Podcast Interview—The Wealth Matters Podcast
Episode 289: Exposing mortgage loan secrets to benefit the self-employed with Alejandro Szita
As a mortgage broker in California and Florida, Alejandro Szita caters to business owners and self-employed professionals. Since 2005, he explored the world of real estate from all angles—commercial, residential and capital raising—before realizing that real estate finance was his true passion. Alejandro has built a diverse client base, ranging from top artists and entrepreneurs to freelancers and mom-and-pop retail store owners.
Despite being successful entrepreneurs, obtaining a real estate loan can be challenging for many of his clients, according to Alejandro. He sheds light on the difficulties these borrowers encounter and shares ways to overcome them. He also shares tips for real estate agents to better prepare their buyers for the loan application process. Alejandro is a regular guest on real estate and finance podcasts, and he enjoys giving practical advice as well as telling stories about the crazy things you can encounter in this field.
Podcast Transcription:
Intro: Welcome to the Wealth Matters Podcast, where investors come together to better understand how to build passive cash flow and create generational wealth without all the confusing mumbo jumbo. Here's your host and co-author of Amazon #1 one best seller, Alpesh Parmar.
Alpesh Parmar: Welcome to Wealth Matters Podcast. I am going to talk to Mr. Alejandro Szita, who is a California and Florida mortgage broker for business owners and self-employed professionals. And this is why this topic is going to be very interesting or important for me, because I could definitely relate. I have been a self-employed individual since 2009 and of course I've been a business owner since 2011, so I wanna learn as much as possible. As a real estate and mortgage professional since 2005, Alejandro has explored the world of real estate from all angles, commercial, residential, and capital raising before realizing that real estate finance was his true passion. So his clients ranged from entrepreneurs to freelancers and owners of mom-and-pop retail stores. And I'm pretty sure that he did really good in the last two years because if you guys are not aware there was a way where a lot of people, a lot of W2 employees resigned during the last two past two years. They became freelancers, they became Uber Drivers, DoorDash, or they made a lot of money from stocks or cryptos and they started their own businesses. So I am pretty sure he did pretty good. So welcome, Alejandro. We start with this particular question for us. Tell us something interesting or funny about yourself.
Alejandro Szita: Alpesh, thank you. Very pleased to meet you. Thank you for having me in your show. I would say that one thing that has been interesting to me is that 'm a Latin gringo. When I talk to people on the phone, you know, I'm from Chile. When I talk to people on the phone, as you can see, I have a Hispanic accent. Because I speak Spanish. So people that don't see me, they imagine me, you know, and I see this because I talk to people on the phone, now I do a lot of Zoom calls, but in the past I've talked to people on the phone, then they meet me in person and they go, oh, I thought you were short and brown.
Why? Oh, because of the way you sound. And if you are listening to this podcast, you know, I look completely German. I lived in the United Kingdom for a while and German people would just come to me and talk, talking in German right away without even asking me. And I don't know anything about German. So that's funny, you know.
Alpesh Parmar: That is funny. No, that's interesting too. So let's talk about, because this is an investment show. What kind of assets do you invest in and why?
Alejandro Szita: I invest in interests, in partnerships and LLCs because I want to have an active role. I'm not a passive investor. I'm not a passive type. I like to have an active role. I'm very good at solving problems. I'm really good at solving things like, like when you have issues on the chain of title or title. I'm good at talking to people, especially people that hate each other or they don't see eye to eye. I come in the middle and I try to do something like a mediate solution. So I have to do this as part of doing loans. You know, loans are very intensive. Loans usually have a lot of problems. So for years and years and years, I've solved all these technical problems. I used to work on the westside of LA and I was mentored by a real estate broker who specialized only on the difficult real estate cases.
So for 10 years, all I had to do was solve title problems, solve legal problems, even though I'm not a lawyer, but I interface with the attorneys. And I had to deal with people that were in conflict with each other all the time. That's what I did for 10 years, you know, so that's why I invest in partnerships and LLC right now. I have a project in Los Angeles that I'm working on, which is exactly like that. Four owners, two of them are in Thailand. We didn't even know I had to do some investigative work to actually locate them and so on and so on. So that's why I invest in that.
Alpesh Parmar: So when you say you invest in partnership and LLCs and trust, what kind of partnerships are they? Are they mostly real estate?
Alejandro Szita: Real estate. For example you have a property that has four owners, and then one of the owners, they are, the owners are ignoring one of them. This is how I got this one in particular that I'm talking to you about. So that owner contacted me by chance and I didn't want to take his case, as a real estate broker, because I am a real estate broker in addition to a real estate mortgage broker.
So I didn't want to, because it was a lot of work and for a commission, you know. So he said to me, you know, Alejandro, please do it. I don't have any money to pay you, but let's be partners. My wife heard that. And she said, you say yes. So I said yes.
Alpesh Parmar: Your wife is on board. That's a good thing.
Alejandro Szita: She's on board, she's very smart. She does the marketing side. So basically we became partners and it's been great. He's a great guy, you know, we had a lot of challenges and it's been great.
Alpesh Parmar: So a couple of questions which jump out to me. One is when you say you became a partner, what exactly you bring to the table and what exactly you are going to get out of it?
Alejandro Szita: What I bring to the table is the ability to see the transaction from actually above and not being involved in it. Even though I'm involved in it, I'm acting from a, how can I say this? Let me just give you a little bit of background. Through my 10 years working for my wonderful mentor on the westside of LA, I was exposed to many things. People have tried to bribe me. People have tried to offer me money to do things. Many times I was doing a listing and I was getting these buyers with this like in incredible schemes. You know, like I was doing a short sale once and I had this guy with this whole scheme to actually defraud the bank and pay me. I don't know how much money I have.
I have been exposed to this so, so many times. Every time I'm surprised because every time I learn new things, to do things the wrong way, which I didn't even imagine could exist. But that has hardened me, and that has given me an eye to see when things are not going well. So, to answer your question, what I bring to the table is that I'm able to, to extricate myself from the deal, see exactly what is the problem that everyone is suffering. Because I'm not worried about the commission, you know, I'm not worried about if I make money or not make money. I just want the deal to coalesce and to execute. Now what do I get in return? If I am successful, I get a piece of my partner's. If I'm not successful, they have invested all their time for nothing. But because I've been exposed to this type of thing for over 10 years, I'm not afraid of jumping into it. I don't know if that makes sense.
Alpesh Parmar: No, it does. So my next question about this before we jump to the finance side, isn't this a conflict of interest being a mortgage broker yourself and then being a partner in the deal?
Alejandro Szita: No, because we memorialize the agreement. We actually did an actual agreement. We hired a lawyer and we did a full agreement where he specified everything, what he does, what I do. So there is not a conflict of interest.
Alpesh Parmar: Got it. No, this was great. Thank you so much for giving us an idea on, of course, what you invest in. Now let's talk about, because I hear this from a lot of self-employed people and I was having, sometimes I was having issues. Most of the time I didn't have an issue, but as I told you, now I'm going to have an issue getting, you know, borrowing to buy a house for myself. Right? So what are some of the challenges that you see self-employed borrowers run into with their real estate financing?
Alejandro Szita: I will tell you specifically three. One is that business owners have a different view of what the FICO score does and what it serves. Another problem is that loans are really a bunch of rules. Loans do not really obey logic. Loans are based only on rules. And then business owners usually don't understand those rules. And the reason they don't understand that is because business owners are logical people. And these rules sometimes don't make any sense. And not only they don't make any sense, they counteract each other. And finally, the other piece that is not understood is the timing. The lenders' timing. Usually when you are a self-employed person, or when you are a business person, you are very fast in making decisions. And you're used to that. Somebody comes to you with a deal, you can evaluate it very quickly and you say yes or no.
But lenders do not operate that way. They look at some of the information and they say yes. So you think, well, I'm done then, but it's not a yes. It's only a 20% yes. Then they ask for something else and they say yes again. Then they ask for something else and they say no. And you go, how come? He already said yes twice, I thought the loan was done. The loan is a series of steps. It's a series of yeses until you get to the point where the lender finally says yes. That final yes, sometimes happens 30 days after you applied.
Alpesh Parmar: Wow.
Alejandro Szita: So those are the three things. Not understanding what FICO really measures. It doesn't measure your success. It doesn't even measure your ability to pay. You see, most business owners like me, we go, well, I paid it, I paid the bill. So how come I didn't get a good score? Because the score does not measure your ability to pay. It measures your ability to manage debt, but not just your ability to manage debt. Your ability to manage debt in a very arbitrary way that the people behind the FICO score designed, which is not the way self-employed people manage their debt. You know, self-employed people work on cash flow, you know, you get a big cash flow, you use the cash flow, you maximize the cash flow, you get a rate of return. That's not how the FICO score measures you at all. Not at all. And those two things oppose each other. So that's why usually a successful entrepreneur has a, say, below average or average credit score.
Alpesh Parmar: That is interesting. So by the way, I have an amazing credit score, but I do see how it would work for a lot of these, you know self-employed individuals. So do they have to correct their credit score then?
Alejandro Szita: Yes.
Alpesh Parmar: If they wanna get, okay. That is what you recommend them first,
Alejandro Szita: What I recommend is something that no one wants to do. What I recommend is that before you buy the house or before you're thinking of buying the house, spend two or three months correcting the credit score. Preparing your documents, analyzing your financial situation, because there are hundreds of loan programs. When I say hundreds of loan programs, I do not mean hundreds of different interest rates. I mean hundreds of different sets of rules. And we need to see which set rules are going to work for you. Usually people don't wanna do this because it's time consuming. It's a lot of work. They prefer to find the house first. So they find the house, they're enthusiastic. They send me the listing and say, Alejandro, look, this is the house I found and I'm already in escrow. And I say, okay, how long is the escrow? Well, it's 30 days. And then I get a call from the realtor saying, hey, can you remove the long contingency in seven days? And we haven't even begun. You see? And usually it takes two to three months to really prepare someone to be successful at a loan and not be emotionally draining. These loans for the borrower and for everyone tend to be emotionally draining because they have ups and downs, ups and downs. So that's why I recommend preparation.
Alpesh Parmar: So what are some of the things business owners can do to secure the mortgage they need despite all the challenges?
Alejandro Szita: Very simple. Prepare on your credit score. We will run your credit score. You know it costs like $12 because we will do it in a soft pull mode so it doesn't affect your score.
And it doesn't count as an inquiry. Then we will put your credit score through two software tools to see what we can do to maximize the score right away within 30 days. And if that fails, then I will go manually on another software tool and I will go trade line by trade line, bureau by bureau, manually changing here and there just to see how we can increase it. And I'll tell you why. Because you have to have at least 680 to start to get a reasonable rate on the self-employed side. Ideally 720 or more. So anything we can do, and usually, even though we're not a credit report agency, we don't claim to be one. We don't charge for this service. We usually increase the score between 20 to 50 points and sometimes even 100 points. Because we want you to have the highest that you can.
That's one thing you can do. Another thing you can do is the documentation. Like if you have an LLC, if you have a corporation, we wanna make sure that it is properly incorporated. We wanna make sure that you have paid your franchise tax board bill. We wanna make sure you file your statement of information. All those little things that sometimes we're busy and we forget. We wanna make sure that, make sure that they're in because the lender is gonna ask for them, you know? And finally, I sit with you one-on-one, like we're having now on the podcast, listen to your financial situation. I have a spreadsheet that I made for myself that now I share with my customers over Zoom. And we go through the whole loan with you. We go through the whole loan just to make sure that we are ready. Only when we are ready is when the loan begins. For most other mortgage brokers, the process begins where we end. Like, we do all of this work, you are ready to go, we already did the loan, we already looked at the rate more or less. And you say, okay, Alejandro, I like everything we've done, let's go ahead and do it. That is usually the beginning point for other mortgage brokers. And that's why it becomes so emotionally draining.
Alpesh Parmar: I see. So another question I have a lot of time, you know, as especially where, you know, my, with my friends I see here, right? In California and of course where I'm investing, they just go to, let's say, Citibank Chase, right? Or Loan Depot and this and that, and just try to initiate the loan. When do you actually need a mortgage broker?
Alejandro Szita: When you have anything less than perfect. If you have perfect credit score, if you have perfect income, if you have documented everything and all your administration or all your paperwork is in order. If you've been doing this job for many, many years and you're a high income person, then I will tell you right away, go to a credit union, not even a bank, because a credit union is gonna give you the best deal. And if for some emotional reason you feel attached to your bank and you want to go to your bank, go to the bank. But let me just tell you a little story very quickly, a cautionary tale. I had one of my clients that we closed a loan for him about two weeks ago. He's a very successful business owner. 32 plus years in the business, $20 million, you know, gross sales in a year. So this is, we're talking about a medium size company. For 20 years, he's been a customer with one of the major banks. So when he needed a loan, he didn't think about it. He went to the bank, he talked to his account executive. The account executive said, oh, for, for you Alpesh not to worry. Just come tomorrow, sign in here, your loan is done. The cheapest rate, he went in, signed, began the loan process, and then they discovered what to me is a trivial credit report issue. And they say, well, I'm sorry, you know, we can't do the loan. And you will think, wow, this guy's been there for 20 years. They know his account, they can just type on the computer. They see how much money he makes, how come, there is someone that didn't spend two hours helping him correct this little trivial thing. But that's what happens too. So you need a mortgage broker when there is, when you are less than perfect. Once you become a high net worth individual and you're really high up, let us come to your door, and they knock on you and offer you things, at that point, you don't need me because you will save more money by going with them.
Alpesh Parmar: Got it. And as you are a mortgage broker as well as real estate broker, so I'm pretty sure you talked to a lot of agents, what can real estate agents do if they are running into problems with a high income self-employed buyer who somehow cannot seem to get qualified?
Alejandro Szita: You can do two things. The first thing is, if you get into a contract, don't make it short. Make it a 45 day escrow. You know, before they were trying to shorten the loan contingencies, shorten the appraisal conditions.
Don't do that anymore. You know, the market has changed. Respect the contract dates. Even the contract dates the way they were. Like 17 days for appraisal contingency, 21 days for low contingency. That was already pushing it. That's already pushing it. That's already, if everything goes perfect, I can tell you for a W2 employee, our record has been 11 business days from application to funding. But that only applies to a very narrow segment of W2 employees that have a conforming loan. Anything that escapes that universe has completely different rules. So first of all, have a long escrow. Second, call me even if I'm not your mortgage broker. Even if you're using someone else. And I will tell you why. We are a relationship lender. We are relationship mortgage brokers. We want to create relationships. We are not transactional. Of course, we need to close transactions because otherwise we cannot collect money, we cannot pay our fees, we cannot be in business. But our number one motivation is to create the relationship. Even if we don't get that particular deal, we establish a relationship with the real estate agent, which is our bread and butter. And hopefully we give them a good service. He or she, and then later they will think about us when it comes to, you know, finding a mortgage broker for the clients.
Alpesh Parmar: No, it's important to build a long-term relationship especially in our business.
Alejandro Szita: Yes.
Alpesh Parmar: So this was very, very helpful. Let's talk about what's coming in view of the inflation and increasing interest rates in the US, and maybe a recession. Is it still a good idea to buy a property right now?
Alejandro Szita: You know, when I came into this business back in 2005, a good rate that was hard to get was 7.5%. Before that, rates were at 18%. At 18%, millions of people were buying homes. And hundreds of thousands of real estate investors were making money on real estate deals. This is what happens. As rates go higher, prices go lower. As rates go lower, prices go higher. So when you realize that, you'll see that it all depends on your goal. It all depends on your business model. And I will give you two examples. I give you this example. I have a business lady who buys homes and she provides services for older people. Older people pay her, you know? And then she wanted to buy, you know, she started with one house, she did very well for like seven years. And then she called me, said, Alejandro, I wanna buy a second house, but no one will give me any money.
This is when rates, this is when rates were at like 4%. Okay? So the regular rate was 4%. And I said, you know, I found your loan. They will give you the loan knowing that it's an investment, knowing that you're going to run an elderly home, but they're gonna charge 8.5% and it's a 30 year loan, it's a fixed 30 year loan. It's no variable, it's no margin. And she said, okay. And then I shared my screen with her on Zoom. And she says, okay, what is my mortgage payment gonna be? So when she looked at it, she didn't think twice about it because she's a business owner. She says, do it. Why? Because her business model is such, that 8% didn't really matter. Of course she would've wanted to get it at 4 or 6, but she was not limited by the rate. She wanted to get her goal and she had a business plan.
And the 8.5%, the 6 to 7 really didn't, was not the focus of her plan. The problem is that the rate is what is advertised on tv. So we get to focus on the rate instead of focusing on what we want. That's an example for a business owner. Let me tell you an example for an individual. Let's say you say, you know Alejandro, you know, Alpesh, I'm not a business owner, I just want a house for myself. Okay. If it's a house for yourself, I'll work with you to determine how much you can afford. And let's say the rate is 8%, because I believe that the rate next month is gonna be 8%. Why? Because the Fed is rising another 75 basis points. So you said, Alejandro, but it's 8% . I say, no problem, how much do you wanna spend on your home?
Well, you know, I cannot do more than $4,000 a month. And we work it backwards. We take the $4,000 a month, we estimated taxes and insurance. We apply an 8% fixed rate for 30 years. And then we come up with the price. Look, this is the price. And let's say just for the sake of the example, the price was $800,000. And say, Alejandro, there is nothing I can buy with $800,000. And I say, go to Zillow, homes that are for nine fifty and offer $800,000. Now, this advice is very difficult for a culture that is not ours. You know, from Latin America, from India, we are used to this. To us, if we see a house from nine fifty, we will not blink an eye and offer eight hundred. But we are coming to that. What happens is sellers or homeowners take a year to a year and a half to realize that the market has changed.
So even though rates are going at 8%, even though the house that is right now, nine fifty, that should be eight hundred, it will get there. It will get there. All you are doing by being a little aggressive is anticipating the curve. So if you feel you can do it, hire an agent that can. There are many agents that would have no qualm in submitting an offer for 800 for a house of 950. So that's my advice to a person that wants to buy their own home. Look, we're getting down there. But if in the meantime you see the house that you want, don't be shy. If you cannot do it yourself, just hire an agent that is aggressive and just go for it. It's just paperwork. It's not even paperwork now. Everything is a PDF that you DocuSign.
Alpesh Parmar: It's very easy.
Alejandro Szita: All you have to click, all you have to do is click with your mouse. If you can click with your mouse and save $150,000, why not?
Alpesh Parmar: Why not? Oh, that's awesome. So another question about economics and, you know, overall inflation, et cetera. How can people protect themselves financially from a potential economic downturn and future economic instability?
Alejandro Szita: Buy physical assets. And interact with your local community. Get to know, I mean, this sounds, let me tell you, I've tested this and I've done this myself. Get to know your neighbors, get to know the business owners around you. Build a community like it was done before, you know? But unfortunately, with cell phones and computers, we forgot the power of talking to your neighbor because you always see, you know, these things that the guy is preparing in his bunker. He's buying ammunition, he's buying blah, blah, blah. But even if you have all the money, even if you bought the bunker and blah, you will not survive. Because we are social, we are humans. Humans survive and thrive on a community, but on a real community where there is physical contact, you know. So buy physical assets, concentrate on having physical assets. I tell you, I was in Chile, and I don't know if we have time, but I have a little collection of the notes that I bought in Chile.
And I can show you the progression of the notes and inflation, because I witnessed this myself, and I went to a fair the other day and there was a guy selling notes. And I bought all these notes from Chile when I was a boy. So I can show you what happens when there is inflation, but try to get physical assets. If you have to hold money in cash, have it in a way that is liquid, that you can deploy it very quickly and get to know your local community. That's very, very important. Get to establish actual real physical relationships with your neighbors. And then one more thing that I got from Martin Armstrong from armstrongeconomics.com. This is not me, this is him. But I agree with him. He says, you know, you read all these predictions that the dollar is about to collapse, that this and that, and blah, blah, blah. But he says that we're 10 years away from that. So if you want to, if you need to have any savings, have them in cash in US dollars. For now the US dollars, not gonna crumble. It is not gonna go to dust.
Alpesh Parmar: It's the strongest right now when compared to compound.
Alejandro Szita: Yeah. And it will continue to be that way for many, many reasons that we don't have time to go over. So keep cash, buy physical things and invest in getting to know your neighbor and developing local relationships.
Alpesh Parmar: This is great. So last question before we know, move on to the next round or next stage of our podcast, and this is for, I need a crystal ball from you. What do you see the mortgage rate for the 30 year fix would be in January of next year.
Alejandro Szita: Well, I don't need a crystal ball here. The Fed has already said that they're bumping it up another 75 basis point. So we're going to be on the low eights.
Alpesh Parmar: Right. But so that is November, but then let's see if they're going to bump it up again in December.
Alejandro Szita: Let me tell you a very interesting thing. And again, this is from Martin Armstrong. Armstrong Economics, by the way, I don't get, I'm not affiliated with him. I don't get any money. He doesn't even know me. I know him because I read his blog every night, but he doesn't even know me. This is what is happening. We in the United States have all these problems, but in comparison to the rest of the world, we are the best. There is no other currency right now for Europeans, for Latin Americans, or for Asians to invest than the US dollar. There is no other market that allows you the freedom. You know, here in the United States, in a few hours you can incorporate a company, you can work to a bank account, open a business account, which you cannot do anywhere else in the world.
You go to Mexico, you go to my country, you need to hire an attorney, spend thousands of dollars, wait about a month, go to another republic, sign a bunch of papers. Here, you can do it online, in a few hours, a few hundred bucks. Next day you open a corporate account that doesn't exist anywhere else. No other country in modern history, or even if you have to go to the Roman times, the United States has never canceled their currency. If you walk down the street and you find a $10 note from 1910, you can go to any bank. They can give you modern notes. You cannot do that in England. You know, in England, I lived in England a few years ago. I have some pound notes because I like to collect notes. If I go to England right now with those notes that I just got a few years ago, there is nothing I can buy because there are no legal tender anymore.
The United States has never, ever done that in its history for those reasons and many, many more. People are coming here. So you have this ocean of money, as World War III in Europe begins to increase, everyone is being, and this happened in World War I, by the way, and happened in World War II. So this is not far-fetched. People with money are bringing their money. So you have a very interesting thing. You have all this money coming here. This ocean is a very doubling ocean of money coming here. So that's one market pressure. And now that the Fed is rising rates, more money comes because you cannot get an 8% return anywhere in the world. You cannot get a 2% return anywhere in the world. And here you can get an eight. So as all of this huge amount of money comes in, that is a pressure on the rate to go down. So you have all the money coming in, pressuring the rate down, and you have the Fed trying to control inflation. But this is ridiculous. They're not gonna be able to do it.
It's because of scarcity. It's because of product scarcity. Because of what they did with the lockdown that ruined the industry. It's because of the sanctions against Russia.
Alpesh Parmar: And the money printing on top of it.
Alejandro Szita: And the money printing. So the Fed is trying to raise the rate, and then this ocean of money is trying to depress it. So after January of next year, I don't know how those two forces are gonna play together. So for one, one side, you have it going up and on the other side is going to have down. So that for us, for clients, for customers, for borrowers in the US is good because this is gonna be a pressure for rates to come down.
Alpesh Parmar: Yeah. And I was again, you know, of course, thank you for recommending Martin Armstrong, I'm gonna look at his blog as well. But I've been following a couple of other economists. And what I'm hearing is that once the inflation goes above 5%, it usually takes about five to ten years to bring it below 5%. So it's not going to be rocket science. And you know, by increasing your rate, they will just be able to control and bring it back down to 2%. It's impossible without forcing a true recession like a big recession. Right. So that's one thing. And second, when we are trying to control inflation, in bringing the interest rate up, and at the same moment we are also going to forgive loans, like student loans, what is that gonna do? Again, you are printing money from thin air. These people who could not afford to spend money now, they'll be able to afford it because they don't have a loan to pay. So it's like, as you said, there are a lot of forces which are working in opposite directions. So we don't know what will happen.
Alejandro Szita: Yes. But you know, the interesting thing, there is a book, it's a novel written by James Clavell. It's called King Rat. And it's the experiences of a prisoner of war in a Japanese concentration camp. But what I like about this book is how this prisoner of war, applying the principles of economics and the principle of free enterprise, manages to create a free enterprise in the concentration camp.
Alpesh Parmar: Yeah, it's interesting.
Alejandro Szita: It's just a novel. But it tells you that free enterprise and system is part of human nature and it will always prevail. So you have all these people like Klaus Schwab, the World Economic Forum, all these people that are trying to go against the free market. It never works. It has never worked. I'm a student of history. It has never worked. They keep trying, but it will not work.
Alpesh Parmar: All right. Thank you so much for a lot of golden nuggets and insight into the economy. Are you ready for the fire round?
Alejandro Szita: Yes.
Alpesh Parmar: Would you be changing any investment or business strategy because of inflation or recession?
Alejandro Szita: You always have to reinvent yourself, even if it is not recession or inflation. I always listen to my customers and I anticipate my move based on what I detect. This is what I detect. I detect that business people need more funding, and always trying to think what can I do then to provide this funding? Because my business is people that are buying homes, but we cater to the self-employed, to business people and to artists. Many of them, once they become even more successful, they call me because they want to invest in their business. So one product that we will be rolling out, not so much because of the recession, but I would say accelerated by the recession is what I call the millionaire reverse. Most of us associate a reverse mortgage with being poor, with not being able to pay your mortgage and therefore you get a reverse.
But there is another side for millionaires, there is another side for older entrepreneurs where they can go into the millions. You know, we don't have time to go into that, but that's a new product that I had on the back burner before, but now I'm starting to accelerate its development. That's one thing. Another thing that we're doing is we are, we've always been able to do small balance, commercial, business, real estate loans. We've always been able to do that. A small balance commercial loan is any loan on real estate between $300,000 and $5 million. There is a whole reason why we don't do more, but it's a little long to explain. So we always have that. And some people sometimes took it and now we are promoting it a little bit more because people are going to have a need for that.
Alpesh Parmar: Oh yes, yes. Big time. I can connect to it. I think the loan, commercial real estate loans between $300,000 to actually $1.5 million is very hard to get.
Alejandro Szita: Yes, yes. And there are many loans. There are many of those loans that no bank would grant, even though they make perfect sense. I'll give you a very quick story. I know a garment manufacturer in East LA. He has a very successful business because I know his clients. Why do I know him? Because I did a loan to one of his very famous clients who is an artist. He's a rapper and a fashion designer. He has like a million followers on Instagram. He's very famous. But doing the loan through him, I got to meet his supplier who is in West LA. A guy that reminded me when I was a kid, because my dad used to be a clothing manufacturer. So when I went to his factory, he reminded me of when I was a boy and I was playing in the machines, you know, the steam ironing machines and all that.
Alejandro Szita: And he is leasing this huge industrial building where he manufactures and he wants to buy it. It's only $1.7 million. Now, probably it's less because of the recession. No bank wants to give him any money, even though he's been in business for years, he has a good cash flow. He can afford the payment. He's already paying more on a lease than what he will be paying if he owned the property. So loans like that, we are developing a private division where it's not gonna be hard money because hard money is not sustainable for business people. It's what I call soft hard money. It's for people that are looking to get a return on their money. This is where the investor comes in, but they're not only looking to get a return, they're also looking to help the local economy. You know, so they're willing to forego the hard money rate for a more stable and longer loan. So that's another thing, those are the three things. Those are the three plans that I had for years ago, but I'm trying to accelerate them because of the recession.
Alpesh Parmar: That's awesome. Favorite real estate or finance or any other related book?
Alejandro Szita: There is a book called Debt: The First 5,000 Years by David Graeber. This guy is crazy. He worked, I don't know how many decades, gathered all the records of all of the interest rates since the beginning of humanity. He goes in detail on what those rates have been and why, and he goes into details on the different types of money that people have used. You read that book and you go, wow. If you are interested about the nature of money and the history of interest rates, that's one that I really recommend. The other one that I mentioned, King Rat by James Clavell is another one because you can see how the free enterprise system works even in the worst of environments, which is a concentration camp, you know? And there are many, many others. I have many others that don't come to mind right now. And then the blog of Martin Armstrong armstrongeconomics.com.
Alpesh Parmar: Awesome. Any tool or website you recommend or you cannot live without?
Alejandro Szita: Martin Armstrong. Because, Armstrong Economics, because you, he posts like three articles daily, every night. I soak them, you know, and he also has a private blog. It costs very little, I mean, I only pay like $15 a month, you know, for the basic membership. But on the private blog, he has deeper analysis about some of the issues.
Alpesh Parmar: That's great. Any advice for beginner investors?
Alejandro Szita: Yes. Don't be fooled by the high rate of return. Don't be fooled by the stories that, hey, I was poor. And then in two years, now a millionaire real estate investor. I'm not saying that doesn't happen, but that only happens to the 0.00001%. You could be, 0, 0, 0, 0. But if you think that way, better go to Vegas, you have better chances in Vegas than in real estate. Why? Because there is a difference between investing and speculating. Investing is when you have a plan, and through the plan and through your actions, that are consistent over time, you put value that you create and generate into your plan. And that value starts to skyrocket, starts to build, starts to increase in a logarithmic fashion. And then over time and over the consistent approach of your plan and the execution of your plan, you create way, way more value than the value that you put into it. That is investing. And there is no way around it. It takes time. That time could be shorter, relatively speaking, could be longer, but it's not gonna be overnight. I remember listening to this radio program, they were interviewing this famous, famous writer and the host was saying, wow, you became an overnight success. And the writer says, yes, after 40 years, I became an overnight success.
Alpesh Parmar: Right.
Alejandro Szita: Now, I'm not saying that it's gonna take you 40 years, but if you have a frame of mind of speculation, and there are people that are good at it, I'm, unfortunately I'm not good at it. But if you have success with speculation and you can do well, just do that. But that's the minority of people. If you want to get into real estate, remember it's gonna be an investing approach and that is going to require discipline, habits and a constant creation of value and reinvesting. And then you're gonna be very successful and it's not gonna be overnight. So don't be fooled by those high rates of returns and concentrate rather on principal preservation, on capital preservation. When you go into the deal, especially if you're a beginner, go for it. Not because of the money that you want to make or that you're going to make, but because it has capital preservation as the number one goal.
Alpesh Parmar: Oh, that is awesome. That's such sound advice. How do you give back?
Alejandro Szita: I've tried to give back in many ways, but the one that is more fulfilling for me is mentoring. You cannot imagine, in the daily course of my dealings with agents and customers that are especially agents, I get a lot of calls from agents that really don't know what they're doing. Of course, I never tell them that. What I do, I just try to mentor them. I was very, very fortunate that through a real estate transaction many years ago, I met my mentor. My mentor at that time, this was many, many years ago, was already very successful and he still is a very successful real estate broker on the westside of LA. He really showed me how to do this. He really showed me how to care, how to really pay attention to detail and how to take the high road when needed.
And that feeling, I think, is disappearing among the younger generation of real estate professionals because they're blinded by the rate of return. They're blinded by, they think that because things can be done online, everything should take place in one week. No, the online tools are good, but the online tools are just tools. They help you do a job. This job is human in nature. It's not technological in nature. I see this all the time. Oh, we have this new software, we have this new website, therefore we can learn better. Therefore we can know. No, technology has its place, but technology is only an aid to a human field. People don't buy houses necessarily because of money. Investors do, but people that want to buy your house, they buy for emotional reasons. People that seek a loan, many times not in the professional field, they seek it for emotional reasons.
So this is a human feeling. So never confuse the tools with what you're doing. So what, how, the way I try to give back is try to give agents a vision, like a bigger vision, a more, a little bit of a macro vision of the transaction. This transaction is not only about the commission, it's not only about satisfying the client. It is fulfilling. You as a realtor, I'm not, I'm not a realtor anymore. But like you said at the beginning, I used to be a luxury realtor. I used to be a commercial realtor. As an agent, you derive satisfaction from your job. If you don't derive satisfaction from your job, that is something you have to change. And that's how I tried to do for those agents what my mentor did for me.
Alpesh Parmar: That's awesome. How can my listeners reach out to you?
Alejandro Szita: Send me an email on info@prosperitylending, prosperity like something prosperous, prosperity lending all one word, dot US. And you can go to my website. You can see how I look, www.prosperitylending.us. And then you see this German guy. It won't make any sense with what you're hearing right now, but be warned, you know, because I'm a Latin gringo, www.prosperitylending.us or send me an email at info@prosperitylending.us.
Alpesh Parmar: Thank you Alejandro, for your time. I thoroughly, thoroughly enjoyed our discussion and even I think I'm looking forward to staying connected with you.
Alejandro Szita: Of course. Thank you so much, Alpesh. Thank you for giving me a voice to your audience.
Alpesh Parmar: Absolutely.
