#13 Mastering the Game of Real Estate Investing with Arnold Podrebarac, Direct Lender

Announcer: 0:13

Ready to get the inside scoop on equity funding? Tune in to TDJ Equity Funding Insiders podcast for an in-depth look at what it takes to access financial capital and maximize your investments.

Jacquelyn Jackson: 0:47

Welcome to the TDJ Equity Funding Insiders podcast, where the secrets to funding your real estate dreams are unveiled. I am your co-host, jacqueline Jackson, and join me as a man whose expertise in the industry is as vast as the properties he's financed, the one and only Arnold Poecherbrake. If you would, arnold, if you would just say your name for it, because I want to make sure everybody has your name right.

Arnold Podrebarac: 1:15

Yes, Arnold Poecherbrake.

Jacquelyn Jackson: 1:17

Podrebarac. Alright, thank you, Arnold. I call him Mr. Arnold. Alright, brings a whopping 22 years of real estate wisdom to the table. Arnold is just not like a real estate veteran you all. He has been in this great business of guiding the navigation world of the private lending area. He's worked a little bit, you know. He's worked in the private, as we say, the money heart, money area. But he's also been working really great in the private lending area, which we're going to talk more about today. But either way, he brings us years of experience in this field. So we are really blessed to have him here on our show today. So let's get ready for unfiltered insights, juicy stories and particular tips as Arnold spills the beans on how to secure funding for your real estate deals. So, if you would, let's welcome Arnold to our show today. Welcome, arnold.

Arnold Podrebarac: 2:04

Thank you, Jackie. Look forward to spending a little time with you.

Jacquelyn Jackson: 2:08

Okay, well, like I said, great, great, great. So this is what we want to start off today. If you would, let's give our listeners a little bit about yourself, a little background and what all you do.

Arnold Podrebarac: 2:18

Right. So I am currently at the private lender work for a company based on the West Coast that does private lending. We do real estate funding for non owner occupied investment properties. In the case of this company, we do one to 10 units, so it's always just non owner occupied investment properties.

Jacquelyn Jackson: 2:43

Properties. Okay, and for our beginning listeners, let's talk about those that are interested or getting into real estate, those that are already real estate. As a loan broker, we work with several different lenders that actually direct lenders to help us with our clients. Ernest is one of those that we are like we consider like a go to, because I call them about some things just to ask questions, because he knows, so he has great stuff to bring us today. So what we want us to do, starting off for our new ones, is explain to them what actually is our, what is the one to 10 units. When you say that is playing that with, that is compared to other stuff that they're doing.

Arnold Podrebarac: 3:18

Correct? Yeah, so you have single family residents. Is the one duplex to triplex, three, quad or four plexes four, and then anything five to 10 units in our case, but anything five plus units is a multifamily. Okay, the family is a little bit different loan, it's a different animal and requires more experience from a lender standpoint and from a borrower standpoint as well. So it's not for the faint of heart to do a multifamily. You do need the experience. But a good way to get it is to buy one to four units as your start for investment.

Jacquelyn Jackson: 3:59

Right. So you're saying, basically, they should start with the one of four. Now, when you say start, let's say it's a little different than what we talked about before as far as what we're going to say in the beginning, because you say some things that I think we need to bring to our audience. When you say one of four units, they need to start, and you say, like, if somebody's starting out and with the record lender, what do you want to see is a first time starter, because you all do first time, Am I correct? Do you all do first time?

Announcer: 4:23

Correct correct.

Jacquelyn Jackson: 4:24

So can you explain what they need to have when they come to you? What are you looking for? They need to know that.

Arnold Podrebarac: 4:28

Yeah, great question, jackie. It's important because a lot of people look at it like they're buying, let's say, a $200,000 house. They look at it as if they're buying an owner occupied house. Well, we've got 20% down, so we should have enough money.

Arnold Podrebarac: 4:46

It's different on an investment property. So you can buy an investment property that's already been remodeled and is you're buying it to buy it as a rental. That's different than buying a property that you're going to remodel and then either bring it to investment or flip the property. So a first time investor needs to really look at it like. They need to have, conservatively, 35% of the purchase price 30 to 35% of the purchase price. Liquid. Liquid cash is cash in the bank that you can use for it, unless you're going to liquidate a he lock or something like that, but we can get into that more later. So Really it's, it just comes down to cash and it comes down to credit. In today's lending world, it credit is super important and you really need to have 700 plus FICO 700 plus right to kind of skip that started.

Jacquelyn Jackson: 5:46

Okay, especially a first-time investor, correct right and notice now that you are my listeners. What he's saying is this as long brokers, we deal with all types to come through. But he's saying if you are first-time investor, he's not saying we can't because we take like 626 for that I think you do some 680. He's not saying we won't take it. So make sure y'all understand that. What he's saying is, if you are first-time investor is Best, you need to have a 700 credit score.

Jacquelyn Jackson: 6:11

If you start now for the first time and you want to use Lend, private lending money am I correct? Then that's something he has to look at and be prepared to actually come where you're putting that 30 or 35 percent down out of your pocket, because people like, well, how much you got to put down? And I tell him it's always the best way to look at it is how much you got in the bank is how much you can afford. So if you got a hundred thousand dollar house you looking at and you have thirty thousand dollars in the bank at 30%, you probably could do that, which we know we have a minimum of a hundred thousand. But I'm just showing that's your budget, based on what's in that bank, so you don't need to go look at a $300,000 house and all you got is thirty thousand dollars in the bank. Am I correct?

Arnold Podrebarac: 6:49

Correct right in the brain and the breakdown really is for the most part you figure you even an investment property, even first-time You're gonna put about 20% down on the property. The remaining 10 to 15% Liquidity is to cover closing cost fees, property tax, insurance, title, escrow, and then also you need reserve Requirement and if you're going to rehab you need to have at least 15 to 20% of the rehab budget Liquid as well to start the rehab. So it kind of breaks down like that a little more right, which is really good.

Jacquelyn Jackson: 7:22

So let's go to that budget that you mentioned. I think again for us to understand when you say you need to have this much For your budget. Where's the reason they need to have that to get started, 15% or whatever on for their budget? Why would they need that?

Arnold Podrebarac: 7:35

Right. So if you're doing a rehab project and let's say a conservatively, your rehab budget is $30,000. So the reason you need the 15% of that liquid is Rehab budgets. Although it is alone, you're only paying when the money is drawn, but you are Starting the work in order to take a draw. Okay, so you have a rehab budget with line items, you complete X amount of work, your request to draw on that and then you get the draw. So it's it's more detailed than when somebody does alone. We'll get into a little more, but that's the basics of it.

Jacquelyn Jackson: 8:17

A basic so they can understand. So we want you on the and, if I'm correct, I know you guys do a hundred percent rehab though for his reimbursement, right On the rehab, but it's a percentage like for all most lenders you have to have a percentage that you have to put into purchasing the property, Okay, so you you'll come with, like he said that, 30% or 35%. You'll have that, or 20% as you get more experience on your thing. And I do remind me, I do want us to talk about what you consider experience, because we're getting a misunderstanding of what real estate investing experience is. Okay.

Jacquelyn Jackson: 8:51

But but what I'm going back to, what I was saying you ought to make sure that 15 to 20% that you're going to put down that's what he's saying you need to have set up to be part of your budget when you put the things together. Now we're going to go back to the other one I want, but let's talk also right quick before we get off of the reserve. What do you mean when you say they need to have so, so much reserve? What is the reserve for?

Arnold Podrebarac: 9:13

Correct. So it's not money that you're going to apply at escrow or not going to apply the money at escrow to the closing the transaction. The reserve requirement is you need to have three to six months of principal interest, tax and insurance liquid so that those numbers multiplied times three or six. In the case of a state of fix and flip loan and bridge loan, it's interest only. So interest, tax and insurance.

Jacquelyn Jackson: 9:45

Okay, and that just didn't mean that being a like a count that you all can see that they have those reserves. Right, when you say reserves, you need to see. Jackie send me the bank account with the money in it. Basically, right.

Arnold Podrebarac: 9:57

Correct, correct.

Jacquelyn Jackson: 9:59

Okay, cause people need to understand the difference of that. Again, this one is kind of focused on, maybe, our beginners, cause we do have a lot of beginners that's watching our show now and so we want them to kind of have some actual information that's correct, coming from a lender directly. They can know how they need to have that. Now let's go back and talk about experience, because we need to. Really, I know we have a lot of situations that come into us that we haven't explained this, so I want people to hear from you, as a direct lender, what do you consider is real estate investors experience?

Arnold Podrebarac: 10:30

Okay. So it's changed over time as well, and in the current market you have to have, for instance, on a fix and flip loan or a loan that you're going to do rehab on, you need to have experience doing those. If you don't have experience, we'll still do the loan. It just affects the loan to value as well as the rate. So experience makes a big, makes a big difference. The more experience, the better loan to value and the better rate. So that is. That's really a big, a big thing. It doesn't mean you can't get into it and you can't build up experience, because that's really what we encourage. But you learn from experience. That's why you get a better rate and a better loan to value. We know that by taking that risk and making that investment, you learn from experience and we reward that.

Jacquelyn Jackson: 11:27

Right, what a good with a with a nice well, as we say, your terms are a lot better for you compared to if you knew. So what I want to add to you as well with that experience too, is that experience is not that you invested into a real estate investment project. You put money into that project and now you have experience. No experience, and correct me if I'm wrong Experience is when you have actually had your name on the LLC of this property we're talking about, or you part of the settlement. You know that. You part of the settlement, so that's your own the loan. Is that basically what it is? So what do you? How do you all word it? You know, so they can know.

Arnold Podrebarac: 12:02

Yeah, you're on the title. Okay, so either through yeah, you're on the title either through an entity or as an individual.

Jacquelyn Jackson: 12:09

For individual. So that means paperwork, state paperwork, legal paperwork, guys, not somebody saying, hey, come with me and invest in this property. You're going to put 80,000. I'm going to give you a return on your money, or 22% or 33%, that's not the same. You just invested your money for ROI. That's all, which is returning your money and interest, and that's fine. You will return on your investment. It's all you're going to get out of that. But you can't come to me as a broker and him as a lender and say, well, I have experience because I've invested my money in this, this and this. Okay, am I correct? Is that it?

Arnold Podrebarac: 12:40

Right, that's yeah, it's a great point to bring up too, because it does come up quite often over somebody will have experience in the sense of that they were investing, like you had said, but now you have to have your name on title, right.

Jacquelyn Jackson: 12:55

For it to count, for you to count, so that to count. Okay, which is the. If so, everybody can know that. Now I do know, like you said, they need to have that on title. But when we do it with purchasing or fixing or fixing flips now, not necessarily new people, as much our listeners. But let's talk on this new construction, cause people have a misunderstanding. Well, the first thing I want to start, my first thing is I want to build my house, I want to, I want to do new construction.

Jacquelyn Jackson: 13:19

So I know, me and you didn't laugh about this a lot of times with the stuff we have come our way, but I want you to talk about new construction. As a lender, what are you looking for? What they need to look like and what they need to do or don't do when it comes to new construction?

Arnold Podrebarac: 13:34

Right, it's definitely not for the faint of heart. Experience really comes into play for new construction. It is we require you have at least if you're doing a ground up construction. We require you have at least four ground ups under your belt in the last three years before we'll land on a new construction. There's an exception for contractors building their own investment property new construction.

Jacquelyn Jackson: 14:03

So contractors have a little bit of an out if they've done new construction for other people ground up then we can count that towards experience Right and under their own and see and on an experience with that when we do that too as well. A lot of the lenders you're right, they take that as experience from the contractors, but I would tell you they do give us a lot, because I've had it happen before. They did give us a little credit for what he did, but it was best. They would like to see the one that I had, the contractor that had actually did it in his name or his company name. They gave him more of a deal.

Jacquelyn Jackson: 14:39

So, understand, you need to have experience under your belt and if you don't have it, my suggestion is this, and I think I had that conversation with you where, if you're not, how do you get experience? Because if you don't have experience, you can't get along. Well, get with someone, maybe your first deal that they have experience and you all kind of can get on that together, right, Because we talked about that. So how would you get I want you to really mention that to our listeners, or what they should look at doing to get on that if they don't have any experience, how do they get experience with new construction?

Arnold Podrebarac: 15:10

Right. So you would find somebody that has the experience, somebody you obviously trust, because you're going to have to enter into an agreement with that person. That agreement could be an entity, an LLC, something like that, and you're bringing the money to the deal. That's your contribution to the deal. If you're on an entity with those people, in an ideal world you want to be have a majority or at least 25 plus percent of the entity. You're on title with that entity and you have a major ownership in that entity or major membership in that entity.

Jacquelyn Jackson: 15:54

Now let me say this not to necessarily break you off, but when you say 25%, to have interest in it. So if a person come to you and they got 5% interest in a company that has built it, would that be considered their part of their reference I mean not reference but their experience even though they had 5% on the company that built, fixed and flipped the house?

Arnold Podrebarac: 16:18

Not really. They really need a higher percentage of the entity and the reason being risk is percentage. So if your risk is 5% of a deal let's say a $200,000 deal and your risk is $10,000, we're looking for you've taken the risk and succeeded at that risk. That's really what we're looking for. And that's why you could have done a fix and flip and lost $5,000, but it was in your name and it still counts.

Jacquelyn Jackson: 16:49

Right right. The fourth percentage is 100% was in your name, so you're saying that would matter more than you. Being 10% of somebody else's stuff is basically.

Arnold Podrebarac: 16:58

Right, exactly.

Jacquelyn Jackson: 16:59

Right and that's the myth and I'm going over stuff because that's the myth we have. When people come in, they don't understand that how that is and they have partnership, they are getting to, but it's not the proper way. It was not that it was wrong and illegal, because it's not. It's just it wasn't a proper way that we will consider it as experience. So I wanted us to would you be it on to really address when you highly need to look when they actually come to a lender, even as a new one. Our big thing is on a construction deal.

Jacquelyn Jackson: 17:26

I do want to emphasize that again, that you need to have experience with new construction in order to get new construction money. You know that's from a lender. Now you can go barred and get it for all your family and everybody want, all you want all day long. But when it comes to lenders, that's what they're looking for, is they're looking for that type of experience. So I definitely wanted us to go over that and then like also, which I'm glad. Thank you so much for helping to do that. Let's talk about the different types of loans and I guess what we call them, when you all call them, is DSCR. So explain what those are and those different types of loans for people.

Arnold Podrebarac: 18:00

Right. So up to this point we've basically covered what's called a bridge loan or a bridge with rehab or value add loan. They all fall under the same category, whether it's a stable asset and you're just simply doing a bridge or whatever, they're all basically the same loan. Dscr loan is debt service coverage ratio and this usually involves either buying a property that it's already completed and ready to rent out or refinancing a property that you bought, rehab and now you're ready to rent it out and move it into a DSCR loan. So the debt service coverage ratio loan is it's like all of them.

Arnold Podrebarac: 18:44

It's not a full dock loan, it's basically the same documentation we need to see about we need to see two months of most recent bank statements is the deepest we dive into your income. It's your ability to complete that loan as a purchase or as a refinance. So debt service coverage is either cash out or not cash out, and if you're refinancing property under a debt service coverage ratio loan DSCR loan then the whole point is this if you have a property that the market rent is 2000 a month and your principal interest, tax and insurance combined or and you could add to that HOA or management fee combined, is 2000 or less, then that property covers the debt service on that, and then that's what we're looking for. We're looking for a property that covers the debt service on the loan.

Jacquelyn Jackson: 19:52

And basically, in short, you're saying your rent need to be more than your mortgage on your rental property.

Arnold Podrebarac: 19:59

Or at least as much as.

Jacquelyn Jackson: 20:00

As much as, as much as.

Arnold Podrebarac: 20:02

Yeah, I mean there are exceptions and we do some different loans too, but I don't want to get into that yet. Right, we'll go lower. But it's just you have to be, you have to yeah.

Jacquelyn Jackson: 20:14

What you're saying is everything is not cookie cutter. Majority of it is, I think, in lending and stuff. You let me know, majority it is, but sometimes you have custom situations and that's where you guys have to do custom stuff and, of course, on our end as well too. So, basically, that's what that are. So that's what that is.

Jacquelyn Jackson: 20:30

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Jacquelyn Jackson: 21:09

Don't let your dreams gather dust on the shelf. Seize the opportunity today. Visit wwwtdjequityllcnet and schedule your appointment with TDJ equity funding. Let's turn your dreams into dollars. We definitely appreciate you telling us that and explaining it. I do want to emphasize again, based on what you're saying, if you are a first time landlord by force and that that house is now set up because you're not in it anymore, that it is set up as a rental property. So when you refinancing you have to refinance it as a commercial property, am I correct? You can't go and do it as or somebody like I've had try to get a heat lock out of a rental property and you can't. So let's explain the difference between that. If you would, when you guys deal with refinancing, what you looking for compared to you know the other way, which is owner occupied.

Arnold Podrebarac: 22:09

Right, so it's okay. So we need the lease, the lease for the property. We're just looking for longevity of lease, meaning if it shows up as that it's your property and there is definitely ways to find out as opposed to an actual rental property then if it's your property it's not valid. We only do not owner occupied. So on the DSC R loan it's we could get into all the documentation, but that's, you know, premature, but it's basically what separates. It is the lease, and then we oftentimes look for proof that the deposit and the rent was made into your checking account.

Arnold Podrebarac: 23:01

So, it's a warning for most people. A lot of people have tenants that are pay cash. If you're not depositing that cash into the bank and you have a lease, it doesn't mean that that counts, so that is an issue.

Jacquelyn Jackson: 23:17

Right and that makes sense and that's what I was trying to emphasize. A lot of people think that now that I've moved out, I'm not going to say anything to them. I can still work it as if I'm there. When you get ready to file a claim or refinance and all of that, that stuff comes into play. You're no longer that's the commercial property. So we say that to you all, to the slant lawyers like that, to be aware of that and then get yourself set up where you can get funded on your investment or refinance your investment. So we want to do that. So before we leave, get off today, I have a few questions that my listeners have asked that I ask you, and one of them would be Arnaud, what would be your top funding tips for our listeners?

Arnold Podrebarac: 24:04

The best tip I can give people is we had touched on it earlier is liquidity. You think that you're going to need far less money to do a project, but always think you're going to need more. So liquidity comes in a number of ways. A lot of people it's obviously the cash on hand, cash in the bank checking savings account. People have retirement accounts. People have helots, but you have to liquidate those in order for those to count towards liquidity now. So you may feel you have the reserve in a retirement account, but a retirement account is only as good as the liquidity in the bank. So just plan for high liquidity. That's a big one. And then the other is credit.

Arnold Podrebarac: 24:53

If you're planning on doing this now or in the future, start monitoring your credit. Do the steps that it takes to improve your credit. Believe that you need to have 700 plus credit, even though we may go down to 660 or 680, just work towards 700 plus. It's a different lending world now and you need to. Really those are the two most important things you could do. And having an entity is a plus, and many states require that you have an entity to invest in those states. So it's a protection for you as well to have an entity, but I'm not an attorney or an accountant, so I'll leave that to them to work with.

Jacquelyn Jackson: 25:40

To explain to you right what you do?

Jacquelyn Jackson: 25:42

Yeah, you are correct in that. So what would be? I mean, I know you say work on the credit, because I want to call our actions for our listeners. I know you had mentioned you would like for them to actually work on a credit is based on what you're saying. And then also let's talk about the process of how they go about the market as far as picking houses and stuff, because you mentioned that before to me earlier. So, if you would, can you tell us a little bit about the call or action that's dealing with them picking their houses and for the market and stuff?

Arnold Podrebarac: 26:12

Yeah, Sure, multiple ways to do it and I've dealt with a lot of different scenarios People that joined clubs or groups where the houses are identified for them. Oftentimes there's a premium that you're paying on the property. The MLS in Zillow is obviously people's most used choice to find a property. Off-market properties are probably one of the better ones. But you would do that later in your investment process Because if you're going to do mailers or target neighborhoods or something like that, it involves an investment up front. So picking a property is something where you only can use you best trust your own advice. Meaning you're going to buy a property and you're looking at that property let's say on Zillow is an example and you see the property and it needs work and you think, well, if I buy this property and I put work into it, then I can sell it for much more than I bought it for. You have to one understand how much work that requires. It's a 1200 square foot, three bedroom, two baths. Does it require 30,000 in work?

Arnold Podrebarac: 27:34

And then if I put 30,000 into a $200,000 house, then you go online and you see gutted, remodeled, 1200 square foot houses in that neighborhood. What are they selling for? Well, if it's selling for $250,000, gutted and remodeled and similar, then you're really not making a good investment decision.

Arnold Podrebarac: 27:52

So, a lot of these things you figure out too late. When you're inexperienced, meaning you buy it, you get all excited about it. You've got a rehab budget you know contractors made out as budget for you and you present it and you're trying to get a loan for $160,000 on a $200,000 purchase and $30,000 for the rehab, so a combined total of $190,000 alone. You get your appraisal. The appraisal shows the as is value as well as the after repair value, arv, and the ARV comes back and your loan to cost meaning and your loan to ARV isn't good. So we're not going to land you the 80 cents on the dollar on a loan. That doesn't make sense. But you're already committed to that property. So you need to really do your due diligence upfront. So find people you trust if you don't have the knowledge base for that.

Jacquelyn Jackson: 28:51

Exactly, and on that note, I want to say because I definitely want them to mention, because I know what type of lenders you guys are is that, when it comes to a lender, our last question is what do they need to look for in a lender? Or because you're a direct lender, so what do you think they need to look for when they're looking for a direct lender to help them?

Arnold Podrebarac: 29:12

So you need to look for people that have the experience. So, for instance, jackie, if they would call you and they said we're looking at this property, what we want to do here's what we're going to spend, you have the knowledge base to tell them that is or it isn't a good investment. You have a broad knowledge. You've done it enough. And the same when they call me directly, I can pull up data that possibly they can't pull up and it either does or doesn't make a good decision. You know the old adage you don't want to buy the most, the biggest, most expensive house in the neighborhood, because it's always dragged down by the lower priced homes. So the same applies here. You know we don't like to see an ARV at two times what the neighborhood average value is. So it may. It may be the Taj Mahal in a in a neighborhood. That's not great, but it's it's not going to have the value.

Jacquelyn Jackson: 30:10

Exactly so. Like I say, it's about the return on your investment, and that's what the lenders do. They want to make sure the numbers work. That's what we call it. If the numbers work, then we can do the deal, but if the numbers don't work, you can't do the deal. So in order to know that you're right, you have to deal with a lending power that does have experience and that understands that. So I totally agree with you on that. So we, wrapping everything up, we want to definitely I mean that was your answers have been really awesome and definitely you've given us a lot of information for our listeners and we thank you and appreciate you for coming to our show today. Mr Arnold, is there any last things you would like to say to our listeners?

Arnold Podrebarac: 30:50

The best, the best choice that people can make is to look at investments like you would look at investment in property, like you'd look at investment in anything else. Many people invest in stocks or 401ks or whatever. But if you look at this the same way, meaning with an intelligent approach, then you're you're going to have a higher likelihood to succeed. I always say it's better to buy five $200,000 houses and one million dollar house, because you're putting eggs in different baskets there. So probably the best advice is start slow and start start lower, even if you could afford more.

Jacquelyn Jackson: 31:32

Right, right, I got you that. That's a great, great, great advice, and thank you again. Thank you again so much for being on our show, mr Arnold.

Arnold Podrebarac: 31:41

Well, thank you, I appreciate the opportunity. Thank you again, take care.

Jacquelyn Jackson: 31:46

You take care as well, and to our listeners. If you like this information and would like to learn more, please subscribe to our YouTube channel at youtubecom, at TDJ equity funders and Siders. Until next time, thank you and take care.

Announcer: 32:24

Until next time, take care.