Scale With Smart Debt: How Real Estate Investors Use Financing to Move Beyond Single Deals

Duane D Johnson (00:00)
I was to start investing I would take the properties that are currently owned I would cash out

if they’re investment properties. There’s a lot of investors that have properties that they rent right now that either family or in or that they inherited and it’s sitting empty and they’re considering doing this, right? I would do a cash out refile on those

gather me a lump sum of money. I do those repairs. I get those properties rented and I would try to save as much of that cash. So once I start receiving rent payments that I

and move on to the next deal.

Dylan Silver (02:15)
Hey folks, welcome back to the show. Today we’re joined by Duane Johnson, loan officer, speaker, and relationship builder with Equity Capital Mortgage Group. Duane specializes in both residential and commercial mortgages, helping clients navigate financing across a wide range of deals from primary homes to investment properties and commercial assets. With a strong focus on relationships and long-term strategy, he works with borrowers to structure smart financing solutions that support both growth and scalability. Welcome to the show, Duane.

Duane D Johnson (02:45)
Hey, welcome, welcome. Glad that you’re having me, Dylan.

Dylan Silver (02:49)
Absolutely. It’s

great to have you on here. And we were talking in the green room about, you know, the scope of your business. And I was saying to you, you know, it’s great that you’re able to help folks in a wide variety of deals, right?

Duane D Johnson (03:03)
Yeah, yeah, yeah, I am. I do have the ability to help individuals that are home buyers. Also, I have the ability to help investors, especially those that are looking to leverage their portfolios to scale up to the next level, Be it commercial or multifamily.

Dylan Silver (03:22)
What are the biggest differences as far as being a loan officer and originating those loans between the residential space and commercial financing that most people just wouldn’t understand?

Duane D Johnson (03:35)
⁓ I would say that investors are looking more towards… ⁓

tax consequences or no tax consequences. They’re also looking at ease of ⁓ access. ⁓ They are also looking at products that ⁓ look at different ways to ⁓ prove capacity to pay.

Dylan Silver (04:01)
Now, when folks are looking at going from residential, you know, real estate, let’s say they’re flipping or they’re doing some type of year to year lease and now they’re thinking, okay, I want to get into the commercial space. That seems like sometimes a natural transition, but it’s two different worlds, right? Do you think that, you know, investors who are real successful in the single family space may sometimes have difficulty in the commercial space?

Duane D Johnson (04:27)
yeah, definitely. mean, really we all do, right? When we change our spaces and you know, but one thing is constant all the time and that is change. So it’s just really learning a new ⁓ playbook for the most part. ⁓

you know, being able to use your actual experience and seeing how it does correlate and roll over. And then taking a look and seeing what things I need to change or that the company needs to change or my approach needs to adapt.

Dylan Silver (04:59)
Question kind of getting on a granular level here about the commercial space. I’ve spoken with so many people who will do value add rehab

in the commercial space. I’m not familiar with how that process looks. I’m familiar with hard money in the single family space when folks are doing like a fix and flip, for example. But when you’re doing a sizable rehab on a commercial property, are there hard money players in that space? Is there some type of commercial rehab loan? How are people accessing that capital?

Duane D Johnson (06:17)
Yeah, there are commercial rehab loans ⁓ that are hard money ⁓ in the commercial space. ⁓

However, the qualifications are a lot different. ⁓ You’re going to be looking more as like your personal financial statement, your business numbers, all of those sorts of things in the commercial space. Now, I do have a lot of ⁓ some access to lenders that will still technically do a DSCR for a commercial space, but it is usually for smaller pieces of commercial property, usually things like warehouses.

in the search.

Dylan Silver (06:57)
Now,

when folks are…

looking at commercial loans, from what I understand, this was the trend at least a couple of years ago, and you can tell me if this is still happening today. Most people were looking at variable rate debt. And I think that bit a lot of people, you know, because what ended up happening was, you know, rates doubled, you know, there was a lot of multifamily development, especially in the Sun Belt. And then you had materials go up, vacancies go up as well. was kind of this perfect storm. Is variable rate debt still the

the norm and is that kind of what’s been the status quo in commercial lending?

Duane D Johnson (07:35)
Well, it has. I mean, really, because it eases your access, right? You are a port of entry ⁓ with a variable rate, usually, because it’s going to give you a lower payment and a lot of other things. But if you meet certain criteria as that loan is moving along, ⁓ then I think that it works, right? ⁓

Are there such things as fixed rates and stuff like that with commercial? You don’t really see it that often, but it does exist. It just is the client there and doesn’t make sense for the client for it to be fixed over a period of time.

Dylan Silver (08:15)
Now, I think when folks are looking at commercial financing, they may feel like this is a totally different and it is, you know, totally different animal than financing a single family home. If someone is a single family investor and they’re typically, you know, doing some type of birth strategy or they may be getting a hard money loan or they may be getting a, you know, rehab loan and they’re looking at now maybe six months, 12 months, 18 months from now getting into some type of.

smaller commercial deal, whether it’s small multifamily or maybe a small warehouse or ⁓ self storage, something along those lines. What should they be focusing on as far as to prove their viability for a commercial loan?

Duane D Johnson (08:57)
Yeah, one would be where they’re going to plan on purchasing that commercial property because there’s so many different things that you could use, especially if you had an established portfolio currently. If they’re all within an opportunity zone, you could actually sell those 1031 exchange those funds over to lower that amount of down payment that you have to come up with. If you know other investors that are willing to part with you, they could do the same exact thing.

And now we have tax-free down payment wanting to get the deal started. That’s one thing that you could look at. I would say having the best credit score as possible. Anything over a 720, I’d be willing to look at in the commercial space. What else?

All of the other typical things, know, like no mortgage lates, no liens on properties, back taxes all paid, ⁓ those sorts of things.

Dylan Silver (09:51)
Hmm.

So if someone has like a HELOC on their property because they’re wanting that access to equity and they’re still paying on that, would that be something that could potentially be detrimental to a commercial loan?

Duane D Johnson (10:47)
Yes, it could.

Dylan Silver (10:49)
Okay, I guess good for investors to know I know that those are major vehicles for folks to get the ball rolling.

Duane D Johnson (10:53)
That’s good question.

Yeah, because the commercial lender when they’re figuring out capacity to pay, they’re taking into consideration your global cash flow in most cases. So they’re looking at everything that’s going out and everything that’s coming in. So yeah, it could play a part because they know that you could ⁓ extend that credit to the max.

Dylan Silver (11:16)
Now, when we talk about being a relationship focused lender, I think a lot of times, especially right now, people are looking more and more for like, hey, how can I kind of get some type of instant approval? How can I do this without interacting with people? I certainly see that as a realtor. But in lending, and I’ve said this on other podcasts, lending, feel like is where the deals start and stop as a realtor, pretty much.

you know, unless someone has a pre approval, I can’t help them, right? And I’m sure it’s the same thing in the commercial space. How much do you see the industry, you know, trending towards, you know, human touch and a relationship focus business versus trending towards the opposite of that, you know, some type of AI machine auto

Duane D Johnson (12:06)
⁓ I think both will always exist. I think that all of the AI tools and what have you ⁓ will be virtually the same. They’ll provide the same conveniences that you mentioned or what have you. ⁓ They’ll maybe have a

different or unique created personality and voice and things of that sort, you know, or vernacular. ⁓ But when it comes to an actual face to face, ⁓ each and every loan officer is different and each and every loan officer isn’t created the same, right? ⁓ Yeah, so ⁓ a lot of investors that I work with personally, ⁓ they have a story.

Dylan Silver (12:51)
No question.

Duane D Johnson (13:02)
like we all do. And ⁓ once I understand that story, I’m able to act appropriate like their goals are just like mine. So when building out and structuring deals one after the other, I have some investors, what we do 10, 12 deals in a half a year or three quarters, right? And it’s their plan. So ⁓

I don’t think AI has the ability to figure out the easiest way for you to get to a goal, right? ⁓ But does that interaction make the borrower or the investor own that goal and say, yeah, I’m going to act now? ⁓

Dylan Silver (13:52)
To your point,

Duane, I think there’s a lot of kind of spheres of influence that people are operating in within the real estate space. And it’s almost like, hey, if someone has a good lender, it’s because it’s a close friend or a family member. I almost feel like we need more lenders because when I, before I got into the real estate space and when I was trying to buy a home, I remember personally getting turned down and actually I was probably not.

that bad of a situation, had decent credit, had job history. I just had never purchased a home before. And so I think maybe had I gone to a different lender, it would have been a different outcome for me at that time.

Duane D Johnson (14:30)
Yeah, for sure, for sure. ⁓ you know, in the brokerage space, I have the ability to work with 100 different lenders, Dylan. So if it’s time for you to buy the house and we look at the paperwork and we decide together, hey, it’s time for Dylan to buy this house. ⁓ One lender may not do what another lender will.

All lenders aren’t created equal either. They all have add-ons for first-time home buyers FHA they have add-ons in different terms and conditions for investors. I have some investors You know, I’m working on a deal right now and I have to switch it last minute to another lender due to something that came up on the title

but

Dylan Silver (15:57)
Is that a single

family home deal? Is that a commercial deal?

Duane D Johnson (15:59)
That’s a single family home deal.

Dylan Silver (16:02)
Okay, okay. I’ve seen these deals fall apart, you know, at the one yard line for all sorts of reasons, especially before I was a realtor and wholesaling. That’s where I cut my teeth in the real estate space to stress properties, right? I mean, we would just see things, you know, I have so many stories from a lender needing an additional inspection to someone saying at the last minute, I’ve actually got this partner over here that needs to approve the deal to, you know, the title company, not understanding the logistics of the deal.

Duane D Johnson (16:09)
Yeah.

Dylan Silver (16:31)
You know, people have to really understand that there’s so many moving pieces here, especially in trickier deals, especially in distress. ⁓ I’m sure you’ve seen all types of this.

Duane D Johnson (16:40)
And

how well will AI be able to teach the investor?

Dylan Silver (16:47)
Right, not well at all.

Duane D Johnson (16:50)
And the investor, how ⁓ bought in will they be to AI teaching them versus them already knowing and trying to express that to AI? Correct.

Dylan Silver (17:01)
What’s

a deal you’ve seen fall apart at the one or five yard line that could have been avoided?

Duane D Johnson (17:11)
⁓ that could have been avoided. Forgetting that you promised your wife that you were taking her on a cruise and you already bought the cruise and plane tickets. And we are about to close now and you dip into your down payment money. And now we have to, ⁓ if you were to put another deposit in, it has to be sourced and all of that sort of thing.

Dylan Silver (17:31)
Ugh.

Man, that’ll do it. That’ll do it. Don’t promise something at a future date if you’re not sure if you’re going to be closing on a home, right? I think there’s so many, I’ve heard instances of people buying like a sofa on credit and that getting them into some type of situation where now they have debt that the lender doesn’t like. ⁓

Duane D Johnson (18:01)
Yeah,

even like first time home buyers and first time investors, know, they’re apprehensive. And when I get to talk to them with them, they ⁓ are real kind of shy and don’t want to mess up or say something wrong to me or what have you. And ⁓ I just ask them, you know, I can show you all of this and we’ll walk through it all. But are you organized?

Dylan Silver (18:29)
Yeah.

Duane D Johnson (18:29)
That’s

what I need out of every client. If every client was organized, ⁓ we’d be in great business. And I could actually help probably the 10 % that do fall out. ⁓ Dylan, my organization, we’re closing out these loans at a 90 % clip. We actually know what we’re doing. We know what DSCR is. ⁓ And we know.

what private lending and we know what hard money is and we know what investors are looking to accomplish.

Dylan Silver (19:04)
What’s the biggest difference in DSCR in the commercial space between the residential space? Is it a similar process?

Duane D Johnson (19:13)
Similar process, yes, similar process. Yep, yep, similar process. You can use rental income as capacity to pay as well, but the owner doesn’t wanna be part owner of one of those entities that’s written in commercial space in most cases.

Dylan Silver (19:16)
It’s just that scale, okay.

Now for folks who are looking at getting into investing, right? And they’re trying to determine where they’re going to source their capital. Are they gonna go hard money? Are they gonna go a rehab loan? Are they gonna pool money between friends and pay cash, right? From your perspective as a lender, if you had to start right now investing, what would be your source of capital?

Duane D Johnson (19:57)
I was to start investing I would take the properties that are currently owned I would cash out

if they’re investment properties. There’s a lot of investors that have properties that they rent right now that either family or in or that they inherited and it’s sitting empty and

considering doing this, right? I would do a cash out refile on those properties, gather me a lump sum of money. I do those repairs. I get those properties rented and I would try to save as much of that cash. So once I start receiving rent payments that I

and move on to the next deal.

Dylan Silver (20:42)
We are coming up on time here, Duane. Any new projects that you’re working on and then as well, what’s the best way for folks to get in contact with you?

Duane D Johnson (20:50)
Yes, ⁓ Duane Johnson Equity Capital Mortgage Group.

216-513-6392. My email is [email protected]. I am also on Instagram as Isn’tHisNamePaco, and I am on Facebook as D. Johnson. LinkedIn is Duane D. Johnson, MBA. I look forward to speak with everybody. Something that I’ve got working on new right now is we do have a lot of new construction going on in Cleveland, Ohio.

So we are working on ⁓ one time close currently.

Dylan Silver (21:30)
Duane, thank you so much for taking the time today. Thanks for joining us.

Duane D Johnson (21:33)
You got it, Dylan. Pleasure.