How Renovation Loans Help Real Estate Investors Fund Fix and dFlip Deals

Sean Thompson (00:00)
for investors, know, Scott, there’s there’s a subset of particularly our fix and flip guys who that last mile, as I call it, right. You’ve got to get the flooring done. And, you know, there’s a few things you have to get to get the house presentable or listable, if you will. The realtors ask you to do a couple. You might be waiting on municipality issues or permits and stuff like that. You may not get that last mile money back.

But you have to do it to list a house. A subset of that is find the end buyer, let them handle it through the renovation products that we offer, and you get out.

Scott Bursey (02:08)
Welcome back to the Real Estate Pros podcast powered by Investor Fuel. I’m your host, Scott Bursey. And today we are firing up the engines with some serious renovation finance knowledge. We’ve got a guest who has been in the game for over 27 years. Sean Thompson, also known as the renovation guy from the Makeover Blueprint. He’s the expert on turning potential into profit by making the lending side of renovation actually work. Get ready to

feel the high octane fuel this man brings to maximizing your profit deal. Sean, welcome to the show.

Sean Thompson (02:42)
Thank you, Scott. Happy to be here. Happy to be here. Love the show, by the way.

Scott Bursey (02:45)
It

is just awesome having you here, my friend, and to help our listeners get up to speed. Please give us the front row seat and how your career ignited and where you’re pouring your fuel now.

Sean Thompson (02:58)
Yeah, mean, listen, 28 years ago, I was a long hair musician and I bought one of those Carlton Sheets programs. I don’t know if people know that anymore, but they used to come on at three o’clock in the morning, right? It aimed at people who didn’t have a job and I was a musician. So it’s like next step for not having a job, right? And I bought that and decided to get involved with that. Some guy in the mortgage business grabbed me and said, hey, let me teach you how to be a…

in the mortgage business, loan officer. thought officer like a gun and hat officer or what are we talking about here, right? But it turns out it was the start of a career in 97 and I’ve been focused niche wise in the renovation lending space ever since the start of it. So that brings me to where we are now. 28 years later, close to nine, 10,000 transactions in and

All I do is what I call now makeover financing, or renovation lending, if you will.

Scott Bursey (04:01)
That is awesome from being a rocker to rocking the industry. That is incredible, Sean. And what really caught my attention about you the most was the way that you’ve been able to bridge the gap between complex mortgage financing and the hands-on reality of property renovation, creating a clear repeatable blueprint for pros. You know, it’s a rare skill set to master both sides of that coin so effectively. And you’ve been doing it for 27 years.

That’s pure investor fuel.

Sean Thompson (04:33)
Yeah, You know, like, like, you know, we have to remember that it’s the end user that is driving all of our decisions, whether we are in my audiences is entry level buyers, it’s move up buyers, it’s investors, you know, to to a certain degree as well. You know, but none of that works if we don’t have a confidence on the plate, the people we’re going to either rent to or buy to or they’re going to take out our our our efforts.

You know, so to the degree that, you know, there’s a, there’s a good environment for them and it’s a little wonky right now. So we have to navigate through that, right? we’ll determine, you know, how effective we are in this business, you know, so, that’s kind of my thought. I’ve moved that way. Now I’m thinking about entry level buyers more so, because I think they’re struggling, you know, and I think their best opportunity gets looked over, which may be buying a home at a discount because of the condition of it, where the grass is growing out the living room.

You know, same thing for our investors. Right. And I think the more of that, because our housing stock is really driving that you think about what what what buyers end users want from their living spaces today relative to what they wanted 15 years ago. I bought my first house in, you know, carpet was perfectly acceptable for Mike accountitops were perfectly acceptable. I think it’s hardwood or bust right now and it’s illegal to sell a house in the United States without a grand accountitop, I think. Right.

So a lot has changed.

Scott Bursey (06:50)
Yes, a lot really has. No question about that. Let’s dive into the strengths of your business here. What advantage of a dedicated renovation loan program over traditional cash or HELOC financing is right now, do you think?

Sean Thompson (07:07)
I think the biggest, the most obvious advantage is after improved value, right? And it’s not just about the after improved value financing. It’s about the fact that we don’t care what the house is right now, right? Traditional financing for any kind of mortgage would require the house to meet a certain standard, whether they call that minimum health and safety standard, or whatever you wanna call it, that doesn’t exist in my.

I could care less. That house could be burned down to the ground, grass growing out the living room. I don’t care. It’s about what that house will be, you know, that really matters. Right. So it puts a lot of homes in play. It stretches it out over a super long term. Right. So 30 years is a long time, which which which equates to affordability. Right. Everything moves on monthly payment, whether we like it or not. You could argue about whether or not that’s a good thing. But everything moves on monthly payment. Can I afford the monthly payment?

And when it’s when you’re when your improvements and your purchase of the property is stretched over the 30 years, you find the most affordable situation for your little money down. Fifty five percent of first time entry level buyers put down less than seven percent, you know, and can go a lot of them, you know, at the three to five percent mark. They don’t have the 50, 60 thousand dollars that Chip and Joanna told them they needed for the kitchen. Right. You know, so the fact that I can throw that into the mortgage

is super, super helpful.

Scott Bursey (08:34)
affordability and it sounds like you really hit on efficiency and predictability as well.

Sean Thompson (08:39)
Yeah, yeah. And

for investors, know, Scott, there’s there’s a subset of particularly our fix and flip guys who that last mile, as I call it, right. You’ve got to get the flooring done. And, you know, there’s a few things you have to get to get the house presentable or listable, if you will. The realtors ask you to do a couple. You might be waiting on municipality issues or permits and stuff like that. You may not get that last mile money back.

But you have to do it to list a house. A subset of that is find the end buyer, let them handle it through the renovation products that we offer, and you get out.

You’ve already made your money. Go find another one. Don’t take extra risk with that last $30,000, $40,000. Let the buyer do it. And that really resonates with the degree of the investors that are working.

Scott Bursey (09:26)
And that really is going to resonate with our listeners. Sean, what’s the most common mistake people make when budgeting for a renovation draw schedule, would you say?

Sean Thompson (09:35)
Yeah, so I mean, the renovation portion, I’ve spent a lot of work over the last couple of months on, right? Because I do believe that that is our most skeptical part of this, right? You if I’m an entry level buyer, even an investor, and I’m thinking about investing in this property, the questions that I’m most concerned about is how much is the budget going to be? How do I nail the cost of this? And who’s going to be the professional to do it?

If I’m not swinging the hammer myself, then most people aren’t. I think that’s the biggest challenge. As a result, we’ve built some incredible tools that make it really easy if you can pronounce what you want to do to the house properly. Most people can walk through the house and say, I want to change this, I want to change that. Give you a really live estimate that almost any contractor within a 5 to 7 % tolerance would do the deal for.

So you think about that. You stand in front of a house, you can tell the program what it is you want to do, and it will give you a bid that almost any contractor will find defensible to some degree. And that gives you the confidence to know whether not you want to engage with this property now, not two weeks from now, now.

Scott Bursey (10:53)
Alright, Sean, it’s time to open things up here a little bit. Let’s give it some gas. Which property type, you know, B, SFR, multifamily condos, that sort of thing, offers the highest untapped renovation lending potential today?

Sean Thompson (11:42)
Well, there’s no doubt that the single family residence, so to speak, the white home with the picket vents that everybody wants, has a great deal of appeal still across the country. But I think we’re seeing some appetite for house hacking with multi-families, buying a two, three unit.

You know, and, you know, getting the money to repair it, getting the seller to pay all your closing costs, right? Having your monthly payment offset by the rent you can get for the other units, right? Those are out there in droves. And if you’re willing to walk down that path, it’s a very inviting path for affordability. It not be your first home, right? But it could certainly be your entry into homeownership. And for an investor, it could certainly be your entry, you know, into collecting doors, so to speak.

Scott Bursey (12:35)
If I’m hearing you correctly, Sean, it’s about identifying those hidden pockets.

Sean Thompson (12:39)
Yeah, and those pockets could be in parts of the country where their condo spaces are most prominent, right? As you get closer to New York City on this side of New Jersey, which is the market I’m in, you’re gonna find a ton of condos as opposed to single family units, And those opportunities exist in those same spaces as well.

Scott Bursey (12:58)
It certainly pays to look past the obvious. And on that note, what is some of your short-term strategy that you’re employing right now?

Sean Thompson (13:07)
Yeah. So right now the, the, the short-term strategy is we have to be able to, to ignite the buying public, the entry level buyer, the move up buyer. Right. I think, and that starts with telling the story, you know, about, what I affectionately call an ugly house. Right. You know, so how fast can we tee up the, here’s what it’s going to cost to renovate. Here’s what it’s going to cost to finance, whether you’re an investor or entry level buyer or not.

And here’s what the end is going to look like, right? And to be able to do that in not two weeks, but minutes, right? While you’re standing in front of the house, I think is where we have to go with this, right? Getting a regular mortgage or closing on a regular real estate transaction has gotten a lot easier, you know? So the rental portion needs to be commensurate with that ease. And that’s what we’re focused on is being able to do that in minutes for folks, not weeks.

Scott Bursey (14:06)
speed and execution. Sean, interested to know what regulatory or interest rate change poses the most immediate risk to renovation lending over let’s say the next year.

Sean Thompson (14:09)
Absolutely.

Yeah. Well, I think the hidden one, the one in the background is cost of raw products and materials, right? You know, it’s just super volatile for obvious reasons. And some of those reasons being political, right? You know, the cost of lumber could sway, you know, a lot based on our relationship with Canada, so to speak, right? You know, so there is some things going on in the background that make it difficult.

for the home improvement world to be confident about what they quote, right? Which makes it difficult for us to have confidence around who we hire and whether or not we choose to get involved. But the other side is interest rates, of course, right? Which, you know, that’s no secret. Interest rates are firmly tied to how real estate performs, whether or not folks want to get in and purchase, or even refinance that includes that.

that improvement to the property. So I think those two things are the biggest two. What happens with interest rates and what happens with the cost of raw materials, if you will.

Scott Bursey (15:25)
the market volatility is real. Sean, you hit home so nicely on the short-term strategy. What’s some long-term vision?

Sean Thompson (16:13)
Well, look, I mean, you know, to me, ⁓ if I just take the Northeast, you know, and you can probably extrapolate this out to the rest of the country as well, you know, but there is 70 % of the housing stock that was built pre 1980. Right. And that’s not getting any better. Right. You’re going to have a large part of the largest generation ever, the boomer generation aging out of their homes.

And those homes are coming back on the market and they’re not what our new buyers want. Right. So a lot of our buyers are putting down very little. A lot of our investors are seeking, you know, low down payment options. You know, they don’t have the money to do the purchase and the renovation at the same time. When you put those two together and inventory right with with with properties that are less than perfect and little money down, the long term strategy has to has to be a way to connect the dots. Right. And that’s what we’re working on.

you know, at the makeover blueprint, you know, and reno sales pro dot com, which is ways to make it easier for us to to address that inventory that’s in disrepair, less than perfect and make them what today’s buyers want. Right. I bought my first home. Carpet was perfectly acceptable for my account. The tops were perfectly acceptable. And I think it’s hardwood or bust now and illegal to sell a house without a granite countertop in the US right now. But if I remember that correctly,

Scott Bursey (17:40)
And for our pros, that’s exactly the type of spark that starts a fire. Sean, what’s one quick tip for vetting contractors specifically to ensure smooth loan disbursement and draw approvals?

Sean Thompson (17:53)
Yeah, this, this, this topic’s near and dear to my heart. You know, I, I, I love the home improvement community to a large degree. They’re, super underserved. All right. There’s not a lot of folks chasing contractors and, and, and what I tell contractors when I meet with them is, know, you know, be mindful of the purchase environment. Not all your marketing effort needs to be geared towards people who already own the home. Most contractors aren’t really thinking about people who need them when they purchase a home. They only market to people who only own the home.

That said, most customers, whether you’re getting financing or not, don’t do the homework they need to. So just simply asking a contractor to fill out a bit of a profile. Who are you? Who are your past customers? What type of projects you’ve done? Do you have insurance? Are you legally allowed to do business in the same state the subject is in? Just asking those questions weeds out 80, 90 % of the bad actors out there, right?

You know, so I’d be surprised if people do that nowadays. It’s kind of like, you know, you’re a Giants fan and I’m a Giants fan and I guess that’s good enough for you to come mess at my house, right? You should probably do a little bit more work than that, right?

Scott Bursey (19:06)
Due diligence on the team is everything. If the back end process is sloppy, the front end money is always at risk.

Sean Thompson (19:15)
Yeah, yeah, so again, like I said, we spend a lot of time, we don’t approve contractors, but we certainly help customers and steer them towards validating, is the word that we use, the credentials of the home improvement professional that they ultimately choose. It’s up to you to choose them. It’s up to us just to make sure they’re not the wrong character.

Scott Bursey (19:38)
Okay, Sean, let’s hit the high octane fuel here. If a pro is sitting on a deal that needs heavy renovation, but they’re hesitant to do the rising material and labor because of those rising costs, what advice can you give them right now to lock in the profit?

Sean Thompson (19:59)
Yeah, mean, it’s a really good question and can be unique, but there’s some principles that live at the top of that dynamic, right? Number one is understand what is a bona fide dollar for dollar improvement and where you’re wasting your money, right? You know, there’s improvements that we want to make and improvements that we ought to make, you know, that we have no choice.

Right. And, there’s some that are, are optional that don’t bring us back dollar for dollar credit. And then that’s evolving as we go. Right. So adding a whole home. Internet system, right. Is now something that, you know, our, our entry level buyers deem super important. That may not have been something that you’d done a while ago. So that may add more than it might cost you five or $6,000 to do that, but you may get, you know, 10,000 back for that effort.

Right. So you have to think about those and there’s certain things, there’s lots of things you can do online at reno sales pro.com. We do in that environment, you know, sum up the dollar for dollar value. get that equation for the type of improvement you get in order to give you a defensible after improved value, right. And a defensible bid along with the bid builder IQ, which lives in that system, which is, is really great for, summing up the, the, you ought to be thinking about.

when it comes to the improvement. So if you’re stuck, right? Think about what you could make, what you can omit that may get you that money back or at least get you out of the deal safely.

Scott Bursey (21:33)
Sean, you have put on a clinic today. It’s easy to see why they call you the renovation guy. But we can’t let you go just yet. You’ve given our listeners so much great advice. Is there any additional golden nuggets or words of wisdom that you can leave with them?

Sean Thompson (21:47)
Yeah, I mean, I think if you’re if you’re thinking about this as investing into your first home, your primary residence, right, and you have little money down, right, there is nothing more powerful, the most affordable way to go out and get into homeownership, to get in a neighborhood you want, to get the house customized the way you want than finding a home being sold at a discount because of its condition.

and letting us help you through the financing that stretched out over the 30 year fix, making it the most affordable way to get into home ownership. If you’re an investor, really think about that subset where you buy the property, right? You bring it to a certain position and you let our buyers, right? Go ahead and finish it out so you don’t have to take that last mile walk on it, right? Right. So those are the two biggest ones. I have my book, the renovation lending playbook, which you can find on Amazon.

We have the reno sales pro.com, which is environment. invite you all to come to spend some time there, right? And see if those tools and that environment helps out with your, with your efforts to invest. Right. And, and, and that’s kind of way I’ll leave it. Scott.

Scott Bursey (22:57)
That’s a massive injection of value right there, Sean. And for those of our listeners that want to keep this conversation moving, stay in your lane or collaborate with you on future deals. What’s the best way for them to plug into your pipeline and reach you?

Sean Thompson (23:12)
You can reach me in two places. It’s it’s it’s renoloans.net and that’s where you’ll find all my contact information, all of my social media spots. Follow the YouTube channel. Right. I do run the renovation rundown podcast. I’d love to talk to you guys. I’d love to interact with you. Right. More transactionally. You can visit makeoverloans.com and that’s where you’ll learn about who I work with and and how we how we work with transactionally.

those investors and agents and potential buyers. And those are the two places where you can find me at. We’re excited to work with your group, Scott, and super busy these days. So have at it.

Scott Bursey (23:52)
Awesome. Sean, thank you so much for joining us today.

Sean Thompson (23:55)
Thanks for having me.

Scott Bursey (23:55)
It is our pleasure and you’re welcome back anytime, my friend. And to our listeners, we appreciate you. If you got value from today’s episode, please subscribe. We’ll be filling your tanks with the lineup of elite guests, just like Sean Thompson, who are accelerating and making huge moves in the industry. Until next time, keep your standards high and your vision clear. We’ll see you on the next episode, everyone.