Episode 18: Negotiate the Best LOAN Terms

So, a little update from me. We are drinking from a firehose all of a sudden. This is recorded on Thursday, September 23rd, 2021 and to date we’ve underwritten 20 deals.

To put some of this in context on the Nick Huber property management side of things, $40 million to $500 plus million-dollar deals go out across the country. In the last three weeks, we’ve seen several big portfolios and small one-off properties, and we’re about to go after a lot of capital. We have eleven properties under contract about ready to send out, a Georgia deal with three properties with our investors in which we’re going to try to raise $6 million of equity, and three in Ohio, two in Illinois, several LOIs in Indiana.

We are drinking from a firehose.

That won’t stop our hustle though. We have a lot of work over the next few weeks as these last listings come out because we want them before the end of the year. So, if you’re looking at real estate or a property management startup, you are probably experiencing very similar things. If you want to buy something at a good price, just keep grinding because a lot of groups are getting full. So today’s topic is just a quick tip on leverage, on debt, on dealing with your banker because, in this competitive environment, interest-only periods are key. 

An interest-only period means a time frame at the beginning of owning your property where you are not paying principal – you are simply paying interest only. In general, banks don’t like that, especially in my asset class which is self-storage. When you’re placing debt with big properties, all these different types of products the big dogs use lets you not only get better interest rates, but longer interest-only. When you’re dealing with a local banker, they’re probably going to want to put your first deal on a 20-year amortization schedule with no interest-only. Meaning right off the bat, you pay principal and interest, and this crushes cash flow. You’re borrowing this money, and in the same year you’re borrowing it you have to start paying the principal down on that loan.

Now, let’s talk about the Amortization schedule. How long do you have to start paying it back? The longer the better, 30 years is better than 25 years. The monthly payment can be significantly less. So on our first deal, we had a 15-year amortization schedule and we had principal interest right off the bat and we have a 5.25% interest rate, which was way back in 2016. Now we’ve been working with a bigger bank as we go and better debt terms come as you get a bigger footprint, you’re doing bigger deals and you have more of a resume. Now we’re able to get a 25-year amortization schedule, so we’re stretching it. We’re able to get one-year interest-only, and we’re able to get a 3.75% interest rate with no prepayment penalties. Meaning if we pay off the loans early, we don’t have a deficit.

What I’m getting at is to talk to your banker – make a negotiation tactic. Also, when you’re getting your loan with your local bank on your first or your tenth deal, you gotta ask if there’s a prepayment penalty if you refinance through a bank. Most of the time, they’ll say no, and that’s a good thing to have that option

I hope this helps.

If you want some more in depth real estate knowledge, subscribe to the podcast on Apple or Spotify, or even click below to see the online real estate courses I offer, both free and paid.

Three Key Takeaways:

  1. Drinking from a firehouse is part of the game. Don’t let the overwhelming nature of the business stop your grind and hustle. There is opportunity everywhere, you just have to put in the work and find it.
  2. We’re in a competitive environment, so knowing how to leverage debt will put you lightyears beyond your competition.
  3. Talk with your banker and understand your amortization schedule and what longer term loans mean over the shorter ones.

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About Me

I started the Sweaty Startup in December of 2018 because I believe the Shark Tank and Tech Crunch culture is ruining the real spirit of low-risk entrepreneurship. 

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