the financing side of things now.
Julie Clark: Exactly. What does a newbie, if they don’t have a partner, what do you think the best loan terms are that they can expect? Let’s just assume that they can get through the credit and the check like that and the bank statement check or whatever those checks are that they need to check those boxes on. What do you think is the average loan term a new investor should consider using in their deal analyzer for underwriting? Do you have some basics? We won’t hold you to it, but just in general so people have an idea until they call a bunch of lenders or work with somebody like you.
Nghi Le: There’s two types of lenders out there. There’s a lender who has the same standard terms no matter what kind of buyer you are, and then there’s the lenders who have different tiers according to your experience or credit or whatnot. Newer borrowers I’d recommend going to the standard lenders because they’re usually less expensive. I mean, standard meaning the same terms across the board.
Nghi Le: The things I’ve seen for newer lenders … It depends on, again, whether you want rates and terms or down payment. I think those are usually their biggest factors. And lenders are give and take. If you want a lower down payment, you’ll probably have to do a higher rate, usually. So I can see around 10 percent, 2 and 3 points, 6 to 12 months at either 80 to 90 percent lender cost, so 10 to 20 percent down payment.
Julie Clark: Say that one more time.
Nghi Le: They can usually get somewhere between 10 and 12 percent, 2 and 3 points, 10 to 20 percent down, and then 6 to 12 month loans. I say this across all the lenders I’m thinking in my head who would do a first-time borrower loan.
Julie Clark: Right. Awesome.
Nghi Le: Don’t think that you can get all those on the lower end, because it’s usually … Like I said, everything’s give and take. So if you have lower rates, you might pay higher points, or lower points and different down-payment percentages. So just be aware of that.
Julie Clark: What’s the difference in working with a national lender versus a local lender? It seems like in the past most people start out working with a local lender, but national lenders have been coming on the scene in the last, I’ll say, year or two pretty strong where it’s actually kind of a topic, a hot topic, I’m noticing these days is getting talked about more and more. What is the difference that you see between national versus local lenders?
Nghi Le: The biggest difference is closing time. The local lenders can close faster. That’s plain and simple. National lenders usually take a little bit of time to underwrite and even do evaluations and whatnot. Usually, that’s the case. But the other one is that I’ve seen local lenders be much more flexible. Because they’re in the market, I think they allow for higher risk. So sometimes they don’t have as many documentation as a national lender.
Nghi Le: So documentation, or I guess the hassle factor, and how fast you can close are the main things that I see. What’s good on the national lenders is that they usually have better rates and terms.
Julie Clark: They usually have better rates and terms.
Nghi Le: Yeah. So I actually-
Julie Clark: Let’s talk about the old … What about relationships, though? We have some very strong local relationships, for sure, and hard money lenders. Isn’t there a bigger picture involved in regards to just relationships working with local lenders who also, if they’re hard money lenders, have deals undoubtedly flowing through their office that they also share with borrowers that use them on a regular basis? Maybe … I guess I’m saying they might be an opportunity for a source of deals if you are consistently using the same local lender. Is there any … What do you feel about that?
Nghi Le: I think source of deals is a big one. I know lenders who are partners with … They have a wholesaling kind of component, but within the company or within a partner company. So that is another big one. Sometimes for their deals, they’re required to use their loans, right?
Julie Clark: Well, I don’t know if they can require that. I’m not sure that that’s legal. You might out of professional reciprocity, but I don’t think that they can require it. What I’m saying is that we said at the beginning that deals … Money you can find anywhere. But deals are hard to come by. Obviously, they’re not handing out deals to … There’s no way you’re ever guaranteed to get a deal from a local lender, even, especially maybe as a newbie either.
Julie Clark: But the fact is that most of them have deals, and you could get on some sort of list to get notified of the deals that they have, and I guess they would potentially … I don’t know what the legality is on that … be more inclined to sell their deals to their contract positions, I guess, if you would, because they’re not properties. They’re wholesale deals. To somebody who’s an existing borrower with them. Relationships, right? How do relationships play into your world and what you do in the lending stuff? Or does that weigh in to you aside from rates and terms?
Nghi Le: Well, for the deal side, you’re right. There’s certainly different preferences. Obviously, you won’t know unless you get 70 or not. And that’s probably not legal, but you’re right that some people would prefer doing deals with people who would bring them more money somehow, whether through a loan or whatnot. So that’s one way.
Nghi Le: Usually rates and terms … I used to believe that relationships give you better rates and terms. But I’ve found people who would just complain to me, saying, “I’ve been doing the same loans with the same hard money lender for the last 10 deals, and my rates and terms are still the same.” A lot of it is based on … It’s not always the hard money lender’s fault, because they have a certain cost of capital that they can’t break. It doesn’t make sense for them to get you … There are some lenders who they source their capital from investors, and their investors … They’re giving their investors 12 percent and they’re just collecting the points.
Nghi Le: Obviously, they can’t really lower those any more unless they go back to their investors and have to explain to them why they’re now giving them 10 percent. So cost of capital plays into that. The other thing is that I’ve seen relationships help the ease of getting a loan because I’ve seen people who just have local contacts. They call up and say, “Hey, can you do this loan for me tomorrow?” And because they’ve been doing it so many times, it’s really easy to do that.
Nghi Le: So that’s what I’ve seen. Otherwise, for me, I’m okay with paperwork. I don’t really care how much paperwork I have to submit because my worst case is that it’s as bad as a conventional loan, and I’m always okay with that. So I always still chase rates and terms. What I would recommend … The best of both worlds is that if you’re doing a deal, especially in Washington state, maybe line up the best lender rates and terms up front, and then have a local lender as a backup in case it doesn’t go through.
Julie Clark: If you do that sort of thing where you’re calling the local lender as a backup, pretty soon they’re going to clue in that they’ve done reviewed your deal for you several times and you haven’t closed a deal with them. They’re going to probably be less likely to want to do that going forward. Is that … Have you ever run into that?
Nghi Le: What I do is I usually understand their requirements enough that I know they’re going to do the loan in some ways. Either you can get prequalified with them … I wouldn’t say don’t send them a loan until you know for sure that you need them. So, at that point, if you’re three days before closing or maybe a week before closing and you have completely lost confidence in your original lender, then you would send them the loan.
Julie Clark: Okay. Yeah. A lot to know here, guys. To me, it seems like … I think people think that it’s easy to get out there and get a loan, and, oh, there’s a hard money lender. But there’s a lot more to it here we can figure after talking to Nghi today on the different nuances in lending.
Julie Clark: I myself would always lean towards the local person, I guess. That’s the same reason why I go to my local coffee shop versus going to Starbucks and saying that to support locally. But I can see both sides of the coin there, and that’s why we want to put it out to everybody. Everybody needs to be making their own choice on what’s best for them.
Julie Clark: At a minimum, you need to know all this stuff, and then you need to know both sides of the coin; make your own decision on how you roll forward. Are you working today to help investors, or do you actually have a business going that you’re … I don’t know what to call it. I don’t want to say the wrong thing. Brokering loans, or is that not the right way to put it?
Nghi Le: I left my IT job last month, and-
Julie Clark: Congratulations.
Nghi Le: Thank you. I’ve been brokering individually on the side for the past six months. At the expo, actually, I met another company, a startup. They’re called Certain Lending. We talked, and we found a lot of our goals aligned. So I decided to join up with them.
Julie Clark: Oh, really? Well, right on. I know those guys.
Nghi Le: Yeah. I can tell you what my goals are this year. My goal this year is to make hard money financing easier and faster and cheaper. That’s my entire goal, and that’s what I teamed up with them to do. So they essentially are a … They’re building a digital brokers’ platform where you go in one place to apply for a loan, and then from that point, it’s almost like a kayak of hard money.
Julie Clark: That’s what I was going to say exactly. We were talking about the hotel site, guys, where you go to. Kayak? Isn’t that what it is? Or [Trivago 00:57:29] or something like this? Is that another one where you go there and you get all the options?
Nghi Le: Like Orbitz, Expedia, Hotwire, all those things. So that’s our goal. We’re launching, I think, next month. What I’m doing right now is I’m still brokering loans on the side manually, kind of helping them get through their process to make sure that we can fully support this when it goes live.
Nghi Le: What’s nice is that, again, you go to one place, you have one application, you fill it out, and you have … They might also do a soft credit, but we’re trying to work with that with TransUnion. But essentially, it’s one place. You don’t have to spend time calling around different lenders. You know that, actually, when you get prequalified with a different lender, it’s a credit pull. So it kind of hurts you having to go through that process as well.
Nghi Le: We are thinking about being a lender ourselves to fund deals if need be. If this process becomes too hard, if it becomes too hard to work with a lot of different lenders, we also have an option to kind of backstop a loan. What that means is that … The most important thing to me is a lender has to close. The worst thing is losing the deal. And they should close on time and with the original terms that they stated. That’s our goal. If they can’t do that, then we may potentially step in and fund the loan ourselves.
Julie Clark: When you say “we,” you’re talking about Certain Lending?
Nghi Le: Yeah.
Julie Clark: Got it. Got it. Interesting. Well, I know those guys. Yeah. I’ve talked to those guys quite a bit. I didn’t know that you had joined up with them, so congratulations on that.
Nghi Le: Thank you.
Julie Clark: That’s exciting. I know now that we’ll hear more about that as we keep rolling here.
Nghi Le: By the way, they’re based in San Francisco, the rest of the team. I’m the only one in Seattle. But they kind of fly up here every couple weeks, I would say, or at least once a month. So if anyone ever wants to get the chance to meet the team, there’s opportunities for that.
Julie Clark: Awesome. Well, let’s see. Let’s wrap it up here today because it is Monday. We’re doing this on a Monday instead of our normal Thursday, so we’re all anxious to kick forward with our week here because I’m sure we’re all loaded up with awesome deals that we need loans for.
Julie Clark: How can people reach you if they want to learn more about this and maybe run their deals by you or just in general get your advice?
Nghi Le: Yeah. I’m always happy to kind of give a second opinion on what people are getting on their loans. My email is Nghi, N-G-H-I, @certainlending.com.
Julie Clark: Awesome.
Nghi Le: Or my phone number, my work phone number, is 206-504-2069.
Julie Clark: Well, thank you, sir. Awesome stuff. Joe, you still there, or have you jumped out in the lake?
Joe Bauer: Yeah. I was thinking about going for a quick swim here while you guys were chatting, but I was interested in what Nghi had to say, so I [inaudible 01:00:26]. But, yeah, very interesting stuff. If anybody wants to find the show notes, you can do so at SeattleInvestorsClub.com/35.
Joe Bauer: If you enjoy the podcast at all, we’d love a review on iTunes. Every five-star review that we get helps us to get our message out to more people, help more people do more deals, and you can find the iTunes page directly at SeattleInvestorsClub.com/iTunes.
Julie Clark: Good stuff, guys. Well, I am going to go to an appointment. Joe’s going to jump in the lake. Nghi, what are you going to do?
Nghi Le: I’m going to work on loans.
Julie Clark: Going to work on loans. That’s our guy. Okay, everybody. Thanks for coming to my kitchen table today. I appreciate it, and we’ll catch you on the next one.
Nghi Le: All right. Thanks, guys.
Joe Bauer: See you.