Sean Pan is a hard money lender, real estate investor, based in San Francisco Bay Area, and invests in single-family renovations as well as out-of-state investments in Jacksonville, Florida. He is the host of the Everything Real Estate Investing Show where he knew US top investors and professionals, agents, architects, contractors, and inspectors to shed light on what they do, and how to help investors succeed in the industry. He also hosts some local meetups in the South Bay in the Bay Area there and produces real estate-related videos and consistently reports on local real estate news.
He started real estate investing about five years ago, and back then he was an engineer working for a defense contracting company. Just by working there for several years, he realized that this is not the place he wants to be in 30 years. He thought of the different things he can do to kind of escape that reality and to get to live the life that he wants to live. That’s why he started investing in real estate, buying some rental properties over in Florida. Then he started to flip some homes locally in the Bay Area. He also started his podcast YouTube channel, and now he’s a hard money lender.
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Building your online Real Estate Brand with Sean Pan
Brett:
I’m excited about our next guest. He’s a hard money lender, real estate investor, based in San Francisco Bay Area, and invests in single-family renovations as well as out-of-state investments in Jacksonville, Florida. He is the host of the Everything Real Estate Investing Show where he knew US top investors and professionals, agents, architects, contractors, and inspectors to shed light on what they do, and how to help investors succeed in the industry. He also hosts some local meetups in the South Bay Area there and produces real estate-related videos and consistently reports on local real estate news. Please welcome to the show with me, Sean Pan. Hey, Sean, how are you doing?
Sean:
It’s a pleasure to be on the show again, how are you?
Brett:
Hey, better than I deserve. Glad to have you on as well. Would you give our listeners a little bit about your background and your current focus?
Sean:
Sure. I started real estate investing about five years ago, and back then I was an engineer working for a defense contracting company. And just by working there for several years, I realized that this is not the place I want to be in 30 years. So I think about like, what are the different things I can do to kind of escape that reality and to get to live the life that I want to live. And so that’s why I started investing in real estate, buying some rental properties over in Florida. And then I started to flip some homes locally in the Bay Area. And then recently I started my podcast YouTube channel, and now I’m a hard money lender.
Brett:
Love that. And the shift on this episode we buy like Sean’s a repeat guest. So you can hear more about his full story into the Jacksonville properties, which we really focused on in the last one. But in this episode, I want to focus on the hard money lending side of things. So let’s just dive right in Sean. So what are you seeing right now, as far as opportunities for people who perhaps, you know, between the one and four units, I’m not sure how to get you to know, financing or it’s a little more challenging, maybe the lenders have become a little more restrictive, kind of give us the state of where we’re at even though the rates have dropped? Why someone might want to know someone like Sean for hard money lending.
Sean:
So hard money loans are definitely a different type of loan, compared to conventional financing. Usually, for commercial loans, you do get these ultra-low rates to buy your own primary residence. But the thing with conventional financing is that they base the loan on your qualifications. So they look at your debt to income ratio, how much you’re making right now, how much debt do you have, you know, already like your credit, debt car loans student, whereas a hard money loan looks at the property, does the property justify getting a loan of a certain amount. COVID has changed the way that hardware loans are being given as well. You know, back in the day, we were giving up 90% loan to value the 100% of the rehab costs. Now, we’re limited to 80%. And again, that’s been due to COVID.
Brett:
Excellent. Okay, so hard money loans is focused on the property underwriting the actual asset itself, the cash flow, whereas traditional loans are more conventional loans or more on the global debt service of the individual. It’ll be their income, how many properties they have, is that a fair summary?
Sean:
Exactly. So as an example, when I was working as an engineer, I was making a decent salary, you know, low six figures. But the problem is, I wanted to buy a flip property in the Bay Area, and even properties I knew a lot of rehabs go for almost a million dollars. And even with a six-figure salary, I could not qualify for a million-dollar loan with a regular bank. But luckily with a hard money loan, they don’t really care that much. They just care if there’s value in the property itself. And if you have enough money to support the down payment, closing costs, rehab costs, and you know a little bit of funds for your interest payments. To make sure that you can actually make the payments.
Brett:
Yeah, very well said. They just want to get a little more entrepreneurial, which I guess is a better way to put it. They’re going to look at the business plan of the property and such. Okay, great. So the interest rates have dropped drastically, substantially in the past couple of years. Okay. And with that values have shot up, especially in the Bay Area, although at the same time, we had COVID-19, that, you know, hit and it seems to be kind of an Exodus out of these major cities, especially like San Francisco. So I’m curious for someone who’s on the ground, who’s there right now? Are you seeing that same type of Exodus? Or what’s your temperature or thoughts on that right now?
Sean:
Yeah, it’s a good question. I’ve seen a lot of people leave smaller properties in high price areas. So for example, the San Francisco condo market, or condos and townhouses in the peninsula, like San Mateo County, are taking a huge hit right now, people don’t want to pay that much to live in a small space. And so they’re doing this Exodus, but surprisingly, not really, to an estate to Texas and Arizona, there’s definitely what we’re doing that but more so to the East Bay. In the East Bay properties are a lot cheaper. For a million dollars, you can get, you know, like a 1700 square foot home on a 6500 square foot lot, something you just can’t get at that same price point in San Francisco. So people are just moving out of the cities and moving more towards the suburban neighborhoods.
Brett:
Do you anticipate that same trend going on in the next 12 months, and 2021 is where people I’m hearing you correctly moving out of the dense small places where they’re living to maybe an East Bay, or maybe even a Sacramento where you can get more bang for your dollar right, and more space. Is that a fair summary? Do you see continue to go on?
Sean:
Yeah, so people are moving to places like Gilroy and Morgan Hill, or maybe even Tracy, so they’re moving out of the center, and maybe one or two hours away from it. So I’m not exactly sure if they’re gonna move all the way up to Sacramento per se. Because some of the companies are going to require the employees to come back once this whole COVID pandemic is over. But you know, limited facility, so it’s not going to work every single day, maybe they’re expected to show up at the office twice a week. And you know, if you live only an hour or an hour and a half away, then it’s not too bad to go into the city once or twice a week. But it might be too much to go super far away.
Brett:
Yeah, makes sense. How about as far as now with the new Biden administration, right, taxes going up… Any other thoughts of just California in general, maybe not even like the Bay Area, per se. But where do you see the future of investing in real estate as prices are really high in California? Do you think, do you think it’s still a good place to invest? Or what we might, as we’ll touch on the Jacksonville, Florida market, right, and what you’re seeing there as a comparison to what California, you know, cap rates and cash flow has to offer?
Sean:
Yeah, that’s a great question. I always thought that buying and holding in California, especially in a hot market, like the Bay Area, doesn’t really make sense. From a cash flow perspective, I think that’s, not the game you want to play. If you’re investing here in the Bay Area. If you want cash flow, it’s probably better to go out of state, the renter’s laws are a lot more lenient, and whatnot. But the Playford Bay Area real estate is easy to buy and sell it to flip or to just buy and hold for a very long time. Because you know, Prop 13 keeps your property taxes very low. While you can hold on to a highly appreciating asset. Meanwhile, some people actually like losing money on their properties, you know, they make so much money that they like taking this hit on their income, so they pay fewer taxes. And they know that they’re going to make a lot more on the back end when they either refinance the home, or they sell it later down the line.
Building your online Real Estate Brand: “Real estate is an imperishable asset, ever-increasing in value. It is the most solid security that human ingenuity has devised. It is the basis of all security and about the only indestructible security.” – Russell Sage, American Financier and Politician
Brett:
He has so many ways to kind of skin my cat and we recently did a deal in Palo Alto it’s an $8.3 million primary home sale. And he was faced with some huge capital gains taxes, the deferred sales trust, and another one in Aptos was a $7.9 million sale. And they were looking, they own it since like the mid-90s. And so it had like next to no basis, they bought it for like eight or 900,000. And it was worth 7.9. And they’re looking for this big, big payout at the end. But you’re right, a lot of them held on for a long time because it maintained that prop 13 low tax rate tax basis, right. So it can increase by too much per year, which is good. They talked about taking that away. I’ll see. I’m curious to see it now. It seems it looks like you know, Biden and also the Democrats won the senate today in Georgia, as it appears right now. And that being said, you’re looking at maybe some massive changes in tax policy, and things like the prop 13, which is held property taxes lower in California, perhaps being taken away. Now that being said, California just did some votes on this. And this was about six months ago or so. And it was actually very positive. They did not choose to increase or change that. Any thoughts on any other changes with some of the tax stuff that was going on?
Sean:
I did a video on you know, Biden’s tax changes as proposed plan. And there are lots of a lot of things that might happen. We don’t know for sure. I think he even talked about getting rid of the 1031 exchange, which I think can be great for you guys. Right? Because you guys do DSTs instead of 1031 Exchanges,
Brett:
We would be number one in line, right? We’re already really busy with what’s going on, because of a low inventory. But yeah, you’re right, we would shoot to the top.
Sean:
Yeah, exactly. I noted Prop 19, a couple of months ago as well, right. So that’s changed a little bit of how Prop 13 can be inherited. So you can’t, you know, transfer your property benefits anymore to your heirs. You can in a limited capacity, but definitely not as much as you could before.
Brett:
Yet lots of changes, and lots of things to consider when looking at selling how we appreciate it primary homes invest in real estate or businesses. So getting back to the hard money lending side of things for your business, could you give us kind of an example may be of a recent deal that you did to help somebody that was a challenge that they had, and how to conventional financing not work for them. And then how did that your service for hard money lending work for.
Sean:
Sure. So on a property or on a client that was trying to buy a property in Milpitas, somewhere in the South Bay, and they’re looking for a loan for around $900,000. And thing is, with our loans, we can close quickly, I think that’s one of the main reasons why they decide to use hard money versus conventional finance or because we can close our loans between 10 and 14 business days, whereas traditional financing takes, you know, 30, sometimes 35 days, I mean, I had a property where I was trying to sell, and they took 45 days to close because the lender was just so bogged down with all these other purchases and refinances because interest rates are very low. So by using hard money, they’re able to close quickly, and they’re able to, you know, get their loan done, and there was no prepayment penalty involved. So they could just get in, fix a project, sell it, and then just pay the little interest that they had to pay along the way.
Brett:
Excellent. Give us kind of the interest rates for those who are listening maybe, you know, curious about what lenders are charging right now. So what were the points on the deal? What was the interest rate? What’s the term?
Sean:
Interest rates are obviously a lot higher than conventional financing. But there’s going to be around 0.5% to 10%. So that depends on the LTV that you’re looking for, the location, and your experience as an investor. So if you’ve done more deals, you’ve had more properties under Title, rather than be one rental or flip projects, then you can potentially negotiate a better deal for you. And these loans also come with origination fees. So the origination fee is going to be around, you know, 0.5 to 1% of the loan amount. So if your loans for a million dollars and expect to pay around $10,000 in origination fees.
Brett:
That sounds pretty reasonable, right? I mean, I don’t know if it’s gone down. But I remember looking in the past, sometimes it can be two or three points. Is that because people just don’t know the right people to talk to within the hard money lending world? Because I’ve heard 10 to 12%. And maybe this is a little bit dated because rates have gone down, right? And then two to three points to close. What am I missing here? Or is that maybe a more risky type of deal?
Sean:
Yeah, so if the property is in a riskier area, or if the loan amount is as high, then you might be charged more points. So if you’re buying a property, say Tennessee, that might be only for $200,000, and you’re going with a local lender over there, then they might be charging three points. Because at the end of the day, it’s still the same amount of work where you have to underwrite deals and create all this paperwork. But because the loan amount is so low, you know, like your 1%, for a deal in the Bay Area is more than you’re gonna get in origination fees versus 3% for a smaller deal over in Tennessee. But on top of that, if you’re talking about Bay Area deals, yeah, there are sometimes hard money lenders that do charge two to three points, usually, because they’re going through a broker. brokers are great because they have a great connection, and they can get you the loan that you need to get. But generally, the way that hard money lenders work with brokers is that they ask the broker to charge their fees on top of our fees. So if you went directly to a direct lender, then you get less fees by going through a broker, you get better service, you know, because they know exactly what don’t you want to get. But they do charge their points on top of what we charge.
Brett:
So you’re a direct lender for these hard money loans and versus a broker who might be charged more. Is that a fair summary?
Sean:
Exactly.
Brett:
Excellent. So let’s shift into the lightning round if you’re ready.
Sean:
Okay. Let’s do it.
Brett:
What’s the biggest project that you’re currently working on right now? And what’s the biggest challenge to that right now?
Sean:
Okay, so talk about real estate projects or personal project B.
Brett:
It could be anything.
Sean:
On a personal side, I’m actually trying to do one Tik-Tok video per day, because I’m trying to increase my social media presence. On the real estate side, we’re actually under contract for a small project out of state that we’re going to go and use as kind of like a trial run to do more rehab projects on. So as an example, I flipped projects here in the Bay Area, but because I came from an engineering background, I don’t know anything about flipping homes, right? I had to rely on my contractor to tell me how things work the schedule, etc. But I felt like it’s very easy for them to kind of BS you, right? Like you don’t know if it’s really the case. So I want to go out there and I want to try doing some small handyman stuff myself with, you know, a contractor to kind of guide you along the way. And it’s much better to do it at a state where prices are a lot cheaper versus risky on a million-dollar home here.
Brett:
Very well said. Yeah, I remember I did my first rehab for my house so it was the same thing I was like, “Am I getting charged too much for this?” I got let in these cabinets are a lot. Let me see if I can do this myself and him and resurface, repurposed our old cabinets were old like, you know, brown color, light brown. And then we made him into white cabinets and read, you know, and it was actually, you know, pretty decent work. And we put our floors in, but I’m going okay, I did the first time I got a sense for it, I got a decent education. But moving forward, I’m gonna hire this out.
Sean:
I mean, the point isn’t that I’m going to be a great contractor, and I’m gonna do all my projects myself, I just want to understand what really goes into a job. And how hard is it really to, you know, finish and accomplish?
Brett:
Perfect. So, best real estate deal you’ve ever done.
Sean:
My best real estate deal was my first flip project. I got this deal from another investor that I met at a local Meetup group. And she’s actually really popular now. You can find it all over Instagram and YouTube. And we’ve got this deal for 865. We put in about $75,000 of work into it. And within three months, we sold it on the market for $1.4 million. I wish I could have more deals like that. But that man changed my life. I was like, why am I working at a full-time job? You know, making your slow six figures when I just did this project in three months and made almost $300,000?
Brett:
Incredible, incredible, right? The power of real estate absolutely love it. How about building your brand? What’s the best Secret to Building your real estate brand online?
Sean:
Yeah, that’s a great question. Because I’ve been trying to do this for the past few years, right? I have a podcast where I’ve interviewed several people, even yourself, you’ve come on my show and given us some great value. I do a bi-weekly YouTube channel where I also create content, I feel like the best way is really to talk to people one on one. Because when your brand spreads from word of mouth, it has more credibility. So that’s why I’m actually accepting phone calls from a lot of people who come to my meetup groups and to my YouTube channel to just talk because it creates great conversations where I get to even hear from their sides, like what are their challenges? And what are they seeing in the market as well?
Brett:
Yeah, very well said. Building long-term relationships and connecting on a one-on-one intimate level. Love that. What are you curious about right now?
Sean:
I’m actually really curious about the whole construction part. That’s kind of like what I’m trying to focus on for this year. Besides content creation, I also want to understand what goes into a project. Personally, I don’t have an eye for design. Again, I think that’s one of my flaws from my past projects, where had to outsource a lot of design choices to my contractor. But if you know what you’re doing, and you have your systems in place, then any project you do should be very streamlined and very easy to do.
Brett:
Very well said. What is the best book that you’ve read in the past year or a gift in the past year?
Sean:
You know, I’m reading a book right now called The 12 Week Year, I just started reading a couple of weeks ago, and so far, it’s been great. And the premise of it is just to compress your yearly goals into these 12 weeks. So instead of thinking in terms of year think in terms of like when we accomplish in this quarter.
Brett:
Love it. Last question and this is kind of encapsulate your success so far and moving forward and how you keep encouraged. So after your success, you’ve had so far and all the challenges you’ve overcome so far. How do you stay centered on your values, Sean, and how do you stay encouraged to reach new heights?
Sean:
Yeah, great question. You know, I’m very thankful that have a very supportive girlfriend who is always there with me to kind of bounce ideas around and to keep me centered. And to think, you know, “Hey, here’s what we got to do to get to where we want to be, and we kind of just keep each other accountable.”
Brett:
Beautiful love that. And for our, our listeners, any last thoughts about for them? And would you remind them where they can find you?
Sean:
Yeah, definitely. If you guys are starting out with real estate investing, definitely educate yourself. This is a great podcast, like the capital gains solutions podcast. And if you guys want to, you’ll really get into the game join different networking groups now because of COVID they’re almost all virtual, so you have no real excuse you can just pop on your computer, log in to zoom, and boom, you’re in a networking group. If you guys want to find me You can find me on my website everythingrei.com. But if you want to join our meetup groups, we meet up twice a month at meetup.com/everythingrei.
Brett:
Beautiful. Well, Sean, thank you for being on the show for sharing a bit more about your story, your service of being a hard money lender, and I wanna encourage you to keep using the gifts and talents you’ve been given to be a blessing to others. And with that, also want to thank our listeners for listening to another episode of the capital gains tax solutions podcast as always, we believe most high net worth individuals And those who helped them they struggled to clarify their capital gains tax deferral options not having a clear plan is the enemy and using a proven tax deferral strategy, such as the deferred sales trust is the best way to exit real estate or business when selling. With that please rate review subscribe, we wish you well please share this with somebody it could be helpful and if you’re interested in learning more about your capital gains tax deferral options you can go to capitalgainstaxsolutions.com. And if you’re a business professional luxury realtor commercial real estate syndicator operator financial advisor you can go to experttaxsecrets.com to learn how the deferred sales trust can help you grow your business. Thanks, everybody for listening and take care. Bye.
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About Sean Pan
Sean is a real estate investor and hard money lender based in the San Francisco Bay Area and invests in single-family renovations as well as out-of-state investments in Jacksonville, Florida.
He is the host of “The Everything Real Estate Investing Show,” where he interviews top investors and professionals (agents, architects, contractors, and inspectors) to shed light on what they do, and how to help investors succeed in the industry. Sean also hosts local meetups in the South Bay, produces real estate-related videos, and consistently reports on local real estate news.
Sean focuses his time on providing value and guidance to newer investors to give them a boost in their real estate investing journeys.
