Episode 29: Real Estate Investing: CREATIVE Lending
Summary
Invested money is supposed to make money, right? But how? In today's episode of My Life As a Landlord we explore 5 different types of lending and the difference in each one. Depending on what you need, you may use one or several, including: line of credit, letter of credit, secured mortgage, unsecured loans, and capital lease. All this and more on today's episode of My Life As A Landlord!
Listen to full episode :
Welcome to My Life as a Landlord, where we untangle all things housing and educate the curious. If
you're looking for some entertainment with some honest, awkward conversations, you've come to the
right show. I'm your host, Dr. Jennifer Salisbury. This is my life as a landlord. Welcome to it.
Welcome. Welcome 1s to my Life as a landlord. Thank you for joining us today on this podcast. Today is
episode 29, Real Estate Investing, and we're talking about types of lending. Oh, my goodness. I'm your
host guru, Dr. Jennifer Salisbury. Thank you for letting me teach you a lesson today. I really appreciate it
and I'm excited to do it. For those of you who are new, or even those of you who have listened before, we
have five predictable rotating topics. Every Saturday, they come out on the platform you're listening to
me on right now, whether it's Spotify or Podcast or one of the other many podcast platforms, every week
we rotate. And last week we talked about real estate development. Next week, we're going to talk about
other Salisbury adventures. But this week, episode 29, real Estate Investing Types of Lending. So let's
get into it as a real estate investor. An investor invests money with the expectation of a return, but let's be
honest, you also have to weigh the risk, right? So you're looking at the security of this investment. How
secure are your investments? Today's episode will define several lending tools. There are many other
types of lending types, but it is a start. Normally, I do three points of learning and then a call to action.
But today I'm going to discuss in detail five different lending types and then I'm going to give you a call
to action. So it's a little bit different than my normal structure. Today we're going to talk about a line of
credit, a letter of credit. It. A secured mortgage, an unsecured loan and a capital lease. Every single one
of these is different. Their application is different, their fees are different and how you use them is
different. So let's get into it, okay? Line of credit. A lot of people have used lines of credit before. This is
where it's based. Typically it's based on equity in some kind of an asset. Whether that asset is a home or a
commercial property you might own usually your lending institution that you've got the note with.
Usually if there's a mortgage on the property and you request a line of credit, you go back to the lender
who's got the first note and say, look, I want a line of credit based on the equity of that asset. Or if you
want a line of credit on something, let's say there's no mortgage on a parcel or a house, say, you know
what, just go to your main banking location, your main credit union, whatever it may be, and ask them
for a line of credit. And they'll come back and say, okay, we can give you X amount of dollars. And what
it is is it's like a piggy bank. It's like a piggy bank at the bank and you only pay for how much you have
withdrawn from the piggy bank. You can also put money back in and the payments will go down. So it's
very interesting how the lines of credit works. You can withdraw up to the limit. You can pay back to
zero, which is interesting, usually short term availability. And typically you only want to withdraw as
needed because there is a charge to it, right? Like this isn't free, but it's based on equity and it's very
different than some of the other tools we're going to talk about here in a second. But line of credit, okay,
next thing we're going to talk about is a letter of credit. Now this sounds very similar as a line of credit,
but a letter of credit is different. The letter of credit is from a lending institution with a very specific
purpose. A very specific purpose. And in that purpose we'll note what bank has to hold this letter of
credit. So Mike and I have a letter of credit. And the reason we have this letter of credit is from US.
Customs fluctuate fees from importing all over the world. Fluctuating fees. And so the requirement was
to import some of these items that we have imported in the past. They say, you know what? You must
have a letter of credit for $50,000. You have to put $50,000 in a separate bank account. It has to be at one
of these banks. And the letter of credit from the bank has to read as follows and it gives you the exact
template that the US. Customs, for example, requires. So it's a very specific tool and there's a very
specific purpose for it. Line of credit is sort of you go to your bank, you go to your credit union and they
base it on the equity of an asset and you can use it again. It's like a big piggy bank. A letter of credit. I
can't touch that money until US. Customs tells me that we can release the letter of credit. That money is
held up very specific, very different tool. So that's the difference between a line of credit and a letter of
credit. Okay, we're going to keep moving on secured mortgage. Most of you, if you have a mortgage on
your personal residence, you already have a secured mortgage. The mortgage is secured against the
equity of your home. That's what a secured mortgage is. So a lender with a mortgage, which is a promise
to pay, registered on the title of the property, usually also has a promissory note, which a promissory note
is no different than me handing you a handwritten IOU on a bar napkin. That's essentially a promissory
note. But a promissory note is relatively informal. Where is a mortgage is? Registered on title. Okay,
so it can be an institution, it can be a banking institution, credit union, a private party can register a
mortgage on title, and in that mortgage document will be the term, the payment amount, when you've got
to pay, how much you got to pay, if there's a late fee. What happens with foreclosure? Anybody who has
signed mortgage documents before you know that is just a long laundry list of documents, things you
have to initial and sign and acknowledge and all of these things. And then ultimately, can you prepay?
What are the payoff details? Is there a balloon payment? Can you have an extension? What about
refinancing? All of these things are in your mortgage document, which most of the time is secured. All
right, so that's the whole idea. A secured mortgage is a mortgage on title. But let's talk about an
unsecured loan. Notice I didn't say unsecured mortgage. Mortgage, by the definition of the name of it, is
that it is secured. In fact, you can almost remove the word secured and just say mortgage because it is
implied that it is secured and recorded it on the deed. But an unsecured loan is not necessarily affiliated
with anything. It's not necessarily affiliated with the property. It's based on personal credibility, not
necessarily an asset. 1s And it's not registered. It's not registered on credit. It's not registered on a title.
An unsecured loan is basically a friend or family member or some other third party giving you whatever
money you're requesting in exchange for promise to pay back. That promise is the promissory note, the
IOU on the bar napkin. It's relatively informal. I do have a standard template, a promissory note, but it
has a lot of the same information as a mortgage has. There's a lot more risk, though, to whoever is giving
you this money if it is unsecured. It just depends on how trustworthy you are and your credibility. Right?
So you've got a mortgage registered on an asset and then you've got an unsecured loan, which is basically
somebody lending you the money based on your word. Based. Very different. Very different. And
institutions look at them very different as well. Okay, so we've gone through line of credit, letter of
credit, two different things secured mortgage, unsecured loan. Let's talk about the last type of lending
and. Capital lease. Now, I'd never heard of a capital lease before until Mike Salisbury was talking about
how, when he bought a helicopter way back when, he didn't have a million dollars at all to buy this
helicopter to do his logging up in BC. But he said, Jen, he said, I bought this helicopter with the help of a
capital lease company. And I looked at him, I said, what in the world is a capital lease? And he goes,
well, what happens is, based on the work that we know that we're going to do with this machine, based
on this equipment, the leasing company 1s will basically allow us to pay monthly payments on it. It's
almost like a mortgage, but not on a property, which is unique. And that's exactly what it is. It's a very
unique instrument based on a non property asset. Usually a piece of equipment, or in this case, a
helicopter. And it's usually machinery, like you're doing something with it, whether it's an excavator or
helicopter, a dump truck, a vehicle, a mechanics truck, welding truck. 1s The lease company will put a
lien on the title of the asset, which is sort of like a mortgage, right? Like a mortgage would be for a
property, but a capital lease. They put a lien on the asset and then they can lend up to 100% of the
purchase price, right? They can basically help you buy it almost no money down. And if there's equity in
it, if you're buying it undervalued, that's even better. But you've got to have payments set up over time,
very much like a mortgage document, including the buyout at the very end. Now, it's a very interesting
way to think about it. And I'm hoping that if you're listening to this podcast, as a real estate investor, that
you're also involved in entrepreneurial endeavors. If you need some money somewhere and you've got a
piece of machinery or a truck that has no lien on it at all, a capital lease may be your way that you can
leverage some money to self finance some of the things that you need to do. Just know that with that your
budget changes because now you've increased your liabilities, you've now increased your expenses, but it
will help you if you get this piece of machinery, which then can help create eight revenue, which is good.
Now, I'm saying a lot of terms here, so if you've got some confusion on this term, here's my call to action
for. If I've said something in this podcast, and I realize it's a pretty quick podcast today. Five Tools
line of credit, letter of credit, secured mortgage, unsecured Loan Capital lease. I've also thrown in
promissory note. What else have I said? A couple of other things. But if there is a term that I have
mentioned in this podcast, I challenge you. Here's your call to action. Google that term. You need to
understand as a real estate investor, you need to educate yourself on every single bit of the money aspect
in your investment. Okay? So as we wind down this week's episode, let me know your thoughts. There
are way more tools and types of lending than I've just described. These five simple ones. If you've got
some other creative ways, or you've got stories to share of things that you've bought or you've leveraged,
please let me know. Mike and I love learning more about creative financing. Maybe I need to shift my
perspectives. Maybe I need to do a part two on this. I'm cool with that. Just know that I get my podcast
ideas and I do more podcast episodes based on the questions and comments I get. So please comment and
share your stories. I'm happy to hear them. Next week's episode is Another Salisbury Adventure, and I'm
going to put my business consultant hat on for this one. I'm going to be talking next week about Business
in a box. Business in a box. It's basically Business 101, and I explain all the bits and pieces of how we
start our business as I explain next week's topic, other Salisbury Adventures. We'll talk to you Saturday.
See you there. Thank you for joining us this week. To view the complete show notes and all the links
mentioned in today's episode, visit our website at www.mylifeasalandlord.com. If you're looking for
educational resources for getting into real estate investing, becoming a landlord, or even a better tenant,
then I have a page on my website to get you started looking for a solution to the pickle that you're in. I
have suggestions for that too. You can throw your situation on my Facebook group, My Life Is a
Landlord, and let our community help you with solutions. Also, before you go, make sure you subscribe
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Thank you again for joining me, Dr. Jennifer Salisbury, in this episode of My Life as a
Landlord. I'll see you next time.