Joe Downs explains why self-storage investors need a lender pre-approval before hunting deals. Lenders check your tax returns, credit score (680+), and 6-12 months of reserves. Get the letter in 1-2 weeks, attach it to every offer, and refresh it every 3-6 months to stay competitive.
Chapters
All right. Welcome to day 73 of the Storage 100 series. I am Joe Downs. And before we get talking about getting pre-approved, the step that most investors skip entirely, I want to remind you that everything I teach in this series goes deeper inside the Storage Moguls community where we've built an AI-powered learning platform at storage moguls.ai. That's storage moguls.ai. And remember the AI, remember that because that's what's powering us up over there. So storage-mobiles.ai. And in our community, you'll find StorageGPT tools, multimodal learning, and it's an immersive experience across every storage vertical. You can start your journey for free and level up at your own pace. All right, let's talk about why pre-approval is the move that separates window shoppers from deal closers. Because skipping this step means you're not ready to buy and you're wasting everybody's time, including your own. So we need to flip the script and get your financing profile locked down before you even look at a property. Understanding your financial limits allows you to move with the speed and confidence when the right deal finally appears. So preapproval is a conditional commitment from a lender that tells you exactly how much money they're willing to lend you. This is a deep dive where the lender reviews your actual financials before you've even identified a specific It's not the same as prequalification, which is just a quick non-binding guess based on a few verbal answers. Preapproval means the lender has done their homework on you and they're conditionally committing to a loan. Now that we know what that is, it's easy to see why this commitment is so critical to your success. And the biggest benefit is that you know your exact buying power before you start shopping. So That'll prevent you from chasing deals you can't afford. And a preapproval letter also signals to sellers that you're a serious qualified buyer who's ready to close. And this potentially gives you an advantage over the other bidders who are just prequalified. And then finally, having this done upfront speeds up your closing process significantly because the lender's already vetted you. Now they just need to underwrite the property itself. And this is what you need to show the seller. that you're the real deal. So then you may be wondering, well, what exactly does the lender look at? Well, essentially it's 5 key areas. First, they want to see your personal financial statement to gauge your net worth and overall balance sheet strength. Then they're going to require 2 to 3 years of tax returns to verify your income history and stability. Your credit score is also a character check. They typically want to see 680 or higher to confirm you know how to manage your debt responsibly. They also care about your real estate experience or business experience, or at least a solid plan for property management if you're new. Finally, they'll verify your liquidity, your reserves, make— probably make sure you have 6 to 12 months of cash on hand after closing to cover any unexpected issues. And then understanding these requirements is going to— is what's going to help you prepare. But what do you do once you get past this review? Well, Very powerful. What you get from the review, I should say, is a very powerful tool in your arsenal, which is the preapproval letter. And this letter clearly states your maximum loan amount, the interest rate, and the general terms you can expect. It's also going to list the conditions you must meet to close, such as, you know, a successful appraisal, environmental survey, etc. And remember, this letter has a validity period too. So typically 60 to 90 days. You'll need to recertify it if it expires before you find a deal. And here's pro tip: you gotta include this letter with every LOI you send out, letter of intent, LOI you submit to a seller. Always include it. Instantly elevates your offer above those who only have a prequal, prequalification. All right. One preapproval letter common point of confusion we need to clarify, though, is the difference between prequalification and preapproval. Prequalification. Just a quick estimate based on self-reported data. Lender hasn't really verified anything. They're saying they might lend you money, and this is essentially meaningless in a serious transaction at that point. Pre-approval, that's the gold standard. It involves a full review of your verified documents and a hard credit pull. Lender is confirming they will lend you money up to a specific amount. Now, not every lender will give you one though, so they may or may not factor, or that may or may not factor in your decision on who to use. All right. Now that we know the difference, let's walk through the actual process of getting that preapproval. Because the process starts with contacting lenders. You should probably reach out to 3 to 5 banks or a mortgage broker who'll do that for you to shop the best terms. Next, you're going to submit your docs. This is going to mean your personal financial statement, tax returns, and a resume detailing your experience. Lender's underwriting team then analyzes your financial strength, They're looking at your capacity and your track record. And then finally, if you're approved, you'll get the official preapproval letter. This entire process, if they're willing to do it, good bank, 1 to 2 weeks. It's a small investment of your time if you think about it for massive return in credibility, especially if you're new. But when exactly should you start that process? Because knowing the process is one thing, but timing is everything in this business. So you need to get preapproved. before you start shopping. You don't want to fall in love with a deal you can't afford. Also, knowing your budget upfront prevents emotional overspending. So getting preapproved signals to brokers that you're a serious, capable buyer, not just a tire kicker, and they just might prioritize you for off-market deals at that point. So you should always keep your file current by updating your preapproval every 3 to 6 months because remember, financials age and rates change quickly, which will affect your approval amount. So in competitive markets, having financing lined up is the only way to wage in a bidding war. Don't wait until you find the perfect deal. Start the process soon. All right. So we covered a lot of ground today on this process, and I want to leave you with one clear thought. Preapproval is the dividing line between a serious buyer and a tire kicker. So if you show up with a preapproval letter, you're signaling competence and readiness. Without it, you might just be wasting everyone's time, including your own. So get pre-approved before you shop. It's the most important step you can take to secure your first or next self-storage deal. All right, if you're interested in raising capital for your self-storage deals, check out the link below in the description. It's going to lead you right to selfstoragemuggles.ai. Next up, day 74, we're going to be talking about working with mortgage brokers and self-storage. If you found this information valuable, please like the video. Helps us reach more people. Subscribe to the channel so you don't miss any of the Storage 100 series, and please share this video with your network. Again, you can find us on all social platforms at the handles listed here. And if you can think of someone you know who's shopping for a deal without preapproval, share this video with them. So remember, getting preapproved isn't paperwork; it's ammunition. When you walk into a negotiation with financing. already lined up, lined up, excuse me, sellers take you seriously. If you want tools that help you organize your loan docs and track your financing journey, join us for free at storagemoguls.ai. Thank you, and we'll see you tomorrow.
