Who is your biggest business partner in apartment investing? Your lender! In this episode, go behind the scenes with Julie Peterson of Old Capital to discover how profitable deals get successfully funded.
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ABOUT JULIE PETERSON
With 30 years of Real Estate transaction experience, Julie Anne Peterson knows how to place debt, invest passively, syndicate as a general partner and capital raise for Commercial Multifamily properties. She specializes in helping new investors understand the debt requirements and connects them with sponsors who will take them to close. Julie is also the host of the wildly successful weekly ZOOM @ 8pm EST platform that brings industry professionals in to help educate new investors.
“We are your biggest partner in this deal. We're bringing the largest amount of capital to it. So, you want to have a relationship where you know, like and trust, not only the people that you're bringing in as partners, but also the lender.”
“We’re going to give you an understanding of: What is the debt? What is your business plan? How do you marry those and figure out if this makes sense from a product perspective?”
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Welcome to better returns and I've got one of my close personal friend here Julie Anne Peterson she's the senior director at old capital which is a real estate lending broker company she's no also known as the first lady of Lending she's 30 years of real estate transactional experience she knows how to place debt invest passively and syndicates as a general partner and also raises capital for commercial multi-family apartment properties she specializes in helping new investors understand the debt requirements and connects them with sponsors who take them who take them to close she's also the host of the wildly successful weekly Zoom at 8 EST platform which brings industry professionals to help educate new investors and I strongly recommend you tune into that so Julie thanks for joining the show what we're going to do today is kind of walk through what is the key role of the lending broker in buying large apartment complexes because our our listeners typically are new passive investors so they'll never have to work directly with you but you're so important that they know who you are and what your role is so if we buy a 10 million apartment 70 or 60 of those funds are going to come from someone like you so it's important that they understand the role of a lending broker so tell us a little bit about old capital and kind of what you do and then we're going to walk through kind of a case study great well thank you so much Matt for having me on I'm excited to be here um I love what I do uh as Matt had mentioned uh I am a broker so in essence I have a book of different Bankers lenders whether it be Bridge lenders basically if you think about a bridge we're bridging from one side of an asset to the other side so from a unstabilized asset to a stabilized asset so something that is not in good shape to good shape we've got that kind of lending we can do uh government-backed lending products we can do Bank products and then we've got some other products in there but I can go Nationwide and we can find the right debt product for what kind of business plan the general Partnerships are looking to do so old capital we've been in business for 36 37 years we close about 6 500 loans that is typically in syndication so when people put their money together in a group 6 500 of those need uh well there's more than that that get done on a yearly basis but we put debt on 6 500 of those loans a year um and then take them to close and uh it's about a 1.2 billion dollars in loans that we close every year so it's quite a bit that we that we do and we're not just a commodity broker that's what some people think when they come from single family you know you dial for for dollars oh this guy is a quarter percent oh this guy's an eighth of a percent oh this is a 16. that's not what it is in in multi-family it really is a relationship business that we're in as Brokers again Matt you had said we are your biggest partner in this deal we're bringing the largest amount of capital to it so you want to have a relationship where you know like and Trust not only the people that you're bringing in as partners as limited partners but also a lender so it's really important that we have a good relationship and that we know you know how to get the deals done and that's really the specialty that old capital provides but we also have great relationships with um real estate brokers so the general partners are all out searching for properties you know and as a limited partner you don't really know you don't really see the behind the scenes what's going on and so it's really helpful to understand that Brokers we see it's kind of like uh we're traffic controllers we see what's going on we see all the general Partners we see all the banks and we can talk we talk to so many different Brokers these are real estate agents if you will and they have transactions so we can say Oh Mr GP I have a deal here and that's the relationship that's so so important so it's not just a commodity hey I can get you the best pricing it's also I've got a good deal as well so it is it's it's all encompassing and uh that's what makes us pretty special here at Old Capitol and people will wonder like again residential versus commercial and commercials totally different it's a like we're doing a 40 million dollar deal in Florida right now and I yes our general Partners we could go out directly to these lenders now you have access to I think thousands of lenders yeah we could go out to the the top 10 or 15 of those and get quotes the problem is and I hear this with people that don't use a lending broker like you is that they go off and do that and then the lender will change the terms and conditions at the very last minute on them well you know what they'll do it to me because I'm an individual or a group of General partners because I do maybe one or two deals a year with them if that right but with Julian old capital they're not going to mess with you they don't it's like okay we really value their relationship that's why it's worth it for us to hire someone like yourself a Hired Gun if you will to go out and find the best terms and conditions and most importantly you get the deal closed for us because if I do it directly myself and I've got friends that have done this they went directly to the lenders and the lenders no offense jerk them around a little bit and maybe nearly at the end quite often and then you're just forced to go along with what they said because you can't lose the deal and all your earnest money in it so that's the value that I feel like okay who people say well I don't want to pay the extra commission for Lending broker but better pay that than lose the deal and and maybe hundreds or millions of dollars in down payment in some cases an agency debt you're going to pay one percent and and that takes care of my fees as well so whether you hire me or you go direct it's the same price so that really that that is a that's a non-issue yes but here here here's the thing you know you don't go to get your face or your heart fixed right you don't go to the cheapest plastic surgeon you don't go to the cheapest heart guy or cancer specialist right you go who has a track record you have a fiduciary responsibility to those investors to get the very best uh a loan right but you also don't want to the possibility of losing their money or your own money where the lender cannot deliver for you so that is one of the biggest mission statements of old capitals we do not want anyone to lose money and when you go and do this on your own you're putting your your money and your investors at risk so um that's why it's real important to invest with you know a good relationship that you have with a broker so very very good point Matt I appreciate you bringing that up so let's do a little case study so I've I'm looking for deals in Dallas Fort Worth area right now so I find a deal I really like I've underwritten which is just a fancy word for through the economic analysis so the numbers look pretty good yeah I think this is something you want to pursue so and the first thing I do I talk to my property manager might find out does he give it a thumbs up or thumbs down does he like the area because he's got they've got to manage it and if they said yes my next call is always to somebody like Julie to say Okay so let's let's walk through that Julie here's my here's the stats here's what I'm going to pay here's all my underrating I give you all this information what's the next step what happens then before I even make an offer yeah absolutely and I would also advise you that you're going to be looking at your taxes and insurance especially in Florida and and Texas because they have been extremely impacted so before you end up putting in a letter of intent which we call an Loi we want to come you want to bring it to A lender like ourselves a broker and we can look at it from a high level and say okay what are you trying to accomplish here well I want to be in this three to five years or I want to be in this long term my investors and this is what's so important as a general partner is to survey the investors because maybe you have some investors that are like oh I only want to go in this for three to five years or you've got investors that are going no I want long term I don't want to be changing I don't want to have to find new investors or new Investments so you want to make sure that we're marrying up the debt to the business plan so that conversation is had up front so we're going to find okay I this this property I want to find out does it have is it stabilized and from a lender's perspective a stabilization is at 90 occupied well this particular property that our our buyers are looking at is below 90 so they're going to need a particular type of loan so I'll I'll say okay this is the type of loan you need we're gonna I'm going to probably Gonna Roll in some of their renovation budget and we're gonna know that hey we can get you this at interest only terms so that you can do this renovation you're going to be in it for a short term and then you're going to be out in three to five years so that is what you know we're gonna kind of give you an understanding of okay what is the debt what is your business plan how do you marry those and then you can go back to the to the drawing board and figure out okay does this make sense now does it make sense from a product perspective do I want interest only because interest only you've got all of these rents coming in and you're only putting out a little bit of mortgage it is a amazing way to run a property you have to be very skilled and as a lender we're going to look at the general partnership to say who has experience in this who has done this before do all of the general Partners live in Hawaii and they are looking at buying in Texas because at the end of the day you're responsible for this asset yes you're hiring a property manager but the lenders want to make sure that we've got eyes on that property you've got an asset manager that lives in Hawaii he's not going to be their day-to-day so we're going to be visiting with the general partnership to make sure that we got we understand exactly who the players are what their experiences and you know we we want to know that the general Partners have money in the deal you know a lot of people say I can use other people's money from A lender standpoint we we want to know that they have boots on the ground meaning they are in the the area where that asset is but they also have skin in the game so if you're investing passively one of the questions you want to be asking is how much Mr General partner are you putting into this deal and I know Matt you are a big advocate for that that you want to be putting your own money into these deals that is telling that is communicating to the the general from the general partnership to the limited partners that we believe in this deal right so as a as a as a banker we are communicating that to uh our the Brokers are communicating that to the lender that hey we've got General Partners who are putting 10 of their own money in we're going to be bringing in limited partners who are going to be bringing in let's say 15 to 30 total of 30 percent uh down payment total down payment for this asset okay so those are kind of some of the conversations that we're having some of the products that we're going to be looking at thinking about what is the business plan um what is the time frame because some of these lenders that we're working with they need to be in and out in 30 days so if we have a general partnership that doesn't have you know their investors cannot deploy their Capital quickly that's not a good product so again that's the conversation can we work fast I'm working on a deal right now we want to have the lowest fastest product but they can't get their investors there quick enough so these are the conversations we're having wow this is great stuff so listener you don't this is the reason why you use a lending broker so if you're investing with somebody that's off doing it themselves as Julie mentioned not only does she vet the deal itself and finds the right product for that specific property in your business plan but she actually vets the general partners that you're investing with she makes sure they have a track record who they have boots on the ground somebody local that's going to keep an eye on that property make sure things don't go sideways I mean that's the beauty of the lending broker role it's like you're actually protecting the investors and that's why it's so important that that you're on the show to demonstrate that that you want to make sure that you're investing with somebody that is using a broker that's going to really protect your interest because that's going to go on I mean that's the biggest expense you know the lender brings in the 60 to 70 percent of the loan amount so that's wonderful great great advice there okay so you know one other point on that and if you you know your general partner is going direct or even you know working with a a broker that doesn't have a good relationships let's say as as old capital has they may be trying to buy the deal oh I can get it for you know a half a percent lower here's the the concern that happens on the deal the general partner might be saying yeah I'm going with uh Steve over here the problem with going with Steve and a lot of times we're all going to the same Bank we're all going to the same parents see you know you go to Fannie and Freddie I'm sure you've heard about Fannie and Freddie especially when you were buying a house a lot of Fannie loans are bought on single family it's like going to The Wizard of Oz It's the dad you go to the dad The Wizard of Oz and you've got all of these Banks saying oh I'm going to Fannie I'm going to Fannie I'm well if you're going to the same parent the parent is telling you that's how much you're going to pay you're that's how much we're going to charge you well you got Steve over here saying oh no I can get it for 50 bips lower and then you go through this process and about five days before close Steve says by the way I can't get it for you I actually have to you have to bring in some more money now Mr limited partner you were told that you know you give a hundred hundred thousand and you're gonna buy one share well now we're actually going to be um we're gonna be diluting your shares so it's not actually worth one it's actually worth 0.88 because we have to bring in more Capital because that lending broker or Bank sold the deal incorrectly so that's another thing you need to be aware of you know make sure again this is a relationship business the people that you're investing with you want to make sure they have a track record and the track record is how long have they been doing this how many transactions have they been doing it have they worked with this bank before okay these are all really good questions and have they worked with this broker before because at the end of the day you want to make sure your capital is pro you know uh it's it's secure right and and it's it's what it was it is you know there's always a little bit of at the end of the day maybe we need a little bit more pricing went up whatever it is you know there is a little bit of adjustments it's not this it's but you just want to make sure you want to mitigate any of those concerns up front that you that that are within your control perfect that's a great example that you know some of those shadier lending Brokers out there will say anything get the deal and then they re Retreat as we say at the very last minute so that's what was happening because I've heard of that and I didn't realize oh they probably never had it that great rate because I've heard of people having this happen to them it's because they're all going to Fanny and Fannie is only going to give one quote regardless of who you are yeah so that's a really good point see I learned something today okay so I've uh you gave me the thumbs up Julie said yep we can give you a loan on this here's the terms and conditions it looks favorable I plug those into my underwriting to say are the returns acceptable still now for my investors so now I'm going to go ahead and put in my letter of intent my offer and it goes through the whole process and it gets accepted so now great I got this deal we call it under contract now the clock starts ticking usually I have 45 60 maybe up to 90 days to close it depends on the seller and what's going on and all the additional inspections that are required so I've got it in our contract what's my next step with you Julie what do you need from us at this point what's gonna happen next so we're going to need to have all the personal financial statements from all of the general Partners right we're going to want to understand how who's bringing the capital who has the experience the net worth of the group The liquidity how much money is going to be left over on the sides because if something were to happen we want to make sure there's money or who has it in case we need to get to it okay on the experience who has the two years of experience who can we go to who has that so in the meantime the we're underwriting it the bank is going to be underwriting it asking questions we've got an appraiser that's coming in it takes usually about three weeks for the appraiser to do all of his numbers and making sure that they're validating all of the rents and what the comps are and they come back and and do their numbers with the banks and with um you know they're just going back and forth they'll come back to uh me and to our client and say okay here's where we think maybe there might be some overages maybe there's some under uh maybe we think payroll it should be a little higher maybe we think that you really need to be paying these people a little bit more so we'll do some adjustments right and that process again takes about three to four weeks to kind of figure it all out so we're at the 30 45 something like that and in the background we're looking to make sure that we're asking for the another updated Financial because every 30 days we've got new financials now the proceeds that we have told you when you signed an application with us it's saying Hey listen I'm going to give you on a 10 million dollar deal let's say at 75 percent I'm going to give you 7.5 million dollars that is based on the financials that are you presented well now we're 30 days down the road and if you're looking at agency lending which isn't you know you're Fannie or Freddie they're going to base it on what has happened in the past so that that seller you want to say Mr. seller keep your foot on the gas you know some of these sellers want to take their foot off the gas and what happens that means that they're producing less income they're still having all the expenses but their income is reduced so what happens the proceeds I can no longer let's say give you 75 percent that I told you but we've taken in less income so therefore the proceeds go down so we're always encouraging the buyers to keep those conversations and keep us updated hey are we seeing any change in the income have we seen any change in the economic vacancy are people living there but they're not paying okay it's one thing that people are living there thank you I love that you're living here but you're not paying uh Fannie and Freddie don't like that they want you to be paying or they want you to be you know you're telling us that you're collecting all of this money and when the seller says I I've sold this you have to keep getting that money okay so this this process takes 45 to 60 days about five days before close we've gotten you know continually we're going to be asking the general Partners you know uh we're gonna pull their credit hey maybe what happened over here what happened over here you know writing over a little letter that says oh this is what happened to me you know we're going to make sure that their credit is good their experiences validated and then like I say about five days before Fannie will provide a a commitment letter that says okay this is what we're going to commit to you financials came back fine here's your 75 7.5 million dollar loan here's the rate it fluctuated while over the last 60 days potentially here's your rate today you sign it you lock it we close you know three to five days later and that's the process it's not simple because because we're in constant contact with a lending broker through this whole you know after the offer is accepted before it closes it's not just oh there's one thing as you said it truly indicated we're constantly going back and forth back and forth is anything changed with the property you know and like you said taxes are huge insurance is huge you factor that into the debt coverage ratio which is that's more detail but we need to make sure it's going to be profitable and it's as a general partner it's my responsibility to get that information to Julie so she can see how profitable because unlike residential property which is based on the comps around you a commercial property is based on its net operating income so it's called forced appreciation if you run that better and you increase the value of it of it the returns or the profitability you increase the value of the property and that's what Julie's looking at constantly that's why they're looking at the last 30 days that something took a nosedive and all of a sudden hold it you guys your occupancy is is went down dramatically because something happened that's going to impact the loan proceeds it's very important so that leads to the fact is that when you're working with a seller have a great relationship with them make sure they know like and trust you because if they they could really hurt you if they don't keep the put on the gas as Julie said because it's going to impact your your ability to close the deal really good stuff really good stuff okay so I'm at the closing table um we we just start writing checks and send them all off you guys let us know a few days in advance right yeah and then how does it actually close and what do we do right after we close is there anything else we have to do with the lender after that well typically so when that commitment letter comes in so we're going to back up a little bit about like five days before we asked for about a two percent if it's a larger loan about two percent commitment fee which locks the loan that's going to go towards your um Your settlement statement if you were to back out you would lose that two percent just so you know and by the way the general partner has put up a bunch of money to secure this deal they have put their Blood Sweat and Tears by the way up front they have spent time to find the property they've put money into the relationship with the broker potentially with the seller they've spent time underwriting it finding the relationships to put the deal the team together right they put money down it's called earnest money uh Deposit they put that money down themselves okay that is risky very risky so they have to be paid for that and you know from A lender standpoint we don't say Hey you know you don't you don't get paid for that but it's really important that as a limited partner you understand what the risk that these the general partners are putting into this here's another situation where the lender is saying hey we're committing and you are committing to putting this together we're asking for another two percent you've already put earnest money down you may have extended the contract for another 50 to 100 000 and now we're asking for two percent that's your hard-earned money now if you walk away in the next five days something happens whether the interest rates well if you've locked in then you know you're locked in but let's say the the interest rates took a a huge dive and you're way up here and they're down here that could significantly impact your your returns okay we haven't seen that but we did we have seen recently where the rates have dropped 20 that could significantly impact it is it worth losing you know two percent Maybe so um you're gonna we're gonna ask for that money five days again we're asking for updated financials you're gonna get with your escrow the general partners are going to get with the escrow officers and the title company we're putting all of those finishing touches on it typically title is something that is purchased by the seller right but these are negotiable things okay so you get a statement that says you owe these are your P sides of the business these are my sides we're going to have all of the leases turned over to the new owners so there's signatures there on the lending side okay so everything is signed at escrow um we wire in those funds that typically takes 24 hours you send that over it gets recorded okay and there's certain timings that recordings have to be done certain timing that the wiring needs to come in and that's why we give it you know three to five days after closing typically you'll be you know you'll get the final settlement statement um there's usually that you've overpaid we'd better best if you overpay a little bit right and so you'll get refunded that money that you've overpaid and from there you know it's takeover day your property manager will then start to get in involved in doing his his takeover taking the the property over commenting with the the all of the residents that they're now in charge and and and so forth from a from a lender standpoint we would get paid the the from from a broker standpoint we get paid at closing the lender gets paid at their closing and so forth all of the rest is all paid out all of their invoices are paid all at the same time and uh all thank yous go out after after that and you know it's it's as smooth um as possible hopefully the whole team Works uh congruently and has the main point is that we want this to be done on time and all efforts are put in I mean great teams are are formed and get done really efficiently yeah it's so crucial that you're well organized your general partner has got their their act together so after it closes and we all celebrate is there anything that the lender is going to be asking of the general Partners going forward yes so typically we're going to be looking for quarterly maybe every six months and maybe even yearly depends on the type of loan and the kind of uh the bank banks will could they potentially could be looking for quarterly reports your T12 uh you know if it's a bridge loan they're going to want to look at and and they're going to need to sign off and approve some of the renovations that you put in and done so you'll have an inspector come in they'll sign off you'll send over your your uh invoices they'll you know send over the payment of those and then the money is then uh put on your account you start making payments on that account so there's a lot of uh making sure that the the lender see how the property is being managed okay and depending on that type of lender they're going to be looking at where's The Debt Service The Debt Service means how is the mortgage being covered typically and where we don't need to go into too much depth of this but a mortgage needs to be covered at least 25 percent more 20 to 25 percent more than what the the payment is now depending on the area that could go up to as high as 55 percent higher than the uh the mortgage so they're going to look at that how how is this operator managing this property not only the property manager but the principals how are they managing this property and if there is any issues they're going to sit down with you they're going to have a conversation they're going to have you know figure out how do we Rectify this right and so that's a great example of how the lender is protecting the investor to The Limited partner because it's just oh we just don't give the money at the end of clothes we keep the tabs on it they keep tabs on us to make sure that we're performing well and keeping track that because they want to get paid back as the biggest investor yeah and so I think the the thing to keep in mind here is that we're a bank we we no we don't necessarily care about paying out to our the investors right all we really care about is that we get paid we don't want to take back that property uh some investors General Partners don't want to share their uh workbook or their modeling their tool their um underwriting analyzing yeah they're underwriting because they are afraid that we're going to look at how we're paying the how they're paying the investors we don't care right all we care about is that we're going to get paid and that's how we stress test it we want to make sure that what you're saying on your proformas and pro formers are how you're going to manage this from year one to five whatever how's do we accept that and if we accept it then we're going to take the deal we're gonna we're gonna provide the debt for that excellent excellent well thank you for the crash course on broker lenders all the things that go on as a passive investor you just need to be aware of this because this is all the stuff that's going on behind the scenes so thanks for that Julie now next I'm gonna have the rapid fire five here's just some fun questions to ask to learn a little bit more about you Julie yeah so the first one first thing that comes to your mind well this one is uh what was the your nickname as a child what nickname did they give you well my uh my name is peebs I was called peebs p-e-e-b-s my last name is Peebles uh my maiden name was people so uh peebs was my my uh interesting yeah okay are you a morning person or a night owl uh morning you won't find me up past about 10 p.m so yeah I'm a morning person are you a cat or dog person a dog thank you yes yeah if you could live anywhere in the world where would that be uh Michigan no just kidding you're funny no uh I think New Zealand I've never been there but I've heard great things and uh it's on our bucket list so I think New Zealand that's on ours as well too we really want to go there someday yeah we have to be a a joint vacation I'll meet you there yeah okay um the show is called um better Returns what is the one piece advice you give to investors to help them get better returns so one Golden Nugget Julie would you like to share with them I I listen the only way that you're going to understand how to how to get returns whether they're better or worse is to educate yourself so I I always say two things educate yourself figure out how this whole multi-family investment arena is done figure it out invest yourself invest in yourself and invest in a deal as a limited partner figure that out find out how somebody is communicating with you do you like that do you feel that you're given the information freely if not find another one um it is really important that you start there for better returns transparency perfect yeah and finally how can people get a hold of you and then we want to talk a little bit about the um the zoom at age so how can somebody join the zoom inmate which I've joined and occasional I joined I've used the conflicts but when I do after that I usually get one to three calls of people set up that want to talk to me so it is a great you're a great connector from that perspective yeah yeah tell us how they can get a hold of you through that yeah well so Zoom at 8 is a place where you can Network and learn from Professionals in this industry so it's every Tuesday night at 8pm Eastern so you can find the advertisement on Zoom you can look at Zoom at 8 pm Eastern EST so just go into the search bar Zoom at 8 pm Eastern um I'm on all social media uh Outlets so Julie Ann Peterson you can find that on LinkedIn uh let's see Instagram Julian Peterson old capital and then on Facebook so I'm I'm on all of those feel free to reach out message me um connect with me that is what's most important and if I I can help you whether you're a passive or you decide hey I just have some questions on on lending I'm happy to help that's what I do thank you so much and she she's a wealth of knowledge I he's a wonderful resource well thanks so much Julie and I'm going to have Julian again later in the year or next year to talk about passive investing because she does a lot of passive investing she's a general partner so she'll wealth the knowledge on that too but I really wanted to focus on bringing value to The Listener of what goes on behind the scenes and this lending to to buy these 40 million dollar apartment complexes and you hit the nail on the head Julie thank you so much for being here I truly appreciate your time you're welcome thank you everybody have a great day bye-bye and that's a wrap thank you for listening to better returns invest like a pro brought to you by Hanson Holdings if you enjoyed this episode please leave a five star review because it helps others discover this valuable content if you like to earn truly hands-off passive income go to hansonholdings.com we help you invest in large apartment complexes to grow your family's wealth see you next week with another awesome episode have a great day