Financing is one of the most important aspects to consider when building your rental portfolio. Watch this interview with Michael Mikhail, the CEO of Stratton Equities, a NON-QM lender to learn what you should be looking for in financing and how it can help you build a successful portfolio.
Resource
Stratton Equities – Find out more about Stratton Equities’s innovative loan programs.
Show Notes:
Jana Christo
Hello, real estate investors. I’m Jana Christo, and I’m the publisher of Rentce and Passive Income Through Rentals. Today, we’ll focus on how to grow your rental portfolio through the right financing. And to that end, I invited Michael Mikhail. He’s the CEO of Stratton equities. Hello, Michael. Good to see you.
Jana Christo
For the people who don’t know you, can you tell us a little bit about your company and the products you offer to help real estate investors, especially those who can get conventional financing?
Michael Mikhail
Sure, I am Michael Mihail.. I’m the CEO and founder of Australian equities, a nationwide direct private money, and NON-QM lender.
Our loan products are not only for investors who can’t get traditional financing as you said. That’s something that we’re trying to change. With a lot of education. I’ll give you a quick example.
Michael Mihail
Traditional financing, which is an agency loan, so a bank or a large mortgage company, they’re all the same, they all have the same guidelines. So it doesn’t matter if you can secure traditional financing or not those guidelines on let’s say, a one to four-family investment property, you are maxed at 70% loan to value. So even if you can get the financing, you’re still maxed at 70 LTV. With our programs, our soft money programs, our rental programs and no doc programs, besides the fact that we don’t look at tax returns, which is obviously huge for real estate investors, we can go to 85 LTV. So even if you can get qualified for a traditional 70 LTV loan, I much rather do investment property at 85 LTV than 70. You know, regardless, obviously, you want to put less money down so you can buy more property. So we’re trying to get the information out there. So we are not not necessarily for people who can’t get approved or for a traditional loan, but for people who look at alternative methods of financing as their first option and as a better option, not as a last option.
Jana Christo
I understand. I wanted to ask you, because I was watching some of your interviews and reading a lot about you. You see yourself as a private money lender. Is that correct? When I think about private money lenders, I always think about somebody who has like half a million to invest.
You don’t have to tell me, but how much do you have to invest? Because, you know, people think it’s like, if I go to the private money lender, they wouldn’t have enough money for my needs.
Michael Mihail
So no, I mean, we’re an institutional lender. So you know, we don’t run out of money, right? We’re not a person that has X amount of dollars, and we lend X amount of dollars. And when we’re done, we’re done. Right? We’re an institutional lender. So I mean, technically, theoretically, we have billions and billions of dollars to lend, because we’re an institutional lender. So you know, some paper we hold a lot of paper we sell. So obviously, by selling paper, we’re able to replenish and we can keep lending, so we will never come even close to being maxed out.
Jana Christo
Okay. And I also have a question about financing multifamily. I see a lot of investors who are selling their single-family homes and they want to do 1031 exchange in maybe buy multifamily. How can you help them?
Michael Mikhail
I mean, we have no problem, we do them all the time, 1031 exchanges. So it’s gonna be the same thing, you’re able to apply for the 85 LTV, if you want a rental property loan or if you’re doing a Fix and Flip obviously we have our fix and flip loans. So depending on what you’re trying to do,
I mean that’s really our two main programs which then have multiple programs under them whether I have bridge loans, we have term loans, we have multiple types of bridging term loans, but we do people with 1031 exchange all the time.
Jana Christo
Another thing I wanted to ask you about because that was new to me is soft money. What is the distinction between soft money and hard money lender?
Michael Mihail
I wrote an article a couple of years ago about Hard Money vs Fix and Flip. It drives me crazy when everybody calls everything a hard money loan. And, it’s not, bottom line. It’s like calling all animals a dog, right? There are multiple animals and not all are dogs.
So, you know, a hard money loan is going to be a bridge loan, number one, hard money loans, a bridge loan, so 12 to 24 months. Soft money is a long-term loan, right?
So we came out with our soft money program, it was a hybrid in between traditional financing and more private lending, due to the guidelines, right, so we don’t look at tax returns, there are no upfront fees in any of our loans, minus the appraisal, of course, there are no junk fees in any of our loans. We don’t charge a single dollar over what is needed to fund and close that loan.
Michael Mikhail
So soft money program starts at 4.375, which is extremely close to the traditional bank financing, except obviously, is significantly faster close, significantly higher LTV up to 85, and no tax return. So it’s great for investors to choose. It’s a no-doc program. So we don’t care how long you’ve been at your job and have you moved jobs. Like traditional loans, that make it impossible, if you move jobs, to get a loan, you know.
The big thing is with real estate investors is they move money around. So if you try to go to a bank, and you move $1 from one account to the other, they want every single statement and why and who and when. I mean, it’s impossible to close. So we don’t have those issues where we’re going to look at every single thing and, you know, source every dollar, and where’s this? And where’s that? Obviously, you can’t just pull money from under the mattress and just show it, you know, you have to know that. But we’re not nitpicking as banks do on you know, your finances behind the scenes, like you know, which account as long as things add up, and the money is there, you know, we should be good. Okay.
Jana Christo
One question, I get asked often, is what an investor can do if they are maxed out at their bank. Are you their next best choice?
Michael Mikhail
We don’t have a max. I remember, when I did loans personally, a gentleman in Florida, I think I financed 46 homes for this one borrower to LLCs just a couple of years ago. But we don’t have a max on how many properties you can own.
Everything we do, including our processing and our underwriting and application, everything is designed for real estate investors, right. Traditional banks and traditional mortgage companies are just not set up to finance them, they literally don’t like doing those loans. It’s a fact, anybody who’s tried knows, the harder somebody makes it, that means that they don’t like it.
They’re trying to avoid that business. Right? They want to land owner-occupied properties.
So, you know, we are, in my opinion, the premier company for real estate investors, especially by having the widest range of programs under any one roof and the company was designed that way. You know, most companies have one or two programs, we have over 20-30 programs.
So if we can’t finance somebody’s, nobody can.
Jana Christo
I see that very often real estate investors go to their bank, they get loans, they buy four, five rental properties, and then they reach this point where they don’t know who to turn to for financing? I mean, they don’t know how to get to the next level? So that’s, that’s good to know. And they usually start calling for portfolio lenders to find somebody who would finance that and there are very few of those.
So you will be a good next step after they max their options.
Michael Mikhail
You know, we should be the first and I’ll tell you why. Right. Because if you’re a new investor, the banks make it very difficult to get a loan, also if you’re getting a loan at a bank, you’re going to put down 30%. So, you’re going to eat up a lot more of your liquid cash, you’re going to buy fewer properties. We have 85 LTV so you buy more properties. We’re going to close easier and we’re going to close faster, we’re going to close with LLC, banks do not close with LLC, people know this. Need to close to a personal name. Nobody should ever buy an investment property and put it in their personal name for multiple reasons: taxes, liabilities. No matter if it’s one property or the Taj Mahal, it should be in a corporation, a C Corp or an S Corp or LLC, for a lot of reasons..
So this is where we’re trying to push information, and educate that companies like mine should be the first source for real estate investors not down the road when they max out.
We’re trying to get the information out there to know about us first, so they can reach out to us first, there’s a lot of reasons for that. Because, you know, the big thing is a lot of companies like mine do not do mainstream advertising, right, we have certain publications, that we stay within, and your average person doesn’t know about those publications. So when they type in, you know, Google and another property loan or whatever, you know, the traditional stuff comes up, you know, bank rate comes up or Experian blogs come up.
And these companies do not do advertising. Well, let me rephrase that companies like mine really don’t advertise in those publications. So in those blogs, all that information comes up on Google for a new investor. And they see the mainstream, you know, Credit Karma and what not, they don’t really talk ever about companies like ours. So that’s what we’re doing now, which is a lot of work, by the way, to get into that mainstream advertising and mainstream editorials so that when people go on Google, they don’t have to look at the 100th page on Google. It’s on the first couple of pages on the stand companies like ours, and what we can offer.
Jana Christo
Honestly, I wish I knew about you when I started investing because I made the stupid mistake of getting four partners. And every time I did the rehab, and I sold, I had to split it in four. And after that, I was thinking like, gee, I mean, there was a better way. But then, you know, I wasn’t aware of everything. You learn, as you know, you talk to people and you learn.
Michael Mikhail
So, this notion that the bank is the best option, that’s what I’m trying to say, it’s not the best option, right? Just because it’s bigger doesn’t mean it’s better. But people, I’ll give you a great example, people want a 30 year fixed, it’s just my father got a 30 year fixed, his father got a 30 year fixed.
Statistically, I think is 95% of people are not going to keep a 30-year mortgage, right, you’re going to refinance, or you’re going to sell within the first seven years. So the only benefit of a 30-year mortgage is that is fixed for 30 years, but this is the highest interest rate mortgage.
We have an interest-only option for 10 years. So you’re not seeing the benefits of 30-year fixed financing, you’re just paying more money per month. Now, if you have an investment property, it’s all about cap rate. It’s all about cash flow. So you’re going to want to do a five, one arm or a seven one arm, you’re going to want to go interest only because you want to keep your costs as low as possible and increase your cap rate.
And people just I want 30 year fixed, okay, it’s not the right way to go. Because they just think it’s the best mortgage, this is what I want. And that’s not the case. I mean, I have bought 56 properties in my career so far. I haven’t bought any for a year and a half years due to COVID been very busy. Yeah. But I’ve never bought a 30 year fixed, they’ve all been interest only, five, one arms and seven one arms. And you know, it’s lower.
People look at a rate. It’s not the rate is the payment, right? You’re not paying a rate you’re paying a payment. So I don’t care about an interest-only your rates gonna be a little higher, but your payment depending on your loan amount could be hundreds and hundreds. If you’re in the millions, it’d be 1000s of dollars less a month on an interest-only payment, rather than going through going you know, for 30-year fixed. Now what people don’t understand.
And people go Oh, well, I want to pay principal. Okay, so so statistically, when you do a fully amortized, 30-year fixed mortgage, you aren’t paying and you make your payment every single month, you weren’t touching your principal till like year 789 10. Now, imagine you had $1,000 a month mortgage payment on a 30 year fixed, right. And let’s say you had an interest-only payment of $750 a month. So that’s $250 less a month, you can take the interest-only option. You are going to owe $750 every single month, you can still make the $1,000 a month payment as if you were fully amortized. But now you’re paying $250 a month to your principal from month one. People don’t understand this. He told us many people it’s like oh, it just doesn’t work. They want 30-year fixed. They have these notions about bad mortgages or this is not right. And you try, only some people get it.
You know, what I mean, if you break it down, you take a 30-year mortgage. for eight years how much principle you paid in those eight years, virtually nothing, you take that same mortgage interest-only, save $250 a month times and you pay it towards your principle, 250 for eight years, see how many 1000s of dollars, you’d be paying, paying towards your principal, not just that, if you have a slow month, if it’s the holidays, you know, you want to keep our money in your pocket, you only owe $750, how can you say no to that kind of a mortgage?
Jana Christo
I think it’s it’s something from 2008, and everything that happened then. But we talking about investors, we’re not talking about, you know, homeowners, so we’re talking about people who are a little bit more sophisticated, and they should use those tools to get more properties and grow their rental portfolio. And that’s how they can do it.
Michael Mikhail
You would think. Yeah.
There are multiple options and strategies available, we have been very creative in structuring loans. Like, I’ll give you a great example. You know, people go and say, Oh, I want to bridge right, so a bridge loan is going to be 7,8,9 percent.
Why do you want to bridge? I want to bridge because I’m gonna keep this property for long, okay. So we can do a five one arm, we can buy out the prepay, right, so technically, it’s a bridge, right, so you have a five one arm, but you’re buying out the prepaid, so there’s no prepay. So instead of going into a bridge at 7 to 11%, whatever, you can start in the 4s, you’re going to have about three-quarters of a bump for buying at the prepay. So you can still get into a five one arm and do interest only because a bridge is interest only. And you can buy out the prepaid so you’re not going to be locked in. So you can sell whatever you want. And your rates will be in the fives, instead of your rates being in the sevens or eights, which will save you a significant amount of money.
Jana Christo
It’s true, it’s hard to change people’s thinking is and then as you said like education is sometimes hard.
Michael Mikhail
So that’s what’s on my mind, my goal is that for now, what we’re now moving forward is a lot more education and a lot more blogs, more articles. I think people get more out of blogs and videos and interviews, and then they do articles, I think people probably don’t read them all. So they don’t get the gist of what’s being said. So that’s why we’re doing a lot more of this. And we’re pushing a lot more on the educational pieces. So hopefully, we can turn the corner and turn a curve where people can understand the better options that are out there. We all mean, I’m really doing this to help try to help people out, you know, as much as possible. It’s just disheartening when people just don’t get it.
Jana Christo
Yes, it’s very hard to get out of our comfort zone sometimes. And that’s why most real estate investors have like four or five properties tops, just because it’s hard to break through that barrier and get more properties. You’re the right person to talk to. From what I’m understanding,
it’s best to come to you with a scenario rather than telling you I want to bridge loan. It’s like, hey, this is what I want to do. What would be the best loan?
Michael Mikhail
Our loan officers don’t talk to people that just say, Oh, I want a loan. Right? All scenarios have all the information. We are so busy, so it’s everything’s built here on an assembly line, right? So you got to come in, right and then you go out, right? So if somebody doesn’t have the information or they don’t have a true scenario, you know, get the information then they can reach out to us at Stratton equities, call 800-962-6613. The sales team will get their information, and find out exactly what they’re trying to do. They can feel free to reach out to us, and then we will guide them in the best way possible. Okay.
Jana Hristo
I had a question that I forgot to ask you.
I’m always interested in what’s going on in the market. Because I only see real estate investment from my little world.
What deals are you closing, and what are the other investors doing?
Michael Mikhail
So you know, unfortunately, due to COVID, the property values we all know have skyrocketed over the past year. So real estate investors are having, especially on the East Coast, especially where I live in New York. They’re not getting deals right now, because they’re being outbid by end-users. So the whole deal of getting an investment property, especially being able to qualify for a fix and flip, you got to buy below market value. You can’t buy below market value if people who want to live in the home are paying 50-60 grand over market value. So we’re very lucky that we have such a wide range of programs and great programs. Because if we were like other companies only doing bridge loans, then we would have we you know, we wouldn’t be doing the volume that we are doing right now.
Most of the bridge loans that we’re doing are either people with lower credit scores or foreclosure bailout programs, would you ever propose your bailout program, which is very popular, right, in regards to fix and flips? Very scarce right now. 90% of our portfolio or soft money loans or no-doc loans are our commercial loans. You know, last year, year and a half, two years ago, we had a decent amount, maybe 40% of our loans were fix and flip and bridge loans. Now, it’s a very small percentage. So we’re very thankful that, you know, we have the programs under one roof that we have because we want to do more business. Right.
Jana Christo
Do you see a lot of multifamily deals?
Michael Mikhail
Yeah, we get a lot of multifamily five plus five to 20 units, as is the bulk of it. That’s what I like to invest in is, you know, 530 units. It will take So, yeah, we get a lot of those, we get a lot of multifamily loans.
Yeah, we do a lot. I mean, I’m not sure really right now that I haven’t looked through the numbers. And we do more, one, two fours, but we definitely do a lot of five-plus, yeah.
Jana Christo
Well, there are not easy to come by.
Michael Mikhail
But it’s what about states like Ohio? I mean, you know, yeah. Multi-families, you know, they’re very inexpensive in Ohio, or states like that. That’s where you’re really seeing most of them. I mean, we have closed them and you know, the more urban areas like Newark, where you see more multifamily properties up here, Queens, Long Island, I don’t think Long Island actually doing Long Island. But there’s a lot when you go out west or you go up north a little bit, there’s definitely a lot like Ohio has a tremendous amount of multifamily properties and they’re very cheap. Yeah. Not much, Pennsylvania, a lot of Pennsylvania that we’re getting, you know, you go out, you know, a couple of hours from from from where we are, you can buy multifamily for like 120 grand, this million dollars.
Jana Christo
That was my, that’s probably going to be my next interview because I’m very personally very interested in multifamily. After all, for me, that’s the next step. And for many people as well, they want to sell their properties because the prices are high, but then when they find out how much they have to pay in taxes, they understand that it’s much better to reinvest and go bigger.
Michael Mikhail
Yeah, yeah, one more thing about real estate going bigger is true, right.
If you stay too small, your profits are small, you’re doing a lot of work for a little profit, and you can’t keep growing your portfolio. So you’re going to want to go bigger. And again, with the programs we offer, we’re putting less money down, you can go bigger, right? We put down 15% or 30%. Obviously, that winning I said that that’s a big number, you can definitely go bigger, you can buy more properties and you can square and also we’re putting them in LLCs without having a cap you can I mean you can borrow. I mean, you can buy as much as you have, you have liquid if you have the money liquid, and your ducks are in order and your credit score is good, then you can just keep buying till you’re blue in the face. Yeah.
Jana Christo
So um, we kind of went over or time. If somebody wants to find out more about your programs, where they should go and how they should contact you. Everything’s on our website, right, strattonequities.com call us it’s 800-962-6613 you want to email us at [email protected]. Everything’s on the website.
Jana Christo
Okay, excellent. Well, thank you, Michael. I appreciate you doing this. And hopefully, we’ll get you again.
Michael Mikhail
Thank you, appreciate it. Bye-bye.
