- The Private Money Broker

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

Tags: auction buying, finding lenders, hard money borrowing, hard money brokering, hard money loans, Idaho, Nevada, New York, Oregon, private money borrowing, private money brokering, Quick flip loans, real estate rental, rehab loans, REO funding, Short sales
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)

Tags: commercial lenders, Commercial loans, construction loans, finding lenders, hard money borrowing, hard money brokering, hard money loans, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate investing, real estate rental
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)

Tags: Commercial loans, construction loans, hard money borrowing, hard money brokering, hard money loans, Idaho, Oregon, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate rental, rehab loans
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 27^th, 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 27^th, 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)

Tags: commercial lenders, Commercial loans, construction loans, finding lenders, free ipad, hard money brokering, hard money loans, private money brokering, private money loans, Quick flip loans, rehab loans
Posted in Promotional announcement | Comments Off

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)

Tags: Commercial loans, construction loans, finding lenders, hard money borrowing, hard money brokering, hard money loans, Oregon, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate investing, rehab loans
Posted in Commercial loans, General perspective, Multifamily, Private money loan uses, Rehab and constuction loans | Comments Off

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)

Tags: Commercial loans, construction loans, hard money borrowing, hard money brokering, hard money loans, Idaho, Multifamily, Oregon, private money borrowing, private money brokering, private money loans, real estate, real estate investing, rehab loans
Posted in Commercial loans, Multifamily, Private money loan examples, Rehab and constuction loans | Comments Off

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)

Tags: Florida, real estate, real estate investing
Posted in Analysis, General perspective, Real estate market general | Comments Off

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)

Tags: hard money borrowing, hard money brokering, hard money loans, private money borrowing, private money brokering, private money loans
Posted in Fundamentals, Tools, Valuation | Comments Off

Keeping your loans in motion

May 10th, 2011

S. Clay Sparkman

The most important thing about working a pipeline–as you well know–is to keep your loans in motion. They must not stagnate. Always move forward or bail out (gracefully of course). This is a critical secret to success, particularly in the challenging market we face now.

If you have a file that you have been sitting on or that you just aren’t quite sure what to do with, consider going to our on-line short form and entering the basic loan proposal information. It shouldn’t take you more than 10-15 minutes, and if you request that the form be directed to me, then I will personally review your online submission.

So often, working with a lender is all about figuring out how they like to work. Well this little form is our sweet spot, and I assure you that if you enter a loan request there, you will get quickly either to a quote or to a turn down, but there won’t be a lot of messing around.

Our online form is here.

Perpetual motion: try it.

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

Tags: Commercial loans, construction loans, hard money borrowing, hard money brokering, hard money loans, Multifamily, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate investing, real estate rental
Posted in Promotional announcement, Tools | Comments Off

Example private money loan – turn of century coastal view home remodeling project

April 26th, 2011

Clay Sparkman

Because I have found that one of the best ways to learn is by way of example, I like to give frequent examples of actual loans that we have funded. The following loan was funded quite some time ago, but is quite typical of the sort of thing that we are looking to do more of today.

Fairfield Financial had the opportunity to work with a subcontractor who had been turned down by his bank for a remodeling loan. After a lengthy and tedious application process, he had been bluntly rejected because his documented income was too low. Next, he was referred to a low-income program, where after another lengthy and tedious process, he was told the opposite: that he made too much money to qualify.

His Realtor, having heard about Fairfield Financial, suggested that he give us a call. Within 24 hours of his contacting us, we had assessed the situation and were able to make a commitment to arrange financing for his project. Within three weeks he had his money and was moving rapidly forward on the project. The loan was made as a combination equity loan of $55,000 and construction holdback of $55,000, with these holdback funds dedicated to completing the project. The borrower expected to make a profit in the realm of $100,000 upon completion of the project.

Once again, Fairfield Financial is helping individuals and businesses complete projects that don’t fit the molds of the banks and institutions, but clearly make good sense.

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

Tags: construction loans, hard money borrowing, hard money brokering, hard money loans, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate, real estate investing, rehab loans
Posted in Private money loan examples, Rehab and constuction loans | Comments Off

Won’t somebody please call a plumber … the banks are clogged

April 19th, 2011

Clay Sparkman

This article was originally posted on my lender blog in January of 2010. Now, some 15 months later, it still seems pretty much timely, That worries me. I’d like to hear your thoughts on this matter. You brokers are the real experts. Please give voice.

One of my dear good readers sent the following e-mail in response to my last post, Home strippers coming to a neighborhood near you.

“Good topic Clay. Now forgetting about us private lenders, the conventional lenders continue to be their own worst enemies. They persist in bringing the properties to the city hall steps at 40% over market. When no one buys the property, they have it inspected and insured, pay the utilities, and pay a realtor to sell it for them at a discount. On top of all that they may face the problem that your article addressed.

Pricing it to sell on the steps would solve their problems.

In early December, I looked at this piece of bank owned junk in St Helens, Oregon. It was rough around the edges but the bones were good. It was a typical Ranch style, 2-bath, 3-bed, 1400 sq ft, nice large lot, fenced, but no garage. The bank had it listed for $198,000, but they had started out at $139,000 a couple of months earlier. I called the agent and asked them if they had a misprint on the price (as there are nice, newer homes with garages going for $165k max). The agent said no, it wasn’t a misprint; the lender had called him when it was at $139,000 and told him to boost the price to $198,000. What is that about?

Until the banks get their head out, their balance sheets are going to continue to worsen.

Regards, Alan”

Well I can hardly say that it is the first time that I have heard of or seen this type of thing with the banks. One does get the distinct feeling that these institutions are somehow unmotivated to remove the toxic assets from their books.

And it is even worse than all that. As if they needed additional help at slowing down the corrective process: The federal and state governments, with all of their efforts to keep owners in homes which they cannot afford, are seriously compounding the problem. It could take an extra year or two to get many of these bad loans off the books due to the various federal and state requirements being imposed upon the banks. (And that assumes the banks are motivated.) The following NYT article does a nice job of discussing the matter.

http://www.nytimes.com/2010/01/02/business/economy/02modify.html

And so even though a lot of good things are happening with our economy as of late, real estate prices will not correct until lending institutions provide adequate funding once again to owners and buyers—and the economy as a whole will remain at least partially broken until this occurs.

And so I say: “Won’t somebody please call a plumber … the banks are clogged.”

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

Tags: bank loans, commercial lenders, Commercial loans, construction loans, hard money borrowing, hard money brokering, hard money loans, Multifamily, private money borrowing, private money brokering, private money loans, real estate, real estate investing, rehab loans
Posted in Analysis, Commercial loans, General perspective, Investor perspective, Real estate market general | Comments Off

Off the beaten path

April 12th, 2011

Clay Sparkman

Private money might well be thought of as a multi-purpose tool–a tool for getting those tough jobs done. You might imagine it to be a Swiss Army Knife, or better yet, a Leatherman Tool. It is not for those straightforward tasks that you encounter from day to day along the beaten path. It is more of a traveler’s tool. And if you are looking, you will continue to find new uses for it all along the way.

Over the past few years I have encountered a particular scenario quite frequently, and it occurred to me that this scenario represented a “blade” that I didn’t even know we had. The scenario goes more or less like this:

(1) A good borrower comes to me with a nearly perfect credit history and yet with a mid-score in the low 600s. You have all seen this: the mid score is low 600s because the borrower is utilizing too high a ratio of the “available” revolving credit (as reported by the bureaus). The borrower, in fact, might be able to handle this debt quite easily (after all: what do the bureaus actually know about the borrower’s income?), but from a purely mass statistical point of view the high ratio is considered risky.

(2) The borrower (or a representative broker) asks Fairfield to provide a private money loan secured either by the primary residence of the borrower or some other real property. The purpose is to consolidate unsecured debt and improve the borrower’s cash flow.

(3) Because private money loans are not reported to the bureau (I am not personally aware of any exceptions to this), the ratio of utilized credit to available credit drops significantly (from the bureau’s perspective), and within 6-9 months the mid-score has risen eighty points or better into the low 700s. (I myself have personally undergone this precise transformation.)

(4) The borrower, with their enhanced credit standing, is able to get a re-finance loan with more favorable terms through a conventional source, secured by either the primary residence or other property, and is able to eliminate the higher interest private money loan and maintain the higher score.

This may not be the right approach for everyone, but it is certainly an interesting phenomenon, and after all, if you are going to carry one of those Leatherman Tools on your travels, you might as well know how to use it.

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

Tags: hard money borrowing, hard money brokering, hard money loans, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate, rehab loans
Posted in Private money loan uses | Comments Off

Resources – show me the good stuff!

March 29th, 2011

Clay Sparkman

I have long searched for resources that might be useful to those who wish to learn more about private money and hard money loans, and in the process I have become increasingly convinced that our particular niche field is somewhat of an intellectual/informational wasteland. Every time I stumble upon an article or site that looks like it might be of interest, it turns out to be a blatant plug for some specific product or company. And the stuff that isn’t blatantly biased, quite often seems to be hack work, badly lacking in quality and perspective. It would be as though I were searching for articles and blogs on gourmet food only to find that all of them had been written by employees of McDonald’s, Burger King, and Taco Bell. (Hopefully I won’t get sued for this. I did not mean to disparage the great corporate food powers in any way, shape, or form.) My real point is: if I see one more article entitled “Hard Money Made EZ” or if I see “hard money” referred to as “hard $$$” one more time, I’m outa here.

Moving on, I turned up a few items of interest that might be of interest. Much of this material is written from the investor perspective, but to a great extent—and if you really want to learn all about private money—that is just another side of the same coin which deals with borrowing and brokering.

The following article is quite dated, but still might be of interest for those looking to expand geographically (and into a very large target market).

http://www.danwei.org/front_page_of_the_day/private_money_lending_business.php

I also stumbled onto this site/book by Paul Wells who claims to hold the secrets of private money. I hope indeed he does, as we could use a good text book in this field. I asked him for a review copy, but never received one, so I cannot comment on the quality of the material.

http://www.paulwellsauthor.com/mortgageinvesting.html

I couldn’t help but be amused by this post by Leonard Rosen in August of 2007.

“America’s hard money expert shares his views on real estate investing. There are many different types of investing strategies that are available to the novice and sophisticated investor.

However, I do not know a safer investment strategy coupled with a higher rate of return than real estate. Unlike the equity markets, real estate has proven to be a safe haven for many investors. Over the past 40 years, real estate has risen in value in literally every major market in the United States.”

Oh well … perhaps a bit dated. The full text is here:

http://www.americanchronicle.com/articles/view/35089

And here is another book on the topic, specific to California (but that is a pretty good starting point for talking about the basics of private money lending nationwide), and with five of five stars on five reviews. I can’t figure out how to ask for a free review copy, so if anyone knows the book please weigh in here.

http://www.amazon.com/Smart-Trust-Deed-Investment-California/dp/0934581010

About.com defines private money pretty much the same way as most outsiders do:

http://www.answers.com/topic/hard-money-loan

At least they hedge the “last resort” part with the “short-term bridge” bit. However, I am beside myself with how many people who should know better who claim–I see this over and over again–that the borrower (credit/income/net worth and such) is irrelevant to the private money lending process. Why would anyone make a private money loan and disregard readily available information about the financial status of the borrower? It is beyond me.

Please oh please … if you know where the goodies are hiding out there, please share them with the rest of us. That after all is what this blog is all about: sharing quality information and resources with like-minded folks who care about private money borrowing, brokering, and investing. (Oh yes: and promoting me and my company; but NOT BLATANTLY MIND YOU … good lord no … not blatantly.)

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

Tags: hard money borrowing, hard money brokering, hard money investing, hard money lending, hard money loans, private money borrowing, private money brokering, private money investing, private money lending, private money loans, real estate, real estate investing, trust deed investing
Posted in Fundamentals, Investor perspective, Resources | Comments Off

Don’t get mad, get going

March 10th, 2011

Clay Sparkman

A real bargain
A loan broker brought 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 (borrower needed to borrow nearly 100% of the purchase money), (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 $260,000 to the borrower–enough to cover the full purchase price, fees and closing costs, and an additional construction fund of about $15,000 to be used for completion of deferred maintenance on the property.

A row house project
We had a contractor call us 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 loosing 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. We felt good about the contractor and good about the project, so we hustled to put it together. We made the deadline and those units are going up right now.

An Idaho ranch
We had a file come into our office from two different sources on the same day. 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 via cell phone where my top loan coordinator was preparing the documents and coordinating with the title company so as to complete this loan on time. We made the deadline and funded 75% of the value of the property, and our borrower is now the proud owner of a cattle breeding ranch in Idaho.

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

Tags: Commercial loans, construction loans, hard money borrowing, hard money brokering, hard money loans, Idaho, Oregon, private money borrowing, private money brokering, private money loans, real estate, real estate investing
Posted in Commercial loans, General perspective, Private money loan examples, Uncategorized | Comments Off

How to broker private money loans when real estate markets are uncertain

March 6th, 2011

Clay Sparkman

We’ve been through nearly 3 ½ rough years in the real estate market—and projections seem to indicate that we will finally see clear up-turn in the second half of this year, but no one really knows for sure. We have managed to survive this down-time (all who are still present please take a moment to pat your own back) and continue doing loans even in the face of uncertainty

Our loan volume is down. Less people are borrowing for projects at the moment (though we are starting to see some upturn there) and we have been forced to be more conservative given the level of uncertainty in markets. The key areas we look at, I would say, even more carefully than we did before the crash are: (1) LTV: we used to do a lot of stuff at 75%. Now most of what we place is at 65% or less. (2) Professionalism of the borrower: we want to see that the borrower is proceeding with caution, has done his/her homework, has backup strategies in place, and has a reasonable track record. (3) Exit strategy: it is hard to be certain in this climate that an exit strategy will work, but tend to obsess about this point these days so as to be as sure as possible that there is/are one or more ways to exit the loan.

Rigorously following these guidelines has served us well. And knowing of and understanding these guideposts, our broker clients are managing to bring us more loans that succeed in closing now than at any time in the past 3+ years. By way of example, here are four loans that we have closed (or are in the process of closing) recently.

Mini-condos for simple living on the Washington coast

1. Loan Amount: $286,000

2. Term: 1 year

3. Interest Rate: 13%

4. Monthly Payments: $1,895.83 Interest Only

5. Construction Holdback Account: $265,000

6. Security: Deed of Trust in 1^st Position security interest in real property at xxxxxxxxxx

7. Projected Value by Borrower Comps: $476,000

8. As-is Value by Borrower Estimate $30,000

9. As-Is Front End LTV Borrower Estimate: 70%

10. Completion LTV by Borrower Comps: 62%

This loan is to provide funds to build four detached condos on the Washington Coast. The borrowers, xxxxxxxxxx of xxxxx company requested a loan of $286,000 to provide funds for the construction and various loan costs and closing fees. $265,000 of this was deposited into a construction holdback account. The borrowers have $21,000 invested into the purchase and clearing of the lot so far, which is effectively being considered as their down payment or skin in the game.

This will be the 3^rd group of condos that the borrowers have built. The first set of condos was built in the fall of 2009, and the borrowers report that they sold in approximately 2 months. The 2^nd set was completed in the fall of 2010 (this is an existing construction loan with Fairfield), and at least one of those units has been sold for the full asking price. The borrower reports that there has been a lot of activity and interest in the remaining units.

Partner xxxxx is a realtor, and her husband is the contractor who will do the actual construction. The borrower plans to exit this loan through the sale of these condos, and has requested that each condo be released with a principal reduction of $75,000.

The property is located on a cul-de-sac approximately 1,800 feet from the average high tide line, and two blocks from public beach access. These condos will be 480Sq/Ft with a full kitchen and bath, and made with eco-friendly materials.

Adult care facility in Washington

1. Loan Amount: $270,000

2. Term: 24 Months

3. 6 months minimum interest

4. Interest Rate: 14%

5. Monthly Payments: $3,150.00 Interest Only

6. Security: Deed of Trust in 1st Position security interest in real property at xxxxxxxxxx

7. Value of Collateral by Appraisal: $750,000

8. LTV based on Appraisal: 36%

The borrower, xxxxx, inherited an adult care facility approximately 2 years ago. She requested this loan to funds to pay the probate and costs incurred in the transferring of the estate.

The subject property is a 4402 SF 8 bedroom 3-bath home being used as an adult care facility. There are several outbuildings being used as rentals to the borrower’s family. Leases were provided. The home sits on 5 acres, adjacent to a bare 5 acre parcel that is also being used as additional collateral.

Vacation rental in central Oregon

1. Loan Amount: $120,000

2. Term: 36 Months

3. 6 months minimum interest

4. Interest Rate: 13%

5. Monthly Payments: $1,300.00 Interest Only

6. Security: Deed of Trust in 1st Position security interest in real property at xxxxxxxxxx

7. Value of Collateral by Borrower Comps: $227,900

8. LTV based on Collateral by Purchase Price: 53%

The borrower, xxxxx company had negotiated the purchase of this property for $150,000. The seller was in financial distress and needed to sell quickly. The borrower believed that this price was well under value (the list price was reduced to $199,500 on 12/8/10), and were requesting 10K for cosmetic improvements. They put down 25k, and the seller is carried back another 25K to make the loan work. The loan was personally guaranteed.

The subject property is a 1,618SF home that will be used as a vacation rental. It is located in the xxxxx subdivision which has amenities such as a club house, swimming pool, excessive common grounds use, and paved bike paths. The property has 3 bedrooms, 2 baths, fireplace, and wrap around deck.

Self-storage facility in northern Washington

1. Loan Amount: $375,000

2. Term: 36 Months

3. 6 months minimum interest

4. Interest Rate: 12%

5. Monthly Payments: $3,750.00 Interest Only

6. Security: Deed of Trust in 1st Position security interest in real property at xxxxxxxxxx

7. Value of Collateral by Purchase Price: $565,000

8. LTV based on Collateral by Purchase Price: 66%

The borrower, xxxxx, is an experienced owner and operator of self-storage facilities. He had the subject property under contract for $565,000, and was seeking a loan of $375,000. There was approximately $20,000 in credits that the seller agreed to provide, and the borrower stepped up with a down payment of approximately $200,000.

The borrower plans to live on site and manage the property which will greatly reduce his personal living expenses as well as eliminate the wages that are currently being paid to an on-site manager. In addition, he plans to install a self-service Kiosk that would allow easier access for new tenants to sign up 24/7. He also plans to improve the signage, making the property more visible. Finally, he will offer a $1 first month move in special and change the name of the property from xxxxxxxxxx to yyyyyyyyyy. He believes that this name change will improve the search engine rankings and ultimately increase occupancy. Through these changes the borrower believes that he can increase his occupancy from the current 50% to 80% in the first year.

The borrower plans to exit this loan by refinancing with and SBA loan. More info regarding the feasibility of this exit strategy is described below.

The subject property is consists of 2 lots with a combined 2 acres and 22,923SF of rentable space over 7 buildings. In addition, there is a small 2br 1ba manufacture home on the property. The property was reported to be in excellent condition, and located in a prime spot in northern Washington. There are several self-storage facilities in this area, which are reported to have low vacancy rates.

The current occupancy rate is at 50%, which the borrower attributes to the current “absentee owner”. As far as he can tell, there isn’t much for marketing activity and no incentive for the on-site manager to increase their workload by working to increase the occupancy.

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

Tags: commercial lenders, Commercial loans, construction loans, hard money borrowing, hard money brokering, hard money loans, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate, real estate investing, real estate rental, rehab loans
Posted in Fundamentals, General perspective, Investor perspective, Private money loan examples, Structuring loans | 2 Comments »

How to communicate your deals

February 28th, 2011

S. Clay Sparkman and Richard Sundvall

There are certain key pieces of information that we need to know when we’re sizing up a deal. Having this information when you contact us can speed up the process considerably. Also, if you have these pieces in hand you can talk about your deal more clearly and present yourself as someone who is professional. Because of the way we work at Fairfield, all of the pieces here are necessary to complete the picture of a scenario in order to get you and your clients a quote on a loan quickly.

This is important: don’t send us everything you have on a scenario and expect us to find the loan in a sea of documents. Sending too much information can overload us quite quickly. We would prefer the basics of the scenario before turning on the document hose. Also, please, never send us your borrower’s personal information unsolicited.

Description of the property
We need to know where it is, what it is, the size and its status. If it’s land, we’ll need to know the zoning and its access to utilities. As an equity lender, we’re all about the property. This will form the basis of our loan.

Description of the Project
You need to be able to tell us what the borrowers plans are for the property. Be prepared to talk about the strengths as well as the weaknesses. You can also give us some perspective by talking about the area around the property and how the borrower’s project compares to other projects that are similar nearby.

Loan Amount Requested and Use of Funds
When you do a rough calculation of loan amount, let us know if your amount is the net amount you need after fees or if you are giving us an amount that includes fees. Also, tell us how the funds will be used.

‘As-Is’ Value of the subject property
This is a critical value for us. Even more so than a future value. It’s the first step in making sure the loan works. We base our Front End LTV on this number (pay off plus loan fees divided by ‘as-is’ value is the formula). Our loans are critically dependent on this value. Also be able to tell us how you derived this number.

Future Value
This is also the finished value or after repair value. Again, be able to tell us how you derived this number.

Pay Off Amounts or Purchase Price Due
We’ll need to know the balance of any loans that need to be paid off. If the loan involves a purchase, refer to the Purchase Agreement to give us the price AND the expiration of the agreement (which is important to determine if we have enough time to close or not).

Construction Budget (if applicable)
This is a line item listing of all the expenses required to complete any construction on a project. This should include soft costs.

Interest Reserve Amount if Requested
Obviously, since you won’t know the actual rate prior to a quote, you can estimate the amount here or just state how many months your borrower is requesting.

Requested Term
Generally our loans are for one year to three years.

Statement of Exit Strategy
Exit is also critical to hard money loans. It is important to us that you have a clear way out of the loan and it’s even more effective if the strategy contains multiple contingencies. For example, if you state the exit strategy is sales, then also tell us what will the borrower do if there are no sales.

Number of Points for Brokers
Let us know how many points you are adding for yourself and your referring entities (if there are any).

Borrowers stated income per month, stated net worth and mid FICO score
These items are necessary for a quote.

These dozen items may seem like a long list, but each will only take a line or two to answer. We know it’s difficult to pare down the amount of information an enthusiastic borrower can bestow upon you. Borrowers usually know volumes about their deals. Breaking it down to these essential items will give us the picture simply and clearly. It will also allow us to tell you quickly whether on not it’s a loan we can do and at what price.

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

Tags: Commercial loans, construction loans, hard money borrowing, hard money brokering, hard money loans, Multifamily, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate, real estate rental, rehab loans, subordinate loans
Posted in Commercial loans, Fundamentals, Rehab and constuction loans | 2 Comments »

Fairfield broker promotion – free iPad

February 10th, 2011

Clay Sparkman

We at Fairfield Financial Services (FFS) are pleased to announce that we will once again be running our free iPad bonus promotional program.

Starting Friday, February 11, we are offering a free promotional iPad 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 inquiries@privatemoneysource.com with “REGISTER” in the subject line and your name, company name, and phone number in the body of the e-mail.

(2) Start date is February 11, 2011

(3) The end date is March 18, 2011

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

(5) The loan must close through FFS and still be under control of the submitting broker at the time of closing. The loan may close at a date later than the end date, so long as the application is submitted in full prior to the end date.

(6) 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.

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

(8) 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.

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

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

Tags: commercial lenders, Commercial loans, construction loans, free ipad, hard money borrowing, hard money brokering, hard money loans, Multifamily, private money borrowing, private money brokering, private money loans, Quick flip loans, real estate, real estate investing, real estate rental, rehab loans
Posted in Promotional announcement | 1 Comment »

The private money lending business: likes and gripes (part III)

February 4th, 2011

Clay Sparkman

I finished Part II with a brief mention of something I quite like about the trust deed system: that is, the option (generally available) to foreclose judicially.

Before moving on, I’d like to offer you a crude little decision tree which shows how investors might go about making the decision whether to foreclose a given trust deed judicially or non-judicially.

First, is there an option to foreclose this particular trust deed non-judicially? If the answer is no, then foreclose judicially. If the answer is yes, continue.

Having done sufficient research, does it appear to be highly likely that the investor will fully recover by taking back the property at auction and then selling it? If the answer is yes, then foreclose non-judicially. If the answer is no, then continue.

Again, having done adequate research, does the investor feel that the borrower/personal guarantor has sufficient income and/or assets that he/she would stand a pretty fair chance of recovering on a deficiency judgment? If the answer is yes, then foreclose judicially. If the answer is no, then foreclose non-judicially.

Now moving on, I will focus on a few website based tools that I have found to be useful in the business.

Let’s start locally (We are located in Portland, Oregon) and then expand out from there. A really nice little site if you are doing business in the Portland area is:

www.Portlandmaps.com

The City of Portland provides PortlandMaps.com as a new way of easily accessing public data regarding properties and property areas. A wide variety of data is available for the Portland Metropolitan Area, including the following:

Assessor/Tax Lot Information
Aerial Photography
Building Footprints
Building Permits
Census
Crime Data
Elevation
Parks
Mass Transit
Natural Hazard
Schools
Urban Growth Boundary
Underground Storage Tanks
Water/Sewer
Zip Code
Zoning Maps

Fortunately most states offer all kinds of helpful data on-line now. For instance, this handy site offered by the state of Oregon gives you access to a wide range of licenses, permits, and registrations.

www.licenseinfo.oregon.gov/index.cfm

Of particular interest to me is this site which allows me to lookup a mortgage broker’s license:

www.licenseinfo.oregon.gov/?fuseaction=link_class&class_list=1732,14592,26398&class_name=Mortgage%20lenders&LinkType=P

It is also frequently useful to lookup the license status of a given contractor, which you may do in Oregon at:

www.licenseinfo.oregon.gov/?fuseaction=link_class&class_list=13833,13830,13831,1536,1551,1683,1537,1555,1556,1713,1677,1666,1665,13829,13828,1739,14724,26481,1674&class_name=Construction%20contractors&LinkType=P

I’m sure that just about everyone in this business already knows about Zillow:

www.zillow.com

Zillow is a great little comp tool, easy to use, with a vast national database, and free. It does not offer the range of options available with most professional comp tools, but then they are expensive. I can remember when we first signed up to MetroScan at Fairfield. The price was very substantial and the software was localized to the machine, so that you could only use it at one workstation at one site without paying even more, and updates were given monthly via mailed CD-ROMs. We also had very limited regional access and had to pay for access by county (that is if a particular county were available at all). We’ve come a long way.

Also, I hear good things about the Zillow blog, though I haven’t had time to properly check it out for myself:

www.zillow.com/blog

I know I don’t need to tell anyone about Google Earth. When I was first introduced to this site, I just about fell off my chair! I still can’t quite believe that such a powerful far reaching tool exists, at my fingertips and for free.

http://earth.google.com

And it just keeps getting better. The Street View layer of Google Earth is incredible. It allows you to do drive by inspections from your home office or living room. Of course it is not really as good as an actual drive by, but it certainly allows you to get a feel for a property and its neighborhood.

Now, if you want to look at real estate trend data for a given area, this site is terrific:

www.altosresearch.com/altos/Home.page

The Scotsman Guide has long been regarded as the “bible” of the commercial and residential loan industry, offering detailed categorical listings of various active lenders and loan sources. Their online site is here:

www.clender.com

And Lendicom may be of interest to you. This site is geared toward commercial lending, and allows borrowers and brokers to sign up and submit specific loan proposals to lenders who have also signed up online. If you are a hard money broker looking for funding sources that are a good match for your commercial loans, you may sign up as a broker and create an account. This then allows you to submit specific loan requests, specify detailed criteria, and automatically search for lenders that have programs matching your loan criteria. In the interest of full disclosure, I am an officer and a part owner of the company that offers this site. Maybe that’s why I like it so much.

www.lendicom.com

So that’s a lot to like, wouldn’t you agree? It is hard to imagine that just ten years ago, none of this existed. And there is so much more. Please write in and tell us about other tools that you know of and websites of interest.

End of Part III

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

The private money lending business: likes and gripes (part II)

January 13th, 2011

Clay Sparkman

In Part I, I began a discussion of my gripes and likes regarding the private money lending business and various industry related matters, items, and issues. I allowed myself to amble a bit far afield and concluded by mentioning a book about the legal profession which I personally found to be informing and entertaining. I’d like to indulge myself a bit more on this topic of books at least marginally related to private money borrowing, brokering, and investing.

An author who utterly fascinates me is Michael Lewis. Moneyball: The Art of Winning an Unfair Game is one of the most interesting and influential books that I have read in a very long time. This book on the face of it is about baseball, but in fact it is about so much more. The book is really about exploiting pockets of inefficiency that inevitably exist in markets (for various curious reasons), and I frequently find myself applying lessons learned in this book to the way I think about other aspects of business and life in general. There is most definitely an element of applicability to the private money lending business. If you have read it, please comment and tell us if you don’t feel the same. (A hat tip: to Charles Duck who gave this book to me and told me to read it some good four years ago; I’m only sorry that I waited two years too long.)

Another Michael Lewis book that became extremely relevant with the recent collapse of large financial firms on Wall Street (though written many years before and published in 1989) is Liar’s Poker: Rising through the Wreckage on Wall Street. This book chronicles the author’s years as a bond trader for Salomon Brothers. The inside look is riveting and terrifying at the same time, and may help explain how things could have gone so terribly wrong during the recent fall from grace. And I must mention Home Game, Lewis’s book about the business of parenting. As the father of a 4 year old boy, this book worked for me (though I warn you it is quite different from his other books, doesn’t have much to do with business and investing, and you may not enjoy it if you don’t have children of your own).

As one who brokers and services private money loans, a thing that I particularly like is quite simple: I like it when the loan payments come in on time each month as per the contractual agreement and without any prodding from my office. Fortunately this happens quite frequently and it makes my life and the life of those who work for me so much easier. It also opens up the possibility for an extended ongoing relationship with the borrower. Most of our borrowers tend to need private money loans on an ongoing basis; they use them to drive a series of ongoing professional projects. And this is another thing I quite like in the business: ongoing, long-term professional relationships with borrowers, brokers, and investors. Things get so much easier when you know who you are dealing with.

I do not like it so much when borrowers become “bad boys,” having to be prompted and prodded each month to send in their payments, and consistently push the envelope, going beyond the boundaries of their agreement. This provides a certain level of strain, both physical and emotional within my organization and with certain of my investors. I will say, though, that I have had cases where the borrower paid just a few days past the grace period each and every month, almost like clock-work, and certain lenders really liked it, as they knew that the payment was coming and that it would be accompanied by a substantial late fee and default interest payment as well. This type of situation tends to push the yield up, so that a 13% loan may ultimately yield 15-16% to the investor over the life of the loan.

I do like it when borrowers who are having problems actively communicate and behave in a proactive and professional manner—seeking to work with the investors in an attempt to navigate through their financial problems and with the intention of ultimately making good on the overall commitment. I have found that investors tend to be quite reasonable in working with borrowers who are reasonable–so that quite often a successful “work out” is possible. In these situations there is ultimate satisfaction for all parties as everyone tends to benefit.

I don’t like it when borrowers who are struggling put their heads in the sand and go into hiding. Once communication stops, there is no chance for a work out, and the only choice is to foreclose, go to auction, take back the property (if a higher bidder doesn’t take it at auction), and then go about the business of marketing the property. This can still have a good ending and probably does as often as not, but the work involved is immense, and most loan servicers and investors would rather not go there. Fortunately, though this certainly happens, it doesn’t happen frequently (though a bit more frequently than usual during the difficulties of the past three very unusual years).

I do like the fact that investors generally have an option, in these situations to either foreclose judicially or non-judicially. The non-judicial option is faster, easier, and more predictable, but the judicial option allows a the investor to obtain a deficiency judgment should the property fail to fully compensate the debt—and thus gives the investor an opportunity to recover any remaining obligation by chasing borrower income and assets.

In Part III, I will be highlighting some web based resources that I find to be particularly useful, enjoyable, and impressive. If you have any sites that you feel enable you to make better moves and decisions as you invest in trust deeds, please send me a note, and I will most likely include your information in Part III of this post.

End of part II

– Clay (sparkman@lendicom.com, 503-476-2909)

The private money lending business: likes and gripes (part I)

January 5th, 2011

Clay Sparkman

Awhile back I published a 3-part post on my Private Money Investor blog regarding my personal likes and gripes as a purveyor in of private money. This has been my sole job for the past 20 years. Who wouldn’t want to go rant and rave publicly about their job? I guess I could have easily made it a 24-part post, but that would have been amusing for me, yet not so much for the rest of you. At any rate, I decided that these posts would be relevant to this audience as well, and so I decided to publish them here.

There is a bit of free association here, as I allow one idea to lead to another and so on, allowing my emotions to carry the narrative, and thus these items are in no particular order. So I give you the things that tend to kick start my emotions and get me going (for better or worse):

The trust deed system (particularly as it works in Oregon, Washington, and California) is a thing of great beauty! It provides for order and procedure, eliminating subjectivity (except for in the event of a judicial foreclosure), nicely balancing the interests of the borrower/owner and those of all the lien holders involved with regard to a particular piece of real estate. Most of the professional investors I know enjoy and appreciate the trust deed system and have a lot more good than bad to say about it.

Associated with this is another wonderful thing they call title insurance. Title companies are the only businesses I know that provide insurance against the possibility of their own error. Knowing title companies as I do, I’m betting against them. I will take title insurance every time AND THUS I shall be able to sleep at night.

Which brings me to the escrow service role of the title company: This is a very tough job, high stress, with many people simultaneously placing multiple demands, and the need to consistently walk a tightrope avoiding costly problems and errors. I most certainly wouldn’t want to do it. And apparently most title people don’t either. Most title companies do a poor job of training and preparing their people and setting a high standard, and thus unfortunately, most escrow services offered by title companies stink. Fortunately there are exceptions. Unfortunately, we often don’t have any control over where a particular closing is going to take place.

Now I realize that this post is going primarily to loan brokers, but still I have to do this. I have often heard that 10% of realtors do 90% of the sales—and I suspect that the numbers are even more extreme with regard to loan brokers. A good loan broker is worth her weight in gold—and there are some good ones out there—but there are … oh so many sadly disappointing loan brokers. Still, we need loan brokers so we soldier on. I figure our loans at Fairfield are about 50%/50%, with half coming to us through loan brokers and the rest coming directly from the borrowers. The problems in my experience are not so much with honesty (though this certainly can be a problem from time to time), but with matters of basic business professionalism in general and with the specific knowledge of the business in particular. Of course, it is a big step for many loan brokers to move into the realm of private money and commercial lending, but my company works hard to provide assistance, education, and support; we spend extraordinary amounts of time working to educate brokers. If you are already a top-notch professional in the realm of private money, please come and do business with us (immediately). If you are professional in your dealings and organized, but not very savvy with regard to the particulars of private money, come to us with an open mind and we will lead you through the process and do our best to educate you. (Hey, a free education is not so easy to come by these days.)

Now here’s one that really gets me going: I am downright angry at banks for not lending money on real estate secured loans any more. “Come on banks, lend money! That’s what you do for a living isn’t it?” We in the private money sector need banks. We lend money to help generally strong borrowers get from point A to point B, and point B is frequently a bank loan (or a buyer who needs a bank loan in order to be a buyer). This needs to change. There are plenty of good safe loans for banks out there that don’t require the banks to disregard every rule of good lending (as they did with many sub-prime loans leading up the collapse in fall of 2007). It reminds me of something Mark Twain said (and I’m paraphrasing). He said that if a cat sits on a hot burner it will never sit on a hot burner again. But then it won’t sit on a cold burner again either.

I love my attorney. It took me years to find a guy like this. Everything that you have ever heard that can be bad about attorneys: the opposite is true about my guy. He is honest, pragmatic, honorable, and fair. He knows his limitations—and will be the first to tell you when he comes up against them–but at the same time has a vast breadth of knowledge regarding real estate matters and business in general. And he doesn’t start a clock every time he picks up the phone or answers an e-mail. Believe it or not, he actually seems to charge only for “real work:” research and document preparation and such. (And on top of all that, he’s the kind of guy you’d want to have a beer with.) If you want me to put you in contact with him, I will.

And speaking of lawyers, I have to say that I really enjoyed Happy Hour is for Amateurs, by Philadelphia Lawyer. If you are offended by explicit talk of sex, drugs, and binge drinking, you may want to give it a miss. But beyond the raucous tales, this book takes you right into the bowels of the enormous billing machine that is “the law firm in America.” This book takes what we thought we already knew and knocks us right upside the head with it. It turns out we knew nothing at all.

End of part I

– Clay (sparkman@lendicom.com, 503-476-2909)

Tags: hard money borrowing, hard money brokering, hard money investing, hard money loans, private money borrowing, private money brokering, private money investing, private money lending, private money loans, real estate investing, trust deed investing
Posted in Fundamentals, General perspective, Investor perspective | Comments Off

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