Now that the Sub-Prime market for mortgages on home purchases and refinances is a thing of the past, we’re back to the situation in the ‘80’s when, if you couldn’t qualify for a black and white conventional mortgage, your only alternative was hard money. Quite frankly, now that I’ve been in this business awhile, I’m shocked at the high LTVs and lack of underwriting that went on in the Sub-Prime hay-day. It seems to me that the Wall Street guys actually got in to the hard money business and rationalized away the risk with some fancy mathematics based on some quant’s calculus fever dream. The combination of easy money and low rates was certainly a recipe for disaster.

Considering the rigor with which we at Fairfield analyze the risks, the train wreck the sub-prime mortgage industry is in now seems like it was inevitable. It’s my opinion that the investment banks on Wall Street tried to institutionalize the art of what we do at Fairfield. You just can’t do that. There are too many unique factors that can spell disaster for a non-traditional loan. Hard money loans have to be carefully and skillfully screened to be a successful investment. Most importantly, there was no cushion in the LTV to absorb the sins that were being committed.

So we’re back to where we were in the ‘80’s. Now, if you have a client that can’t get a conventional mortgage, hard money is really the only option. As before, the game is really now about equity. You should be preparing your borrowers for higher rates and fees, lower LTVs and shorter terms. For creative ways to keep your LTV down see the article, “Creative Funding”, here:

http://www.privatemoneysource.com/mailing.php?mid=107

The max term we can do without seriously drilling down on your borrower’s ability to re-pay is 12 months for new purchases (we can go with a longer term or do refinances, but that requires more underwriting on the borrower’s ability to repay). This may be enough time for your borrower to get their finances in order. In situations where your borrower has equity and the ability to do debt service, but may have challenged credit or is just coming out of a bankruptcy, we can help. See the article, “Off the Beaten Path” here:

http://www.privatemoneysource.com/mailing.php?mid=9

In short, we’ll look at any worthwhile deal.

I’m glad we’re here to fill the gap. Welcome back to hard money. Contact me and find out how you can give your borrowers an alternative.

If you have a loan that might fit with these parameters, please e-mail me at clay@privatemoneysource.com or submit by entering a brief summary at http://www.privatemoneysource.com/loanproposal.php. 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, but is able to source loans nationwide. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

As you all know, sometimes we have to be creative to get loans done in this market. One of the most critical aspects of any loan is the Loan to Value ratio, and there are often options for reducing the LTV to make the deal more attractive.

For purchases, the seller carry back is a great strategy. We all know that it’s a buyer’s market, so a motivated seller is going to have to really entice those buyers. In some instances, the seller will simply accept that the market demands a lower price. However, under the right circumstances, the seller could be willing to carry back 20% of the purchase price as a note in 2nd position. This opens up a lot more financing options.

Sometimes if a deal is close, but just a little high on the LTV, brokers will allow us to hold their fees in one of our client trust accounts until certain conditions are met. With riskier development loans, it can make a big difference to the lender if that LTV is a few points lower. By carrying fees in this manner, it gives the lender additional security if the deal goes bad. If the broker is confident in the project, and has the ability to hold off on those fees, it can sometimes make the difference between a pass and an approval to fund.

Another option is to cross collateralize an additional property. If the borrower is able, putting up an additional property can potentially lower the LTV. At the very least, it will add security to the loan, and show the lender an increased level of commitment by putting more skin in the game.

If you have a loan that might fit with these parameters, please e-mail me at clay@privatemoneysource.com or submit by entering a brief summary at http://www.privatemoneysource.com/loanproposal.php. 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, but is able to source loans nationwide. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

As I’m sure most of you will agree, it takes more contacts to get a loan done these days. Lenders are more selective and an increased number of borrowers are turning to hard money. More borrowers are talking to brokers, and then brokers have to talk to more lenders to find funding. The end result is more work for you; so to stay even you have to be more efficient in your process and presentation of these loan scenarios.

Fortunately we are equipped to screen your loan scenarios quickly, efficiently, and at whatever ridiculous hour of the day or night we may be working. Here are some ways to submit your scenarios to us that will be faster, easier, and more efficient for you, and in turn will solicit a quicker response.

One way to submit a loan scenario or question that will really save you time is through our website. Our on-line submission form can be found at: http://www.privatemoneysource.com/loanproposal.php. This form provides us with what we need to properly assess your scenario and in some cases issue a quote right on the spot.

When using the contact feature at http://www.privatemoneysource.com/contact.php, please be sure to leave a specific question or basic summary of your loan request with your contact info. Because we receive such a high volume of leads and phone calls, a request for a return phone call with no summary information or specific request will often have a lower priority and may take a few days to return.

Probably the best way to reach us initially is through email. I do enjoy speaking with our brokers and staying in touch, but sometimes I can return an email in the time it takes to dial the phone and connect to that person live. This industry affords us the luxury and sometimes demands that we work outside of normal business hours. I don’t return phone calls after 5pm, but I can respond to your email at all hours of the night.

For initial screenings and general questions these electronic submissions can save you a lot of time. An emailed summary with a brief description, on-line proposal, or even a list of the location, property type, and loan size is a tremendous help. If it’s not something we can do we’ll let you know fast so you can move on, and if it looks interesting we’ll let you know immediately and request any required information.

If you have a loan that might fit with these parameters, please e-mail me at clay@privatemoneysource.com or submit by entering a brief summary at http://www.privatemoneysource.com/loanproposal.php. 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, but is able to source loans nationwide. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php

ELIGIBLE LOCATIONS
Anywhere in the United States

ELIGIBLE PROPERTIES
Income producing commercial real estate properties including multifamily, but no construction

TRANSACTION SIZE
$2 million to $15 million

Max LTV
Up to 65% of Lender’s assessed value – will accept cross-collateral to support equity requirements

RATES
12% – 15%

ORIGINATION FEES
3% – 6%

DUE DILIGENCE DEPOSIT

EXIT FEES
Negotiable

LOAN TERM(S)
6 – 36 months, extension options available

CLOSING TIME
2 – 4 weeks is typical

DUE DILIGENCE DEPOSIT:
Upon acceptance of the term sheet, Borrower will be liable for all out-of-pocket third party expenses (including but not limited to environmental, property condition report, ALTA survey and Legal fees), and shall make a deposit of $10,000 to $15,000 to cover such expense. Lender will not require an Appraisal. Any remaining due diligence deposit will be refunded to the Borrower at closing.

If you have a loan that might fir with these parameters, please e-mail me at clay@privatemoneysource.com or submit by entering a brief summary at http://www.privatemoneysource.com/loanproposal.php. 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

In the current climate, it’s getting harder than ever to impress potential lenders with your client’s loan scenarios. It may be that times have changed permanently and that it will be years before lenders return to their pre-2007 comfort level. Until then I thought I would make some suggestions to help you to re-think your borrower’s loan scenarios and try to make them more robust.

By robust, I mean strengthen your loan scenarios for your clients so that they can withstand potential negative factors that might otherwise harm your ability to perform as promised. Things seldom go as planned and when they go wrong, it’s good to have the ability to weather bad tidings. What if it takes your client longer to sell the project than expected? What if the value of the finished project has dropped since it was started? What if a government approval is held up for reasons your borrower can’t control? All of these things could severely impact your borrower’s ability to perform.

Lenders are critically aware of these items (especially in light of the difficulties in the real estate marketplace during the past 4+ years) and now look to see if a potential borrower is also aware of these items and has a plan to deal with them (and even better, two tiers of backup plans). To that end, I would make some suggestions to help you make your client’s scenarios more robust.

Lower LTV’s

A low LTV can forgive a lot of sins. In the past a 75% LTV was considered the maximum LTV we would consider. While that is not impossible now, it’s more of a low probability event that you’ll find a scenario that can present well at 75%. You should be thinking below 65% or even 60%. Lenders now want a larger cushion to protect against property devaluation. Not only that, having a borrower with more equity means you’ll have some room to work with if you need a loan modification or workout. There may also be enough equity to borrow against to do some debt service on the loan (if need be).

The days of heavy leveraging are over for the time being and we’re ready to work with you to bring your client’s LTV down. You can consider additional cash, seller carries, subordinations, and cross collateral as techniques to lower the LTV. This is where hard money has always shined. We can get creative in helping you to sort this out.

Multiple Contingencies

Nothing ever goes as planned. The borrower should plan for that. Having back-up plans shows that they’re aware of this and prepared to make adjustments if necessary and respond to changes in the marketplace (all of our best developers have back-up plans to their back-up plans). If they can’t sell the house, maybe they should be ready to have it rented. They should build in extra time for delays if they’re waiting for government approvals. If the market changes mid-way into their project, how will they adjust to fit what the market wants? These considerations are what are on lenders mind’s as they’re reading your proposal. If your borrower has well considered answers and plans to deal with multiple contingencies, they’ll demonstrate to their potential lender that they’re a careful planner and prepared for what may happen down the line.

Finally, the most important of these contingencies is being able to do the long hold. It’s so important it deserves its own section.

Do the Long Hold

The common enemy to most real estate development is time. Market trends come and go. Projects can be delayed. Things inevitably take longer than expected. All along the clock is ticking. You should consider that your borrower might end up not being able to exit as soon as they expected. When this happens, have they prepared for the long hold?

Debt service would be critical going forward. Do they have enough cash flow to sustain payments? Is there enough equity to borrow again if needed? These are the questions that the lenders will ask about your borrower. Having a plan to do the long hold (if need be) goes a long way to inspire confidence for lenders.

These three suggestions will go a long way to making your borrower’s projects and loan requests more robust. Following them (and working with your borrowers on their development plans, before asking for funding) will give you and your borrowers a greater chance of getting funded.

If you would like to discuss private money loans further or run a particular scenario by us, please e-mail me 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

I’d like to take this opportunity to highlight a loan that we were able to get into escrow 1 week from the time the borrower submitted his scenario. This is not something we can do every time, but very possible for a proven borrower that knows the dance. I’ll refer to this borrower as Benjamin.

The first loan is always the hardest. We have a very good track record on our loans due to our strict underwriting guidelines, and we require a lot of information. When we talk about building a relationship there is more to consider that just the property. Our first loan with Benjamin took about a month to exchange this information and do the appropriate research. It was a lot of work, and we were down to the wire on the purchase agreement, but the foundation was laid.

We’ve worked a few deals over the past year, and Benjamin’s 2nd loan with us has recently paid off. Now that he has successfully exited two loans, he’s developing a reputation with our investors. The construction was completed within the budget and the anticipated time frame, and he was never late with a monthly payment. When he came to us with a new scenario, he knew exactly what information to send. In the course of one Friday morning, I looked it over, approved the scenario, Benjamin wired us his refundable deposit, and I called our property inspector. By Monday, the inspector informed me that the property checked out. On Friday, one week after Benjamin’s initial email submitting his property, Loan docs were out.

We value our relationships, and work very hard to maintain them. Multiple deals with a borrower become easier and easier, and our relationships with brokers is the same. The first one is always the hardest, but it gets easier and faster over time.

We also have a rule with brokers, that if a broker brings us a repeat borrower, each deal has to go through that broker. If that borrower were to come to us directly, we would refer them back to that original broker before we would proceed with the loan. We’re happy to work directly with those borrowers, but only after including that broker’s fee, and with the broker’s consent.

This business is filled with short term relationships with many different people, but it’s the long fruitful relationships that make our business successful.

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

We’ve been getting a lot of requests for pre-approval letters lately. Many of our loan requests are for rehab loans, and it can be difficult to submit offers without an approval or proof of funds letter. Unfortunately most of our clients don’t have an extra 200K sitting around for the proof of funds, and many lending institutions won’t take a loan request seriously without a purchase agreement. In this market, a pre-approval letter can be a useful tool in taking that first step of getting an offer accepted, but it’s important to understand what that pre-approval means.

Our pre-approval process is an initial screening of the borrower’s income, net worth, credit, and experience. As an equity lender, this is only a portion of the information that we’ll need to underwrite a loan, but it is something we can look at before a specific property is secured to start the process. This pre-approval process puts the potential borrower in our system, speeds up the initial approval of the property, and allows the borrower to submit minimal information directly to a loan officer. Please keep in mind that the pre-approval letter is a useful tool, but our decision to pursue a particular loan is ultimately dependant on the property itself.

If you’d like to be considered for pre-approval, please submit the following:

1. a copy of this request
2. a completed and signed 1003 and the following signed disclosure forms. The 1003 and other forms can be downloaded at http://www.privatemoneysource.com/resources.php
   1. privacy notice
   2. credit report authorization form
   3. patriot act information disclosure
   4. military service disclosure
3. a copy of your current credit report. If you do not have a credit report we can pull one for you.
4. a resume or description of your relevant background and experience.
5. a description of your property investment plans for the upcoming year
6. a one-time fee of $150 to cover our pre-approval costs.

Please mail this to:

16055 SW Walker Rd #247, Beaverton, OR 97006, ATTN: Clay

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

Generally speaking we are quite willing to consider small loans. We realize that we will never get rich doing small loans, but we also remember what got us where we are. The large loans can be quite fickle, coming and going as they please, but the small loans seem to be there when we all need them the most. The large loans help us buy that new flat screen TV; the small loans put food on the table.

So this week I thought I’d profile a small loan that we closed previously, so as to give you a sense of the kind of thing that I’m talking about here. We had a woman come to us looking to borrow money against a free and clear small commercial condo in Gresham, Oregon. It is a tiny space being leased to a local barber. There were some potential negatives: (1) the borrower didn’t know what the value of her property would be and didn’t have an appraisal, (2) she was looking to pull cash out to use for personal purposes, and (3) the residential portion of the condo had not completely sold after construction of the building and so were being utilized as rentals. Overall though, we liked this loan. The borrowers were basically solid, the property was basically new and attractive, and the tenant had a good track record.

We felt it unreasonable to require a commercial appraisal in order to make a $60,000 loan—so we looked at all the available info: original purchase price, income, and one or two local comps, and were able to settle on a basic opinion of value.

We made the loan: 65% LTV, 13.5%, 3 years, and with no pre-payment penalty or minimum interest—so the borrower would be able to repay as soon as a conventional option became available to her–without taking an additional hit.

Bring us your small loans. We’ll give them close look. We’ll give them a fair chance.

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

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

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

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

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

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

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

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

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

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

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

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

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