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Global Investors Podcast
GI39: Multifamily Financing Options for Foreign & US Investors with John Brickson
March 18, 2020
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Multifamily Financing Options for Foreign & US Investors with John Brickson (Youtube)

John Brickson is a Director with Old Capital and is based in Dallas, TX. John and his team at Old Capital are actively involved in arranging financing on commercial real estate properties throughout the US, with a focus on financing value add multifamily properties.

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Transcript:

Announcer
Welcome to the Global Investors Podcast, a show that focuses on helping foreign investors enter the lucrative US real estate market. Host, Charles Carillo, combined decades of real estate investing experience with a professional background in international banking to interview experts in all areas of US real estate investing. Now here’s your host, Charles Carillo.

Charles
Welcome to another episode of the Global Investors Podcast. I’m your host Charles Carillo. Today, we have John Brickson. John is a director with Old Capital and based in Dallas, Texas. John and his team at old capital are actively involved in arranging financing on commercial real estate properties throughout the US with a focus on financing value add multifamily properties. Prior to joining Old Capital in February of 2018, John underwrote and financed over $1 billion in commercial real estate loans as a lender with a large national bank and a Dallas based real estate private equity fund. So thanks so much for being on the show, John.

John
Thank you. Charles, glad to be here.

Charles
And if you don’t mind, going into a little bit more information background on yourself prior to starting with Old Capital.

John
Sure. Yeah, absolutely. So I grew up in Kansas City, went to college at DePaul University and Indiana. After I got out of school, I went to go work for a large national bank, went through their credit training program. And then after going through their program, I was placed into the commercial real estate financing group. So I was at that bank in Chicago for a few years, where we’re underwriting and originating closing and managing commercial real estate loans across all property types. So I joined that bank in 2011. 2014, I relocated to Dallas, where I joined a large real estate private equity fund, multibillion dollar fund. That was investing in commercial real estate properties, buying distressed commercial real estate loans and then also originating new commercial real estate loans. And so during my time there I was able to basically underwrite and look at everything from hotels to office, industrial retail, multifamily, self storage, mobile home parks, you know, able to see everything and you know, able to work on loans ranging from a $5 million loan secured by a shopping center and Opelika, Alabama to working on a, you know, 120 million dollar office building and York to, you know, doing multifamily. So, I was able to get a pretty wide variety of the different property types and commercial real estate. And after working in the industry for six or so years, I decided that I really wanted to focus on a niche and focus on a specific property type. And after seeing all the different property types, I kind of came to the conclusion that you know, really the best property type was multifamily for a number of different reasons. I mean for one and I guess the most obvious is that multifamily during the downturn had the lowest losses and the lowest losses and then during the the correction and during the the market run up, you saw the most appreciation and some of the best returns were on multifamily. So I just felt like it had the best risk adjusted returns. And then you know, the other thing with multifamily as well as there’s just a tremendous amount of tax benefits when investing in multifamily and it’s also the only property type where you have Fannie Mae and Freddie Mac in the market. So Fannie Mae and Freddie Mac they don’t finance. They don’t finance office, industrial, self storage, retail hotels, they really only finance multifamily and also mobile home parks. And you know, given that Fannie and Freddie are sponsored by the government. They’re able to offer the best interest rates, the best terms, etc. So, multifamily to me was an area that I wanted to focus on and in the Dallas Fort Worth market. You know, I’d gotten to know the old capital guys just through being a lender with in Dallas Fort Worth. And I mean, they really have been kind of the the go to guys for BNC multifamily in this market for a long period of time. So I gotten to know Paul Peebles, who’s the head of Old Capital, and was fortunate enough to join their group in February of 2018. So almost two years ago exactly.

Charles
Awesome. Yeah, I’ve met him before at a conference. What is, can you explain a little bit more about Fannie and Freddie and explain a little bit about how they’re backed by the government if they’re insured or guaranteed because there’s different loan programs in the United States, and why investors consider it I considered like the gold standard for multifamily loans. where you want to end up? Can you explain more why that is?

John
Yeah. So Fannie Mae and Freddie Mac, they’re their mandates from the government from the Federal Housing Finance Authority. FHFA really is to expand housing across the US. And so they do that in two different ways. They they support the single family residential market by purchasing residential mortgages, and then taking those mortgages and then securitizing them or sign them into the bond market. And they will guarantee the US government will guarantee a portion of those mortgage bonds that you know, effectively makes them you know, a better credit for investors and more attractive to to, to buy or, you know, obviously lower the probability of default on some of those bonds they did on single family and then they do that on commercial multifamily properties as well. And commercial multifamily properties. That’s properties that are five years And above. So that’s really what I focus on. And commercial multifamily, you know, you’re right, and that it is the gold standard. You know, I think if you’re investing in multifamily, you ideally want to focus on properties that could qualify for Fannie Mae or Freddie Mac loan. And so what I always tell people that are getting into multifamily is that you want to focus on properties that are either four units and below that could qualify for a conventional residential mortgage. Or if you’re going to buy five units and above, you want to buy properties that are either already worth 1.5 million or could eventually be worth 1.5 million because at 1.5 million properties just large enough to support a $1 million loan from Fannie & Freddie as generally their minimum loan amount is $1 million. So, you know, for instance, if you buy an eight unit property and if you increase the value from 500,000 to 800,000, that’s great. But When you go to do your cashout refi, or you’re going to sell, your main source of lending is going to be local banks, because the property is too large for a residential mortgage because it’s more than five units. But then it’s too small for Fannie Mae or Freddie Mac, because it’s not large enough to support a million dollar loan. And so you’re kind of in this no man’s land where it’s too big for residential too small for commercials too small for Fannie and Freddie and local bank terms, you know, 99 times out of 100 are never going to be as attractive as Fannie or Freddie just simply because they’re not sponsored by the US government.

Charles
Yeah, exactly. The other thing, too, is that I’ve had when I refinanced out a smaller multi mixed use property I had a few months back and I had to use a local bank. It was very difficult finding one that had longer term. So you know, the other thing too, with the Fannie and Freddie is that you’re having the ability to have long term, in some cases fully am terrorizing whereas with your local banks, you might find one I found one that did 25 year fully amortized. But they had a program for it. But normally it can be five years, seven years, ten years. And that means in those five, seven or ten years, you’ve got to refinance. You’ve got to reappraise it, you’ve got to go through the whole, the whole thing, again, very expensive, time consuming. And if interest rates went up, which there’s not too much, if they’re going down, I don’t know, but they’re probably most likely going to be going up in 10 years, within 10 years period, it’s gonna be more expensive on your debt. And when you purchase the property, knowing that I’m going to add one number, and then you find out later on, it’s more expensive. It might be, you know, you might might be cost prohibitive to actually own the property. So,

John
Yeah, no, I mean, there’s there’s definitely certain situations where bank financing makes the most sense and just getting a regular loan from a community bank. Makes a lot of sense. But, you know, just comparing banks with Fannie Mae and Freddie Mac, you know, banks, they’re going to have the before return Course meaning that there’s a personal guarantee that comes with a loan, Fannie and Freddie will be non recourse. local banks, you know, the best amortization most likely is going to be 25 year amortization. A lot of them will require a 20 year amortization. You know, I think there are a handful of banks in certain markets that will do a 30 year am, but for the most part, it’s 25 is the best you’re going to do. Whereas Fannie Mae and Freddie Mac, they’ll do up to, you know, three to five years of interest only followed by 30 year amortization. And then in terms of, you know, LTV local banks, you typically limited to 75% LTV, whereas Fannie and Freddie look up to 80% LTV and then obviously, that the interest rate is better with Fannie and Freddie the rates are oftentimes lower, you know, right now, Fannie Mae and Freddie Mac loans you know, rates are as low as I you know, I quoted a loan yesterday, the rate was at 3.5% on a Fannie Mae loan, so long Banks, you know, right now they’re likely in that 4.5 to 5% range. So all around, it can be better. You know, like I said, sometimes it does make sense to finance with local bank. You know, one of the benefits with with bank loans is the the prepayment penalty. So Fannie Mae and Freddie Mac loans, you know, their loans typically have what’s called a yield maintenance, prepayment penalty. And what yield maintenance is, is it’s the, it is the net present value of all remaining interest payments on the loan. So basically what it’s doing is it’s guaranteeing the lender that even if you pay the loan off early, say it’s a 10 year loan, you want to pay it off in year six, the lender is guaranteed to receive 100% of the interest payments as if you’re holding it to maturity. So for instance, let’s say you do a yield Maintenance Loan, you pay it off, you know, you want to pay it off in year six on a 10 year loan. Well, a ton of pay off and your six, you’re going to have to pay the net present value of those remaining four years of interest payments, so can be quite a bit more expensive and obviously or sorry, not maybe not obviously, but but one alternative is they do offer what’s called step down prepay. So your prepayment could be on a 10 year loan, it could be 55-44-33-22-11, where it’s 5%, a loan amount in year one 5%, up to 4%, year three, etc. Now, on the flip side, local banks, their prepayment penalties, oftentimes, you know, might be 1%, there might be no prepayment penalty at all. So if you’re buying a property and there’s significant upside in the value of the property, it’s better to finance with a bank or maybe even a bridge lender, where you know if you can buy it, go in and prove the property, increase the cash flow, increase the value and then after two years or three years, or maybe even just one year, you can do a cash out refi pay off that bank loan, not have any prepayment penalty at all. And then refi it with a Fannie Mae or Freddie Mac loan or sell the property.

Charles
With the the yield maintenance is that now for those last four years, let’s say for example, is it going to be the difference, say that loan was at 4%? Is give me a difference between four and a treasury, you know, like the 10 year Treasury or anything, or is there going to be they have to pay the whole thing?

John
Yeah, so yield maintenance, prepayment penalties that the calculation is is pretty complex. And unfortunately, the other negative thing with the with the yield maintenance prepayment penalty is you actually can’t forecast what that prepayment is going to be. So, you know, basically, the way yield minutes is calculated is, as I mentioned, it’s the net present value of all remaining interest payments on the loan. And the discount rate that’s used as part of that net present value is what gets really complicated because that discount rate is this. You know, it’s a complicated calculation that basically looks at what our Treasury rates at the time of payoff. What’s the the interest rate on the existing loan? You know, what’s the difference? And so it’s, you know, it’s

Charles
Yeah, it’s very compelling. Yeah, that’s all you you have no idea in six years, let’s say what the the, you know what the Treasury is going to be. So that’s why you can’t predict right?

John
Yeah, I mean, the main thing to know with the yield maintenance prepayment penalties is, you know, if yield maintenance is really driven by two different factors, it’s driven by interest rates. So if interest rates decline during your loan period, and if and if the market interest rates are lower or significantly lower below the loan on your existing loan, that will increase yield maintenance. And then the second thing is time, so the more time left on your loan, the higher your prepayment penalties going to be. And actually, what we’ve seen in the current market is people that financed some of their acquisitions in 2016-17-18 with a yield minutes Fannie Mae loan. Well, interest rates have declined quite a bit since 2017. And so what people are finding is that these yield maintenance prepayment penalties when I go to sell a property, I’ve really gotten, you know, really high. So we’re seeing a lot more loan assumptions, some assumption and supplementals, or owners that are just stuck because they haven’t had you know, enough appreciation to justify prepaying and paying off that huge prepayment yield maintenance penalty.

Charles
So a supplemental being a junior mortgage so so it like a second mortgage on it to take out some of the equity. Right?

John
Yes, so supplemental loan, what that is, is one thing that’s a benefit of Fannie Mae and Freddie Mac and Freddie Mac under their their conventional program, not under their their small balance program. So Friday’s small balance program is one to 7.5 million their conventional program. Is $5 million and up. And so one of the benefits of both of those programs Fannie Mae and Freddie Mac is you have the ability to do what’s called a supplemental loan, where if you buy a property you finance it with Fannie Mae, let’s say, you buy it for $10 million, and you finance it with an $8 million Fannie Mae loan? Well, if you increase the value from $10 million to $12 million, and your three or four if you if you want to get a supplemental loan and pull some equity out, or if you want to sell the property, the buyer can assume the existing loan and they can take out a supplemental, and they can do a supplemental up to 75% of the new value, and that down to a 1.30 times that service coverage ratio. So I guess under that example, you know, if you buy it for $10 million, you finance it with an $8 million loan if you increase the value From $10 million to $12 million, the property would now be eligible for a loan up to 75% of 12 million, which I guess would be 8 million. So that’s not a great example. But let’s say you increase the value to 15 million, or that point, you get 75% of 15 million, which would be 12 and a half million or so.

Charles
Yeah, it’s a great way of taking money out with avoiding all of the fees that you’d have to prepayment penalties and stuff like that, especially if the interest rates have increased and you’re locked in at a lower rate, then it just is even better.

John
Right.

Charles
Because now you’re the majority of your debt is at a lower interest rate. And then the money you’re just pulling out the additional equity is at a higher as well as it’s fixed at that amount too. So you now can plan for it. It’s not variable and or anything like that.

John
Yeah, and the one thing I would say about supplemental loans is you know, the minimum supplemental amount is typically $1 million. And so you know, if If you’re a buyer and you’re financing it with Fannie or Freddie, I wouldn’t necessarily count on the supplemental loan, it might be there, but you have to make sure that, you know, one, the property’s large enough to support a million dollar supplemental. And then to you know, that, you know, it’s actually, they actually have supplemental under the program you’re financing with. So like, you’re not gonna be able to do a supplemental loan with a $2 million Freddie small balance loan. Because it’s too small. You want to be able to get to that minute minimum million dollar and supplemental loan proceeds. And you actually can’t even do supplemental loans under Freddie small balance.

Charles
One last thing too, before we move on to is with the interest only if you have a 30 year amortization, so you get two years interest only does that mean that it will start off two years of interest only which is understood but the full 30 years at the start of the third year, that’s when the the amortization starts. So principal and interest pay down starts on 30 year for the 30 years. So it’s really a 32 year loan, is that correct? 32 year?

John
Yeah. So usually it’s it’s like, it could be like a 10 year loan or a 12 year loan, but the principle pay down is based on a 30 year amortization schedule. And so during your loan term, you’ll be paying down principal for the, the, you know, after the interest only burns off, they’ll be paying down principal, but it’s based on a 30 year schedule. So at year 10, or year 12, when your loan matures, you’ll have a balloon balance to pay down. But, you know, at that point, you will pay down, you know, significant amount of your loan. And, you know, there has been some appreciation, you should be at a point where your LTV on these loan balances, you know, 60-65-70% LTV and you can get a refi.

Charles
So, whatever the amortization is, that’s what you’re paying the interest on. And then the principal would just start for instance, after the io interest only period starts. So, okay, all right. All right, perfect. So what are the requirements usually for obtaining a agency loan? Say it’s a process It’s gonna be a property over one and a half million dollars. So it’s a property that you guys will, you know, Fannie and Freddie will loan on?

John
Sure. Yeah, so the most basic requirements are, you know, for one, the property needs to be stabilized, which means the property needs to be above 90% occupied. And then from a borrower standpoint, there’s a few different things that Fannie and Freddie look for. For one, they want the key principles or the guarantors that sign on the loan to have a combined net worth equal to 100% of the loan amount, and then combined liquidity equal to 10% of the loan amount. So let’s say you’re buying a $5 million property and you’re financing that acquisition with a $4 million loan. They want you and your partners to have a combined net worth equal to $4 million, and then combined liquidity equal to $400,000 and net worth for all of our California and Florida. owners or investors out there. Network. can include your primary residence, I get that question quite a bit. So you can include your primary residence and that net worth calculation, and then liquidity, that’s going to be all marketable securities and cash in the bank that’s held outside of retirement accounts. So any marketable securities in a 401k or an IRA, that would not count towards liquidity.

Charles
Would that count toward net worth?

John
Yes. It would. So that’s, that’s the second requirement. And then the third key requirement with with borrowers is Fannie and Freddie. They typically want at least one of the guarantors that sign on the loan, to have experience as a manager or a member of a multifamily investment property, so they want you to have multifamily experience. And the way they define that experiences if you have experience, sign on a loan on multifamily property, or as you know, a guarantor or sole owner on a multifamily property. So investing as a limited partner, when encounters experience, you know acting as a property manager for multifamily property when it comes experience, they want you to be part of that ownership group, or part of that, that manager group.

Charles
I’ve also found to that having the experience in the geographical area to so they know that market of where it is. So if your, your experience is 1500 miles away, it might not fly, that’s when you might have to bring in your property manager as onto the onto the general partnership. Right experience. Sure. So our podcast focuses on foreign investing in us real estate and how do the terms and requirements of a Fannie Mae or Freddie Mac loan differ for a foreign investor?

John
Yeah, so I guess, first thing I would say is that, you know, Fannie and Freddie with a lot of their guidelines and this is also true with foreign investors is that each each deal is different. And it really is is dependent on the story? I’m not going to say it depends as the answer but there’s a few key things I would say you know, requirement wise with foreign investors, Fannie and Freddie, the first thing is just kind of down the fairway guidelines and again it can it can change depending on the situation, but down the fairway kind of guidelines are that you know, if it is for national investors that are own that own this property or sign on loan, Fannie and Freddie will typically require that they have net worth equal to two times loan amount and then liquidity equal to 20% of loan amount so, that that $4 million example I used earlier, they’re looking for the the guarantors that have combined net worth equal to $8 million and then combined liquidity equal to $800,000 for a $4 million loan. All right. So, the second the second key requirement or the second item, to be aware As a lot of times, Fannie or Freddie, if there’s a guarantor that is a foreign national, a lot of times they’ll require that a lawyer in their home country signs a letter that basically certifies that they’re a citizen of Good Standing that they have no legal issues in the country. It’s really an opinion letter. So a lot of times you’ll need to engage an attorney back in the home country to either draft or sign a letter that’s drafted by an attorney based in the US. So for instance, our group old capital, we’re closing a loan right now for some Israeli based investors. And one of these, one of the investors is a Israeli foreign, foreign national, and they are needing to have a lawyer that’s based in Tel Aviv. sign a, one of these one of these letters. Okay. Third thing to be aware of is if you are raising money from foreign investors, if If any individual foreign investor and I had this come up on a loan that I closed in October, if any of the foreign investors have more than 10% ownership, and the barring entity, that foreign investor will be required to do a background search query acquired. So we had to, basically we had investors that were investing, you know, they had 12 to 15% ownership, and the barring entity. And so we had investors that had to, we had to basically get copies of their passport, get their social security number for their home country. And then we had to run credit and background on on those investors. And it wasn’t really a difficult process. It was pretty straightforward, but just something to be aware of. And so, what I would tell you is that, you know, with foreign investors, every situation is different. You know, Fannie and Freddie, they might have guidelines one month that can change next month, I tend the most important thing is to, you know, engage the lender. Engage whoever you’re working with on the loan, early in the process, get an org chart early in the process because the the key question is going to be how is that partnership structured? Is it 100% for national investors? Is there one for a national investor that’s partnered with a US based investor? If it’s investors that have green cards, how long have they been in the US? Do they have US based bank accounts? Do they have US based jobs? There’s a number of different factors that can influence how foreign investors are underwritten. You know, we’ve financed, you know, a ton, I want to say hundreds but you know, a significant amount of foreign investors in the past and have been through these hoops many times before. So, you know, we’re happy to help out with with anyone, but I would say just know that the structure of the partnership early in the process and vetted with the lender, early in the process.

Charles
Yeah, one thing John, we were talking about earlier before we started recording was that when when we’re accepting money from limited partners that are foreign, we make sure that the money is coming actually from a US bank account. And so the money’s been sent there, they have an account there. Normally, like we like to see if they have a US LLC, and they’re investing through that. And then, of course, holding a lot of stuff is another story. But the main thing is that for the syndicator, for the general partnership group, it’s much you’re taking money from say an account or you’re receiving funds from an accountant, say Bank of America or Wells Fargo. They’ve already done their vetting. You don’t I mean, on that, which is a lot more intense than really any syndicator could really do without, you know, going through a number of different hoops. And information is probably not even available to general partner syndicator. So that’s one way as well. It’s protecting yourself as taking money from them, as you know, the money’s been vetted. The person has been vetted, and they’ve gone through that extenuating circumstance. I know you worked at a bank before you did this.

John
Yeah, yeah, I’d say I think that’s it. Great idea. And I actually hadn’t heard that before. You know, if you’re going to accept money from foreign investors, make sure that the money that they’re sending to you is from a bank that you know, and maybe a US based bank, like a Bank of America, or maybe it’s an International Bank, like HSBC. But you’re absolutely right. I’ve worked at a bank, we had a process called AML, KYC. AML is anti money laundering. KYC is no your customer and these large banks, they have entire departments dedicated to no KYC, or they have hundreds of people that are employed that do nothing but underwrite and that and, you know, basically make sure that whoever is sending them money or is keeping money at their bank. Yeah, the source of that money is clean and legitimate.

John
Yeah, because they’re not going to risk especially, you know, one of these large banks aren’t gonna risk it over one person investing through them. So like you said, it’s so important for them to make sure that funds coming in, which is they want as well. When it’s possible to be deposit that the funds coming in is as clean as possible. So but awesome. One thing here with coming where we are in, in the market cycle, I always like to speak to people, especially people that deal with lending. If we have a pullback of the economy, how does that impact multifamily lending? So one thing too is I think real estate investors don’t understand is that the debt portion of the real estate like we’re saying 75% loan to value 80% loan to value is actually the bank right? And people kind of don’t, I don’t think investors when they’re, especially when they’re syndicating, they spend as much time vetting out lenders as they should. They’re spending time on trying to raise money for you know, value, adding, you know, renovation on the property for the downpayment, all this kind of stuff, which are extremely important, but 85% 80 75% of the deal is being financed by the lender, they’re really your biggest partner. So if we’re having a pullback in the economy? How will that affect impact multifamily investing multifamily lending?

John
Yeah, I mean, what I would say is, you know, I think a lot of people that are that are in the market now and that had been in the market for just a few years and they haven’t experienced an actual downturn. I think there’s just perception that Fannie Mae and Freddie Mac, they’re always willing to lend 80%, three to five years of interest only, you know, really low interest rates, regardless of what the market conditions are. And, you know, while it’s While it’s true that Fannie and Freddie are more active in the market, that maybe banks or cmbs lenders or life insurance company or other lenders are during a downturn, Fannie and Freddie can can pull back to So, you know, during a downturn or you know, right now, they might be willing to go to 80% and say, a market like Wichita Falls, but if there’s a downturn and there is a pullback, they might only be willing to go to 75% or maybe 65%. And maybe they won’t, they won’t lend in that market at all. So I would say they do pull back they do become more conservative, more focused on who the borrowers are, who the sponsors are, you know, what’s the total net worth and liquidity, what’s the business plan. And I would say for people that are in the market now, you know, the best thing you can do is just to be prepared for a downturn and the way you can kind of be prepared or winners winterize yourself, you know, if you will, for when the Winter is coming is to have long term fixed rate financing in place, you know, with with a lender, like Fannie Mae or Freddie Mac, or maybe even a cmbs lender, that’s one way and then also just having cash on on hand. cash is king during a downturn and you can run a situation where, you know, maybe you have a loan that’s maturing in the middle of a recession and maybe you need to pay down the existing loan balance a little bit to to make the deal work or to find a lender, or you know, having cash on hand because that’s when the best when there are the best opportunities is during the downturn. So just having enough cash reserves and then also having, you know, long term fixed rate financing on on any properties you already own.

Charles
Okay. And you work with a number of real estate investors, what are the most common mistakes you see that they make?

John
Mostly most common mistakes that people make is, I would say is, you know, not thinking about their exit and how they’re actually going to sell a property and you know who the actual buyer is for the property. So, you know, it might it might look attractive to finance a property in a tertiary market, with a Fannie Mae loan with yield maintenance prepay. And you might think, Hey, I bought this property at an eight cap and I financed it with a 80%, LTV Fannie Mae loan, the three years of interest only, and it’s a $2 million loan or a $3 million loan and I’ll just sell In four or five years, well, you know, it’s going to be difficult to sell that property if you have a yield maintenance prepayment penalty on it, because the buyer is gonna have to assume that loan. You know, there’s not as many buyers in a small market as our for a larger market. So I think the largest, or the biggest mistake I see is, is people just not thinking about their exit, and how they’re actually going to get out of a deal.

Charles
Yeah, now I can see that there’s, it’s different when you speak to different professionals involved around the investment, real estate investing, and attorneys, lenders, brokers, and they all have their own things that they’ve seen that is common on their end. So it’s always it’s always great getting that perspective of what you see.

John
Yeah, and I would say, you know, one other thing too, is just from a financing perspective. You know, a lot of people, especially less experienced investors, all they really look at is the interest rate and the loan amount and the interest only and what’s on the front And, you know, these aren’t residential mortgages, where the only thing that matters really is the rate. There’s so much more to it than that. And the other thing too, is that, you know, if you, if you engage a lender, or you engage multiple lenders, or you engage one mortgage broker or multiple mortgage brokers and one person is offering terms that are way better than than everyone else, you have to ask, you know, what’s that? What are those terms based on? How are they underwriting? The cash flows here, you know, how are they sizing this loan? You know, this mortgage broker that I’ve worked with on three other loans that I’ve done, is telling me that I can only get to 70% but this person, I’m never close with the saying I can get to 80% in five years of interest only, you know, why is that? And so, part of the reason I’m saying this, as I’m as I’m also vetting and I’ve had I’ve had borrowers who have gotten term sheets from from other lenders or other mortgage brokers that you know, I don’t think can be delivered. You know, I only quote terms that I think are possible. And obviously we’re going to push for the best scenario there is. But I think a lot of times people tend to they don’t they want to believe what’s being put in front of them and so they don’t vet the term sheet account that the terms and I would encourage anyone that is investing in multifamily to work with someone that you trust and someone that will, you know, show you the good, the good, bad, the ugly,

Charles
The ones that also have the experience I had that problem, years back with getting a bank loan and it was where the person I was dealing with didn’t have expertise and that in that part, that asset class what it was right and the the appraisals came out completely different and all the everything swayed differently. And if it was dealing with someone, especially even at the bank, or with a bank that specialize in more and have venting that upfront, I would have saved a lot of time. So it’s It’s very important that just because you’re getting a term sheet, just you’re getting your pre approval, whatever it is, you have to make sure it’s actually worth something. And they actually know what they’re doing. So with the asset class, and and this what you’re trying to do, like you said the business plan for that property.

John
Yeah, absolutely.

Charles
So well, thank you very much, John. So how can people learn more about you and Old Capital?

John
Sure. So anyone can email me at J brixon. That’s j, B r i c k s o n, @oldcapitallending.com. Or you could visit our website, oldcapitallending.com that has all of our contact information and our bio. And then the last thing I’d put in a plug for the Old Capital Podcast, which is a really popular podcast on iTunes, focus solely on multifamily investing. So people get a lot of value out of that podcast. So any one of those outlets, you can get ahold of me or learn more about me

Charles
Okay, sounds great. What I’ll do is I’ll put all the information into the podcast and YouTube notes. And I want to thank you again for being on the show today.

John
All right, that’d be great. Thanks, Charles.

Charles
Thanks. Bye bye.

Charles
Hi guys, this is Charles from the Global Investors Podcast. I hope you enjoyed the show. If you’re interested in investing in real estate and you don’t know where to begin, set up a free 15 minute strategy call with me at schedulecharles.com. That’s schedulecharles.com.

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Nothing in this episode should be considered specific, personal or professional advice. Any investment opportunities mentioned on this podcast are limited to accredited investors. Any investments will only be made with proper disclosure, subscription documentation, and are subject to all applicable laws. Please consult an appropriate tax legal, real estate, financial or business professional for individualized advice. Opinions of guests are their own information is not guaranteed. All investment strategies have the potential for profit or loss. The host is operating on behalf of harborside partners incorporated exclusively.

Links and Contact Information Mentioned In The Episode:

About John Brickson

John Brickson is a Director with Old Capital and is based in Dallas, TX. John and his team at Old Capital are actively involved in arranging financing on commercial real estate properties throughout the US, with a focus on financing value add multifamily properties.

Prior to joining Old Capital in February of 2018, John underwrote and financed over $1.0 Bn in commercial real estate loans as a lender with a large national bank and a Dallas-based real estate private equity fund.

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