The 5 Questions Podcast
Join us as we unlock real estate and business insights, one question at a time.
The 5 Questions Podcast
Strategic Real Estate Financing for cross-border investments with Scott Dillingham
Understanding real estate financing is essential for investors aiming to succeed, and Scott Dillingham breaks down critical insights to navigate the complexities of borrowing across borders. From differences in lending practices in Canada, the USA, and Mexico to innovative financing strategies, Scott shares how investors can adapt and thrive in varying markets.
• Scott shares his journey from investor to lending expert
• Discussion of lending differences between Canada, USA, and Mexico
• Advice for new investors on securing financing
• Importance of assembling a strong team for investment success
• Innovative financing strategies that can enhance property acquisitions
• Key considerations for diversifying investments internationally
The bank. They didn't understand me. I had to sit there over the guy's shoulder and explain the application to him while he's punching it in.
Speaker 2:Welcome to the Five Questions Podcast, where we unlock real estate and business insights, one question at a time. Welcome to the 5 Questions Podcast. I am your host, mario Lamar, our guest on today's show. He has been in the lending business for over 16 years. He's helped thousands of real estate investors fund their projects and he makes it possible to have funding in Canada, usa and Mexico. Welcome, scott Dillingham. Scott, welcome to the show today.
Speaker 1:Thank you so much. I'm so excited to be here. Thank you for having me, Mario. This is great. I love your show here. I love what you're doing with the cruises. It's just so exciting.
Speaker 2:The concept, scott, of the podcast is I ask five questions, either about real estate or business, and we get straight to the point. You ready, okay, ready, all right. So my first question to you can you start from the beginning and can you share maybe your story on how you started in the real estate lending industry 16 years ago and maybe what sparked your passion for assisting investors?
Speaker 1:Yeah, absolutely. So I remember I just moved out with my girlfriend at the time and we had only dated for like three months and I was just. I was sitting there and I'm reading books and I'm learning and I want to grow and develop. I want to be this massive, amazing person and I learning and everything right Personal development, business and finance, just all this stuff. And then I came across Rich Dad, poor Dad, and I loved it. So then from there I signed up for a couple of his courses. So in Canada it's not run by Rich Dad, poor Dad Enterprises At the time it was Tigrant Learning, okay.
Speaker 1:So I joined their wholesaling class and the rent-to-own class, right, and so I started doing that. And then from the wholesaling class I learned that you want to find, like a JV partner and you want to have them partner with you and you find the property. So I found a guy to do it and he was going to qualify for the financing and I just had to find the properties. So what happened was I found the property and he told me he's like, buy it cash, right, we have to be competitive and then we'll move forward. So I did that and then, as soon as I did that, he was gone. Like what the heck? Like, I just bought a property cash and you're gone now.
Speaker 1:So I was like well, you know what this happened and this is where I want to go. So let's just, let's just do this, let's figure out how to get the financing and do it. So that's what I did. So I went to a bank and they helped me and we got it done and it was great. But then what started happening is, after the first one, I started to buy a few more and what I noticed was the bank. They didn't understand me. I had to sit there over the guy's shoulder and explain the application to him while he's punching it in. So I was like this guy does not understand investors and if it wasn't for myself, I probably wouldn't be getting these approvals, because I was literally guiding him. So I was like well, that's it. I mean, this makes sense for me to enter this business, and because I started off as an investor first and then got into lending, it just continued. So that was my niche, that's who I like to work with as investors and that's how I got started.
Speaker 2:You know it's and I love your story because a lot of people that are successful in what they do they start out of a pain somewhere or somehow and they have to solve that problem and then you kind of went and got your own solution. So you understand real estate investors now and you can help them. So that's amazing. That's an amazing story, thank you. That brings us to our second question. And you have your company called LendCity, and LendCity operates in Canada, does lending in the US and Mexico. Maybe you can explain to our viewers how do the lending opportunities and challenges differ across the different markets?
Speaker 1:Absolutely Great, great question. So let's rank them from easiest to hardest, as far as lending first, so the easiest is the States, okayada would be second and mexico would be third. As far as how easy it is to get an approval, there's definitely opportunities everywhere, even in canada, and I know canadians right, because this is where I live. I know canadians are complaining about rent control and tribunal delays and and there's a bunch of things. But there's still many markets where you can really do good and have a strong, profitable portfolio. So I don't want to discredit Canada in any way based on these answers, but primarily, I'm seeing a ton of opportunity in the States. It's just, it's very landlord friendly Right now. I think investors are a little bit held back, like we're recording this. You know middle of January, right? So right now, the Canadian dollar against the US. There's a big difference. So I think that's holding some people back. But I see a lot of cashflow in the States, very landlord friendly, but again same thing with Canada. So in the States, though, as but again same thing with Canada. So in the states, though, as far as qualification, why it's easier? It's just based on the cash flow of the property. They look at the income to the expenses. If it covers itself, you're good, you don't have to show personal income or anything like that.
Speaker 1:Now in Canada, we do have a similar product on the commercial side of things. Yeah, I know a lot of on the commercial side of things. Yeah, I know a lot of investors are not aware of that. So whenever they are introduced to us, this is a great avenue that we have to help them out in Canada. But traditionally in Canada it's income-based, right. So eventually you get maxed out and they say, oh, you can't buy anymore. Either you have too many doors or your debt-to-income ratios anymore. Either you have too many doors or your debt to income ratios. So we'll switch the investor to the commercial route where it's based on cashflow, instead of going to like a B lender or private lender, like a lot of brokers and lenders do. So that's kind of our strategy and that helps save the investor quite a bit of money.
Speaker 1:And then Mexico there's tons of opportunities there too, right. Lots of development, just different hot markets. So we're seeing a lot of that's more of a lifestyle purchase we're seeing people make. But they're renting out the properties right, whether it's Airbnb or whatever when they're not using them, yeah, yeah. The challenge with Mexico, though, is it's very much income based. The challenge with Mexico, though, is it's very much income-based and also, none of our lenders will even use rental income to help you to qualify. So when you're buying a rental property there, they won't use any rents, it's just your income. So it's so much harder to qualify for based on that, because you're kind of at a handicap. Now. They will use your existing property's rental income, just not the subject property. Right, so bit challenging, right. So people that want to buy in Mexico, I say, right, show me the money, show me your income. But in Canada, right, we can go commercial without showing income in the US. That's how it is everywhere.
Speaker 2:So it's pretty cool. Seems to me like you have solutions for people who want to invest a little bit everywhere.
Speaker 1:That's the goal, that's our goal, and everyone on our team has their own niche and what they do, right. We have people that specialize in developing properties. We have people that specialize in multifamily student rentals right Like flipping.
Speaker 2:It doesn't matter what it is, we have a team member for that, and that's what makes it much more easier to work with someone who has a team, like you said, who specializes in different niches, because not everybody is the same. So having a partner like you, like LandCity, makes it a very, very positive and a plus to have you on their team to find solutions. Absolutely, but question number three If somebody is starting in real estate investing, so if they're new, what advice would you give them or would you give about securing financing for their first rental property?
Speaker 1:Yeah, no, that's great. So I mean one of the things that I did personally. Right, and this is Canada speaking but like this property, I moved into it for a short period of time and then I moved out and I moved into another one, and so when you move into them you can tap into 5% down. Now you've got to stay there for at least a year, but that's kind of what I did to help me get started, because when I first got started I didn't have the capital right. So that was kind of what led me, and then the properties appreciate, then you can refinance them Right, and then it just kind of grows and grows and grows. So for me, that's where I started.
Speaker 1:But I think really the most important thing is setting up the proper team, and you know, mortgage lending is only one part of the team. I encourage an investor to get a property manager, even on property one, and I encourage them to have a game plan, because a lot of new investors they get excited, right, the concept of making money, passive money, right, they get excited and it's really not that passive depending on how you do things, but I think that having the property manager is awesome. I saw so many people quit investing because they tried to do it themselves and they got a really bad tenant that ruined it for them, where that problem could have been avoided with the proper team. Right, and it'd still be investing today. So I think it's the team and your goals, like what your property is, how many you want to buy in a year, what property type do you want to buy right, and just optimizing that before you get going.
Speaker 2:You don't want to go gangbusters, you want to like know what you want to buy, so then you can plan for it Establish your, your plan of actions, establish your, your, your vision, your goals, and then and then go and ask for some help uh from you. Yeah, Question number four now. Maybe with all the experience that you have now, what are some innovative or maybe creative financing strategies you've seen investors use that maybe others might not know about.
Speaker 1:Yeah, well, I mean definitely the um. There there's many products. I think in Canada is the uh, the commercial, so based on cashflow. A lot of people don't know that. So, like when I worked at a bank, I um first started on sort of residential, but as you get going, you get to, you get to learn stuff. So I was discovering that I'm running these deals and they're not working, but then the commercial team is getting them done and I'm like how is this possible, right? So that's actually where I learned about the cash flow model. And every lender has it, but they don't talk about it and every lender has their own criteria and rules and regulations, right. So you've got to optimize that. But but knowing that you can use a cash flow model on a duplex, like people don't realize that they just think that commercial means apartment building. So I think in canada that's massive, because anybody who's been told they have too many units or their debt ratios are too high, those problems are solved when you go with commercial. The downside, right, is the rates are pretty similar, but there's fees to set it up, because in commercial, even the people at the bank, they're paid on commissions and stuff. So there's fees. Right, you got to pay to play, but I think that's the massive one, and then obviously, that same program in the States is just phenomenal, um, but I think really it comes down to the proper plan for the investor because if you go, you can go.
Speaker 1:Let me take a step back. You can actually go and apply for your mortgages in the wrong order, and when I mean order, I mean like the lenders that you go with are in the wrong order and that can actually limit your approvals. A lot of people don't think that. They think I'll just go to my bank, they got me approved, I'm good, but, um, and I won't name names here, but let's just say a bank with a green logo, right there they're going to want to do five properties for you, right, and that's their max.
Speaker 1:So five could be elsewhere or five with them, it doesn't matter. Once you're at five, you're done. Now, this is residential side, of course, but there's a bank with a red logo and they'll do five, but they don't care how many you own in total. So if you go to the green bank first and then go to the red bank second, now you've got up to 10 properties if you qualify right. But had you went to the red bank first, the green bank won't be able to help you at all. So now you're at five, do you see what I mean?
Speaker 2:so I I love talking strategies like this with with a specialist like you, because, see, even you just taught me something right now that you still can go to two a lenders, but in different orders, and you'll get different results.
Speaker 1:That is amazing. Yeah, absolutely, and people don't know that either. Right, it's just they just want to get the deal approved and quite often you know they'll try to go for the who's the lowest rate, and we do encourage that. But at the same time it might make sense to take a little bite and get that little bit higher of a rate so you can optimize how many properties you can own. Right Because residential if you can max out on that side first, it's better.
Speaker 2:right Because you save those fees, and that's why it's very important, like we said at the beginning of this question, to explain your vision to the specialist. So what's your plan? Because you become one of their partners. Right, you guys are going on a journey together and, depending on what the vision is, you might take different steps Absolutely Well. It brings us, scott, to our last and final question for today If for investors looking to diversify into international real estate, like Mexico, like US, what are the key financing consideration they should be aware of? We talked a little bit about it, but is there any other things you can give our viewers?
Speaker 1:Yeah, yeah, we'll dive a little deeper. So in the States it's completely opposite from Canada, in the sense that the pre-approvals are based on the property first and the borrower second. Right, because again, it's based on income, yeah. So a lot of Canadians have a hard time wrapping their mind around that. Once they get it it becomes very clear. But they're used to providing income documents showing credit history, like all that stuff first, and that's not the case. So really, step one for pre-approval to get financing in the States is let's look at the property, we'll run it through all the lenders, we'll. We'll show you what what rates and loan to values the property qualifies for, yeah, and then if it works, then you move forward. So that's something I would say to wrap your mind around that. Also, I will say it's best to buy in an entity in the States.
Speaker 1:We can do personal name okay, but it's been very clear to me. I'm not an accountant at all, but all my accountants that I work with have told me that if you're buying in your personal name as a Canadian, that you will be double taxed from the States and from Canada and again ask your accountant for tax advice. But that's what they're telling me. So when it's in an entity they can do what's called a flow through. So Canada recognizes the tax that you paid in the States, so you're not paying it twice, right? So the entity protects you that way and I know the banks are big on trying to finance, like a lot of the Canadian banks are pushing and getting into the U? S market, but they only allow personal name loans. So it creates liability for the investor as well, because in the States, as we know, everybody sues everybody, right.
Speaker 2:Oh yeah, it's a practice.
Speaker 1:So you want that liability protection. So that's what I would say for the States. For Mexico, this is more of an awareness thing, but by being aware of it you can help, you can set it up properly. But Mexico and I believe it's like 50 miles inland from water no foreigner is allowed to buy, okay, unless it's done through a trust. Okay, set up a trust and the lenders can help facilitate this that we work with. But you get your trust set up and then, because it's a Mexican domiciled entity, now you're allowed to buy waterfront properties. So that's kind of like it's a legal workaround, but it's important because you want to set up the trust the correct way, so you're having also the most tax advantage strategies. So, speaking to an accountant and knowing that that's a possibility, that's that's there.
Speaker 1:I would say with with Mexico as well, I would consider and have a Canadian or even American for that matter, because we can still the lending still for Americans, but I would have them review their equity in properties they have here, because the rates in Mexico currently are the equivalent to private lending rates in Canada.
Speaker 1:Okay, so it's higher, but it's because it's Mexican money and there's not as many banks in Mexico. It's not as liquid, so it has a higher interest rate. But we're dealing direct with those lenders, so it's you know, if there was somebody from Mexico applying for their own loan, you're actually getting the same rate. But we're dealing direct with those lenders, so it's you know, if there was somebody from Mexico applying for their own loan, you're actually getting the same rate from Canada. So there's no, there's no penalty. It's literally the same. But if you have equity here, it's going to be cheaper for you than accessing it there. However, tapping into equity there like I don't think you should own properties free and clear there or in the States for that matter because it doesn't allow you to scale it's debt equity if it's just sitting there.
Speaker 2:Scott, it was a pleasure talking to you today. Great insights from somebody starting into real estate, out to get their first financing. You helped us understand how it works a little bit in Canada versus us versus Mexico and uh strategies that we can use. So thank you so much. I hope that our viewers will take a piece of your knowledge and bring them on their journey, and we are going to put your links also in the description. If anybody wants to work with land cityity, maybe you can give them the website or how they can reach you very easily.
Speaker 1:Absolutely yeah. So it's just LendCityca is our global website, and then my direct cell is 226-348-7884.
Speaker 2:There you go, guys. Now don't call Scott for a dinner a Saturday night dinner, he's pretty busy but if you need help with your lending, call Scott, he's your man. Thank you once again and we'll talk very soon. Thank you so much, mario, take care. Thanks for tuning into the 5 Questions Podcast. If you enjoyed today's episode, don't forget to subscribe, like and hit the notification bell on our YouTube channel so you never miss an episode. Stay tuned for more insights and tips to transform your real estate and business game. See you next time.