Remember This Secret Truth About Lenders

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Let’s face it—real estate investors need to borrow money. And when we think about borrowing money, our default mindset is, “I need money, and the lenders have it, so I have to ask nicely to borrow it and jump through any hoops they require, because they have all the control.” But there’s an important and simple truth that lenders don’t like you to know: lenders need borrowers. In this episode, Jeff explains the critical mindset shift real estate investors need to make: believing that as a good borrower, you are valuable to the lender—and they need you just as much as you need them.

Episode Transcript

As real estate investors, we’re kind of in the business of borrowing money, at least for a lot of people, and we borrow money frequently, and we borrow a lot of money. And I want you to just take a second to think about how do you feel when you are seeking out alone? I mean, for most of us, we kind of feel like, we show up a little bit hand in hand, you know, with a nice smile and say, Okay, I’ve got a deal, I need a loan, will you please make me alone, I would sure appreciate it. If you would make me alone. There’s sort of this unspoken frame that says, We need something that we don’t have, and these lenders have it, and then they have all the control as a result. But you know what? That’s not really an accurate way to look at it. Because there’s an important truth about lenders that we might know deep down, but we don’t think about it consciously enough. In this episode, we’re going to talk about that lesson, and talk about how we can embrace it so that we make ourselves better and stronger as real estate investors. So let’s cue up that magical theme song and we’ll jump right in. Welcome to racking up rentals, a show about how regular people, those of us without huge war chest of capital or insider connections, can build lasting wealth acquiring a portfolio of buy and hold real estate. But we don’t just go mainstream looking at what’s on the market and asking banks for loans, nor are we posting We Buy Houses signs, we’re just looking for quote, motivated sellers to make lowball offers to. You see, we are people oriented dealmakers, we sit down directly with sellers to work out Win Win deals without agents or any other obstacles, and buy properties nobody else even knows are for sale. I’m Jeff from a thoughtful real estate entrepreneur. If you’re the kind of real estate investor who wants long term wealth, not get rich quick gimmicks or pictures of yourself holding fat checks on social media. This show is for you. Join me and quietly become the wealthiest person on your block. Now let’s go rack up a rental portfolio. Hey, thanks for joining me for another episode of racking up rentals. Show Notes for this episode can be found at thoughtful our E comm slash e 125. Episode 125. Please do us a big favor by hitting that subscribe button in your podcast app. It really helps fellow thoughtful real estate entrepreneurs to find the show. And of course, make sure you don’t miss out on any episodes honored with today’s episode. So a few years ago, I came across and met a guy who was in the business of doing some private lending. He’s just a regular guy doesn’t have an office or website or anything like that. He’s just a regular guy who’s done some private lending hard money type of lending. And I met him. And we talked about doing business together. And we found a deal to do together and it went very well. And then we found another one. And then we found another one. And we’ve done a lot of business together. And I would consider him a friend now and a great person. And sometimes I’ve sat back and I’ve reflected and I thought it’s pretty good to be him, you know, it’s a good gig, lending money out, he’s not doing the work. He’s not necessarily finding the deals, he’s not swinging the hammers, or calling the contractors and things like that. And I thought that’s it’s a good gig. And for a long time, I’ve really kind of liked the idea of what I would just generally call that a headline or an umbrella of being the bank, right? I buy properties with seller financing all the time. So I see what it’s like for the other person to be the bank. And I thought I might want to be the bank in the future myself, you know, maybe I will sell some of my properties with seller financing. Maybe I will create rap notes for the financing. I’ve negotiated as the owner, and I’ll sell resell the property with keeping the current financing in place on a rap note, that’s a little bit more complicated and beyond the scope of what we’re talking about today. But maybe I’ll make hard money loans, you know, maybe to flippers and people that I know who need loans, maybe I’ll buy notes, maybe I’ll get into that business, too. There’s a lot of ways to sort of be the bank. So I was talking to my coach Greg, who you know, from Episode 100 of this podcast. And you know, I was telling him that, in my future, I definitely envisioned myself getting involved in being the bank one way or the other. And I referenced back to my private lender friend, I said, you know, because, gosh, it’s good to be him. And Greg made a really important point that I just keep thinking about is really the crux of today’s episode. He said, Yes, it’s good to be him, but you’re under estimating an important part of the overall equation here. And that is that you, Jeff are a first class borrower, and not everybody is a first class borrower. And so we started to have this conversation overall, that just made me appreciate this point that I want to make for you today in this episode. Here’s the deal. Lenders need borrowers. Three words really. Lenders need borrowers and lenders don’t just borrowers they really need the borrower’s right now there is no money to be made in the lending business. If there’s no borrower, right, there’s literally nobody to lend money to. And lenders make money in four ways. Overall, they make money through margin, right? So they’ve got their money at their cost, and then they loan it out to you at a higher rate, the arbitrage of those interest rates is called margin. They make money from fees, right? So that maybe they’re charging you a point or something for a loan fee, or a, you know, Doc prep fee, or closing the loan out reconveyance fee or something like that. They make money sometimes for servicing. Maybe somebody’s paying them to continue servicing the loan and keeping their monthly statements and doing all the reporting. And then lenders can also make money through penalties, right? Yeah, well, you said you were going to do this, and you didn’t do that. So you want an extension fee, or your late payment fee, or something like that, basically, penalty. So those are the four ways that lenders make money, and lenders can’t do those four things without who, without a borrower. So why are we discussing this? Right? Like, what’s the point of having this conversation? Well, as I alluded to, in the, you know, the intro to the show, we tend to think about the dynamic of being a borrower with a lender as Oh, you show up hand in hand, you say, Oh, please, I need some money, will you please give me some money? I’ll do whatever you want me to do. And our default frame of that dynamic is borrowers need money. lenders have money. And so the lenders have all the control lenders hold all the cards, right? Maybe you’ve heard that expression, it’s a little bit tongue in cheek, but it says, oh, what’s the golden rule? Oh, the golden rule is, the person with the gold gets to make the rules, right? It’s a little bit sarcastic, but meant to reinforce that idea that the person with the money gets to call the shots. And we tend to think by default of our dynamics and lender relationships in that particular way. But here’s what I want you to know, as a good borrower, you are valuable. As a good borrower, you have leverage. Now, we need to step back, though, and ask ourselves the question, do we get to experience that leverage? Do we get to experience the idea of being valuable with all types of lenders, right, I just discussed and describe to you the dynamic between me and another regular individual. But you might be asking yourself the question, does this apply with banks as well, or bank like lenders, you know, professional, private money lending organizations that do hard money? does it apply with all of them, too? And the answer is, yes. But there’s a big, there’s a big button. I think, actually, they’re kind of three things that I would put under the overall headline of bureaucracy and red tape that diminish this little bit of leverage. Let’s just take a quick look and examine that. Does a bank need good borrowers in order to make money? Yes, absolutely. A bank is not in business, if all it does is taking deposits, it has nothing to do with them. It cannot function. I used to work at a bank and my first and only, I guess, real job out of college before I started my entrepreneurial journey, and in marketing. And there were lots of times when, you know, we were starting to run marketing campaigns to drum up more of certain types of loans, because the bank’s overall, you know, balance of deposits and loans and these different subcategories of deposits and loans was just a little out of whack, we needed to loan out some more money. And so I got to see that firsthand, as well. So here are the three things I think that are the big, but when it comes to banks, the first one is that normally, depending on the size of the bank, but normally, you know, there are so many layers in a bank, that the people you talk to like the people you’re applying for your loan through or the the front line, customer service type of people, the mortgage originators maybe. And then those who are ultimately on the hook for making sure that the bank’s balance and volume of loans is right is is there’s too many layers between them. So there’s a major disconnect, right? So you’re talking to rather frontline type of person who’s taking your loan application ends on mortgage loan officer for that bank, or even a mortgage loan originator for, you know, a loan brokerage or whatever. But they have their own interest, which is to get paid, and to get a commission when your loan closes, but they’re not overall worried about the organization’s greater balance of loans. And they’re not worried about whether that organization is making enough loans to have the revenue that they need to cover their expenses. So there’s a big disconnect between the people you’re actually talking to and the bigger picture of Oh, yeah, banks need to lend out there. money if they are going to make money and even have a business. The second thing is that the banking business and lending in general is extraordinarily regulated. And there’s so much compliance, right? So even a bank, even if you could find a bank, that would just look at you individually and say, Is this a good borrower and would make a bunch of custom decisions, they have so many 1000s of pages of rules and regulations that have to be followed, so that they treat everybody fairly and the same, and they follow all the compliance regulations, banks are seemingly in the business of, of taking in deposits and making loans, but you could almost argue they’re in the business of complying, and they comply, while they are making loans and taking in deposits. Compliance is a major, major, major topic for banks. So there’s only so much that they can do. And the third thing is that you have to ask yourself, you know, What game? is a bank really playing? Are they are they playing the game of let’s make as much money as possible by making as many good loans as possible? Well, in the case of a lot of banks, like big banks, especially the game they’re playing, is they’re actually making loans that conform to the standards, that mean that they can resell that loan on the secondary market rate. So they’re really not even in the business of making loans that they will make money off of, they’re in the business of originating loans that somebody else will make money off of. And so what they’re more concerned with is creating a loan that conforms to the standards that allows them to resell that. So all of that without being too technical about it is to say that, as a good borrower, you are valuable. Does that apply to banks, too? Yes, it does. But there’s so much red tape between you being a good borrower, and the bank and what they need, that the dynamic there of you having leverage, as a good borrower is really, really diminished. So here’s the point of this. When you work directly with a lender, right, like a regular person, maybe it’s as a seller of a property and the seller financing situation. Maybe this is a private individual lender, like the person I described to you at the beginning of this episode, when you work directly with a regular human, and there’s no layers between you, the red tape is eliminated. And what that means is all you’re left with is the simple truth that lenders need good borrowers, and other borrowers need the lenders money as well, but it’s a truly symbiotic relationship, where both parties can appreciate the other one, where both parties can respect the role that the other party place and can acknowledge, you know, a borrower can acknowledge lender, thank you, I can’t do what I do without you, and the lender can can acknowledge borrower Thank you, for being you, because I can’t do what I do without a good borrower, like you are. So here’s the takeaway, that I hope you leave this with, be a good borrower, develop a reputation as a good borrower, directly with people, real people. And as you do that, have confidence in the value that you are actually creating for that lender, that lender needs you. Now, if you insist on working with big organizations and banks, you’re not going to have the opportunity to really experience and fully appreciate the leverage that comes from being a good borrower, because the system is set up to keep that dynamic from feeling felt. But if you are a good borrower, you are valuable to regular individuals, sellers, private lenders who need people like you Now, of course, of course, that doesn’t mean you show up with a grandiose sense of arrogance. And you know, with that attitude that says I will you know, here I am, and you guys all need me so you can fight over me but you show up knowing the truth is that you create value for that lender, that lender creates value for you and now you have a perfect synergistic symbiotic and thoughtful type of relationship with that party. That is it for today’s episode of racking up rentals. So again, show notes are at thoughtful our e.com slash e 125. Please do us a big favor by hitting the subscribe button in your podcast app and rating and reviewing the show I see all of those ratings and reviews myself and I’m so grateful for them. Did you know also that we have a Facebook group for thoughtful real estate entrepreneurs. It’s called rental portfolio wealth builders and we’d love to have you join us over there you can just search for rental portfolio wealth builders in Facebook or if you want to make it super easy just type of group dot thoughtful our e.com into your browser and the magic of the internet will take you right to that page in Facebook. If you liked this episode, please take a screenshot of it. post that to Instagram and tag us. We would love to see that we are at thoughtful real estate all spelled out. I’ll see you in the next episode. Until then this is Jeff from the thoughtful real estate entrepreneur signing off. Thanks for listening to racking up rentals where we build long term wealth by being a win win deal makers. Remember, solve the person to unlock the deal and solve the financing to unlock the profits.

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