The Real Estate Financing Mistake That Traps Investors Before They Can Refinance

Jacob Haddan (00:00)
right, yeah. Yeah, the number one question I ask, like just when I took a loan application before we jumped on, is what are your goals and what do you want your PITI payment to be? And then I try to back into that payment and those goals of how long do you wanna hold onto this rental property? What’s your exit strategy? And that’s the biggest value that I can add for any customer coming to me is exit strategy.

Cody Crabb (01:59)
Hello and welcome back to the Real Estate Pros podcast by Investor Fuel. I’m your host, Cody Crabb. And today I’ve got Jacob Haddan, a lending strategist helping investors find financing that actually fits the deal. He’s been investing for 20 years. He’s used the BRRRR method himself and now he helps investors move even faster with DSCR loans, digital HELOCs and creative lending options that can close in mere days instead of weeks. Thanks so much for having me on Jacob.

Jacob Haddan (02:25)
Thank you for having me, Cody. Appreciate you.

Cody Crabb (02:27)
Well, give our audience a little background about you. Who you are, where you come from, why you got in the industry.

Jacob Haddan (02:34)
Yeah, so I’m a Colorado native. I started out in Southern Colorado, ⁓ moved up to Denver, Colorado about 20 years ago. And I’ve been in the South Denver market ever since focusing on real estate since 2001, as far as financing goes. And I bought my first property back in 2005 using the Burr method where I purchased the property with the acquisition loan. Then I did a renovation loan on top of that. And then I refinanced it into a long-term permanent loan.

on a 15 year fixed.

Cody Crabb (03:05)
⁓ And so that’s that was how the the bug bit you as they say

Jacob Haddan (03:11)
Yeah, the bug bit me actually back in 1993, my dad took me to one of his open houses. He was a real estate agent up in Denver at the time.

That was my first intro into real estate. And it was fun going there with your dad and seeing what it’s like to sell a property at that young age, you

Cody Crabb (03:33)
Yeah, for sure. mean, I think a lot of people kind of ⁓ that’s one of the three stories I hear, which is parents or parents or family were in real estate. This guy knew was in real estate and I was like, I’ll be rich. So I did that. Or I read Rich Dad Poor Dad and was like, I suddenly have to make it. I have to make a change. Those that pretty much covers most people. But no, that’s everybody has a different a different journey. So sure.

So ⁓ I’d love to hear a little bit about, you are, you’re diving really heavy into the tech side of the finance financing world. ⁓ Tell us a little bit about that and kind of what’s out there, what is starting to be up and coming and what kind of changes should people expect to see?

Jacob Haddan (04:17)
Yeah, so my tech stack, what I do is I take a loan app and I put it through my CRM. Then I go through my ⁓ initial portal. So clients are uploading documents. Realtors get those updates as the file progresses to closing. But the specific loan products that are top of mind right now, I’ll start with the first one based on blockchain technology. It’s not crypto. Crypto is a different thing. So we’ll leave that off the plate. Blockchain technology is the super information.

Cody Crabb (04:47)
qualify that like people that aren’t tech savvy like those are not the same thing they kind of are off you have show up in the same context but they’re very different

Jacob Haddan (05:41)
And it took me a long time to learn how blockchain technology works and to kind of follow the money ⁓ as I’m doing these loans. And it’s really exciting because what it’s done is it allows a soft credit check, a AVM, so no full appraisal. We don’t have to send anybody out to the property, e-title, and they’re closing in their living room. And I have…

on this blockchain home equity line of credit, let’s qualify the product. So it’s a digital HELOC and it allows investors to finance up to 70 % combined loan to value on their rental property. And there is no seasoning requirement. So they can buy a property today, cash out tomorrow up to 70 % of the AVM value. Not what they paid for it. They could pay a dollar for it and they can cash out to whatever it’s worth up to 70 % of that.

value as dictated by the vendor that’s doing the Automated Valuation Model, the AVM. Now here’s the track record for this product. So I’ve submitted over 200 of them over the past year and a half, two years. I’ve closed 20 of them. So it’s a small pull through on what closes, but it is something where the fastest, record setting closing was ⁓ the borrower completed everything in one hour was fully

application to clear to close within one hour. And that was by far the best out of any customer I’ve put in the product. And then it was all set. Title had to season for 48 hours. They had to go through the processing of the title. And then the deal was ready to close. Now this was on a primary residence. So there was a three day writer recision. So we started on a Wednesday morning and they were getting funds on the following Wednesday, the following week on a primary cash.

Cody Crabb (07:36)
So here’s my question. Do you think that’s going to be typical? Like is that something that’s going to just be like people expect that now because that’s what we can do now? I mean, I’m just curious what you, you know, what you, how you’re seeing that.

Jacob Haddan (07:51)
I see people walking into the bank. I see them waiting two, three weeks, sometimes four weeks, and they’re twiddling their thumbs. They’re like, hmm, when’s my loan gonna close, right? And then they look over here at what I’m doing and they say, my God, you’re closing this in a week? Like heaven, like, ⁓ moment.

Cody Crabb (08:10)
Right. yeah. Well, as I mean, as anyone could obviously tell you, like as soon as you have something like that, like that’s the competition for that is going to be fierce. Right.

Jacob Haddan (08:24)
Right. And not only the competition, but the education. think the education is key to let people know it’s available in the marketplace right now for them. Cause you walk into your branch, your bank’s not going to tell you, you know, you have to be able to find these products and work with the broker and not go through the, ⁓ cause there, this isn’t the only product like this. have three to four different blockchain based home equity line of credit lenders. And I’m, I’m sorting.

who’s gonna fit best with which client on every single application that comes in. And it’s not always the same direction. I have to of divvy it up to the, like if there’s seasoning requirements or if they’re gonna pay it off within four months, it goes to a different lender. If they’re self-employed versus if they’re W-2, if they’re, know, depending on how they’re getting paid and how they’re paid, it might not work. And sometimes a bank or a crediting might be the best option for somebody.

Wait the 30 days and go that route if that is a better option. So yeah.

Cody Crabb (09:28)
So for an investor listening, what kind of documents or numbers or things ⁓ should people come to a lender with before they even, when they come to you, what should they have in hand? To speed things up, what are the things that you see missing the most amount of, the bigger amount of time that slows things down?

Jacob Haddan (09:47)
Well, first off, just takes five minutes to put your information in and to get numbers back. So it’s pretty fast. And then you can log into your mortgage website, wherever, whoever holds your first mortgage, download your mortgage statement, upload that directly once you get your invite by email. And you’ll also want to have your insurance declaration page ready, as well as your tax ⁓ statement from your county tax records.

And if you don’t have that, I can pull the county tax. That doesn’t take long at all from pretty much any county in the US. then as you go through the process, you just have to be ready to jump on top of your email. It doesn’t always work so well by phone, by mobile phone. So having a computer being ready to log in and knock it out real quick online is the fact, like, it’s gonna give you the best chance of success, I would say.

Cody Crabb (11:13)
So one question I’d have is who is this available to? Like who’s able to do things like this? Like can you work with people across the country? Like I’m just curious what sort of range this has legally.

Jacob Haddan (11:28)
Yeah, so I’m licensed in seven states. I have contacts in all 50 states. If it doesn’t fit under one of my states, and if I don’t have the capability to add that state prior to the one they want to close, then I’ll refer them over to a trusted partner that I work with in that state. Have to watch out for any requirements as far as licensing go, ⁓ and as far as what the property type is, right? If it’s a multifamily home.

For example, it doesn’t work on your two plus units. Typically, they want the single family residence, but they don’t care so much about rural property. if you’re, I’m in Texas, by the way, I’m also in North Carolina, I’m in Colorado, Florida, and there’s other states. I’m in Washington, I’m in Illinois and ⁓ Michigan. I’m fully licensed on my NMLS ⁓ and I have multiple sponsors.

that allow me to be able to get licensed in states where my investors go, because I kind of stay with them as they travel to different states if they’re looking at that. And ultimately, if I don’t have the licensing or the product in-house, I can help recommend an option for a customer to go direct to get access to this product in any of the 50 states. And I also try to help recommend folks to lenders in Canada, Mexico, and in…

wherever somebody needs financing, if I have a resource board, I happily hand that off.

Cody Crabb (12:57)
Hmm. This is interesting. So, ⁓ who is this maybe not a great fit for? ⁓ I’m kind of in my head, I’m like, maybe someone that’s not, that doesn’t feel like super tech savvy or something like that. I’m just curious, like, is there a person that you would say, maybe go the traditional route because you’re, this is probably not for you.

Jacob Haddan (13:15)
Yeah, so if you want to meet in person, you want to walk into a branch and you want to go ahead and hand over your payments every month to someone, this wouldn’t work for you because this is a web-based and online digital home equity line of credit for someone who is tech savvy, who isn’t afraid of going in and directly uploading documents and going through that process and then using me as a consultant remotely, possibly in a lot of cases, but.

Ultimately, you gotta have a level of comfort with going through a web-based, an online-based loan process. I’m still here to back you up and I still jump on a Zoom call with folks and have them do a screen share and walk them through that process to make sure everything’s good. But if they just don’t feel comfortable with that and they wanna go direct ⁓ in person, that option might work for some folks better.

Cody Crabb (14:10)
So one question I’d have for you, let me pull back from the product for a second. What are you seeing investors kind of maybe getting wrong in this market? I you invest yourself as well. I’d be curious to know with your perspective, what are you seeing in your view?

Jacob Haddan (15:10)
Yeah, so in my view, on an investor side, what products they look at is generally on your DSCR loans. DSCR loans are debt service coverage ratio loans, and they started in the commercial industry, and then they spread over to the residential industry back in about 2014. About 10 years ago, say 2016, they got more popular, and I was helping my folks in the legal cannabis industry in Colorado.

do DSCR loans for buying property with their cannabis proceeds, but they were out of the business or retired at that point, but they didn’t necessarily have a monthly income. And unlike commercial DSCR loans where you’re always providing all your documentation, but they look at the debt ratio, the residential site just looks at your debt to income ratio and doesn’t look at your 1040 tax returns or your W-2s. So that was beneficial for those folks. Now, when I see new loan officers selling or

recommending this product to investors. They’re always building in their comp. They’re always adding it. They’re afraid to discuss what they get paid on deals. And I go the opposite route. I’m generally one to 2 % commission on something. And I put that up front and I say, you know, look, just pay me. But this is the interest rate. This is the best interest rate in the market. And here’s the starting point at a five year prepayment penalty. If you’re going to hold on, hold on to the property indefinitely.

you’re gonna wanna look at the lowest possible rate with the highest ⁓ early payoff penalty because you’re just leaving money on the table otherwise. And if you pay my points, they’re all deductible on your taxes. So it often benefits people, especially if you look at holding a rental property for 10 to 20 plus years, why would you wanna leave that money on the table that you’re gonna get back on that lower monthly payment and you’re gonna have better cashflow during that period?

Cody Crabb (17:04)
⁓ I’d love to hear kind of just as an investor in general. ⁓ So the real mistake isn’t like rate shopping. It’s like you’re looking at, you’re not matching the loan structure to your actual plan. Am I getting that right?

Jacob Haddan (17:23)
That’s right, yeah. Yeah, the number one question I ask, like just when I took a loan application before we jumped on, is what are your goals and what do you want your PITI payment to be? And then I try to back into that payment and those goals of how long do you wanna hold onto this rental property? What’s your exit strategy? And that’s the biggest value that I can add for any customer coming to me is exit strategy.

Somebody said recently,

Joe Rogan’s podcast, he was talking about college students getting these 100 to 200 to $300,000 student loans, and you have no exit strategy for these kids on the student loans. You can’t file bankruptcy. If you go out into the workforce and AI takes your job, you’re in a tough situation. So for me, if I was looking at a college grad and I was recommending something, I would be looking at, okay, well, how are you gonna pay these student loans back? Because you can’t, you can never write them off through bankruptcy.

And so same thing for my investors. If you’re getting a short-term bridge loan, like a six month or a one year bridge loan to renovate a property and then refinance it, we got to make sure the property’s rental cashflow is going to qualify you on that DSCR loan. So that’s huge, right? Because if you get that upfront loan and your only option is to sell the property and maybe there’s not enough equity to sell the property, but it’s a great cashflow property then.

You want to know that going in.

Cody Crabb (18:54)
⁓ So how often do you see investors kind of buy the property first and then realize the refinance is not a good idea?

Jacob Haddan (19:04)
It’s more common than you would think. ⁓ The things that come back to buy investors are going to be number one, doing your due diligence on liens on the property, ⁓ doing your due diligence on comps. You want to make sure you’re looking at comparables that an actual lender is going to use or a buyer coming in to buy the property. You want to know who you’re going to sell it to. You’re not selling it to another investor. You’re selling it to the wife of the couple that’s going to come in and buy it.

⁓ You’re buying a property with possibly different costs of maintaining going forward. The taxes might increase after you own it. Insurance might go up or down. You got to think about these things. What does the insurance market look like for the property and the location? And oftentimes I’ll have investors that’ll come to me with the idea of buying rental properties and scaling up their portfolio just to find out that the expenses to hold the property didn’t quite cover the

You know, it didn’t quite service the debt at the end of the day and you want to make sure you’re looking at a stable market You’re getting in at the right point price point and that the cash flow is there To hold on to that property long term and otherwise you have to sell the property in that situation Another thing is When any investor comes to me whether they’re buying a residential property or commercial property, how are they going to exit that loan?

Are they gonna sell it? Are they gonna refinance it? Do they have tenants lined up? ⁓ The appraisal’s gonna tell us what the rents are gonna be and what the ⁓ value is currently. And I can order an appraisal without even a loan file. If somebody’s planning on eventually getting a loan with me, ⁓ generally we’ll order the appraisal ahead of time so that.

We have that out of the way and that’s just as valuable as your inspection on a property.

Cody Crabb (21:03)
⁓ well, this has been really great. Thank you so much for all the, all the insights you’ve given us. think we’ve walked away with some, some new, ⁓ tips and tricks. I always try to get, ⁓ for our listeners, I always try to get the stuff that maybe someone wouldn’t think of unless they were in the industry. Cause it’s, that’s, that’s the kind of thing that, that we, we really need help with. So, ⁓ I would love to hear, know, if, people want to, if, people want to reach out to you, work with you, find out more.

How can they get in touch with you online?

Jacob Haddan (21:35)
Sure, so the best way to get in touch with me online is on my website, which is mortgageconsultinggroup.com. Or they can call my direct phone number at 720-414-2019. And those are the best ways. Now, when they’re on my website, they can upload documents, they can start their application process, or they can book a Calendly appointment with me direct.

Cody Crabb (22:04)
Awesome. Yeah, that’s great. I love a good phone number. That’s a great, yeah, like someone’s personal number. That’s awesome. Well, thank you so much for giving that out to our listeners and for your time today. And thank you listeners as well for sticking with us. If you like what you heard today, go ahead and give us a like, subscribe, comment, all the things, and don’t forget to follow us so that you don’t miss another great episode. Thanks so much for hopping on today, Jacob. It’s been a pleasure.

Jacob Haddan (22:29)
Likewise, thank you, Cody.

Cody Crabb (22:31)
Yeah, have a good one.