Capital Stacking vs Traditional Funding

The two easiest loans for buying an investment property, reason why these are so easy is that they don't require any financials, making it the perfect choice for the self-employed. First one is a bridge loan, a short-term loan in which you're paying interest only. Typical term is about 12 months. These are great, especially if you're buying a property that needs to have some rehab done, as the lender covers 100% of that rehab and anywhere from 75% to 90% of that purchase price.

This can be when you're buying a rental, you're going to be raising those rents, you aren't sure what they are yet, so you get into a bridge loan and then later on you refinance into a DSCR loan with those new rental rates. Second type is a DSCR loan. Easiest way to understand this, you're making sure that the rent you're collecting is going to exceed your mortgage payment by at least 15%.

Typically on these loans, you are going to need a 25% down payment. However, when working with private lenders, you can borrow that down payment.

I probably shouldn't be telling you this, but sometimes the numbers just don't make sense when it comes to borrowing money. So for example, I talk all the time about my favorite type of funding for business owners, which is capital stacking. However, one of the biggest hang-ups and why some people just don't move forward is they're just hung up on the 9.9% success fee.

It's paid on the back end after you receive the funding, but some people feel like those numbers just don't make sense. And then they tell me, I'm going to take out, I just want a traditional business term loan. That would make way more sense than paying that 9.9% success fee. So let's break down those numbers and see if it really does make sense. So just to keep the playing field even, in all these examples, I am going to be talking about taking out a $150,000 loan.

So let's talk about first a five-year term loan. Borrowing $150,000, your monthly payment is going to be roughly $3,113. And in those five years, you are going to end up paying nearly $37,000 in interest alone. And in case I forgot to mention it, we are going to be calculating these numbers based upon an average interest rate right now of about 9%.

And because borrowing money is never free, no matter what you're doing, there is a success fee on any type of term loan. Usually, it's right around 5%, which in this case would equate to about $7,000. So then let's talk about a longer term loan. Everyone loves those. A 10-year term, which is absolutely possible. Definitely lowers your monthly payment.

You'd be looking at about a $1,900 a month monthly payment. And in those 10 years, you are going to end up paying nearly $78,000 in interest alone. You're still going to have that roughly $7,000 success fee. And the thing to keep in mind with those term loans compared to capital stacking, with the term loans, you receive all that money at once. So you start paying on that from the beginning.

However, with capital stacking, you are determining what your payment is. You are determining the amount of debt you have. So let's say perhaps with capital stacking, you end up getting $200,000 in capital stacking, which is business credit. You certainly don't have to spend that all at once. Let's say you only spend $20,000 initially. You're only going to be paying on that much money.

But let's say you do spend the entire $150,000, just to keep it even with the other term loans there. Your minimum monthly payment on $150,000 is going to be roughly $1,500 a month. And as for interest, business credit with capital stacking comes at 0% for up to two years. So you will not be paying any interest. And everyone always says, well, what about after the two years?

You don't close the business cards. Instead, after those two years, you're going to put in place a balance transfer strategy. Does it take a little bit of work? Absolutely. But that's how you can extend that 0% period for years longer and not pay that interest. And the success fee on that $150,000 with capital stacking is going to be roughly $9,900.

Now, I'm no mathematician, but which one of those three options makes the most sense? Which one is going to be the most cost effective? So for those of you that have argued and not gone forward with capital stacking because of that fee, maybe seeing these numbers in a different light will help you make that decision. Additionally, one of the benefits of capital stacking versus taking out a term loan, you're actually helping yourself build business credit.

So that initial $150,000 that you borrowed could very quickly grow into several hundred thousand just by using it effectively. Unfortunately, a term loan doesn't quite have those same benefits. If you'd like to see more videos like this, comparing different funding options and seeing what's best for you, be sure to follow my account.

I just want to tell you how excited I am that you have been approved for personal funding and you've decided to move forward with that offer. You are about to embark on a journey that is going to radically change your life, whether you're starting a business, growing a business, getting into real estate, whatever it might be, you've made it happen for yourself in a very easy way and now comes the fun part.

I just want to thank you personally for choosing to work with us. We hope this is an amazing experience for you and we will be here for you the entire way, even though we're not the ones loaning you the money, we're here for any questions or concerns that might come up along the way. So once again, congratulations and I am just so, so excited for you.

I just want to tell you how excited I am that you have gotten a funding offer and that you are moving forward with revenue-based funding. As you've quickly seen, this type of funding is very different from bank funding. We don't need all those financials. It was a very easy process for you to apply. But now comes the fun part, changing your life and changing your business. This type of funding is very fast, so hopefully within just a few days you'll have those funds.

But I'm really anxious to hear, how is that going to change your life? How is that going to change your business? Are you growing your business? Are you starting a new venture? Whatever it might be, revenue-based funding is the perfect choice for it. So once again, thank you for choosing to work with us. We are so honored to do this with you, and I am just so excited for you.

I just want to tell you how excited I am that you have been approved and are moving forward with a funding offer for capital stacking. In case you haven't realized it by now, this is definitely my favorite type of funding. It's the easiest, it's the lowest cost, and it can do so many amazing things for you. So I really want you to take this time and think about your why.

Why are you doing this and what's it going to do for you? Is this going to allow you to get into real estate investing? And for many people, that's the only way that they're able to get in. Or is this going to help you start the business you've always dreamed of? Or even take the business you have and grow it to the next level. There's so many amazing things that you can do with this.

And I would love, love to hear your story because there's nothing that makes me happier than hearing your success stories and hearing how much this has changed your life. Because trust me, I get those stories all the time, but I'd love to hear it from you. And while yes, you will not be working with me personally throughout this funding process, you are in great hands with our funding partner.

They will take you through these next steps. However, we are here if you have any questions or concerns along the way. And once again, congratulations. I am so excited you've decided to take this next step.