This Is How Real Estate Pros Use Private Lending and Exit Strategies

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Show Summary

In this episode of the Real Estate Pros podcast, host Micah Johnson interviews Mario, a seasoned expert in private lending and real estate. They discuss the importance of leveraging responsibly, understanding exit strategies, and the current market landscape for investment properties. Mario shares insights on interest-only loans and the power of leverage in wealth creation, emphasizing the need for education and analysis in real estate investments.

Resources and Links from this show:

• • • Investor Fuel Real Estate Mastermind
    • Investor Machine Real Estate Lead Generation
    • Mike on Facebook
    • Mike on Instagram
    • Mike on LinkedIn
    • Mario Montecinos’ Phone Number: (562) 787-8902

  Listen to the Audio Version of this Episode

  Investor Fuel Show Transcript:

  Mario (00:00)
  I think what’s hyper, hyper critical is the exit strategy, right? Like, what are you going to do with the property? And then not just what are you going to do with the property? Best case scenario? What’s what’s a pivot? Right? What’s a plan B? Right. And I think if you could underwrite with a plan A and a plan B, ⁓ and then it’s on you to execute, execute to get to that,

  Micah Johnson (01:52)
  Hey everyone, welcome to the Real Estate Pros podcast. I’m your host, Micah Johnson. And today I’m joined by Mario, who’s been making some serious moves, private lending and real estate for a little over 20 years now. Mario, welcome in man, glad to have you.

  Mario (02:05)
  Micah, super stoked to be here. Thanks for having me. I look forward to hopefully having a great conversation.

  Micah Johnson (02:12)
  Absolutely, man. I’m excited for you to be here today. I think our listeners are really going to take something away from your experience in the industry. I love getting to learn and speak with folks who have seen cycles happen before, can capitalize on opportunity, and really help us see what we’re looking at from the grand scale of things. So let’s dive in there. For folks who may not know you yet, what’s your main focus right now and what markets you operate in?

  Mario (02:35)
  Yeah, so my niche is investment property financing, whether that’s a value add project and closing, have a short window to close, need money to ⁓ rehab the property or ground up construction. And then also with stabilized investment properties as well. We specialize in niche financing that doesn’t require tax returns or W-2. So really easy financing for the right product. ⁓ So that’s the main focus for what we’re working on.

  Micah Johnson (03:05)
  Love that man. So you represent all that other people’s money they tell us to go make money with, right?

  Mario (03:10)
  Leverage,

  yes, yes, yes. There’s a method to having that. the beauty of real estate is that piece of it, right? Leverage, but you do need to leverage responsibly. ⁓ So yeah, look forward to chatting about that.

  Micah Johnson (03:25)
  Ooh,

  taking a deep there leverage responsibly. So start off with that. What does someone that may have experience doing it or is looking at that, getting that first private money loan, what does that mean to leverage responsibly? What do they need to pay attention to?

  Mario (03:35)
  to.

  Yeah, I think the other side of that is, you know, there’s a there’s the basic math, right? You have to be able to under underwrite the property.

  I think what’s hyper, hyper critical is the exit strategy, right? Like, what are you going to do with the property? And then not just what are you going to do with the property? Best case scenario? What’s what’s a pivot? Right? What’s a plan B? Right. And I think if you could underwrite with a plan A and a plan B, ⁓ and then it’s on you to execute, execute to get to that,

  just like it’s on me to execute to get to the

  financing, ⁓ you know, I think that’s very very important. just a really quick an exit strategy is you’re buying a property for a discount, you’re fixing it up, and then you’re selling it for profit, right? A fix and flip, right? So that could be strategy number one. Strategy number two is like, look, I’m buying a property, I’m going to value add it, I’m going to fix it up, and then I’m going to hold on to it and rent it. And is that rent ⁓ is a market rent for the rehab property? Is that is that sustainable, right?

  Micah Johnson (04:23)
  Right.

  Mario (04:41)
  So having, you know, that could be, you know, plan B, right? Or could be your plan A. Right. So that’s an example of the exit strategy.

  Micah Johnson (04:49)
  Awesome, man. That’s what the pros do. They don’t go into it with just one thing in mind. It’s, we all make our money on the buy. That’s the key is knowing what you’re getting into, underwriting it well, but also underwriting it multiple times, man. So that’s, that’s great advice knowing, okay, if this doesn’t work out, cause sometimes it doesn’t.

  If you’re listening and watching in out there, that first plan, something happens. We went through wild market changes quickly back in 2022. So there are things that can happen that adjust things.

  When you know you’ve got it on a couple different layers, one, it just gives you confidence in the deal all the way around, everybody involved. And two, your chances of being successful, man, they go way up.

  Mario (06:16)
  Yeah, yeah, and you have there’s an element there. There’s a leap of faith, right? It’s an investment, right? There’s no there’s no guarantee but you have to you know, you have to

  you cover your basis and you understand and you take the leap, right? There’s there’s a risk element to it. But on the other side of it, you know, there’s a lot of a lot of good things that that happen, right? If you’re, you know, operating like, I got to have this 110%. Like you’re it’s not gonna happen, right? You’re gonna lose the deal most likely because you’re not moving fast enough, right? So you have to have enough of the information. I mean, there’s books and stuff I love reading and talk about. think Jeff Bezos is like you have like 70 % or 80 maybe somewhere

  between 80 % of the information needed to make the decision, right, to make the play. And then from there, you re-correct. ⁓ So that I think that’s an important thing too, especially for people first time, like they’re trying to get off and get their first one, you know, understanding that like, there’s gonna be, you know, call it sweating up the white t-shirts, right, to get from the other side, right. But.

  Micah Johnson (06:59)
  Right.

  Right.

  Mario (07:17)
  leveraging responsibly, having the exit strategy, I think that balance is ⁓ a recipe for success.

  Micah Johnson (07:25)
  No, man, that’s so true. And like you said, there’s always, it is an investment. There is risk involved knowing what you’re getting into and knowing, man, it’s always going to have that same feeling until you’re doing it long enough and have enough things going. There’s always that, like, what if man on this one that you’re doing, but that’s part of it. The best, the best entrepreneurs, it’s not that they don’t feel that it just doesn’t stop them. That’s not a reason to stop.

  Mario (07:41)
  Thank

  Micah Johnson (07:52)
  Right? So I want to encourage you, if you’re doing this and you got that sweaty palms and that, or that white t-shirts a little sweat it up there. That’s okay. Don’t let it stop you. If anything, man, appreciate the fact that you’re thinking twice about it. Cause this, this is, it’s.

  Mario (07:59)
  Excellent.

  Yeah, use that

  to heighten the focus, right? That stress creates, you’re like, all right, am I underwriting this, the angles that I need to be angles? Okay, good, I am, I’m in there. So yeah, you use that in your chamber.

  Micah Johnson (08:11)
  Right.

  Right.

  Because once you do that, then what you have left over, that’s just the nervous feeling that only happens when cool stuff happens. One of my favorite examples of it is I like golf and Jack Nicklaus used to say, or he said one time in an interview, know, only amazing things make your hands shake, right? Only really cool things make you nervous a certain way. So when you feel that feeling as tense as it can be,

  Mario (08:27)
  That’s true.

  No.

  Micah Johnson (08:46)
  Only a few things make you feel that way. like you’re saying, readjust the mentality. That means one, you’re playing the game, baby. Like you are on the field now. This is real. Go back and go over your plan. Cause that’s what relieves it. Once you know your plans in place, it doesn’t make it go away completely, but it’s mitigated. It’s okay. It turns into more confidence and excitement than just straight like, I don’t know what’s going to happen.

  Mario (08:53)
  Yeah.

  Yeah,

  just like blind. I’m throwing a dart board blindly. Yeah, that’s not the strategy.

  Micah Johnson (09:17)
  No, man, hope is not a strategy, especially in real estate. I say it a lot on this show. Education is always step one. If you don’t know, don’t just do. Go learn, talk to somebody, figure it out. Even if it’s someone like yourself, call them, ask, touch base. If you’re serious about being in this industry, one thing I love is people are happy to tell you about it. The right folks will say, hey, this is what you need to pay attention to. This is what you need to watch out for. But don’t skip that step because man,

  the ones that do typically end up in a place where they’re not enjoying paying that money back that they have to pay back when it’s all over.

  Mario (09:53)
  Yeah.

  Micah Johnson (09:55)
  So for this market that we have coming up this year, what are you excited about? What’s out there that folks need to know about? What’s the landscape from your point of view, being in the lending space for so long?

  Mario (10:40)
  Yeah, I would say access to capital, so access to getting loans.

  is still really, really good right now. It’s as aggressive as I’ve seen it. I’ve been in business last 20 plus years and on value add real estate, it’s really, really good. mean, you have stuff with experienced guys as little as 10 % down and covering 100 % of the rehab budget for super experienced guys. And then guys that are doing their first one, you can get away with 15 % down off of purchase price and rehab budget and then get 100 % of that budget.

  finance there. So the leverage is still really, really good. And that’s all, you know, bridge loans, right? These are 12 month term loans. So there’s the you know, there’s some execution that needs to happen within that you to take down the property by the property, you need to rehab the property, reposition it and sell it or be in a position now to refinance in the long term debt. ⁓ You know, those are some different strategies there. So I would say the opportunities are still great capital.

  to acquire new investment properties. And then for holding onto properties, there’s a loan program called DSCR, right? Debt Service Coverage Ratio, where they don’t ask you for your tax returns and W-2s, especially if you’re self-employed, a lot of our people out there are listeners or investors, entrepreneurs, a lot of them can be self-employed, and it’s very tricky to get a conventional full-doc loan, right? Everything needs to be lined up.

  So this program doesn’t require any of that, you can still get a 30 year fix. And with the right debt coverage, I mean, that stuff is setting down to, you know, the sixes, you know, low sixes for a 30 year fix program. know, some of the you can have the 10 year IO, which kind of helps with the cash flow on there as well. So that piece is that is actually really, really exciting to me is access to that capital, because that’s we talked about exit strategy, right. And

  Micah Johnson (12:19)
  and

  Mario (12:37)
  you know, having a plan for it. that program is a huge plan, you know, versus before if like, you know, qualifying for full documentation isn’t a plan, right? Because my tax returns or W-2s aren’t there. You know, this is a real plan, you know, ⁓ for, to hold onto the properties there. So it’s a very powerful.

  Micah Johnson (12:56)
  And you’re right. When you’re having to fill out documents and submit things when you’re a self-employed person, that is coming from experience. It is not easy to do. So many things got to be lined up. So when you can have access to that, especially in our world, it opens up that other strategy. And again, it’s…

  Mario (13:02)
  Thank

  we’re in a period of time where it’s pricing better than is if you were showing your tax returns and W-2s, which is wild. And I scratch my hand like, is going on? And really what I think a big piece of it is, a lot of the financing on this stuff is institutional and Wall Street funds. So one, they’re believing that the housing finances for this, the collateral, the one to four units, specifically one to four units. mean, we get into multifamily as well, five units at a

  Micah Johnson (13:23)
  Right.

  Mario (13:46)
  of that have access to this program. But the sweet, sweet stuff is in that one to four on this specific program. So they, you know, for a certain extent, they believe in this capital, which is great. But also to I know, doing this long enough where it’s supply of money to write, there’s so many people that are that are pouring into this space, that are backing these loans, basically, right. So it’s driving competition down and making rates, you where they’re at. And

  these are good loans. I people have good equity in the property in order to cash flow properly. People are in really really good equity positions and then if you’re proving to them that there’s more rent to cover the payment, the principal interest taxes and insurance or interest only tax and then insurance, it’s a good bet for them. So yeah I think that’s very exciting.

  Micah Johnson (14:37)
  That is good news, man, because the deals are out there. You know, I got friends and bests all around the nation. Is it tougher? Sure. But there’s still deals out there to buy deep. And this is the kind of market where the best can typically find them. And knowing, you know, it gives you hope knowing that when you find them, you can get the money that you need. Because that I mean, that’s always question two after question one, you know, can I find a house and I get the money?

  And when you know that, okay, I’ve got that lined up, there’s programs out there backing this, especially when you, again, like you’re talking about, you can do multiple exit strategies. Cause fix and flip, it’s a hard one to predict on a down trending market in a sense, cause your hold costs get longer, the money gets longer. So making sure you have that backup becomes absolutely essential on that property. Like we saying before, sometimes they don’t pencil. know, again, going into that upfront education, when you’re looking at that deal, underwrite it well.

  get that multiple, multiple. So then you can take advantage of these different kinds of programs. Because it’s, I’m hearing right now a lot of folks are buying and holding. That’s the goal right now. It’s not flipping well. Let’s write everything this other way. Or midterm rental has been a popular one, still the buy and hold, but just different strategies for the properties to make sure they’re creating what they need to.

  So let’s talk about.

  I had it and it went right out of my head. Doggone it. Actually, it’s the interest only. Let’s dig into that loan for a second. I’m interested in learning more there. That’s what it was about. So for someone that’s listening that’s either not heard of that kind of financing or isn’t super familiar with it, what does that allow them to do? Why is it such a powerful tool when you can just pay interest only for those 10 year periods?

  Mario (17:02)
  Yeah. Okay, so first of all, on that loan, it looks at the cash flow. So how they calculate the debt service coverage ratio, and a lot of times it’s necessary to have an interest only payment, right? Because it’s a lower payment versus a principal and interest payment. So number one, it helps you qualify, right? And it gives you that extra cash flow and that you can, you know, set aside for maintenance and whatever else. ⁓ The other thing that people don’t talk about a lot is

  On this type of loan, you can do ⁓ major principal pay downs. Typically, it’s about 20 % of the initial principal balance. And then that’ll automatically recast your payment, which is a powerful tool. You can’t really do that on Fannie Freddie without calling in and asking the servicer and having them evaluate the property and having it recast. ⁓ So that lever where like, hey, let’s say after year one and you sold another property and you weren’t

  put into work anywhere specific, if you wanted to pay down the principal on there, then I think that’s an amazing thing. The other thing is a lot of the individual people that I’m working with, they’re value adding the real estate. And the idea of principal and interest ⁓ paying the mortgage down is it creates equity, right? Every time you pay principal. We know, or the reality, the initial part of the 30 year fixed mortgage principal goes down very, very slowly.

  Micah Johnson (18:17)
  Mm-hmm.

  Mario (18:27)
  Right. And if the idea is principal pay down and creating value, a lot of the people that I’m working with, they’re buying the properties right. They’re adding value to the property. So that is creating the big equity. Right. That’s the real equity pay down story. So if an interest only loan allows you to hold onto the property and qualify for a takeout debt, also gives you the flexibility where you can ⁓ pay down the mortgage. mean, it’s still every month you can pay principal to the mortgage. Right. That’s the other thing that…

  Micah Johnson (18:40)
  Gotcha.

  Mario (18:56)
  kind like bowels my head sometimes, I’m every month you can pay, you know, towards your principal, right? There’s no rules that you can’t do that. And then also to have the lever to if you come into, you know, liquidity events, or you sell a property or whatever, you’re making money and you want to pay down, you can pay down the loan aggressively, right? And that lowers your, you know, your payment as well. So having that piece of it is pretty powerful, right? On there.

  Micah Johnson (19:22)
  Yeah.

  Mario (19:23)
  So it’s a 30 year fixed mortgage, 10 year interest only. So after 10 years, you still have the same interest rate and then it either amortize the payment amortizes over 20 years. So the payment will go up pretty good, right? Or you do a there are programs out there where they have a 40 year fix first 10 years is interest only and then the last after you’re 10 they have the payment is a 30 year fix off that same payment. So interest rates stays the same on that one in particular. So I mean, that’s getting a little bit of the weeds. Hopefully that kind of like sheds a little light but

  For me, it’s nothing to be afraid of. I think where people kind of go back to is in the mortgage meltdown in the 2008, 2010 kind of stuff, right? Or started a little bit before that. People were on a two-year arm, right? Or even more aggressive in that kind of stuff where things were adjusting. So this is nothing like that. So a two-year arm would be like, it was only fixed for two years and then after that adjust, right? We’re talking about 10 years.

  right on that specific program there. So it’s a different.

  Micah Johnson (20:26)
  And the interest rate doesn’t

  adjust though, does it? Does it stay that same for the 40 years? So yeah, like the ARM, those are changing after a couple of years. Everything’s going to going up on you.

  Mario (20:36)
  Yeah, on the on the arms. Yeah. So no, this a very popular I mean, there’s different there are arm programs out there. But the one I specifically speaking about, it’s a 30 year fix. So the interest rate stays the same. Yeah. And then your interest only period is typically 10 years.

  Micah Johnson (20:51)
  Love that. like you said, man, it’s nothing to be afraid of. It’s a lot of folks I know super successful in this space. That is their preferred loan type is to get that interest only, get that payment cheaper because a lot of times they’re not even planning to hold that property for 10 years. They’re just keeping the cashflow down so that they can keep the cash as high as they can for qualification purposes, getting in, getting out. So it is, man. It’s like you said, it’s not the subprime stuff. It’s not from it’s not the things that sank folks back in the day.

  Mario (20:55)
  the tool.

  Micah Johnson (21:21)
  And that is typically like that you get from folks when they talk about like, wait a second, you fixing to go through 2008. What are you talking about?

  Mario (21:30)
  Yeah, it’s a knee jerk reaction sometimes when if they’ve been exposed to, you know, the negative effects of that on that type of program. man, the reality is too, you have an option 30 year fix is completely out there, right? And able to do it, especially, you know, if the properties cash flows with the 30 year fix principle and interest. Yeah, so be it. You know, it’s kind of like your preference.

  Micah Johnson (21:52)
  Yeah, yeah, makes sense, man. Like we’re talking about earlier, there’s there’s deals. I know guys that they’ve definitely left their backyard these past couple years to still go find those heavy cash flowing deals. There’s plenty of 1 % opportunities and up out there. I was helping a friend into last year, buying some houses out Mississippi, and I was blown away. I was like, dang, okay, this is awesome. You can get into these little pockets where

  Mario (22:13)
  Thank

  Micah Johnson (22:15)
  It’s killer out there. Again, it’s those national statistics kind of mess with you. But when you start to niche down and get into the weeds of it all, there’s always deals in every market. So one thing I value about our conversation is there’s always money in every market. It’s just how do you get to it? What’s that proper way? And then making those choices, educating yourself. So Mario, man, I really, go ahead.

  Mario (22:23)
  Sure.

  Yeah, you fight you fight through the

  noise, right? Because there is there’s a lot of noise that’s out there right now. But if you can put your head down and dig in on the analysis, don’t be don’t be afraid, right? Like, I mean, don’t be afraid the whole time, right? There’s always there’s a little bit of

  Micah Johnson (22:47)
  Right.

  Mario (22:51)
  like that goes on, but you know, dig in and see what the numbers look like and then exercise. All right. What are my exit strategies? Right. And then myself and my team, when we’re running scenarios all day long, working with people nationwide and we say, hey, yeah, we can do it. And this is what the leverage is going to look like. And tell me what the place is going to be when it’s all fixed up or tell me what the market rent is going to be when, you know, when it’s stabilized and we run through those exercises. And if you can, you know, if you can align the capital and you’re comfortable with the basis,

  You know, some good things happen.

  Micah Johnson (23:25)
  Yeah, now you’re on your way. I mean, that’s, that’s part of your process is to get those things in order. That’s what gets you that traction. I’d prefer to call it velocity in the business versus speed. Cause it’s the thing that starts getting you going. Cause everything’s always the hardest. Just the first time you do it. Once you do it the second time, once you do it the third time and you start getting into it, then it’s just being exposed to real estate, right? Most folks don’t understand how big of a term it is when they talk about it.

  So one my favorite questions when someone says they’re in real estate, ask them, what kind? And if they can’t answer that, then I know they’re not in real estate. Because it’s which part of it, man, that is a huge term that you’re throwing out there.

  Mario (24:05)
  Yeah. But it’s so, so powerful. mean, the wealth creation, you look at it, because of the leverage piece, being able to control, you know, a high asset with very, you know, relatively very little and having that whole asset appreciate versus, you know, stocks and, you know, that kind of stuff, or it’s it’s the stocks, you know, it’s just appreciating off of what you put into it, right? And money, grows and it goes into that, but you put a small portion of a real, you can’t, right?

  small portion to what the purchase price is and You get the opportunity to have it appreciate off the whole thing, right? Which is very very powerful piece, you the leverage

  Micah Johnson (24:43)
  Right.

  It

  is, man. It’s why the American real estate market’s the number one wealth generator in the world. There is a reason it’s been that for a long time, because there’s not many places you can do what you just described, where you can put in a little bit money and you get to fully appreciate, pun intended, all of the things that come along with that, with that asset. That’s the benefit of that brick and mortar. It’s a real thing, not just sitting there.

  Well, Mario, man, I appreciate your time today, your story perspective. Thanks for sharing with us about DSCR loans, the amount of things that are still out there that capital is available. For those that are listening that would like to learn more about you, possibly touch base with you and work with you, what’s the best way for them to find you?

  Mario (25:27)
  Yeah, I would say, you know, two ways to do it. You can send me a text at 562-787-8902. That’ll go direct to me. And then also we’ll set up a link for calendar invites if you guys prefer to do it that way. But you know, we’ll just keep it simple. But Micah really appreciate you sharing the time and it was fun.

  Micah Johnson (25:47)
  Absolutely, man. Thanks for being here. Appreciate you bringing value to everybody listening out there. Make sure you check the show notes. We’ll have all Mario’s links there for you. Like I say all the time, go work with people in the business that have been doing it a long time. The ones that have seen it and you can learn from. Again, Mario, thanks for being here. Appreciate your expertise, For all those out there, if you got value out of today’s episode, please like this episode, share it with someone else who could get value out of it as well.

  And as always, please don’t forget to subscribe. We appreciate every single one of you that follows along with us. I’ve got more conversations coming up with operators just like Mario out there building a real business in the industry. Thanks for joining us. We’ll see you all in the next episode.