How Bad Credit and Bridge Loans Can Destroy Your Real Estate Profits

Elizabeth Karwowski Sdoucos (00:00)
Yes. Yeah. Well, and the worst part is, again, credit doesn’t fix itself overnight. Right. So as I mentioned, when a client would come to me at that five, five and a half month and their credit was in the garbage, right, it was and they need to be out in 30 days of this loan. It’s not happening. You know, it’s not happening. And they’re freaking out because it’s not happening.

Cody Crabb (01:53)
Welcome back to the Real Estate Pros podcast. I’m Cody Crabb with Investor Fuel and joining me today is Elizabeth Sdoucos from Starting Now Corporation. She comes from the lending world with over 25 years of experience around mortgages and credit and financial readiness. We’re gonna talk about a topic that a lot of investors don’t really wanna think too much about until it’s too late, which is how your credit profile and your financing can actually maybe make or break a deal. the…

Maybe one of the most important things we could talk about. Elizabeth, thank you so much for joining us today on the show.

Elizabeth Karwowski Sdoucos (02:23)
so excited because this falls in line with everything we do today.

Cody Crabb (02:29)
great, perfect. Well yeah, our audience is gonna love this one. So for people that are meeting you for the first time, how did you get into the magical world of real estate? Much less in the financing side. It’s not your typical one path straight to that, you know? It’s not in the career fair in elementary school. So curious how you got there.

Elizabeth Karwowski Sdoucos (02:47)
No,

yeah, well, I’m first generation. you know, buying a house is something that… ⁓

at least many individuals that come here from a different country. It’s important, right? It’s that American dream. So I bought my first home. I was 21 years old. It was an investment, right? And so I like to say I’m an investor. I’ve made big mistakes. I’ve made great ⁓ accomplishments. But, you know, I’ve learned throughout my journey. And one of the things that actually drove me into the mortgage industry was I had a client.

that

was a mortgage broker, correspondent lender. And as a consultant, I was always curious how this worked because again, I bought my first home, I didn’t know what I was signing, I was signing all these documents, I had no idea what it was, right? I mean, you’re signing your life away. And it just drove me to…

learn more, right? And start investing more. And my passion was always to help investors. Those were the loans I loved. So as a mortgage broker myself, that’s where I focused a good portion of my time is helping investors because it was complicated, right? If you had three properties, four properties, five properties, how do you get a loan on top of it? And then the hardest part was if they had bridge loans, right? They had a certain timeframe you had to get out or you’re paying wazoo

of an interest rate which would cut your profits off. So I understood that, right? Got me excited, it made me more involved. But the problem that I faced back in the early 2000, and yes, I’m aging myself a little bit, but early 2000, 2005, 2006, was that when people came to me with bad credit, I…

didn’t know what to do, right? It wasn’t as simple as, you know, today what people say it’s disputing. Well, that doesn’t work, okay? Everyone here, if you’re listening, dispute just to dispute does not work. It doesn’t help solve the problem. So then my next passion to help…

my investors, right, the clients that came to me was to get involved more in credit and its own industry, its own way of thinking. And here we are quite a few years later, starting now as a non-for-profit organization, we’re a HUD certified 501c3 that really has now the resources. And I say resources because, you know, there’s a lot of credit repair organizations out there that say they’re going to do things and they don’t have the resources. I know that they don’t.

don’t, we do to really help a consumer and investor understand how to improve their credit profile and get out of the bridge loan or get out of the situation they’re in so that they can, you know, go to the next property that they want to purchase.

Cody Crabb (06:27)
Gotcha, you’ve mentioned that, I mean, you said you’ve been in the industry and whatnot since all the way dreaded 2008. This guy that kinda comes up a lot on the podcast, as you might imagine. So since then, I’m curious, what have you learned? What did you learn around that time?

What was something that you learned and then kind of since then what has changed? mean, obviously a lot has changed. A lot has changed since then. But just I’m curious if there’s something that really sticks out.

Elizabeth Karwowski Sdoucos (06:58)
Yeah.

From that time, you know, it was a little bit of the wild wild west everyone was getting involved in mortgages and real estate and I mean

things that you hear about, about the different programs that were around. Yeah, it was happening, a no-doc program. mean, people were getting loans with a no-doc program. So, you know, I think we’ve learned from that. I mean, we do have now non-QM deals, but what I also realized, specific again in my industry now that I’m at,

people still to this day don’t understand how credit affects you and it’s just getting more complicated. Let me explain why. Back then we had just resources, the internet you would search, but people, you know, it wasn’t so much about credit repair because a score, all of that was still pretty new, right? In a sense of how did it work? No one really understood the complexity of how it worked. It would always be, and that’s why I found it so

interesting. It was like the secret sauce. I have the secret sauce to help you with your credit. BS, right? There’s no secret sauce in helping you improve your credit score. There is

Cody Crabb (08:12)
Not to interrupt you but

just so people know like the concept of credit scores was introduced in like what the late like almost the 90s Like the late 80s. So like this is not something so when you eat when we put this in terms of like these are barely 10 years old at this point like people are just starting to figure it out

Elizabeth Karwowski Sdoucos (08:20)
Yes.

Yeah, I’m telling you, that’s…

Well,

that’s the thing. That’s why when people would come to me and I’m like, I have all these investors that need your help, but they would say, we have this secret sauce. Don’t tell me as an investor. I don’t want to know a secret sauce. I want to know the facts because I have a lot of money riding on this deal. Don’t give me that. That, you know, crap. Excuse my friend. Like I don’t want to hear that. I mean, so when people would come to me and say, I have the secret sauce, I’m like, listen, I don’t want to do this work. Let me be honest with you, but I need to feel confident you’re going to take care of

Cody Crabb (08:44)
Yeah.

Yeah.

Elizabeth Karwowski Sdoucos (08:59)
my people, right?

And no one could explain to me how it works. So then, of course, as a consultant, my mind was like, well, I’m going to figure this shit out. Excuse my French. I’m going to figure it out because I want to make sure that however someone gets from point A to point B, they have clear directions. And again, as an investor, you want to make those decisions. A problem I faced is that people would not give me those options. They would say, this is the route. This is the route. This is the route. It might not be the route, right?

Cody Crabb (09:10)
No, you’re good.

Elizabeth Karwowski Sdoucos (09:29)
deal for someone else, but it might not be a good deal for you, right? And credit plays, again, an important role. Right now, if you don’t have like a 740 plus, you’re not playing in that great interest rate, okay? So, we have to be realistic and understand. So, when people came to me, it was a secret sauce. Come to find out it’s not a secret sauce. It’s black and white in my world at this point, right? ⁓ But then what makes it even more confusing now is

is that there’s two different scoring models. People, know, social media, our phones are telling us what to do. Someone has 50,000 views on what is credit and they are a great actor, but the information they’re presenting is so wrong. It’s so wrong that it makes it really complicated now, right?

Cody Crabb (10:20)
Yeah, for

sure. Well, and so, okay, I would love to get into, so a lot of our audience, I mean, they’re real estate investors, but a lot of them are kind of on the early side. They’re starting to get into it. So, kind of applying this to an investor mindset, this can get really expensive really fast. So, what are some common credit or financing mistakes that you see investors making?

Elizabeth Karwowski Sdoucos (11:16)
Again.

not understanding where they are. Right now, a lot of us go to Credit Karma, ⁓ or a free tool. I’m not saying it’s bad. It is a great educational tool. But as I mentioned, lenders today use what’s called a FICO score. A FICO score, there’s three different versions. I’m going to give you a quick tip on all of this. There’s three different versions. There’s version two, four, and five.

Cody Crabb (11:40)
This is great. Yeah.

Elizabeth Karwowski Sdoucos (11:46)
Besides that, they’re now moving into a new version called FICO 10T. But besides that, a new scoring model is coming into play called Vantage Score. That’s the scoring model that you see on Credit Karma, but it’s another version of that, right? So hear me out. I just talked about five different versions, right? Which one are you picking? Chances? exactly.

Cody Crabb (12:11)
I’m literally clueless. Yeah, I have no idea. Whichever one’s easiest

to get onto, probably.

Elizabeth Karwowski Sdoucos (12:16)
Well,

the problem is whichever one you’re picking, that’s not the same one that the lender probably is pulling. So you’re going in and you’re thinking you have a 680 score, the lender pulls a 660 score because you don’t even know what you’re looking at because the scoring models are different, right? So that’s what I’m saying. Things are so much, they’re so confusing at this point because of all of the resources and no one’s coming out saying, well, we’re trying to come out. That’s why we’re here today saying, look, there is a way forward. There’s a way of getting

Cody Crabb (12:21)
Interesting.

Elizabeth Karwowski Sdoucos (12:46)
right information that can be very impactful for you.

Cody Crabb (12:51)
Yeah, so I think that’s really helpful for people to know, like having that in mind, it is a little more complex behind the scenes than I think people realize. So having that in mind is like very, I think it’s really important.

Elizabeth Karwowski Sdoucos (13:04)
Well, it’s also important because a lot of loan officers don’t realize why there’s a difference. They’re just like, that’s an educational tool. That’s not my scoring model. Right now, there is a use for that, but it’s not a mortgage FICO score.

compared to what they use, right? And you can get it. You could call us. We could give you a true FICO score. Again, as a nonprofit, I have those resources, right? So I’m able to actually pull your information, assess where you’re at, and more or less tell you exactly what’s going on so that you’re just a smart buyer, right? You’re a smart investor. And that’s the game plan. Like those that understand this, those that know what’s going on,

even from a credit score perspective, are more advanced in a way of getting the better product.

Cody Crabb (13:57)
Yeah, so a couple questions come to mind because we’re talking about credit. So this is a personal one that I just thought of. I’ve heard that there is a huge number of credit reports that have errors on them, a staggering percent. I want to say it was like 20 % I read have some kind of error on it. What do you suggest for people to, what was that?

Elizabeth Karwowski Sdoucos (14:14)
Yeah. Yeah, actually more.

Actually more, almost 80%. Right? Have errors, right? It could be your name. It could be your address. It could be employment. Like, there is a lot of information that’s incorrect, which could potentially have a negative impact on your credit score.

Cody Crabb (14:21)
80 %!

Yeah, so my question is, so first of all, what do we do about that? Because I know that that affects a massive number of people.

Elizabeth Karwowski Sdoucos (14:40)
Yeah, so.

There is a free tool where you could just get the information and that’s annualcreditreport.com. Okay, annualcreditreport.com you could pull all three bureaus. You don’t have to take part in their paid subscription, right? Just pull your report, just assess all the information. And then from there, you can take steps to either dispute it yourself, whatever it is, if you don’t even know because there’s like different line items, you don’t know the reason codes, you don’t understand what that means.

talk to a professional that’s not gonna sell you, but actually going to go over the information with you and give you that necessary guidance so that you at least feel confident in what steps you need to take. Simple as that.

Cody Crabb (15:24)
Mm-hmm. Okay. Well, yeah, that’s

that’s helpful because I when I first heard that and see I maybe I was even hearing that I was hearing the opposite number So maybe that that’s even crazier that is 80 % So like I think everybody if you haven’t looked at that, it’s probably kind of dumb not to at this point with that

Elizabeth Karwowski Sdoucos (15:32)
Yeah.

Well, and it’s

look.

It’s if you’re a young investor with not a lot of credit, it’s not that complicated. But if you had had a lot of credit and you’ve had your ups and downs, right, and it becomes more difficult. And for me, credit tells a story, right? I could look at one’s credit report and I could know when you had your ups and downs. I could see it. There is a story behind every credit report. I get excited because I know the path forward. Others, when you look at it, it’s very overwhelming, right? It’s a lot.

It’s a lot. So my best advice is talk to someone who’s willing to sit and actually go over that with you and give you an understanding because, and not selling you, right? Because that’s the worst part because all of a sudden you’re getting emotional, your credit’s not where it’s at and all of a sudden they’re selling you stuff. It’s just giving you that information so that you can make the best decision for yourself.

Cody Crabb (17:17)
Yeah, for sure. Okay, so before we started, we were chatting a little bit before, ⁓ and you mentioned a bridge loans and how people can kind of get in trouble with this. I’d love for you to kind of go over that and maybe a little explainy, like not overly explainy, but we got a lot of newer investors on here. I’d love to kind of give them a break and explain what’s going on.

Elizabeth Karwowski Sdoucos (17:38)
So, I mean…

I’m just talking from my past experience, right? I used to have investors that would come to me and they would come to me at month five and a half needing to refinance in less than, you know, two weeks because they were in a bridge loan. And we all know bridge loans, it’s a short period of time. The interest rates are high. And if you don’t get out of them in that time period, you’re the investment that you think you’re going to make is not very nice.

It’s not as nourishing as if you did refinancing that into a normal type of loan or whatever type of loan you have been looking at. So my advice or what I’ve seen is when people come to me when I was doing loans, when they would come to me that late, it wouldn’t allow us enough time to actually structure them and get them out of that bridge loan. And all of a sudden they’re panicking because they’re starting to pay double digits.

on this bridge loan and all of their profits are being eaten up. So I would highly, highly, highly suggest if you’re looking to get a bridge loan, know where you’re going to be in about six months. Already start planning it out. Start talking to your loan officer. If your credit is not where it’s supposed to be, call us, right? Call whoever. But I mean, as an credit expert, that was the key component that was missing. That’s why I got so involved in credit because no one could explain to

me

how do I help this client get out of this crappy situation because they’re losing a ton of money. So that is that’s so important and I can’t stress it because six months we all know you’re doing rehab. You’re doing whatever you’re doing as an investor right. Whatever that path is will go by extremely fast. And in the past I was able to get loans done very quickly. Today that process especially for investors is not that quick and maybe it is.

is if you have everything lined up. But again, it’s planning. You need to plan when you’re looking to buy and get out of a situation pretty quickly.

Cody Crabb (19:49)
So what I’m hearing is the real mistake isn’t just like credit, it’s like waiting way too long to deal with it and then your options shrink to like this and then that’s, when it’s rushed and then you can’t do anything. So that’s really, I mean that’s a pretty good, that’s pretty good life advice in general. Like just don’t wait too long to deal with it. ⁓ Yeah, it sounds like credit can just be a huge timing and planning issue as much as credit itself.

Elizabeth Karwowski Sdoucos (20:05)
Yeah. Well, yeah. Well, we always think it’s going to be easier.

Yes. Yeah. Well, and the worst part is, again, credit doesn’t fix itself overnight. Right. So as I mentioned, when a client would come to me at that five, five and a half month and their credit was in the garbage, right, it was and they need to be out in 30 days of this loan. It’s not happening. You know, it’s not happening. And they’re freaking out because it’s not happening.

And I’m like.

You came to me right now, I’m not a credit expert, right? What am I supposed to do for you? And I was matter of fact, that’s why people like working with me because I was like, look, this is where we’re at, this is what we’re gonna do, this is how we’re going to move forward. With this situation, that’s why if you’re credit or you know something’s on your report or you know that’s why you got a bridge loan, because you couldn’t get a normal loan or a conventional loan, whatever, again, that path is, you need to start working on it right away.

Cody Crabb (21:05)
Gotcha, so okay, so if someone’s listening to this and they want to avoid these credit hiccups and the bridge loan problems and all the things we’ve talked about, what are the top couple of two or three things that they should be on top of or start doing now if they haven’t already?

Elizabeth Karwowski Sdoucos (21:23)
As I said, pull your credit report, right? Pull it for free. Easy, right? And if you want to go through it again, you could reach out to us. We could go into the detailed information about it. That’s number one. Number two, also be thinking about your way, your exit, right? Six months is not a lot of time when you’re doing your purchasing. And then if you have to rehab or whatever you’re planning, six months for a bridge loan is not enough. It’s not a lot of time.

Cody Crabb (21:26)
That’s an easy one, yeah.

Elizabeth Karwowski Sdoucos (21:53)
So you have to be planning and just have, know, once you have that team, I always like to say as an investor, it’s always nice to have that reliable team, right? Where you could call your loan officer, you could call your credit expert, you could call, you know, your realtor, whatever, you know, that team, because all of a sudden, if you have a good deal, you know who to call and you feel confident their advice is correct. Or at least they will say, I don’t know, but give

me 24 hours and I’ll get back to you, right? Because having a team, man, it’s, I mean, it’s, you have that support and that’s what allows you to purchase and invest. I mean, I have that team now, right? I know if I’m looking at something, cause I’m an investor too. So if I’m looking at something, I know who do I call. I call, I have my attorney, right? To talk about some legal perspectives. I have my loan person. What’s the best rate? What’s going on? What is something new?

Cody Crabb (22:26)
Yeah, you trust him to find out.

Elizabeth Karwowski Sdoucos (22:53)
right? Obviously credit, but I even turn internally to my team to find out what else is going on. So I look at all options and always have my team available.

Cody Crabb (23:04)
Yeah, yeah, that’s fantastic. Elizabeth, we’re just about out of time winding down at this point, but if people want to get in touch with you, who would be the ideal person to get in touch with you and where can they get in touch with you?

Elizabeth Karwowski Sdoucos (23:16)
Look, if you don’t understand credit and you’re really serious about investing or you pulled your credit report and you think you, you know, even if it’s on credit card money and it’s in the six hundreds or seven hundred, you want to be at the top tier. Give us a call. Everyone’s our client. I don’t care how much you make, what you’re doing. Everyone who wants to improve their financial profile because credit falls under that is is a potential client or a person that we want to talk to because it is our mission to provide the right

to all consumers who just want to better their lives.

Cody Crabb (23:48)
Fantastic, Elizabeth, thanks so much for joining us today. You’ve given us a lot of great information. You’ve scared me to death about my credit report. I’ll definitely be pulling it. Yeah, nothing bad could happen just by checking it. So yeah, there you go. So appreciate all this advice and thanks for joining us. And listeners, if you got something out of this episode, and I know you did, go ahead and hit subscribe and follow us for more episodes like this one. Thanks again for joining us, Elizabeth. And listeners, we’ll catch you next time on Real Estate Pros.

Elizabeth Karwowski Sdoucos (23:57)
Pull it. Yes.

No. No.