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Short Summary
Main recommendation: For a beginning investor, a conventional bank mortgage is the most widely available starting point, but small local (portfolio/commercial) banks are the speaker's favored option for scaling because they are flexible, typically require around 15% down (85% loan-to-value), and allow borrowing down payment funds via a second mortgage. Hard money and private money fill in when speed, lower credit requirements, or lower out-of-pocket cash matter more than cost.
Key Points
- Conventional loans are the cheapest rate and lowest origination cost, but they require a credit score around 680–700, a 20–25% down payment, and cap the number of loans you can hold at about ten, which slows scaling.
- Hard money loans carry 2–4 points in origination and roughly 7–10% interest, but accept lower credit scores and typically need only 10–20% down, letting investors do more deals at once.
- Private money is set by agreement between borrower and lender, can require little or no down payment, and is secured by a promissory note recorded as a lien on the property.
- Small local banks are portfolio lenders that keep loans in-house, so they set flexible criteria, typically amortize over 20–25 years with a 3- or 5-year adjustable rate, and can finance about 85% loan-to-value.
- Small bank relationships improve with a track record: the speaker says he now often pays no down payment after proving experience, and that some banks may allow stacking a private loan as a second mortgage to reach 90–100% financing.
Details Worth Noting
- Concrete instructions: Walk into a small local community bank, ask to speak to the commercial lender, and ask what loan products they offer to real estate investors.
- Concrete instructions: Ask each lender what their origination fee is and whether they will lower it; if fees seem high, shop around for a lender with lower fees.
- Concrete instructions: Ask hard money lenders which product matches your project (fix-and-flip vs. buy-and-hold/cash-out refinance) and compare the rate for that specific product, and ask what down payment they require.
- Concrete instructions: With private money, agree on terms that suit both parties (interest-only monthly payments vs. lump sum at the end, down payment amount), then write it up in a promissory note filed as a lien against the property.
- Concrete instructions: With small banks, ask about the interest rate adjustment cap, and if a bank requires more than 15% down, keep shopping for one at 15% or less.
- The speaker notes that conventional loans cap borrowers around ten financed properties and require verification of down payment source, which makes borrowed down payments difficult. The speaker notes some hard money lenders offer up to 90% loan-to-value, meaning only about a 10% down payment, though this varies by lender and experience.
Bottom Line
Match the financing to your stage: use conventional loans for a first or second deal, and move toward small local banks, plus private or hard money where needed, as you build a track record and need to scale.
