If you're a self-employed entrepreneur, you know how difficult it can be for you to qualify for a mortgage. Lenders favor those with stable W-2 jobs even though many individuals with less regular income still can be excellent potential borrowers.
In this episode, we're speaking with Alejandro Szita, a mortgage expert for business owners, self-employed individuals, and entrepreneurs.
As the co-owner of a boutique mortgage brokerage that specializes in self-employed borrowers— including artists, business owners and creative entrepreneurs, Alejandro has seen the world of real estate from all angles—commercial, residential, and raising capital.
What are some practical steps that self-employed people can do to get themselves ready for a loan application? That's exactly what we're discussing in this episode!
In this episode, we discussed:
- Why the lending systems are set up to serve W-2 employees.
- How to get your own mortgage as a real estate agent.
- What types of loans are available to self-employed buyers?
- How bondholders dictate underwriting rules.
- How to use your bank statements to get a loan.
- The importance of having a great credit score.
- What types of real estate loans are available to business owners?
- Why it's more difficult to get a mortgage when you’re self-employed?
- Should business owners write off less on their taxes than they're entitled to, just to show it larger income?
- Why entrepreneurs should not be more focused on the goal of the investment as opposed to the interest rate of the loan.
- Why we need to be having more regular and honesty conversations about money.
Alejandro teaches the fundamentals of money and wealth, and has even created a million-dollar retail enterprise through infomercials and the Home Shopping Network.
Where you can find Alejandro:
Website - https://prosperity-lending.com/
LinkedIn - https://www.linkedin.com/in/alejandroszita/
Email - firstname.lastname@example.org
Join Jason Muth and Attorney / Broker Rory Gill of NextHome Titletown and UrbanVillage Legal in Boston, Massachusetts for another episode of The Real Estate Law Podcast!
#realestatepodcast #nexthome #humansoverhouses #realestate #realestateinvesting #realestateinvestor #realestatelaw #realestateagent #realestatemarketing #inflation #conversationsaboutmoney #qualifyingforamortgage #entrepreneurship #selfemployed #dscrloans #bankstatementloans #creditscore #ficoscore
The Real Estate Law Podcast is hosted by Jason Muth and Attorney / Broker Rory Gill.
This podcast and these show notes are not legal advice, but we hope you find both entertaining and informative.
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I had the money in my account. But one of my friends said, Hey, don't use the money, you can get credit. You can use the money for other things, you have a small payment. And even though that sounds very simple, and it sounds very obvious, I was coming from a culture where you pay everything in cash. So that to me was novel, there was novel that you can leverage your cash, make small payments, and carry on in business. And I remember...Announcer:
You found The Real Estate Law Podcast, because real estate is more than just pretty pictures. And law goes well beyond the paperwork and courtroom argument. If you're a real estate professional, looking to build real estate expertise, then welcome to the conversation and discover more at the realestatelawpodcast.com.Jason Muth:
Welcome to another episode of The Real Estate Law Podcast. Thank you for listening today, we have a really interesting topic to go into one that we have not talked about on the podcast just yet. We're going to be talking to an expert who specializes in mortgages and lending to people who are self-employed. And people who are entrepreneurs and people that might have a little bit of a difficult time going down the normal avenue that local banks and credit unions and national banks expect of us when they're going to underwrite a loan. And I can't wait to get into this, Rory, I know that you've closed a lot of loans in your life, you know, as a real estate attorney here in Boston, and you've probably seen it all.Rory Gill:
Yeah, so this kind of topic can get pretty technical. But I think this is going to be of particular interest to a lot of the people that listen to us - a lot of those who are small business owners self employed, and real estate agents who are looking to purchase their own real estate. We face this challenge. This is something that, you know, keeps us up at night and is so one of the cruelest ironies out there that a lot of real estate agents struggle to get mortgages to buy real estate. So you know, I'm gonna ask a lot of technical questions, I'm sure. But I think this is something that's going to be particular interest to our audience.Jason Muth:
Yeah. Well, let's welcome our guest. He is an expert. He's the CEO of Prosperity Lending coming to us from California, by way of Chile with a background of he's Hungarian This is Alejandro Szita. Alejandro, welcome to The Real Estate Law Podcast.Alejandro Szita:
Thank you, Jason. Thank you, Rory. It's a pleasure for me to be here. And thank you for giving me a voice to your audience.Jason Muth:
Well, thank you for giving us expertise. I mean, you know, this podcast would be nothing without people like yourself who share such great knowledge with our listeners. And you know, we try to keep the topics diverse. Sometimes we talk about real estate, sometimes talk about law, and how to talk about marketing of those businesses, investing, being a better agent, you know, what you're about to talk about today, or our discussion today is actually a little bit of all of that. And, you know, sometimes the best real estate agents are the ones that come with lots of great advice. They know contractors, they know ways to get things done. They know lenders, and you know, you're specializing in a really specific niche. And a lot of people who are listening to this podcast, and a lot of folks out there fit this category. They are entrepreneurs, they're self-employed, they are not W-2 employees, they are people that are just, you know, they eat what they kill, they are in that mindset. Like, they can't get lending, they can't get financing sometimes, because you know, banks like it when you have the stable W-2 job you've been in for a long time, and the income is predictable. So when they're underwriting a loan, they know they're gonna get paid back. So why don't you introduce yourself, and like how you got into this business, Alejandro? And you know, that's a great starting point.Alejandro Szita:
I've always liked lending and lending and interest rate has always been one of my passions. And I would say, it's been a topic that I've asked a lot of questions since I was very small. And I never got a satisfactory answer. I remember very early on, you know, when I was like 14 years of age, one of my dad's bank managers, you know, my dad was very wealthy. He said one day, you know, if you want to talk to me any day, just call my secretary, make an appointment and come and talk to me. I was like 13 or 14. And maybe he didn't expect me to take him up on it. But I did. And I made an appointment with his secretary, I showed up to his office. And I remember asking, you know, what is money? I didn't know anything, of course. And then after half an hour of listening to him, I realized to my horror that he didn't know. So here you have a bank manager in charge of the branch, you know, a fellow that at the time must have been in his 60s. He didn't know what money was. That really irked my curiosity. Then when I came to the United States in the 90s, I remember wanting to buy like a like a cargo van and I had the money. I had the money in my account. But one of my friends said, Hey, don't use the money, you can get credit. You can use the money for other things. You have a small payment. And even though that sounds very simple, and that sounds very obvious, I was coming from a culture where you pay everything in cash. So that to me was novel. It was novel that you could leverage your cash, make small payments and carry on in business. And I remember all the trouble that I had. And I kept saying to the guy, look, look at my savings - the money's there. And I kept butting up against these things that to me were irrelevant. He says, Well, where is your tax return? And I thought, tax return? You know, I come from a country where you didn't have to file a tax return. And I come from a country where income tax was viewed as one of the one of the socialist planks of Karl Marx. So to me, it was like what you want to see my tax return, that's irrelevant. Now we need to see if that return, we need to see your credit score, we need this, we need that. So I went through all of that got my loan, in a very bad rate, of course, from a shark. But I keep batting into the situation, on and on, and on and on. So then later, when I became I became a realtor, I became like a residential realtor, a luxury realtor, a commercial realtor, a lending person, a loan officer, and I went through all of the steps, you know, I work for a hedge fund in Los Angeles that catered to really, really, really high net worth people, individuals, and I saw this over and over and over and over, even if you have millions of dollars, you know, I remember a loan I did about a year ago, for a VIP fashion designer. He wanted to buy a $1.3 million townhome or home really nice in the Hollywood area in Los Angeles. And he had twice as much money in the bank. That was the hardest loan that I've ever done. The hardest. So, to me, this is very personal. I read like an article. I don't know if this is true, but Rory, you maybe you could can confirm this. They said that small business in the US power the economy. However, another statistic says that of everyone that is employed, probably about 6% of people that are in business, are in business for themselves. However, the small percentage, whether it's six, five, or 10, is when you compare it to W-2 employees. So we have a lot more W-2 employees, that small percentage powers the country, however, the system is not made for them.Rory Gill:
So you know, where do these restrictions come from? I know, I've worked with people who have great W-2 jobs, simple tax returns. And even for those people, the administrative burden can be crazy to get loans, where are all these kinds of nonsensical requirements coming from,Alejandro Szita:
I will tell you my theory, back in the 70s, back in the 80s. And before it was very simple, you went to the bank, the loan officer or the person at the bank knew you, he knew where you worked, he knew who you were married to or not, he knew how many kids you have, the house, you went probably he went to school with you. And he was able to immediately see how much you made, he would joke, he would just look at your account, you know, and he would make an actual decision on the spot. That actually happened to me. You know, my local banker knew me even though I was younger, I was at the University I was studying my income was small, but he knew everything about me. So all I had to do is show physically just make an appointment, or sometimes not even that I was at the branch, I would knock on his office come in, tell him my problem, he would say you know what we can lend you blah for so long. And that was it. Says come tomorrow sign the paperwork, the money will be transferred into my account. And that was the way it was done. And it worked beautifully. But of course, it required time. There were only so many people that are a particular account executive can see per day. So as we got more computerized and as information became cheaper to obtain, everything became sort of automatic or became a came into a system. Now, the system basically uses guidelines that don't apply to everyone, but they applied to like about 90% of borrowers. So from a lending institution point of view, and this is my theory now, from a lending institution point of view, to use these canned systems, it's very economical. They can close a loan for very little money, the same loan officer or same account executive that maybe in the past could do maybe two loans a week, or one loan a week, you know, because of all the time they're required. Now he can do a lot more, so his salary is a lot less, and the burden to the bank is a lot less. And because most of these loans come with insurance for the lender. And it's the loan is how can I say that the loan is like mirrored in different ways. So if something goes wrong, all the all the counterparties get paid? Well there is a way for them to get paid. So the risks diminished, the labor diminishes. So a lender faced with that they're gonna go well, you know, if I can make so much money serving 90% of the people, why would I care about the 10% of the people? So that's, I think, why and the tendency is going more and more and more in that direction, which I think it should be the reverse.Rory Gill:
So tell me about that. Who are these 90 percenters? Like what's the profile that the system is set up to serve?Alejandro Szita:
If you've been working at least two years on a job, you have little debt, let me qualify what I say, by little debt. You have an availability of, let's say, $20,000, on your credit cards, you could charge $20,000, you've charged less than $2,000, or zero. And you have a job for two years. And you have a down payment of, you know, you hear all these ads, you know, three and a half or zero, but that is really for the advertising, you have a down payment of about 10%. And you have money for the closing costs. If you have all that the loan is done. I just hear people on the phone sometimes. And I said, you know your loan is done. Let me type a pre-approval, but your loan is done. So working on the same job two plus years, have a lot of credit card availability, but only using less than 10%. And I would say have at least 15% in cash, or in some kind of a security or trading account or anything of the property that you're willing to buy. If you have all that the loan is done.Rory Gill:
Is this system set up just to say that, well, since most people fit that profile to some degree, or they're in that category, let's just gear everything toward that 90% And forget about the 10% and treat them like special cases.Alejandro Szita:
Yep Exactly. I don't know if you agree with that opinion. But this is what I've seen.Rory Gill:
No, this is what I've seen. And I've felt. You know, I after I graduated from law school, I built my own one person law practice. And after that just created a real estate brokerage. All of these things make me an atypical borrower, somebody that has a difficult time interacting with banks. And that's not even to mention the student loans that are sitting in my in my background. But the best way I have toward a good economic future is to work for myself to build these businesses. But when it comes time to interact with the lender, it's not only difficult. It's honestly embarrassing sometimes to submit documents to a lender, and then be told no, or just know that you're going to be told no, because your profile is a little bit different from other people.Alejandro Szita:
Exactly. And you know, Rory, you hit a point there. It feels embarrassing. And this is the thing that I discovered to my shock. We've been conditioned to believe that high credit score or so-so or a good tax return is synonymous with success. And that is not the case at all. The reason it works that way is because the people that are lending to the 90% are bondholders. A bond is a very particular financial instrument, like a mortgage that produces a rate of return a fixed rate of return or a variable rate of return, or produces a payment constantly and continuously. That's what they're looking for. They don't care if you're successful or not. They only care that you're able to produce that monthly amount on a set schedule, because that's how they make money. And that is the antithesis of the entrepreneur. An entrepreneur doesn't work like that at all. An entrepreneur works on cash flow. If an entrepreneur gets a $10,000 credit card. He's not going to think a prudent I'm only gonna use $1,000. He's gonna think "Great, I have $10 G's now I can buy more inventory, $10 G's, now that I can expand my business, you know? And yeah, I'm, you know, if I'm a little late, I'll pay the $130 Late Fee, who cares? You know, I'm going to make another $5,000 with this money, and then I'll pay it all off." That's how an entrepreneur thinks. But to a bond holder, that is bad. You are the bad boy in the game. And they make you guilty. They make you shameful. And it has nothing to do with that. It has to do with that you don't you're not the producing workhorse for the bondholder, that's all doesn't mean you're bad, doesn't mean you're not successful.Rory Gill:
So then somebody like me who is in that category and wants to buy a home? Should I abandon the business strategically for a while and get a W-2 job? Or should I? Or should I contort myself to fit the lending requirements? Where should I start? What should I be thinking?Alejandro Szita:
The good thing is that there is some middle ground, but not many people like this middle ground because it requires more work. There are lenders and there are programs out there, that with a little bit of massaging you as an individual entrepreneur you can fit within their guidelines there. In addition to tax returns, there are seven other methods of qualifying you for a mortgage. And credit report, that's another thing you know, usually entrepreneurs have not the perfect credit report, but in most cases that can be handled in a couple of months. You know, but to answer your question, the tools exist, but the regular loan officer, it's a little bit either he doesn't know them, or it takes a lot of time and most people in this business don't want to invest the time on a prospect, they want to get a phone call, or you qualify - Good, let's do it. They don't want to work a month or two months, or sometimes six months to make the person ready.Rory Gill:
And I can vouch for that when I've worked with a lot of loan officers and set them somebody, and if you tell them they have clean W-2 jobs with, you know, low debt, their eyes light up, because it's, it's Christmas morning for them. They have a nice, easy client to work with that they can, you know, get the closing costs for without a ton of effort and time. But, you know, there are a lot of us out there who you know, who want to qualify for loans, but we don't necessarily want to contort our whole lives to fit this test that we want to get through it. So you know, what are some practical steps that the self employed people can do to get themselves ready for a loan application?Alejandro Szita:
What I will say is, depending on the type of house that you want to buy and on the pricing, save at least 15% And when I say save, I don't mean you have to have the money parked on your checking account making nothing. Put it on a stock put it on a bond, you know, put it even on Bitcoin, believe it or not, a lot of lenders are starting to accept Bitcoin now as as proof of downpayment. Put it somewhere that you can show that you have it even cash value life insurance, which is excellent. Not many people know about that. Have it somewhere, and have it ready, have it ready to actually deploy, once you have that 15%, work for a couple of months to increase your credit score. And to do that there is I have it here if you allow me for one second, let me go to my other library, and I'll show you what I mean.Jason Muth:
See, Rory, I knew there were answers behind this, right? You know, you can't just say hey, I'm an entrepreneur, and I can't find a loan.Alejandro Szita:
Now, this person, siren, I forgot his name right now he I bought this on eBay is called 7 Steps to 720. He was a loan officer, he produced this cassette, this CD series, you know, maybe like 10-15 years ago, still today. This is the only - by the way, I don't sell this, I just bought this on eBay, by the way for 20 bucks. If you can find it, buy it and study it. This is the only, not the only but, the one that I say that I think is the most effective method of raising your credit score. Because again, the credit score, remember is made by by bondholders. They are not looking for the honest, reliable, you know, successful, that's what that's why we think they are looking for the person that is going to make them the most money. And who is the person? That person is the person that is going to pay them regularly and exactly what they want. That is the person that is going to make them the most money and that and the credit score is designed to fetch that person. You will be very successful. I'll never forget this, I have a client, very successful entrepreneur $12 million in the bank, $30 million net worth and a lot more. 40 mortgages paid on time - 40. Not one or two or three - 40. Credit score - 680. Versus another borrower that I have younger, new two or three credit cards, that she only uses less than 8 percent. She has a higher credit score than this other guy. And I thought to myself, Hey, how come? This is a guy that has been in business for 30 years, he has 40 paid mortgages. I mean, if I was a loan officer in the 70s era bank, and this guy comes to me, and he says, You know what, I want to open an account. I want to put a million dollars. And look, I have 40 paid mortgages. And you know what, I want to buy the house over there for $500,000, can you give me a loan? I will say hey, hey man, sign here it's is yours. However that guy is looked at the system as a quote unquote risky person - can you believe that? And the young girl nothing wrong with her that is just starting out in life that got a lot of credit card, but only use a little bit of it, is looked as a better risk than this other guy. That doesn't make any sense.Jason Muth:
Here's a tip that I learned just by trying something different. I probably use - I pay my credit card off every month, right ,but like I probably use 30-35% of credit that's available each month like with just bills I put everything on it literally get 2% cash back so but I pay it off every month. Lately I've been starting to pay it off before the close date of the statement because I want what gets reported to the credit bureau to be a super low number. So instead of paying it you know toward when the payment's due, I pay it before the statement close date. And I notice when I did that my credit score would be 30 or 40%, or 30 or 40 points higher than when I didn't do it. I have a good credit score, like, you know, it's consistently over 780-790. But like, I've been in the 800s, when I did it that way. And then this past month, I forgot to do it. Like, I didn't do it the day before it closed, and my score dropped by 30 points, because what got reported was the balance on the card.Alejandro Szita:
It's crazy. And this guy figured it out. He figured it out. And usually for most entrepreneurs, it takes me - we don't charge for this, you know, we don't we don't claim by the way to be credit repair specialists and we're not in the business of doing this is just a complimentary service we do for our clients - but takes me about two to three months, at most, to teach these things to the applicant and raise his score. So to answer your question, the tools exist, the programs exist, the lenders exist, not as abundantly as you know, for somebody who's a W-2 employee, but you have to spend time researching them. And then you have to spend the time getting a person through them.Rory Gill:
Now I'm accumulating a bunch of specific thoughts and questions about, you know, about a small business owner who's at least trying to prepare themselves to get a loan. So you know, one of the tensions we have as small business owners is that we want to write off as many things on our taxes as possible, legitimate things off on our taxes as possible. And that goes against the the idea of showing as much income as possible for for loan qualification. So we have that tension there. Should business owners write off less on their taxes than they're entitled to, just to show it larger income? Or is that just crazy?Alejandro Szita:
I will tell you my personal opinion. For a business owner or entrepreneur, taxes are a bill. Innately a business owner is going to try to reduce a bill. That's innately. The good news is that today, maybe that this was not the case 20 years ago, but today, there are many, many other ways to qualify, not needing the tax return. So I would say don't mess with your tax return, just continue to do whatever you were doing before. And then if you have a good cash flow, we can use your bank statements. There are many, many loan programs that allow you to use your bank statements, personal and or business, you can commingle them, or at least we have a program that allows to commingle them. So you have a good cash flow, or there is a whole system that allows you to qualify using bank statements. Now, another way that you can do it, if your business is healthy, and you have a licensed CPA, he can do a profit and loss, he can sign and certify the profit and loss. That's another way that we can qualify you. Or let's say that you're an investor, that you make your money once or twice a year, or like once every two to three years. So you get this big chunk of money, it sits there for a year or two, then two years go by boom, you're gonna another chunk of money. If that is your case, there is another pro other sort of there are many flavors of what they call asset depletion, which basically means we take your assets, and we projected them over time. And with that you can qualify to there is another program, which is another flavor of asset depletion, that if you have two times the value of what you want to buy in your checking account, we can qualify you to without having to use that money. So in addition to the tax return, there are many, many other ways that can be used another seven, I don't know that seven right now off the top of my head, because some of them have many flavors, like the bank statement program, for instance, has three or four flavors, the asset depletion program has like two or three flavors and so on.Rory Gill:
Let's humanize this a little bit for a second because you bought a lot of people who've, you know, fit these categories. Can you tell us give us an example of somebody who is really difficult to work with from the point of view of a traditional lender, but they were deserving and you were able to help get them to the finish line?Alejandro Szita:
Yes. I'm working with an attorney right now. He has an amazing business and he's expanding like crazy. But he had a lot of student loans. So whenever on his credit report the first time not enough, he wants to buy a very, very expensive home. That's another thing. The higher the loan amount, the higher the credit score if you want to you're in Boston, I don't know how much homes cost in Boston, but here in Southern California. You need around between 600 - 700,000 to get a semi-decent condo.Jason Muth:
Okay, we're there. We're in, we're in the same ballpark here.Alejandro Szita:
You're in the same ballpark. Okay, so for that, you should have a score around 680. I mean, you can get it with 660 you can get it even 640 it just becomes very expensive. From 680 and above, starts to become less expensive. So when I'm working with this person with this attorney, his score is like below 640. But I look at it, and I see that he simply maxed out, you know, a lot of student loans. So I just said, you know, what, just pay all the student loans, pay all these cards, and because he has money, you know, it was like 30 G's boom, he didn't one night, the score immediately jumped to above 680. But that was not enough, because the type of house he wants, requires, otherwise he's gonna pay a fortune, requires a score of 700 or more. So that that, you know, the good thing is that the credit reporting agencies, this is not exclusive of the one that we use, anyone will do this. They have simulation tools, where you can go bureau by bureau, and you can go account by account, and you can simulate, you can go okay, what happens if I pay this, what happens if I don't pay it, and you can start to play all of these what if scenarios, it takes a lot of time. And that's why loan officers don't want to do this, it takes hours because you have to go account by account, bureau by bureau and you know, when you get a loan, you get what they call the mid score, mid score, meaning is not the highest, not the lowest is the middle one. So after a few hours, we found a combination that will raise his score to seven over 700. And that took like two months because in addition to paying, sometimes you have to have time intervening, you know, so to give you an example, in about two months, he was ready. Now, we cannot use tax returns, because like every good entrepreneur, he like depreciates and just writes the hell out of it, you know, but he has a very strong cash flow. So we're able to use his bank statements. But the hardest person that I've ever had to work with, this is not a judgment on artists in general, he happened that this particular prospect was an artist. So his hours were completely different than our hours, you know, his business day was from 330 in the afternoon to midnight, you know? He was not one of those people that have all the records organized, he had an assistant but the assistant didn't know he was doing. So it just took a lot of work to get the information. And it just took a lot of work to impart the information that was needed. But the difficult loans are not difficult, because they cannot be done. They are difficult simply sometimes to bridge the gap between what you need and what the borrower wants, wants or needs to give you. Sometimes there is like a miscommunication. And I don't I don't know it Rory if you have experienced this, but people in the lending world do not communicate very well. You know, their emails, just one answer. Sometimes, you know, you ask a question and you get an email with a single word, yes, or a single word, no. That is completely useless to a borrower. What are you going to do with that? You know, so it's more of a communication barrier language barrier, I would say explanation barrier, there are so many terms. You know, people in the lending world don't explain anything, they just throw these acronyms at you. They are meaningless. And it's just a vocabulary, a communication, and an organizational problem, which makes the loan difficult believe it or not.Rory Gill:
We've worked with really good loan underwriters, who I can tell they're being creative to try to bridge the gap and help the borrower get to where they need to be. But their communication style, as you said, is just so abrupt. It feels as though they're creating this need. They're the ones that are nagging and asking for all this additional information over and over again. But they're not communicating the fact that they're actually trying to be creative and bring that get that borrower or something that they might otherwise not get.Alejandro Szita:
Yeah, and the other thing is that doing a loan is usually like a roller coaster. At the beginning, everything's fine, you are approved, hey, I got the loan, then hey, I need this. Oh, I don't have it. Oh my god, or that it's like a roller coaster and we try to be a shock absorber for people you know, we try to absorb all these like ups and downs, some of them inevitably filter out sometimes. So it's emotionally draining.Jason Muth:
That is the best phrase right there emotionally draining and you know, the loan that we just did on our home here. It was a rock fight. I literally have said the word rock fight. And I've done a bunch of loans before and I was like at my you know, peak earning peak savings like credit scores as high as it was I could not believe how difficult this was to get done. It was what I had a W-2 job also, it's like it just it was a rock fight. One thing I want to mention that, you know, it's kind of down the road of what you're saying I can't believe how tied all this is to this credit score, right. And I get it, you know, I've done this a lot of times before with loans and we all look at credit scores. I was just in my Credit Karma account today for you know, an inquiry that happened that wasn't me. So I have to put holds on the accounts and you know, just you know, go down that process of making sure that my identity is not getting stolen but you know my credit score is still really good. You see that score - it's a number, it's how we're being evaluated and loan products really tie into that. But, Rory, it reminds me of that Black Mirror episode about social scores, like where people had a social score. And if you flipped out in the, you know, in the airplane or in the waiting room somewhere, you got dinged on your social score, and then you couldn't qualify to go into this restaurant. And you know, I don't know if that's a world that we're all moving into. But credit scores sure feel that way. I mean, like, if you want to get that great loan and qualify for the great loan, you have to have the great credit profile, because the easy thing to do, that's what everyone like the banks want to have these great, you know, W-2 employees that have really good credit scores. But you know, Alejandro, it's people like yourself that, that take on the challenges, right? Like, not everyone is the 90%. There are some people that are the 10%, where you could still get a loan done for them, it requires a little bit extra work. And a lot of mortgage brokers just don't want to deal with but you're the one dealing with those folks. Like yeah, I know that are helping with them.Alejandro Szita:
Right. And if you allow me I can tell you one more thing is that don't focus on the rate. This is the number one mistake that I see from self employed people and entrepreneurs. Focus on the goal. Because the rate can take care of itself, I'll give you an example. We have an amazing loan program, where you don't have to show any income, you just need to come up with 25% down this is for investment properties, the rate is high is like eight and a half percent compare in comparison to like, say a 6% that you can get. So two points higher. But this is the secret. Usually self employed people are entrepreneurs, they don't have a problem with money. This is the odd thing is like these are qualified people that have the money but cannot get the loan. vis a vis an employee that may have those checks in the boxes, doesn't have as much money as the entrepreneur and he gets the quote unquote, better loan. But this is what the entrepreneur can do. You get the loan, yeah, pay a little more, you get it. Now, the way you manage your payments, because one thing is the rate. And another thing is the volume of interest. Volume of interest is the total amount that you spend on the interest payment vis a vis the rate. Like for instance, give you a quick example, let's say that you buy a Bitcoin, and then you sell it. And then you make Wow, you make 100% return, yeah, 100% return, but you only made $1,000. I mean, you could make 100% return and the 100% return would only be $1,000. Or you could have $100,000 at 5%, making you $5,000 a month, and you will go well, but you know, it's only 5% I don't want to do it. But if you try to do that on Bitcoin, you lose all your money. So volume of interest is not the same as rate. And in this expensive loan that I'm talking to you about the one that if you want to buy an investment property, basically you don't have to show any income, you have to have other things but not not, you'll not have to show income, and you pay eight and a half. Depending on how you pay that eight and a half, you can end up with a loan that you pay less volume of interest than the W-2 employee that got quote unquote, the perfect loan at the perfect rate. So never focus on the rate. Focus on your goal as an entrepreneur sometimes, you know, like today, I was talking to the attorney that we're talking about. And then he said to me, you know, Alejandro, I don't want this house for myself, this is a really nice swanky, you know, super luxury home. And I said, you don't want it for yourself. He said, No. I want my business to buy it, I'm going to run my business from that home. Because now as an individual, I cannot afford it, but my business can, and then to use now, two years from now, when my business a little bigger, I'll move into it. I thought, Wow, that's a wonderful idea. And in the meantime, I get to write everything off. And you know what, that's why he is the entrepreneur. And that's why I'm the service provider, you know, because he knows what he's doing. So to him, it's not a matter of rate. To him, it's just a matter of getting what he wants, because he already has a plan. The rate is only the beginning, there are so many more things you can do. You can control the payment, you can control the write offs, you know, you can control what you're going to do with the property. And that usually a surpasses way more than difference in rate that you may or may not be paying.Jason Muth:
Yeah, you know, an investor if they're going to take on an 8% loan, such as that their numbers should show cashflow anyway, like you know, with that rate, like you shouldn't be buying that property. If you can't make money on it using that rate term. And to your point, you could you could you could affect how much you're paying on that loan. I mean, like if you believe in the school of thought of paying down your loans early, you know, I know I've been down this road before where I'm like geez, have this 30 year fixed loan should I refinance it or something? It's like no, just make extra payments if you want to, you know, you could add extra to your monthly payment and you know, the term gets cut down, which therefore, cuts down the amount of interest the volume of interest that you're paying. So that could be what maybe that's one of the strategies you're talking about. But you know, some people will want to do that. Some people will want to leverage up to the eyeballs and you know, take as much money as they can and not have to pay that so they can go buy more stuff. There's a lot of different strategies depending on your goal, which is what you said, you know, the end goal. As we go towards some of our final questions. I wanted to ask Rory, you know, if he had a couple of thoughts about what Alejandro is said, because, you know, you certainly have related directly to some of this as an entrepreneur yourself. What is some advice that you would give people that come to you on the real estate side saying, hey, I'm an artist, or, you know, hey, I'm a restaurant owner, or hey a 1099 employee that has a lot of gigs. And I want to buy this investment property, like, you know, what did you take out of, you know, his words?Alejandro Szita:
Yeah, and you're so right, because let'sRory Gill:
We're just kind of reflecting it back to the people I've worked with, it's, you can see that they're two different worlds of two different people, two different languages that are almost spoken. And among the 90%, it everything is about credit score, being really prudent with your credit lines, and really conforming to the test, because that's what - no judgment, but that's what W-2 employees do, they earn a salary, they budget, the steady stream of money that's going in there, and they pay off the debt accordingly. So having a debt to income ratio makes perfect sense for people in that category. But when I do work with the 10%, wider vocabulary, a little bit more willingness to take risks, kind of a bigger picture mentality and understanding a little bit about the benefits of in our case, real estate, the different ways that you make money in real estate appreciation, debt, pay down tax benefits, and everything like that. But also, with that category comes a deep frustration for the system, a deep, deep frustration for when they do have to interact with traditional lenders. Or, judgment sometimes we really get into conversations across those two groups of people where, you know, with a former group - the 90%, it's almost like a contest to have a highest credit score, because there's some sort of self esteem that comes with that. Where the, the 10 percenters are really kind of looking at practical consideration. So it's, it's like a tale of two considerations right there. And, but a lot of times, people in the 10%, particularly small business owners who are looking to buy their primary residence or their first home, they get jammed up pretty hard. And I think it's a just cruel, cruel irony to a lot of the real estate agents that I work with, fall into that category, particularly real estate agents who have worked on many number of transactions who are trying to become that first time homebuyer themselves know more say you're a loan officer, let's say, let's go back to the 1970s. about the real estate home buying process than anybody else. They're the ones that the bank say are riskier borrowers. And that doesn't make sense to me, that makes gets me frustrated, fairly frequently. But that's what I'm relating to pretty aggressively in this conversation. And you go to the bank, and you're a real estate agent, and your income goes up and down, it fluctuates. Me as a loan officer, I'm gonna go, you know what you're a safe bet, because if you cannot pay for your house, you sell it, and you sell it fast, and you sell it at the maximum price. So I know I'm gonna get my money back. But because of the automation, and because of trying to fit everyone in a box that can when reasoning is lost. This is what we're trying to bring back, we're trying to be bring back the common sense lending into the equation.Jason Muth:
Yeah. Well, it's a lot to think about, it's actually great to hear that there are options for people that might not be able to be financed through some of the traditional routes, I know that those are conversations that we're having right now, you know, now that I've left my W-2 job, and I'm looking for ways to finance investment properties. And, you know, it's a conversation like this, and another one I had just this morning, where, you know, I know that there are answers out there. So, you know, if you're listening to this podcast, and you're in this situation, and you're saying, geez, you know, I can't get a conforming loan or can't qualify for this loan, you know, realize that not only are you not alone, but there are people out there that can help with loan products. It might not be the exact loan product that you see advertised on TV or on the internet. But there are ways to get that financing. There are ways to achieve the goal that you're looking for if it's a primary home, or if it's an investment property or commercial property. And there are people like Alejandro, that you could speak to so why don't we will do our final couple of questions, just that we asked all of our guests here. And then you can tell everybody how they can get a hold of you. And we'll put all this stuff in the show notes as well links to your website and all that just to make it really easy. So we ask the same three questions of all of our guests who come on the podcast just as a way to get to know you a little bit more and to wrap up the conversation. The first question that we have is, if you can get on stage for 30 minutes and talk about any subject in the world with zero preparation, what would that be?Alejandro Szita:
It will be about money, because so much of our life is controlled by it. And so much of our freedom is taken away by it. And we feel that it's an uncontrollable subject and it's quite the reverse. It's a controllable subject. And it's within our purview. It's just a, we need to do the reverse of what is happening today. We need to talk more to one another physically, you know, and we need to really interact. And that's how we can solve it, believe it or not. Yeah, so it will be about that.Jason Muth:
Money is always such a weird taboo subject. It's one of the things that breaks up relationships, right? I mean, all the time. It's, it's cited as a reason for family strife. There are employers who actively encourage their employees not to talk about salaries among each other. And it's kind of silly these days when you see sites like Glassdoor where you can basically look up what people are making, and people can give honest reviews if they'd like to. But they know that they lose the control over the employees when they're having those conversations, and it creates kind of internal strife. And, you know, like, how often do you talk about money with your friends, like you don't. Because I don't know how much all my friends make you kind of assume, based on what you see, but you have no idea, right? So honest, conversations about money are not a bad thing. Plus, it can get very confusing. You know, you threw out the term at you know, there are a lot of acronyms in the space. And mortgage brokers tend to answer questions with one word answers that are yes or no, yeah, let's change that. I mean, let's keep the conversation lighter. And, you know, bring it down to a level that a fifth grader can understand. Because if you don't do that, then you know, people are going to tune out. And that's where I think a lot of folks that are looking for their first home or looking for the investment property, they get so confused. Sometimes they throw their hands up, and they're like, I don't know what to do.Alejandro Szita:
Yeah. And you said it so right. My dad used to say, if you cannot explain it to a level that a child can understand it, that means you don't know it.Jason Muth:
That is so true. You know, sometimes people just try to sound smart, but they have no idea what you're talking about, just like the 60 year old mantra that you talked about when you made that appointment when you're 14. Second question we have for you is tell us what happened early in your life or career that impacts the way that you're working today.Alejandro Szita:
Well, that was one thing, another thing that impacted my life, you know, when I was seven or eight, I remember there was a we were watching the news with my dad, and they were talking about the interest rate like they do here, you know, the Fed is going to over there was now called the Fed, but the central bank is going to raise it, diminish it. And so that my dad started to become worried. And that perplexed me, because I know he didn't owe any money. So why are you worried about this interest rate? You don't owe any money, therefore, you don't have to pay any rate, whether it's up or lower? And he says, Oh, well, you don't understand, you know, it's just, it's not just me, you know, it's the whole economy. And I remember that I keep thinking that really hung me there, like a computer program. And I was like, that's another thing that are always you know, in the country where I was born, Chile, you had the price index, you know, the inflation index published every week, every week, pricing, this is this, when I remember when I came here in the 90s, it was nowhere to be found. Yeah, that's all Wow, that's strange. People don't know about the inflation, they don't care about it. And I remember it was very obscure, if you really wanted to find out what the price, the price index, or the inflation rate was, you really had to dig deep. Today, of course, because of the reality that we're leaving this not the case. But all of these things, you know, have motivated me over time, I see that in this field, in the field of money lending, there is a lot of mystery, there is a lot of misinformation, there is a lot of things that really are not known.Jason Muth:
When things are steady. They're not newsworthy. And you know, mortgage rates were so steady, like in the 2000s, into the 2010, they were 5%, maybe up to six, maybe down to four and a half. But they were in that range. Like there was no volatility, like we just saw this year. Same with inflation, inflation was just kind of what it was. And it was never in the news. The last time it was in the news was what back in the 80s or 70s, you know, when inflation was just super high. Now inflation is super high again, so it's right there top of mind with everybody. But you know, the world loves things to be in a steady state. That's some, you know, equilibrium is a good thing. I used to take science classes back in the day, I was a major in science. And, you know, I forget the actual Heisenberg - I don't know what principle was, but it had to do with keeping things in the same state. Right? You don't like knowing when things are going to be at a maximum or a minimum? What's that right there in the middle? So, you know, that's why I think it's in the news right now, you know, plus our news cycle, you know, really spins things out of control. Right? You know, we've never had more news at the ready than we have today. So if a story is not at its equilibrium, it's certainly going to go out of control. That is so true. So our final question that we have is tell us something that you're watching or listening to or reading these days,Alejandro Szita:
Listening, watching and reading an ex-hedge fund manager by the name of Martin Armstrong. You may have heard of him. Many he has shaped and answered a lot of the questions that had about money, the economy, you know, and how things work. He is sort of my hero your way. Martin Armstrong,Jason Muth:
Martin Armstrong? Yeah, I should mention that you know, you're working on your book you before we hit record, you said that you're on chapter seven or chapter eight, you have a couple of more to go. And it should be out next year, tell us about your book. And you could also tell us where people can find out more about you, Alejandro.Alejandro Szita:
The book is about money, but it's like a Swiss Army knife of money. It's the basic basic of what money is, if everything collapses, if you cannot go to your bank anymore. And if you really find yourself in that kind of a situation that a lot of people say that in 10 years from now, we're going to be in, what do you do? If you really know what money is? That is not going to be a problem, because you're going to know what to do. And that's what the book aims doing. It's not a how to it's not an investment strategy is not how to leverage or get the best loan or anything like that. It's what is the basics of money, and how people have historically over in this planet around 6,000 years, and some scientists that we've been about 10,000 years, how did it all began, the first few people, there was no money, there was no gold, there was no silver, there was nothing, how we began from this to where we are today, they applied some basic principles. That book contains the basic principles about money, my opinion, my goal is once you read this book, you will never be worried about money ever again, because you will always know what to do, regardless of what happens on the economy. And then, if you want to reach out to me, just send me an email email@example.com So that's info, well, you can write my name, Alejandro, but some people have trouble with that. So info is better info@prosperity lending.us And that's our website to which is www.prosperitylending.us.Jason Muth:
Great. Well, we'll put all that in the show notes. And you'll have to make sure that you send us a link to your book, once it's published. So we could add that to the show notes afterward. For people who are listening to this many, many months from now. Rory, where can people find you?Rory Gill:
You can find me at my real estate brokerage NextHome Titletown, nexthometitletown.com, or my law practice UrbanVillage Legal, urbanvillagelegal.com.Jason Muth:
And if you are a self employed person, you're an artist, you're an entrepreneur and you want to share some war stories about qualifying for financing with Rory he's got a lot of them. So feel free to reach out. If you've enjoyed this episode, we'd love it if you can give us a rating. Hopefully it's five stars, big thumbs up comments on YouTube. You know, we read all that stuff, you could reach out to me directly if you have questions for Alejandro, Rory myself, or you'd like to be guest in the podcast, you can reach me Jason@nexthometitletown.com. So there we go. What a great discussion, Alejandro! We appreciate all of your insights, you know, really distilling it down to a level that we can all understand giving some hope to the people that feel like it's just impossible to get qualified for financing and realizing that, you know, that credit score's important, but there are ways around it if we need if we need to look at some alternatives. And there's people like yourself, who are willing to work with the people that you know, not every bank or credit union will find the easiest to work with. So that's great work you're doing.Alejandro Szita:
Thank you, Jason. Thank you, Rory.Jason Muth:
Thank you. And thank you, Rory. Thanks for appearing on the podcast. And thank you for listening. It's been The Real Estate Law Podcast, and we'll see you next time. Thanks.Announcer:
This has been The Real Estate Law Podcast. Because real estate is more than just pretty pictures. And law goes well beyond the paperwork and courtroom arguments. were powered by NextHome Titletown, Boston's progressive real estate brokerage. More at nexthometitletown.com and UrbanVillage Legal, Massachusetts real estate Council serving savvy property owners, lenders and investors. More at urbanvillagelegal.com. Today's conversation was not legal advice, but we hope you found it entertaining and informative. Discover more at the realestatelawpodcast.com Thank you for listening