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Show Summary
In this episode, mortgage expert Frank Ruzicka shares insights on long-term financing strategies for real estate investors, the importance of reliable funding sources, and navigating state-specific lending laws.
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Frank Ruzicka (00:00)
so again, underestimating ⁓ repairs in terms of what it’s going to take to make that property rent ready or keep it rent ready. in many cases, people will rely on the lowest bid and the lowest bid from a contractor isn’t necessarily the best bid.You really need to be able to work with, I’ll say, proven professionals in the marketplace.
Michelle Kesil (01:59)
Hey everybody, welcome to the Real Estate Pros podcast. I’m your host, Michelle Kesil Today I’m joined by someone I’m looking forward to chatting with, Frank Ruzicka of Guild Mortgage in Missouri. So excited to have you here today, Frank.Frank Ruzicka (02:15)
Hey, good morning, everybody. Thanks for having me on.Michelle Kesil (02:17)
Awesome. So yeah, let’s dive in. First off, for those not familiar with you and your work, can you share what your main focus is?Frank Ruzicka (02:25)
Yeah, so I’m a residential lender, so that’s a one to four family property. And I do about 20 % of my business with the investor community, primarily folks who are looking for buy-in holds. I don’t do a fix and flip. I have partners that do that. But I’m primarily focused in my investor client base with long-term financing.Michelle Kesil (02:49)
Awesome. And which markets do you operate in?Frank Ruzicka (02:52)
Yeah, so I born and raised live here in St. Louis, Missouri, but I’m licensed in a six state region here in the Midwest. So that includes Illinois, Missouri, Kansas, Tennessee, Ohio, and Indiana.Michelle Kesil (03:05)
Awesome. And so what do you feel are some of the main keys of your business that make the biggest difference in allowing the business to grow and run smoothly?Frank Ruzicka (03:18)
Sure, so I’m a mortgage banker, which means I am not a depository.bank. There’s no vault behind me with money in it. So everything that we do has to be able to be resold onto the secondary market. And what that basically means is we have a constant supply of funding. We are funding never dries up simply because our deposits are down or the bank’s ⁓ ownership decides that we’re going to slow down on lending. We’re always going to be lending. And more importantly, we lend
30 year fixed rate money. So it’s dependable, it’s reliable, the cash flow for an investor is constant as opposed to when you go to maybe a bank that will say, we’ll do a 20 year amortization for you, but understand that we’re going to have to reprice this loan in either three or five years using either an arm or a balloon. Those reprices are the things that can cause investors real
grief. So I don’t do any arms or balloons. Everything we do is a 30-year fixed rate mortgage.
Michelle Kesil (04:33)
Awesome. And so can you describe the process you would go through with an investor client?Frank Ruzicka (04:39)
Sure, so it starts with a conversation. And what I really want to understand is what their hopes, dreams, and desires are. A lot of investors are looking for a quick ⁓ buck, I’ll say. And that’s a fix and flip property. Again, not my area of expertise, but I have an associate who can handle that. What we’re really looking for, and who I’m really looking to work with, are investors who are looking for long-term appreciation, cash flow.And so I just need to understand what their budget is in terms of how much they have to work with as a down payment. And then really what they’re looking for in terms of ⁓ monthly cash flow out of that property. And so a lot of times I’m dealing with folks who are approaching retirement. So I really need to understand what their goals are going forward once they retire and leave their W-2 positions. ⁓
with
lot of younger people who just quite honestly are not happy with the W-2 world and having a boss and want to become self-employed and control their own future. And so for them, I need to understand again what they have to work with and what their goals are. And that’s as specific as how much monthly cash flow out of a particular property that they need to see to make it worthwhile for them.
Michelle Kesil (06:53)
Awesome. And is there like any sort of type of like strategies that you support people with or it’s mostly just providing them with the lending? Yep.Frank Ruzicka (07:06)
Yeah,a couple of things there. Is one, identifying, again, the property to make sure that it’s going to actually cash flow. I think there’s a lot of times people will overestimate what they can make on a property in terms of ⁓ gross rental. And then they can underestimate what it’s going to cost to get in there and get that property ready. And more importantly, keep it.
maintained. And so I work with a number of, I’ll say, vendors here in the St. Louis market that I can refer you to. Those are anything from a property management company to a handyman to contractors who can go in and assess a situation and give you a fair price for whatever it might require. Whether that’s be a roof replacement or whether that be fixing a sewer problem that can cost anywhere from $12,000.
to $15,000, you really need to have a network of professionals to rely on to keep that property cash flowing. with all the years I’ve been doing this, I have a pretty good, I’ll say, Rolodex of people that I can refer.
Michelle Kesil (08:23)
Awesome. And so what are you most focused on solving or scaling to next?Frank Ruzicka (08:30)
⁓ So again, I can do anything from primary residence to a second home, but my focus for the investor community is again, one to four family buy-in holds and making sure that those properties cash flow correctly so that they’re getting the return that they’re expecting.Michelle Kesil (08:51)
What are some maybe like common mistakes you see investors make?Frank Ruzicka (08:56)
so again, underestimating ⁓ repairs in terms of what it’s going to take to make that property rent ready or keep it rent ready. then ⁓ in many cases, people will rely on the lowest bid and the lowest bid from a contractor isn’t necessarily the best bid.You really need to be able to work with, I’ll say, proven professionals in the marketplace.
Because I’ve had investors who’ve given money upfront to a contractor for repairs and then have the contractor disappear. Now, again, they lured them in with a really low bid. That sounded great, but they didn’t have a proven track record for success. And so that’s where you really need to rely on.
resources that can assure you that hey, this is the right contractor for the job. They’re going to get the job done. They’re going to get it done right and on time and you’re not going to be left, you know, being out a bunch of money because you chased the lowest bid available.
Michelle Kesil (10:41)
Yeah, absolutely. And what do investors need to know about like the mortgage industry or lending?Frank Ruzicka (10:50)
Yeah, so again, there’s a big chasm between a bank and a non-bank like myself. And the difference can be, again, a situation where banks…Their supply of money is dependent on their deposits. And when you work with a non-bank, a mortgage banker like myself, we always have a constant funding. The rate will change, but our ability to access capital is constant because everything that we do is sold into the secondary market. And so to the extent that we don’t run dry. And then more importantly,
my opinion is that it’s that consistent, the consistency of the loan because we’re doing 30-year fixed rates as opposed to arms or balloons that might mature in three to five years.
Michelle Kesil (11:46)
Awesome. And so how do you connect with the investor clients that you have?Frank Ruzicka (11:52)
Yeah, so I belong to a number of online groups.for investors. I also am a monthly sponsor of a real estate meetup here in St. Louis, Gateway to Freedom. We’ve been going now for about four years. Prior to COVID, I was a sponsor of another real estate meetup that would bring people together on a monthly basis. I also sponsor a ⁓ annual meetup event. That’s typically a two or three day event bringing investors together with multiple speakers. ⁓
then I’ve got a following of real estate agents, referral partners, as well as ⁓ investors who’ve worked with me over the course of 10, 20 years, who both refer me and continue to work with me on their investment properties.
Michelle Kesil (00:00)
So I know that you are lending across multiple states. Can you share what some differences are between each state that you’re working in?Frank Ruzicka (00:11)
Sure, socertain states are, I’ll say, more landlord friendly than others. And in a case I’ll use, for example, Ohio, they limit.
prepayment penalties on DSCR loans, is debt service coverage ratio loans. And at first glance you might think, that’s a great thing, I don’t want to pay a prepayment penalty. But for an investor who’s a long-term owner, a three or five year prepayment penalty might be a great option because it lowers the overall interest rate on the loan. And so when the state comes in and says, no you can’t have a prepayment penalty of three or five years, that’s taking five
financing options off the table for the investor, and they end up paying a higher interest rate. So there’s an example of a state law that is looking, so to speak, protect the consumer. But what they’re failing to understand is this is an average consumer. This is an investor who’s going in with full knowledge and understanding and transparency of how the financing works. And so they might want a five-year prepayment penalty if it results in a lower
weight, rate, and better cash flow. But the state of Ohio has taken that option away from them.
Michelle Kesil (01:25)
Yeah, that makes sense. And like, do you find investors like often have questions or hesitations before getting loans? And like, how do you kind of walk them through that?Frank Ruzicka (01:40)
Sure, so I’d to partner with real estate agents who know how investment properties operate and work. And so it’s really critical to understand cash flow and so understanding their needs and what they’re looking to achieve. ⁓based on how much money they’re looking to put down and what they’re looking for in terms of monthly cash flow off of that property. You’ve got long-term gains that obviously are going to occur over time as the property appreciates. But equally as important is, hey, how much cash am I generating on a monthly basis? And so I always want to sit down with an investor and try to understand their objectives before they start writing a contract.
Michelle Kesil (02:25)
Yeah, absolutely. And where would you say most of these investors are looking for investment properties in?Frank Ruzicka (02:32)
Yeah, so in the case of St. Louis, again, we have very moderately priced homes. The majority of the stuff that we do are single family homes and these might be a three bedroom, bath, just a simple house that’s going to work for a tenant where they can keep their kids enrolled in a school. They’re not dealing with theapartment situation where they have people above them or people below them that can make life miserable. We do multi-family lending, two and four family properties, but the majority of what we do are single-family dwellings
and it just is a really good space to be in. A lot of people want to look at section 8 housing, which I’m completely in support of, but that does require what I’ll call a higher level of ⁓ maintenance.
management because ⁓ section 8 funding requires annual inspections and reviews and so for some for some people that’s a that’s a specialty so you really have to work with somebody who knows what they’re doing there.
Michelle Kesil (03:44)
Yeah, absolutely, that makes sense. So before we begin to wrap up here, if someone wants to reach out, connect, and learn more, where can people find you and connect with you?Frank Ruzicka (03:57)
Sure, so ⁓ you can go to ⁓ Frank Ruzicka at Guild Mortgage.corporate web page will pull up with contact information. People can always call me at 314-503-3855. That’s my cell, day or evening, seven days a week. And then frankr at guildmortgage.net is my email address. And I encourage anybody to reach out just for a conversation to try to understand, again, what their goals are and see if we can help them achieve those goals.
Michelle Kesil (04:35)
Okay, perfect. Well, appreciate your time and your story. Thank you for being here.Frank Ruzicka (04:41)
All right,thanks, Michelle.
Michelle Kesil (04:43)
And for the listeners tuning in, if you got value, make sure you’ve subscribed. We’ve got more conversations with operators like Frank who are building real businesses and we will see you on our next episode.Frank Ruzicka (04:44)
Take care.
