Fairfield Financial Services, Inc. - Private Money Loans, Lending & Borrowing

The Private Money Broker

What’s Going On Out There?

February 3rd, 2012

Clay Sparkman

With the decline of real estate prices and concern about the global economy, there is a lot of speculation regarding the timeline of this recession. In conversations with brokers, investors, and developers throughout the country, the topic often turns to one common question: what’s going on out there? I’ve heard what the experts say, and certainly these people are more qualified than I to make statements regarding the indicators on the global and national economy. However, I do have my finger on the pulse of the hard money market in regional pockets throughout the USA, and here are some thoughts from someone down in the trenches:

It seems like a lot of people are looking ahead to better times in 2012 and viewing this as a time to position them self to take advantage of a low and potentially turning market.

A considerable portion of our loan inquiries are for the purchase of discounted properties. There are always requests to purchase distressed properties, but in this market there are properties available that require little if any work. The goal here is to secure these properties as rentals and refinance through conventional means or make a quick flip. The strategy obviously is to purchase these properties at somewhere near the bottom of the price curve and make the best buy possible. Many would argue that we haven’t quite reached the bottom yet, but this increased activity might suggest that we’re getting close—at least in a handful of regional markets.

I also have the opportunity to talk to a variety of contractors. Just as my phone seems to be ringing more frequently, a number of these contractors have reported increased activity. This seems to be another indicator that we might be reaching the bottom. This increased activity suggests that these investment opportunities have become ripe for the picking.

To answer that initial question: the hard money wheels are turning. We keep data, and we’ve seen a significantly increased volume of loan inquires (particularly for projects and investments) over the past 3-4 months, and it looks like investors are getting ready to pick up some of this huge inventory of discounted property. The timeline is a matter of speculation, but with this increased activity, real estate sales volume could be on the rise. As this decreases the inventory, prices could stabilize and the market might even rebound. Maybe this is wishful thinking, but either way there is opportunity out there.

If you would like to discuss private money loans further or run a particular scenario by us, please e-mail him at clay@privatemoneysource.com. Otherwise, if you would like to get a better feel for our company and the types of programs we do, please browse our web site at http://www.privatemoneysource.com.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Posted in Analysis, General perspective, Investor perspective, Real estate market general | No Comments »

Calculating LTVs for rehab, development, and construction loans

January 20th, 2012

Clay Sparkman

We thought a quick primer on LTV calculation for projects involving construction would be of use to most of those who utilize or broker private money.

You really need to use two LTVs. We use a Front End LTV (F-LTV) as well as an After Repair Value (ARV) or Final LTV (LTV), when evaluating loans. We do this to analyze risk at the start of the loan and again when the project is finished. This is to ensure that our investors’ capital is protected going into the loan as well as coming out of it (and throughout the construction process as well).

Let me give you an example. Say you have a property that is worth $150,000 ‘as-is‘ and you are buying it for $90,000. The most we could lend you toward the purchase of the property would be $105,000, or 70% of the value of the property ‘as-is’, before any construction (note: max LTV’s can vary, so it always helps to ask). As a result, you would need to get the net loan amount (purchase price or payoff amount minus down payment), closing costs, and interest reserve to add up to be under $105,000. Keep in mind that interest reserve may be optional. If you can show that you don’t need it, then you may drop it from the calculation. Here’s the formula:

Front End LTV =

Net Loan Amount + Closing Costs + Interest Reserve/As Is Value

This calculation should be under 70%. If it isn’t, you can drop the interest reserve (if it is not needed to make the loan work), bring in some cash, bring some additional collateral or have the seller take a ‘carry back’ and subordinate it to our loan. There are various ways to creatively build in some equity. The lower this number is the better. You’ll get better interest rates and a greater chance of approval. If you come in with an F-LTV of 65% or under, you’re looking very good.

For us, F-LTV is the more important of the two LTV’s. This number must work or you’re not even getting to first base. Also, if this number is in line, your LTV’s will stay in line to the end. This is because once you start the construction you’re adding value to the property by more than the cost. So, theoretically your LTV should go down or stay the same as when you started building.

Once the F-LTV is in line we can then talk about construction costs. Obviously construction adds value. We hold the construction funds in a construction draw account so we can make sure that the project is proceeding on time and on budget, and that work is paid at the time of completion. Basically, need to ensure that value is being added as the project funds are advanced.

Once you’re done with construction, we can talk about the ARV or Final LTV. The formula for this is:

Final LTV (or the more traditional ARV) =

Total Loan Amount (now including construction hold-back)/Future value (or ARV)

That’s it. Once you get the hang of it you’ll understand why it’s a good tool.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Posted in Fundamentals, REO funding, Rehab and constuction loans, Short sale funding, Structuring loans, construction loans | Comments Off

Hard money – it doesn’t have to be so hard

January 12th, 2012

Clay Sparkman

In my 18 years of working with loan brokers on private money transactions, one of the most significant difficulties I have encountered has been simply making our process understood—in other words, explaining the sort of information, the timelines, and the expectations that are suitable and necessary to a private money transaction.  It seems that brokers unfamiliar with private money tend to fall into one of three traps: (1) They are intimidated by the idea of the process, and so simply don’t proceed; (2) They come into the process exactly as they would come into a conventional transaction; or (3) They think that since it’s private money, there are no rules and recklessness is acceptable.  All three of these mindsets are equally disastrous to carrying a private money loan through to its conclusion, and merely result in wasted time and effort—for all parties involved.

The goal of any private money loan process should be efficiency.  In other words, the goal should be to either close the loan or get to a “No” as quickly and painlessly as possible.  It’s all about a simple and streamlined exchange of information in definite stages.

Over the years, I have worked out a very simple system that has been proven to be highly efficient.  Our underwriting process works as follows:

Step 1

Broker submits a summary of the loan scenario to Fairfield.  This may be done via phone, fax, e-mail, or on-line submission form.  I highly recommend that brokers consider using the online submission form on our website, as it is designed to ensure that the necessary information is provided.  The online form is at the following link:  http://www.privatemoneysource.com/loanproposal.php

If the scenario is not one that Fairfield can act on, we will tell you right away and the process will be terminated.

Inefficiency traps

(1a) If a broker submits an incomplete summary we will have to go back and forth for a while until a full summary is obtained.

(1b) Some brokers choose to skip this step altogether and jump straight to step 3.  This has almost always proven to be a complete waste of time and resources.

Step 2

Having obtained a complete summary, a Loan Coordinator for Fairfield will provide a ballpark quote regarding rate, fees, term, and loan conditions.  The broker shall then take this information to the borrower, discuss and explain it, and make sure that it is acceptable to the borrower.  If it is not acceptable to the borrower, then the process is terminated.

Inefficiency traps

(2a) Many brokers, it seems, are reluctant to approach borrowers with the facts of a private money loan.  Apparently they are hoping the borrower won’t notice the rate and fees, or are hoping to have them far into the process so it will be difficult to back out.  This is a huge mistake.  If the borrower isn’t fully on-board from early on, most likely a great deal of time and energy will be wasted.

Step 3

The broker shall contact Fairfield to say that the loan is a go.  At that point the Loan Coordinator will provide the broker with a list of items need in order to process the loan request.  The broker shall collect the appropriate items and overnight mail or e-mail these to Fairfield.

Inefficiency traps

(3a) If the broker fails to get appropriate checklist of needed items, they will most likely submit items that are not required and fail to submit certain items that are required.  This is a waste of time, copy paper, and postage (time being the most precious and notable resource wasted).

(3b) If the broker faxes the packet, it will not be of suitable quality for processing the request.  A single image file containing the packet may be e-mailed, but generally I have found that this is problematic in one respect or another and leads to a loss of time.

(3c) If the broker e-mails a vast array of individual files, this is very difficult to make sense of. We request that you prepare a single Adobe or Word file with all of the information organized and displayed appropriately.

Step 4

Fairfield will generally review a file submission within 48 hours.  If details come out that are problematic, additional information or supporting documentation may be requested.  If the loan proves not to be doable based on a complete review of the file, the loan process is terminated at this point.  (Generally this would be the case if the documentation did not support the concept initially submitted in step 1.)

Step 5

Fairfield will ask for a refundable deposit (the amount to be determined by various practical aspects of the loan) and a loan agreement letter will be drafted.

Step 6

Upon receiving the deposit and a signed copy of the letter, Fairfield will make an appointment to personally inspect the property.

Step 7

Fairfield performs an on-site inspection of the property (and visits various comparable properties).  This is generally the final step in the underwriting process.  It is rare that a loan is terminated at this point because the process leading up to this point has been rigorous and complete.  Termination is only likely to occur if there is a notable discrepancy between what could be noted on paper and with photos regarding the subject property and the comps and what could be seen in person.  (This occurs maybe 5% of the time.)

At this point, the underwriting is complete and the loan can generally be closed within 1 to 5 working days.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Everything you wanted to know about private money but were afraid to ask

January 6th, 2012

Clay Sparkman

Private money is often misunderstood. Many industry professionals know very little about it, and fallacies and misconceptions tend to dominate the collective wisdom. As you know, as a subscriber to this list, I have made it my mission to try to educate professionals regarding the realities of private money. In this capacity, I spend a lot of time answering questions about private money. I figured it was about time to prepare a FAQ on private money and share it with this group. So here you go.
-What is private money used for?

Private money is generally used as a bridge: a way to get from point A to point B. It is generally a short to medium term solution (1-6 years), and there is nearly always an exit strategy going in. It is used for all types of real estate secured financing: commercial retail, restaurants, hotels/motels, marinas, elder care facilities, industrial, agricultural, raw land, land development, construction, rehab, multi-family, single family homes, manufactured homes, and floating homes. For a list of our private money loan programs, click here.

-What are the interest rates?

Private money rates generally range from 10 to 15%. The rate is determined by looking at a combination of factors: (a) LTV ratio, (b) strength of borrower, (c) condition/desirability of property, (d) actual cash-in or real equity contributed by borrower. Typically our rates fall in the 12-13% range. A list of our loan guidelines may be found here.

-What fees are involved?

We charge a loan fee generally equal to 5% of the gross amount of the loan. We also charge a doc prep fee ($675 or more, depending on the size of the loan), a property inspection fee ($500 or more, depending on the location of the property), and a collection account setup fee ($470 or more, depending on the size of the loan). There are no hidden junk fees.

-Can the fees be paid from the proceeds of the loan?

Yes, if there is enough equity in the project. This is frequently the case.

-Is there a pre-payment penalty?

Most of our loans have no pre-payment penalty.
-Why would anyone pay those kinds of rates and fees for a loan?

There are many reasons why a borrower would choose to use private money over a cheaper institutional option. For example, professional real estate investors like to use private money when buying because they are able to make offers which are not constrained by long timelines and numerous rigid conditions. Often times speed is a very significant factor in completing a profitable transaction and in those cases it often makes sense to pay for a short-term private money option rather than loose the deal. Frequently the condition of a property won’t allow for the initial financing with conventional money, and in those cases private money may be used. Often the type of property is a factor: banks don’t like lending on raw land and lots, but private money lenders are more inclined to do so. Cash leverage is another factor. Fairfield Financial, for example, loans based on the true value of a property, not the purchase price, so sometimes we lend most of the acquisition cost for a property.. The structure of the deal may be a factor. Most private money lenders allow the buyer to establish their equity through the mechanism of a seller carry back; banks won’t do this. The list goes on and on.

-What is the most common use for private money?

Our most common loans are probably construction, rehab, and land development loans. We have an entire FAQ devoted to these loans at: http://www.privatemoneysource.com/articles/rehabfaq.php

-How fast can private money loans close?

We have been known to close loans in a matter of a few days, but more typically, you should figure on 10-15 business days. (Keep in mind that it is only possible for us to move quickly if the borrower, broker and other third parties are moving quickly as well.)

-is an appraisal required?

Some private money lenders require them. We don’t. Evidence of value is a critical part of the private money loan process. However, it is our opinion that a good set of comps is just as effective in establishing value as a good appraisal. Many of our borrowers are professional investors, and we feel that they are qualified to perform the value analysis. This allows us to streamline the process. However, it is important to note that putting together a god set of comps is hard work. See the following article on our website for a detailed description of how to prepare a proper value analysis: http://www.privatemoneysource.com/articles/comps.php

-As a mainstream mortgage broker, I don’t see much of this type of thing. Why should I be interested in private money?

To be perfectly frank, it is my belief that mainstream mortgage brokers are being squeezed out of the industry. Lenders are ramping up their operations to better provide online loan sourcing directly to borrowers. We saw a similar thing in the travel industry over the past years. The travel agents that have survived, and even thrived, are the ones who effectively established niches within the industry. It is my belief that the same will be true for mortgage brokers. Plain vanilla loans can be easily processed in an assembly line fashion which easily translates to the world of the novice and a web browser. Niche lending, on the other hand, tends to be a hand-crafting of sorts, and cannot be easily automated. Look at private money. There are no absolute rules. Many factors must be considered in making a decision and frequently those factors are intangible. Ultimately a high degree of thought work and common sense is involved. Private money will always be a people process. So if you tell me, I am not interested in private money because I don’t do unusual loans, I say to you, You might want to reconsider.

-As a mortgage broker bringing you this transaction, how do I get paid?

It is simple. You bring us a borrower. We price the loan to you. (Think of yourself as a wholesale buyer.) You price the loan to your client, adding your fees as appropriate. You stay involved in the loan (or not) as you choose, and prior to closing, you submit a fee demand to escrow and receive a check directly from the title company. For more information on this topic, see: http://www.privatemoneysource.com/brokers.php

-Why do they call it hard money?

It is difficult to find an answer to this question. I’ve heard plenty of speculation. Some people say that it’s because the money is used for hard to do loans. Others say it is because the loans are hard to get or hard to pay. It is my belief that it is called hard money because traditionally it has been real money in the sense that it is not borrowed. Institutions loan borrowed money, and in this sense they loan soft money. However, I must point out that things have changed a bit over the years, and these days a good deal of hard money is in fact borrowed. (I would guess as much as 50%.)

-How do I go about doing a private money loan with Fairfield Financial?

There are basically four steps.
(1) First, run the concept by us. The best way to get started is to provide us with a high level summary of the loan. You may e-mail a summary, or you may use our online submission engine, which will walk you through the process. It is quite simple to use. You will find that at: http://www.privatemoneysource.com/loanproposal.php
(2) If we like the project concept and feel that the numbers are acceptable, we provide you with a rough quote.

(3) Once you approve the rough quote, we provide you with a list of items that we need to receive and review in packet form.
(4) We then review this loan packet. We ask that this be sent via overnight mail or send via e-email, as a single Adobe or Word attachment.
(5) If all this checks out, we ask the borrower for a deposit (average amount = $1,000). This should be in the form of a cashier’s check or money order. We provide a conditional loan commitment letter at this time.

(6) We send someone out to inspect the property.
(7) If the property checks out, we draw up the documents and close the loan through escrow.

-Is the deposit check refundable?

If we close the loan through escrow, the deposit is applied as a credit to the loan fees. If we don’t close the loan because (a) the borrower does not or cannot perform or (b) the project upon inspection is “significantly” different than as represented, we keep the deposit to reimburse us for our costs. Otherwise, if Fairfield fails to perform for any reason, we return the deposit to the borrower.

-What needs to be included in a private money loan package?

As I said, we provide a list specific to your loan scenario. However, if for a list of our general packaging guidelines, please see the following: http://www.privatemoneysource.com/packaging.php

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Posted in Fundamentals, Private money loan uses, Submiting loans, Valuation | Comments Off

Private money – getting from point A to point D

December 28th, 2011

Clay Sparkman

In the spirit of learning by example, I’d like to take the opportunity to describe an interesting scenario that we put together.

They say that when it rains, it pours. Well, for our borrower it had been pouring for a long time. A long run of bad luck had left him in a difficult situation, and he needed a good luck charm.

SCENARIO: About a year previous, the Borrower had purchased a house for his own residence. During the first weeks of living there, he discovered that watering his lawn also resulted in watering the contents of his basement–the foundation was bad, and had to be replaced completely. Not to be discouraged, he contracted to have the house lifted and a proper foundation installed. It was a small bump in the road, but everything seemed to be manageable.

But when the house was raised and waiting for the foundation, a hydraulic jack failed, and dropped the structure 18 inches. The operation was supposed to have had no impact on the cosmetics and structure of the house, but the fall had reduced it to what the bank lender of record called a “shack.” Consequently, the bank called the loan due.

What’s more, it soon became clear that the insurance and bond information provided by the contractor was false, and that he was in fact uninsured. Before long he was in bankruptcy, and the borrower had a dozen other aggrieved parties ahead of him in line for a civil suit, with no possibility of recovering damages.

The Borrower persisted. Out of pocket, he had the house put on a proper foundation and began repairing the damage, completing much of the work himself. But finally, with a remaining balance on his contract of sale, an outstanding rehab loan, a significant amount remaining in repairs to finish the house, and no additional funds of his own available, he was unable to move forward.

PROBLEM: Because the house was, in the bank’s evaluation, a shack, they had called the loan due, and no other conventional source could be found that would lend on the property given its status. Additionally, the Borrower had been the victim of identity theft, and although he had documented this well, filed reports with the police, and notified all three credit bureaus of the status of the accounts appearing on his credit report, he was still, in the end, left with a mid-score in the low 500s.

ANALYSIS: Thanks to the detailed plans and photos provided by the Borrower and our own inspection of the property, we were able to clearly see what the house would be when it was finished. And thanks to the good comparable sales analysis he had assembled, we were also able to see what it would be worth. Given this projected value, the amounts currently owed on the property, the amount needed to finish construction, fees and closing costs, our LTV was 73%. We had a Borrower who had already invested a large amount of money out-of-pocket and countless hours of work into the project, so he was plainly 100% committed to the project. According to his credit report, service of his own debts (not those resulting from the identity theft) had been good. His income appeared to be sufficient to service the loan.

SOLUTION: Despite these positive elements, the LTV was still a bit high for under the circumstances. So, we decided to carry our fees as a second position lien, reducing the LTV of the first position lien to 69%. We were able to pay off all existing debt on the property, and the funds required to finish the house were deposited into a construction account, to be drawn upon as work was completed.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Posted in Private money loan examples, Private money loan uses, Rehab and constuction loans, Structuring loans, construction loans | Comments Off

Private Money – 5 DONT’s and 5 DOs

December 20th, 2011

Clay Sparkman

I would say that as much as 75% of our loans are initiated by third-party loan brokers.  We rely heavily on our wholesale broker relationships and dearly value the strong working relationships that we have.  As much as we love our relationships with brokers, it is an ongoing challenge to develop new relationships.

Perhaps the greatest challenge I find in working with loan professionals is that most have received their training in the institutional money realm.  As such, they often have difficulty adapting to the very different approach required for brokering private money loans.

I thought it might be worthwhile to lay out a few dos and don’ts as helpful guidelines for brokers adapting to the unfamiliar demands of private money lending.  So here you go.

Don’ts

(1)     Don’t Spin or tweak or hide information regarding the particulars of a loan.  That might work with banks, but it doesn’t go over well in the world of private money.  We are trying to get the whole picture in order to make a sensible decision on a loan.  If something doesn’t line up quite right, we will generally notice.  If there are inconsistencies we will tend to shy away from the loan.

(2)     Don’t think that: private money is a good source for everything that the banks won’t do because private money parameters are more relaxed across the board.  It is not that simple.  Generally speaking, private money is more rigid when it comes to equity requirements and more relaxed, given sufficient equity, regarding other funding criteria.  (You’d be surprised at how many people come to me looking for a 100% CLTV second to top off a residential deal; this is not the type of thing private money was made for.)

(3)     Don’t submit individual tax returns with your files.  We almost always go stated income with individual borrowers.  (However, we do generally require company financials when an organization is involved.)

(4)     Don’t drop the ball.  Banks are like machines stamping out large volumes of loans.  In a sense they are indifferent.  Private money, on the other hand, is much more personal.  You work directly with a few people and those people get really involved and work hard on your file and are directly accountable to other people.  It is important to be vigilant with regard to your part in the loan process because effectively, you are part of a bigger team.

(5)     Don’t get discouraged easily.  Putting private money loans together is hard work, but if you take the time to learn how to do it, you will be rewarded.

Dos

(1)       Do submit a summary cover summary sheet with every file.

(2)       Do submit property and value information with every file.

(3)     Do quote all particulars to your borrower early in the transaction.  Some brokers seem to think that if they don’t mention all the fees and points, maybe a borrower won’t notice.  Borrowers always notice.  It is better to put all the facts out there right up front.  You will be doing yourself a favor.  After all, why work on a loan that never was going to happen.

(4)     Do take the time to learn about our loan programs, guidelines, process, and packaging guidelines.  You will find useful information on our web site.

Programs: http://www.privatemoneysource.com/commercial_loans.php

Guidelines http://www.privatemoneysource.com/guidelines.php

Process: http://www.privatemoneysource.com/process.php

Packaging Guidelines: http://www.privatemoneysource.com/packaging.php

(5)     Do feel free to utilize us as a source of education on private money.  That is how we view ourselves.  We will always have time to answer your questions and discuss your transactions.  We don’t care how much you know. We care that you are interested in learning and desire to bring professional values to the table.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Private Money Loan Simulator

December 14th, 2011

Clay Sparkman

I firmly believe that the best way to learn about anything complex is by doing.  The second best way is by example.  If I could provide you with a private money loan simulator I would, but I haven’t figured out how to do that yet (though I assure you, we haven’t given up on the idea).  So for now I will continue to rely on examples as an aid to help demonstrate how private money might be useful to you as you go about your daily business as a lending professional.  Some of you will never need private money, others might need it 2-3 times in the course of your entire career and still others will have the chance to use it several times monthly.  The important thing is to know when you need it.

I’d like to profile a small commercial loan that we closed, as I think it embodies many of the good qualities of private money, and it neatly demonstrates a classic win-win scenario.

Scenario: We were approached by a Loan Broker representing a retired woman who had worked 20 years in the hospitality industry.  This woman decided that she would like to live near her family and own a motel/resort, so as to get back to doing what she loved and to create a business that her family could be involved in.  She made an offer on an REO motel/resort property and was able to get her offer accepted at $240,000.  The property appeared to be just what she had dreamed of.

Problem: Now, even though this woman had near perfect credit (766 mid-score) and an excellent track record in the hospitality industry, there were some factors that banks just couldn’t warm up to.  First of all, the property, though quite spectacular for the money, was a bit rough around the edges (most REO properties are).  Secondly, our borrower only had $15,000 to bring to the table as down-payment money for this transaction.

Analysis: We took a hard look at the property.  The tax assessed value was $359,750.  (This looked good, but tax values can be deceptive with distressed properties.)  We did some comp work and couldn’t turn up many good comps, but found one or two that seemed to support the higher value for the property.  There was no time for an appraisal so we had to do the best we could with the information we had available on short notice.

Solution: Since we weren’t quite certain about value and had to move fast, we made arrangements with the borrower to place a second against her primary residence to further secure the loan.  Her residence was on the market, so we worked it out–between us–that when she sold, we would release it as collateral for a principal pay-down of $45,000.  We put her into a 12% loan for three years, and she figured on selling her house, paying down the motel loan balance, cleaning up the property, showing income on the books, and seeking conventional financing within the year.

Now, an invitation: please send me your questions about private money and I will answer them publicly in an upcoming blog post (so long as they are fit to print).

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Posted in Commercial loans, Private money loan examples, Structuring loans | Comments Off

Submitting private money loans

December 7th, 2011

Clay Sparkman

One of the challenges for individuals and professionals pursuing a private money option is figuring out what information to provide for a specific loan request (and in what format).  Because the questions and issues are quite different for private money, and certainly different within the private money context depending on the type of property and type of loan being requested, this is not always so easy to figure out.

Of course you are always welcome to call and discuss a specific file, or to e-mail us your questions; nonetheless, we have an additional option that is quite simple and only takes a few minutes of your time (so long as you know your file/loan).

If you have a file lying on your desk and you’re trying to figure out where to go with it or how to submit it, please consider using our online loan submission forms specifically designed for private money.  Click on the following link, and you will be guided through the process of submitting a detailed private money loan proposal.

http://www.privatemoneysource.com/loanproposal.php

Go ahead and have at it.  We will do our best to respond to all loan submissions within 24 hours.

We have tried to provide as much guidance as possible without being overly rigid.  We are very interested in your feedback.  If you have ideas regarding ways to improve this process, please let us know.

If you would like to discuss private money loans further or run a particular scenario by me, get the ball rolling by sending an e-mail to clay@privatemoneysource.com.

Otherwise, if you would like to get a better feel for our company and the types of programs we do, please browse our web site at www.privatemoneysource.com.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Private money and the question of value

November 18th, 2011

Clay Sparkman

When it comes to private money, the rules–as you may know them–generally don’t apply.  Certainly, with regard to the matter of valuing a property, most of you would do well to throw away what you’ve already learned and start over.  To help you along these lines, I would like to share an article written by Aaron Heinrich, a Loan Coordinator here at Fairfield Financial. Keep in mind that this is primarily relevant when dealing with investment borrowers (builders, developers, REO and short sale purchasers, rehabbers, fix and flip artists, commercial property owners, and the like).

The Quest for “a Good Set of Comps”

What We Need From You

A professional appraisal can be a helpful tool, but appraisals are by no means foolproof, and a well-prepared set of comps is often superior and entirely sufficient for our purposes.   Since appraisals are expensive and time-consuming, it is often well worth an investor’s time and effort to do their own value work.  But although a good set of comps is often sufficient for our purposes, it is difficult for borrowers and brokers alike to understand exactly what we need from them in the process of determining the value of a subject property.  This is unfortunate, since this evaluation is perhaps the most important part of the entire process of assembling a loan with Fairfield, and the borrower or broker often has an integral role to play in this evaluation.  As an equity lender, our loans are only as secure as our determination of the value of the property against which we are lending, and consequently it is essential that we are confident of this determination.  In point of fact, the confidence we require is nothing more than what any borrower should require and from himself or herself going into a project.

The following rules and their explanations describe what we need from those investment professionals who choose to take advantage of this alternate approach to the valuation of their subject property.  Let’s consider what we mean by “a good set of comps”:

Rule Number 1: Computer-generated listings are starting point, not an ending point.

Very often we tell a borrower or a broker that we need an “objective measure of value” or a “good set of comps”, and in response are sent, for example, five or six comparable sales generated by the online search program of a public database containing sales histories.  We have access to these programs also, and will most probably have already looked at these, or similar, listings.  These sorts of listings are the beginning of the process, not the end, and by themselves they will almost never be sufficient.  Don’t send these to us alone and expect that they will suffice.

Rule Number 2) Be skeptical.

What we need from you is more involved than simply typing search criteria into a listing service, although this is indeed where the process usually starts.  Once you have obtained a group of comparable sales listings with which to begin, take a hard look at them.  From what you can see in the listings, are they really similar to your subject property in type, size, age, location and condition?  If all of them aren’t similar in all these aspects, do some of them illustrate value factors that the others don’t?  For example, all your comps are more than a mile away from your subject property, except for one, which although newer and larger than your subject property, is next door.  The value of your location may be best indicated by this one property, although the building itself is not all that similar. It is important not to accept that a property is comparable just because a program or real estate agent tells you so.

Rule Number 3) There are more things in heaven and earth than are dreamt of in the MLS’s philosophy.

Now, once you have selected your five or six most representative comps, grab a notebook and a camera and go find them.  As you drive, ride or walk past each one, stop, look at the neighborhood, notice the condition.  Are there differences between the listing you were given and the reality you are seeing?  Are there things not included in the listing which are important factors in the value of the property?  Is there a grist mill next door or a condemned meth lab across the street?  Write it down in your notebook.  Take a picture or two.

Rule 4) Think like an appraiser.

Borrowers are often a bit daunted at the prospect of putting on the appraiser’s hat and analyzing the information they have gathered.  “I’m not an appraiser,” they say, “I’m not trained for this.”  We’re not asking you to be an appraiser; all we’re asking from you is to think through the information you’ve gathered, apply a little common sense, and to make your best case for value.  When we look at your analysis, we may find corrections that need to be made, we may disagree with your logic in places, but if you’ve done your work, chances are your value is close.

Let’s take an example to illustrate what’s involved in this analysis:  Our subject property is a 3000 sq. ft. SFR built in 2001.  Let’s say it’s across the street from a nice park, with a school nearby.  One of the comps we’ve looked at is a 2800 sq. ft. house built in 2000, about 1/4 mile from the subject property.  It sold two months ago for $179,000.  Our notes from when we looked at the house say that it is essentially in the same neighborhood as our subject, and is also a newer house with generally the same quality of construction.  The two properties are quite comparable, even without any adjustments; but we can probably refine the value a bit more by taking the small differences into account.  First, our subject property has a superior location, being across the street from the park.  Depending on the neighborhood, we might determine that this location increases the value of the property by $5000.  We add this figure to the sales price of the comparable property, to arrive at an adjusted value of $184,000.   Next, we need to make a small adjustment for the size: dividing our adjusted value by the comparable property’s 2800 square feet, we arrive at a per square foot value of $65.71.  Multiplying this value by our subject property’s 3000 square feet, we get a final adjusted value of $197,130.

Now, in your own case, your subject property might be a bowling alley, a piece of raw land, or an office building, and so your considerations might be very different.  But in all these cases, the general process will still apply.  There may be more research involved in finding out what individual differences are worth, but the overall approach described above can always be applied.

Rule Number 5) Presentation isn’t everything, but it helps.

Now that you have gathered all the information you’ll need, and done all the necessary analysis, you are ready to assemble your “good set of comps.”  This set should include:

1)      Your comparable sales analysis,
2)      A map of the area indicating the location of the subject property and the comparable sales, and
3)      a photo and essential information for each comparable property, including the address, specs, sale date, sale price, and distance from the subject property.

Your comparable sales analysis should be a concise summary of all your reasoning in adjusting the values of the subject properties, with one paragraph or section for each property, stating what was different, how you adjusted for these differences, and why.  At the end of each paragraph you will indicate an adjusted value; and at the end of the analysis you will summarize your conclusions, and give your final estimated value for your subject property.  The documentation for each comparable sale (Number 3) gives us a frame of reference in which to read the analysis for that property.

When you haven’t done it before, this may seem like a lot of work. But again, anyone making an investment in a piece of real property should be at least this confident of the value of their investment, whether or not he or she is looking for a loan.  And it is often well worth the work. “

(Article by Aaron Heinrich, Fairfield Financial Services, Inc, July 2004)

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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A few useful and interesting resources for private money profesionals

November 10th, 2011

Clay Sparkman

These days–with uncertain markets—tools and resources which provide us with information and data are more crucial than quite possibly ever before.

I am always trying to find more resources that will be of use to both me and readers of this blog. Here are a few items that have popped up lately.

ALTOSResearch offers this wonderful site, offering “real-time real estate data.” I haven’t fully researched the treasures on this site, but have been quite impressed by their market specific data (just click on the “Take me to the data” tab off the main page.” It is free to use at a basic level and offers a very useful set of analytics giving you invaluable data on the current state of various real estate markets. The section for Portland looks like this. It actually offers some promise for the future of this market as we move into 2012.

I came across an interesting article at CNNMoney: Housing markets: Best recovery bets. This article begins, “Home prices are poised to fall in most markets this year, but 2012 will bring a rebound. Here are the 10 large metro areas that will record the largest price gains.” Thus more hope for 2012.

I am particularly excited to see that Tacoma, Washington is #1 on the list and that Seattle is #6. Since Oregon and Washington tend to move together, I think this bodes quite well for the chances of recovery in the Pacific Northwest—our core region.

One of our readers, Devin Schumacher, was kind enough to offer the the last two items. Thank you Devin!

First of all, I have long searched for a good beginning text book on private money investing and private money loans. Devin found something that might be pretty good.

Devin says, “The first book I just finished might be worth referencing on your blog.  It is a very basic intro to how the business works, and how a person would go about setting one up.  It reads almost like an intro to private money lending textbook might read if there was a class on the subject.  But nonetheless, probably a good starting point for a lot of people to get an understanding of how it works on a very fundamental level.”

The book is, Private Mortgage Investing by Terri B Clark & Matthew Stewart Tabacchi. You can find it here on Amazon.com (where it gets good ratings, by the way).

And then this last juicy little morsel, a novel apparently built around the financial realm of hard money. You will find it here on Amazon.com. I haven’t read it and neither has Devin, so it is hard to say for sure that they mean Hard Money as in the sense of Private Money. If anyone ventures to read it, please let us know.

And with that, my well is dry for now. If you know of any other resources that might be of interest to the readers of this blog, please share them with us either via the comment section or in a direct mail to me (so that I may in turn share in a future post).

Here’s to a good finish to 2011 and a better year in 2012!

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Free Lunch

November 3rd, 2011

Clay Sparkman

Do you believe that there is really no such thing as a free lunch? We at Fairfield feel that we have something that comes pretty close. Just for being in the right place at the right time, mortgage professionals can earn a pretty handsome little fee. Think about referring loans to us, when appropriate, rather than brokering them all the way through. It is quite a painless process. Here’s how it works:

(1)  As a representative for a licensed mortgage brokerage, you receive a lead for a loan that doesn’t fit into the context of what your company ordinarily chooses to broker. Still, you suspect that it might be a good fit for a private money lender. You e-mail or call us and tell us a little bit about the loan and advise us that you’d like to handle the loan as a referral. (You can also use the online submission mechanism on our website.)

(2)  We say whether or not it fits our parameters, and if it does, you go to step #3.

(3)  You ask the borrower to contact us.

(4)  We work directly with the borrower to determine if this is a loan that we are able to fund. If we fund it, we will pay 1% of the gross amount of the loan to your company at closing. Plus–and this is the clincher–we’ll buy you lunch!

So keep an eye out for the following types of loans and have yourself a free lunch.

Commercial Property – we make loans on commercial properties of all types, including office buildings, retail buildings, mixed use, restaurants, taverns, motels, car lots, gas stations, mini-storage, malls, industrial properties, and multi-family residential. 70% is generally our maximum.

Renovation – we have strong ongoing relationships with many investors who buy fix-up properties and re-sell them. We can generally loan up to 70% of the projected value of a project. Generally we arrange for the financing of the renovation money as well. This is a large niche for us, and one of our preferred loan types.

REO (and other under-market) Property Acquisition – we have had a number of borrowers come to us in search of financing to purchase REO properties. We can generally loan up to 70% of the current value of a project.

Raw Land – we will lend on raw land (i.e., land without infrastructure/utilities) that qualifies as build able. This includes both commercial and residential zoning, urban and rural, and anything from 2,500 square feet to 5,000 acres. With a strong borrower and a good property we will consider loaning as much as 50% of the value. This is pretty much unprecedented in the industry.

Lots and Acreage with Utilities – though the banks seem to be hesitant about loaning on developed land (lots or acreage), we are generally eager to do this type of loan. Our maximum LTV on developed land is 70%.

Construction – we tailor our construction loan programs to meet individual contractor needs. Though more expensive than traditional bank financing, we are more flexible regarding many issues, and have had many contractors return to utilize our construction loan services repeatedly. Our maximum LTV for construction is 70% of the value of the completed project.

Floating Homes – the Vice President of Fairfield Financial (that’s me) lived on a floating home on the Multnomah Channel for eight years, and was very much a part of that community. We understand the unique issues related to borrowing either to refinance or purchase a floating home. We have loaned money on floating homes that don’t fit the bank’s strict criteria, and we have frequently loaned money for the upgrade or expansion of an existing floating home. Our maximum LTV for floating homes is 70%.

Manufactured Homes – on private land – we are not terribly concerned about the year or model, or whether the home is a single-wide or double-wide. We look at the whole package, home and land, and if the value is there, we can make the loan. Our maximum LTV on manufactured home/land packages is 70%.

Seconds on Investment and Commercial Properties – these are generally short-term scenarios, ranging from six months to one year. The loan must be for at least $50,000 in Oregon (due to a certain Oregon usury law), and the maximum CLTV is 50%.

Foreclosure Bailout – if there is a good explanation as to why the foreclosure situation occurred and what has changed to remedy the problem (and if the LTV does not exceed 60%) we are frequently able to refinance properties out of foreclosure.

Cash-out Refinances – frequently our borrowers will refinance a property with the intention of pulling cash out. This cash might be used to consolidate bills or to initiate some sort of a project. We can loan up to 70% LTV on cash-out refinances.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Top Ten Ways you know it might be time to consider private money

October 26th, 2011

Clay Sparkman

This has been a tough four years for many of us, so in celebration of the anniversary of the sub-prime collapse, I thought it would be nice to start off  by having a little fun. With that in mind, I have prepared a top ten list, Top Ten Ways you Know it Might be Time to Consider Private Money. This is all done for the sake of laughter, so I hope you get that much out of it. It actually tends to reinforce some of the stereotypes that I work hard all year long to dispel regarding private money and private money borrowers. Still – just this one time, I couldn’t resist. Drum roll please…

Top Ten Ways you Know it Might be Time to Consider Private Money

10. The bank asks you to return the promotional pen which they gave you last month.

9. Your neighbor keeps throwing orange peels and egg shells on your house because they think it is a compost pile.

8. You are continually confusing your FICO score with your bowling score.

7. The Account Rep for your favorite lending institution laughs so hard that he suffers a hernia and is rushed off to the hospital before you can finish telling him about your loan request.

6. When figuring your net worth on a 1003, you include as assets: your karma, your winning smile, your exotic house cat Mrs. Buttons, and your $5,000 instructional video course on how to make a million bucks investing in real estate.

5. The bank officer repeatedly refers to your floating home as a “boat”, and insists on using terms like “port” and “bow”, and “thar she blows.”

4. Meth lab shmeth lab! (A true real estate investor doesn’t let minor obstacles stand in her way.)

3. Your down-payment consists of twelve cases of Budweiser empties, an IBM 386 computer, and a Tim Duncan rookie card.

2. Your timeline is so short that you are working on a scheme which involves flying an escrow team westward to the international dateline and closing the deal at 12,000 feet.

1. The land which you hope to borrow against is so raw that it bleeds when you stick a fork in it.

Even though it is likely that none of the above apply to you or your client, private money might still be a good option to consider. In fact, there are many reasons to use private money. Simply put: Institutions do the stuff inside the box (and I’m not sure they do that any more), and we do the stuff outside the box. The banks don’t get on our turf and we don’t go on theirs. We figure that’s a pretty good arrangement.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Auction Buyers Take Note

October 24th, 2011

Clay Sparkman

Most likely you have clients who buy distressed properties from time to time–with the intention of making a profit–and need a source of funding to fuel their activities. There are three common ways to buy distressed properties: pre-auction, auction, and post auction (generally referred to as REO). Most investors are forced to buy either pre-auction or REO because they lack either the cash or a mechanism for financing properties in an auction scenario (due to the logistical challenges involved). Pre-auction purchasing is frequently difficult and frustrating due to the high level of competition and the inexperience and often skittish emotional state of the potential seller. REO purchasing is often equally frustrating, as institutions tend to be slow and seemingly irrational in their decision making processes. Seemingly, one of the best ways to buy distressed properties is at auction, and those real estate investors who have a working fund tend to indulge in doing just that. Still, most investors find that from time to time they hit the wall so to speak and are unable, due to temporary cash limitations, to make an attractive buy.

More and more frequently we at Fairfield Financial are being approached by auction buyers wishing to reload their working fund in order to be vigilant and standing ready for the next good opportunity that comes along. We can move quickly to place a loan on one or more of your existing projects (typically we can close in 14 days with solid broker/borrower participation), and with no prepayment penalty you are not locked in; this is consistent with a sensible philosophy of working to turn properties quickly, realizing your profit, and generating further working capital.

Our loan guidelines vary from loan to loan, but generally fall within the limits described below:

Property types

Commercial, business, and investment Properties only: Alaska, California, Colorado, Florida, Idaho, Georgia, Montana, Nevada, New York, Oklahoma, Oregon, Texas, Washington, and Wyoming. (Note: we have temporarily reached our funding allocation in NY and Georgia for this year.)

All property types: Alaska, Nevada, Oregon

Loan Amount: $10,000 to $500,000 presently

Interest rate: 10-15%, depending primarily on credit, LTV ratio, and property inspection

Term of loan: 1-5 years

Amortization: interest only

Loan fee: 5%, but occasionally varies based on particulars of the loan

Other fees: We charge three other fees which vary depending on the size and location of the loan. You can see the fee table for these charges by visiting http://www.privatemoneysource.com/guidelines.php

Prepayment penalties: none

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Posted in Auction funding, Multifamily, Private money loan examples, REO funding, Rehab and constuction loans, Short sale funding, Structuring loans | Comments Off

On the art of handcrafting loans

October 20th, 2011

Clay Sparkman

As I pointed out in a previous mailing, our private money lending programs tend to be fairly rigid with regard to LTV requirements, but quite forgiving with regard to other issues. One of the nice things about private money is that it allows for creative problems solving. I have put many transactions together that initially didn’t appear to be doable, simply by seeking out a creative way to bridge the gap.

Let me give you one example. Say that you have a client come to your office and they want to buy a commercial building in Seattle and they need financing. The borrower is strong and the property is prime but the construction on the building is only 90% completed and there are no tenants yet, and thus no income, and in addition to all that, there is no appraisal and the buyer doesn’t have the time to wait for a commercial appraiser as this is a distress sale situation. So I would say that this guy might have a tough time getting bank financing, right? After some consideration, you decide that this is a good fit for private money. You check with me and find out that we will loan up to 65% LTV against the value of the property given your particular scenario. Now let’s say that the buyer has negotiated a purchase price of $800,000 for the property and he has $80,000 (10%) for the down payment. At 65% it appears that he may need to bring $280,000 (plus loan fees and closing costs) to the table to make this loan work, and so you are thinking that you’ve reached a dead end.

Well, not so fast. That’s where the flexibility angle kicks in. There are at least four ways that you can meet the equity requirements without the buyer bringing additional cash to the table. Study these because if you are going to work with private money you should know them by heart.

Solution #1 – the borrower may borrow based on the current *true value* of the property (so long as the true value can be reasonably determined on a 90% completed project). If he can demonstrate that he is buying well, and that the true value is higher than the purchase price, then we will tend to base our LTV on the true value of the property. In this case, if it is sufficiently demonstrated to us that the current true value of the property is $1.3MM, then we would be willing to arrange to loan enough to cover the purchase price ($800k) plus the loan fees and closing costs (this would vary depending on what the broker is charging, but let’s say $50k), minus the $80k down. Our loan here would be $820,000. The front-end LTV here (LTV at the close of escrow) is only 63% but note that we would require the $80k down payment at any rate with a new borrower because aside from LTV calculations we like to see sufficient “skin in the game” until we have some experience on projects with a particular borrower. As we get to know a borrower and they build a track record with us, this requirement diminishes significantly. Also note that in order to make this scenario work, the borrower needs to demonstrate one or more of the following: (a) funds to complete the project, (b) that the remaining 10% is not critical to the security of the property or to the marketability, (c) that there is a buyer ready to go under contract to buy the property as is, or (d) some other clear path to completion of the property or early exit.

Solution #2 – the borrower may borrow based on the projected value of the property. (This is our preferred modus operandi.) Say that he needs an additional $100,000 to complete the construction on the building, but that the building will be valued at $1.4M upon completion, then we would consider arranging a loan of $900,000 to cover both the purchase price and the construction fund. We would hold the construction fund money in our client’s trust account and disburse it as the work is completed on the project. The borrower will only need to bring in enough in this scenario to cover closing costs.

Solution #3 – the borrower may be able to persuade his seller to carry back a portion of the sales price as short-term debt. Particularly if the seller is in a distress situation, he may be willing to negotiate on this point. So in our example, let’s say that the buyer is able to convince the seller to carry back $400,000 of the sales price in second position subordinate to a $450,000 loan arranged by Fairfield (to cover the balance of the purchase money plus the loan fees and closing costs plus the funds to complete the project minus the $80,000 down payment).

Solution #4 – it may be the case that the borrower has additional real estate assets that he is willing to pledge as collateral to make up for the shortfall in down payment money. We are always willing to consider additional collateral to make a transaction come together. Say the borrower has another commercial building, this one in Twin Falls, Idaho, and that it is worth 1.5M with $500k owed against it. We would most likely be willing to make the loan, with the borrower bringing in $80,000 cash and the Idaho building as additional security for the transaction. And if the borrower is concerned about tying the building up, because he has plans to sell it or refinance it in the future, than we negotiate and write into the loan a specific release clause provision stating that we are willing to release the Idaho property as security in exchange for a principal reduction.

Keep in mind that these solutions can be brought to bear in combination, so that all four may come into play in order to bridge the gap for any particular loan scenario. Private money is flexible and creative and for this reason often takes up where the other options leave off. (In these moments, it tends to tap dance away from the competition.) I have often said that if the banks ever acquire imaginations, I will be out of business, but in fact I’m not worried about it because it isn’t going to happen. The banks are not interested in creative problem solving because it requires too much special handling. The banks prefer to batch process the plain vanilla loans–the kinds of loans where the whole story can be fit into a series of boxes–and then leave the loans which must be hand crafted one by one to people like us. So come join us for some loan crafting and some creative problem solving. It is not only lucrative but it is fun!

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Posted in Commercial loans, Private money loan examples, Private money loan uses, Rehab and constuction loans, Structuring loans, construction loans | Comments Off

Our sweet spot … our wheelhouse

October 6th, 2011

Clay Sparkman

There was November, 2007 and then there were the nearly 4 years now that followed. If you are an acting broker in this market it is because you are a survivor. Darwin’s theory—survival of the fittest—would have been more aptly named, survival of the most adaptable. If you are still here, then it is almost certainly because you are adaptable. Kudos to you!

Brokers often ask us, “What is your sweet sport?” I have thought a lot about that. What really makes us salivate (and we do salivate when just the right loan comes in)? We do a lot of things, but this is our sweetest of all sweet spots right here:

Oregon and Washington (some of Idaho)

$500k or less

Construction, REO, rental, rehab, or commercial

65% LTV

THAT is in our wheelhouse.

I invite you to bring it. We will work hard to make it happen.

All the best in your endeavors, Clay

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Posted in Commercial loans, Promotional announcement, Rehab and constuction loans | Comments Off

Announcing: iPad 2 Bonus to Brokers Closing Loans with Fairfield

September 22nd, 2011

Clay Sparkman

We at Fairfield Financial Services (FFS) are pleased to announce our free iPad bonus promotional program AND that we now have sources available to lend with no maximum on commercial loans in all 14 of the states that we service.

Starting Wednesday, September 27th, we are offering a free promotional iPad 2 to any broker or borrower who submits a loan through FFS that we actually close.

The conditions are as follows:

(1)  You must register with FFS by sending an e-mail to clay@privatemoneysource.com with “REGISTER” in the subject line and your name, company name, and phone number in the body of the e-mail.

(2)   This promotion applies to submissions received no sooner than September 27th, 2011 and no later than October 28th, 2011

(3)   A full application (with all items requested by FFS) must be received no earlier than the start date (9.27.11) and no later than the end date (10.28.11).

(4)   Only one borrower/broker may be credited with each loan. That will be the first party that submits the loan directly to FFS.  It is possible that other brokers may get paid for a role in the transaction, but only the party directly submitting will receive a free iPad 2.

(5)   The minimum loan size for this promotion is $100,000.

(6)   You (or your company) must be in full compliance with licensing regulations required for loans of the type submitted for the giveaway in the state in which the property associated with the loan is located.

(7) The prize is a basic iPad 2 with 16GB and WiFi.

Also, if you subscribe to our broker blog, we will upgrade the prize to a 64GB iPAD2.You must subscribe to the broker blog using the same e-mail address from which you register for this bonus and on the same day that you register for the bonus.

I recommend that you at least have a look at the broker blog, The Private Money Broker, as there is quite a bit of solid information for those who are brokering hard money loans. You will find the blog and be albe to subscribe at the following link:

http://privatemoneysource.com/broker-blog/

Who doesn’t want a free iPad, right? So good luck and get going.

Check out our website for details re our loan criteria, our packaging guidelines, and our process.

www.privatemoneysource.com

I encourage you to sign up and give it a try.

All the best in your endeavors, Clay

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Don’t Believe Everything You Hear About Private Money

September 12th, 2011

Clay Sparkman

This week I’d like to address some myths about private money, and hopefully correct some common misconceptions that seem to exist with regard to private money lending as an alternative mechanism for funding the refinance and acquisition of real estate.

Myth: As a broker, I should first try to use conventional bank financing, and if that doesn’t work, then I should try to use some of the institutional non-conforming lenders, and if they won’t do my loan, it must be so screwed up that I will–as a last resort–try to fund it using private money.

Fact: It is really a matter of recognizing the type of transaction that you are trying to finance. If you have a loan that fits within the typical parameters of your conventional or non-conforming sources, then these sources may well be your best option, but keep in mind that private money is not usually a last ditch effort, but rather an alternative that may be the primary option if you recognize your loan scenario as a good fit for private money.

Many times, a transaction will involve a strong borrower and good property, but for some reason or other it doesn’t fit neatly within the box with regard to an institutional analysis. I have always said that if the banks ever developed an imagination, I would be out of business. But that won’t happen. The banks don’t want to develop an imagination. They want to handle loans that can be mass processed and the only way to do that is to make loans that can be analyzed looking at very narrow and specifically defined criteria.

When we make a loan, we roll up our sleeves and get involved. We meet the borrower and look at the property and speak to various parties to determine if the loan makes sense from a security point of view. And always keep in mind that our primary-though not our only-criteria is equity. We are an equity lender. If the equity is there, almost any other shortcoming can be overlooked.

Myth: Private money lenders always require appraisals.

Fact: Fairfield Financial generally does not specifically require an appraisal (though on a few occasions we do). We look at all of the available data (cost basis, assessed value, comparables, income, etc.) and attempt to arrive at a value conclusion on our own. This not only knocks off a good $3,000-$5,000 from our commercial loans, but short-cuts the process by a good 2-3 weeks.

Myth: Private money lenders always require income verification.

Fact: Fairfield rarely ever asks for tax returns to verify income for private individuals who are a party to the transaction (though we generally need to see financials when an ongoing business is involved). We merely ask the individuals to state their incomes.

Myth: No lender will loan on a property that is in very poor condition.

Fact: Fairfield often loans on properties that in very bad condition. This is often where the opportunities lie. Sometimes the construction fund exceeds the acquisition cost. If a project makes sense and there is sufficient equity, we will do it.

Myth: No lender can fund in less than two weeks.

Fact: We can and we do. However, it only happens if the borrower/broker is very organized and when we are able to get their full support and cooperation. Typically we fund in 2-3 weeks.

Myth: It is very difficult for a first-time builder to get construction funding.

Fact: Fairfield has made many loans to first-time builders, developers, and real estate investors buying and rehabbing properties for a profit. We like to work with people who are just breaking into the business. Of course they must exhibit the basic characteristics that will allow one to do well in this realm: good supporting contacts, common sense, and the willingness to work hard. We have seen many of our inexperienced builders and investors not only succeed but excel, and that is satisfying for everyone.

Myth: There are no alternatives to the few bank options that exist for financing floating homes.

Fact: Fairfield has developed a reputation for funding floating home loans. I lived on floating homes for nearly eight years and I love them, and Portland has more floating homes per capita than any other city in the nation. Bring us your floating homes loans. I’ll go one step further. Bring us your floating home construction and renovation loans. We have frequently funded the expansion of a floating home (many people like to add a second story or fill in the boat well to create additional living space) or otherwise funded loans, for example, for the rebuilding of the logs and the stringers (the foundation on which floating homes float).

Myth: Restaurant loans are almost impossible to do unless they meet strict conventional lending criteria. They are simply considered to be too risky.

Fact: Fairfield has done many restaurant loans. We will fund up to 65% in Oregon, Washington, and Idaho (and possibly in some of our other states).

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Getting Unstuck with Private Money

August 26th, 2011

It is often quite difficult for professionals to get a sense of what hard money is all about and to know when it is the best option for putting a transaction together. I have found that the best way to teach is by example. So to that end I will profile several loans here that we have placed.

A Real Bargain
We had a Loan Broker bring us a transaction involving the purchase of a rather unusual multi-unit complex in Lebanon. The borrower had locked in a purchase price of $230,000 for the property, and was buying it as an investment. He was getting discouraged because he felt that he was buying this property for way under market value and he was eager to complete the transaction, but the Loan Broker had been having a tough time putting the transaction together due to (1) the required LTV based on purchase price, (2) the unusual nature of the property (several single family homes, a duplex, an 8-plex, and a large commercial property all on two tax lots), and (3) the lack of a proper commercial appraisal. We took a look at the file and then the property and got very excited about the transaction. This was a property, in our opinion, that was easily worth as much as $500,000 (based primarily on an analysis of potential income; no wonder the borrower was nervous). We arranged to loan to the borrower–enough to cover the purchase price, fees and closing costs, and an additional construction fund to be used for completion of deferred maintenance on the property, and the LTV was based on completion value as opposed to current value. The borrower was able to come in with a relatively small down payment to make the loan work.

A Row House Project
I had a contractor call me up. He was quite discouraged, because he had arranged all of the elements for putting up a four unit row house project in Southeast Portland and had gone to a local Loan Broker and after nearly two months, was not any closer to having his project funded and was in danger of losing the option to buy the lots for the project. By the time he got to me, he had just over a week to complete the transaction. I felt good about the contractor and good about the project, so I hustled to put it together. We made the deadline and those units are going up right now.

An Idaho Ranch
I had a file come onto my desk from two different sources on the same day (my Account Executive and a Loan Broker who I have known and done business with for several years). Once again, a borrower was in danger of losing the right to purchase a property that was of great importance to him. He was a strong borrower with good credit and strong assets but he needed funding for the purchase of a cattle breeding ranch in backcountry Idaho and he needed it in one week. There was no way to extend the purchase agreement, so I booked the first available flight to Idaho, rented a car in Boise and drove five hours to look at the property. All the while, I was in direct contact with my office by cell phone where my right hand man was preparing the documents and coordinating with the title company so as to complete this loan on time. We made the deadline, funded the loan at an LTV acceptable to all parties, and our borrower is now the proud owner of a cattle breeding ranch in Idaho.

These are a few examples of the loans that we do. In the end, with hard money, it is always about equity. The important thing to remember is that if the equity is there to support the loan we can move fast and overlook a number of otherwise undesirable factors.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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As goes Miami …?

July 30th, 2011

Sorry to be so long away from you. I guess the lazy days of summer have been calling. I would like to share an article that I read recently in the New York Times.

http://www.nytimes.com/2011/07/27/business/affluent-buyers-reviving-market-for-miami-homes.html?pagewanted=1&_r=1

It seems that the Miami market, one of the worst hit during the real estate turn down, is on the mend, and that is attributed to investment buyers who have stepped in and said with their dollars: This market has gone about as low as it is going to go. There are opportunities here. We are ready to buy and hold and make our money down the line.

This has provided the much needed buffer, almost like say those who speculate in commodities markets, to balance out the market and absorb the gap that would otherwise exist between supply and demand.

I’m curious: how many of you think this could be a trend for the entire nation? Is this the way that it will all get turned around, and is this the beginning of that turn around? Please comment.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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Kick some A in your CMA

May 18th, 2011

Clay Sparkman

One thing that Fairfield does a little differently is allow our borrowers to supply their own valuation analysis in lieu of a formal appraisal. Our acceptance of a value estimate really comes down to the comps, and we really don’t care who provides them so long as they are appropriate, we can follow the logic used in estimating the value of the subject property, and we concur with the analysis of that valuation.

A realtor prepared CMA is an inexpensive alternative to an appraisal, and is often sufficient for most residential properties. However, we’ve seen a lot of CMAs that are simply a group of listings or recent sales, with no explanation as to how the estimated value was determined and why the comps are appropriate. It’s important that there is a good analysis in your comparative market analysis or whatever type of valuation that you provide.

A quickly pulled set of comps based on location, and size does not tell the whole story. The borrower should always drive the comps, and visually inspect each one. Comps should be visually inspected and compared to the subject property. Ideally the most similar 3-5 comps should be selected without regard to their price. Too often comps are selected in an effort to match a pre-conceived notion of value, which is clearly inappropriate.

Once the properties are selected, value adjustments should be made regarding the overall quality, neighborhood, layout, lot size, sale date, amenities, and any other varying factors. Once adjustments have been made, the price /SF can be calculated, averaged, and multiplied by the Size of the subject property. A good set of comps with a narration illustrating the derivation of your estimated value is a key element to a strong loan packet. See Below for an example of a comp matrix provided by one of our borrowers.

Our website is full of great resources, and more information on the quest for a good set of comps can be seen at http://www.privatemoneysource.com/articles/comps.php

See the example below.

Subject

Comp #1

Comp #2

Comp#3

Comp#4

Comp#5
Address
Sale
Date
Days on Mkt
Distance- Miles		 581 N Shady Gr 363 E Boise St
5/13/08
105
0.18		 175 Sunbird
4/28/08
27
0.53		 415 SW Frarnall
?
115
0.62		 388 SW Farnall
5/28/08
34
0.66		 1192 N Tasavol
3/27/08
9
0.15
Size – SF 1200 1346 1314 1134 1264 1130
Sales Price
Price/SqFt		 139,900
103.94		 139,900
106.47		 151,900
133.95		 138,000
109.18		 149,900
132.65
Adjustments:
Condition -5% -5% -5% -5% -5%
Location -5% -5% -10%
Size (lot & bldg) -5% -5% -5%
Total Adj -5% -10% -15% -15% -15%
Adjusted Price Per SF 98.74 95.82 113.86 92.80 112.76
Mean $/SF 102.80
Indicated Value 123,355

Condition Adjustments: Each comp appears to be slightly superior to the subject property. They’re reasonable close, so a 5% reduction should make them reasonably comparable

Location: Comps 1 and 2 are in similar neighborhoods and require no adjustment. Neighboring homes surrounding comps 3 and 4 seem to be slightly superior to that of the subject, and #5 is in a neighborhood that is clearly more upscale. A 5% reduction to 3 and 4 seems like a reasonable adjustment, with a 10% reduction to #5

Size: In comparison to the size of the home as well as the lot, comps 2, 3, and 4, are larger than the subject. Comp 3 is slightly smaller in square footage, but the lot is substantially larger. A 5% reduction in value should make these more comparable.

Final Valuation: To calculate the estimated value, each property was weighted equally. The adjusted $/SF was averaged to yield $102.8 and multiplied by the SF of the subject property. 102.8 * 1200 = 123,355.

– Clay (clay@privatemoneysource.com, 503-476-2909)

Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.  Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.  To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

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