Not everybody is ready to talk to Fred Shatzoff, a veteran of the New Jersey real estate lending industry since 1989.
He’s not mean. He tries to let them down easily. But not everyone knows what it takes to qualify for a six-figure loan, and Shatzoff, formerly a residential mortgage broker and now a commercial broker, is happy to educate them.
“I had one particular woman,” Shatzoff, speaking to Ricci Truong of the CamaPlan Podcast, recalled. “I think she had said ‘Oh, I think I found the property.’”
The seller was willing to accept $70,000 and potentially carry a mortgage for her. Ahh, memories … simpler times …
“I said, ‘Well, about how much money do you have?’” Shatzoff said. “They [were] working with about $1,000! I said ‘Look, if the seller’s going to hold the mortgage, you’re probably going to need at least 10-20% down.”
“‘Well I think we can get the seller down to $30,000. Do you think you can help me?’” the woman asked Shatzoff. “I said, ‘Look, again, you only have $1,000 to work with. Everything is behind on your credit. Nobody is going to lend you money if you can’t even pay the bills you have right now.”
Start Where You Are, Not Where You Wish You Were
Shatzoff knows that the down payment is a hurdle for many aspiring real estate investors. Forget $70,000 … if we’re talking about a more realistic present-day purchase price of $200,000 at the low end, 10% of that is $20,000. 20% is $40,000. With costs skyrocketing, it’s understandably difficult for most people to save that kind of money.
For Shatzoff, today the founder and owner-operator of Everest Business Capital in his native New Jersey, being honest about your situation is a necessary first step. Simply having the money and the credit you say you have goes a long way in real estate finance.
“If you tell me you have $75,000 and I look at your bank statement and you only have $10,000 … well, where is the other $65,000?” Shatzoff said. “‘Well, I can get it.’ Okay, who are you going to get it from? Are you going to go to the bank? Are you going to rob the bank? Because if you’re going to rob the bank, we’re not gonna do the loan, because you’re gonna be in jail and foreclose the loan.”
Instead, Shatzoff recommends doing some wholesale deals or teaming up with a capital partner on some fix-and-flip deals to build up your stash of cash. With enough money for a 20% down payment, combined with a credit score of at least 640, it becomes surprisingly easy to get approved for a loan.
How to Build a Rental Empire Without the Big Down Payments
Of course, there’s another way to go — start with your personal residence. Shatzoff came up in the mortgage industry by brokering primary-residence home loans underwritten by the Fair Housing Administration (FHA) and the Department of Veterans Affairs (VA).
Again, this was simpler times — everything was done on paper, without the benefit of electronic documents, email, and e-signatures. Here’s how long Shatzoff has been in the business — the first house he sold when he got his start, first as a real estate agent, cost $26,000, and mortgage interest rates were in the neighborhood of 18%.
“I remember one time we were having a little trouble getting a loan approval,” Shatzoff said, “so I physically took the package and drove the package to the bank so that the underwriter could review that package.”
But even if times and technology have changed, the loans themselves haven’t. With an FHA loan, you can put as little as 3.5% down and get approved with a credit score as low as 580.
For current or former military personnel and their families, VA loans can be even more interesting. VA loans are eligible for 0% down.
Yes, you have to live in those properties … but not forever. You must move into the house within 60 days of the loan funding … but you only need to live there twelve months. After that, you can move out, rent it out, and buy your next personal residence … possibly with another FHA or VA loan!
“The goal for financial freedom for someone is to have enough rental or enough residual income,” Shatzoff said, “so that if you don’t feel like getting up to work that particular day, you have enough income coming in to cover your bills.”
