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

The Private Money Broker

Musing the fix and flip

July 19th, 2016

Clay Sparkman

I recently came across these articles while scanning the web. I don’t agree 100% with everything said, but all in all, there is some very good stuff here–and so I thought I’d share it with you. (Ever vigilant: I’m combing the web for you.)

Scott Yancey’s Top 10 Fix and Flip Deal Destroyers (The Huffington Post)

http://www.huffingtonpost.com/scott-yancey/the-top-10-fix–flip-deal_b_10445380.html

Using Hard Money Loans for Real Estate Investments (Investopedia, Rebecca Lake)

http://www.investopedia.com/articles/wealth-management/040216/using-hard-money-loans-real-estate-investments.asp

6 things to know before you flip a house

http://www.marketwatch.com/story/6-things-to-know-before-you-flip-a-house-2016-07-14 (MarketWatch, Daniel Goldstein)

Best, Clay

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

Article: Four things you need to flip a house

July 12th, 2016

Clay Sparkman

I came across this article by Justin Pierce, Four Things You Need To Flip A House, in Special to The Washington Post. It is well written and touches on some relevant/important points with regard to the matter of home-flipping. Since this is our sweet spot as a private money lender, I thought it would be appropriate to share this article with the various brokers and real estate investors who read this blog.

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

The art of the summary

July 5th, 2016

Clay Sparkman

The Art of the Summary

Between phone calls, emails, and on-line submissions, we receive a tremendous number of loan requests. It’s pretty common for these loans to have tight deadlines, so here are three ways to speed up the process.

1)      Use the on-line proposal form and provide all the applicable information.  This form can be accessed through our web-site Here.  This form provides us with everything we need to know to issue you a quote. It’s very effective.

2)      Leave a description of the loan transaction in a voicemail. (Note: I’ve spent days playing phone tag with brokers, only to find out that they were looking for a loan in a state that we didn’t lend in. If we get a detailed voicemail, we can respond more rapidly to the various aspects of your request.)

3)     Send me an e-mail with a summary of the loan. This can be an efficient way to submit a loan request, and we can evaluate a good summary very quickly. However, that’s not always the case. If the information is lacking or hard to find, it will delay the process. We’re looking for a summary of the loan request, not pages of detailed documents. Here’s a list of information that we like to see:

The Property

- Property location

-         Specs on the property (Type of property, SF of building(s), description of property, size of lot/land, etc…)

-         Purchase Price and/or amount owed

-         As-Is Value and ARV

-         Amount needed for repairs (if applicable)

-         Amount of money invested thus far in the property

The Borrower

-         Monthly income

-         Net worth

-         Credit score

-         Relevant experience

The Loan

-         Broker fee(s)

-         Net amount of funds required for the borrower

-         Amount available for down payment

-         Use of funds

-         Closing deadline

-         Requested term of loan

-         Exit strategy (This is very important.)

A good summary should highlight the features of the loan without the reader having to hunt for information. By providing this information in a clear concise format, it will speed up our review time and ultimately close loans faster.

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

Private money loans – a broad perspective

June 27th, 2016

Clay Sparkman

I came across this article, Private Lending Presents Opportunities for Investors by Jeff Brown, in US News. It gives a very broad perspective on private money lending. For example, it includes references crowd-sourcing and unsecured loans. I thought it might be worth sharing with you all, as you contemplate your options for non-bank loans.

Here

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. The real estate market is up and rising, and we are just now entering a new fix and flip season.

All the best in your endeavors, Clay

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

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

Promotional offer #2 for real estate investors

June 14th, 2016

Clay Sparkman

We are running several new promotions, primarily aimed at real estate investors, to really get costs down on financing and thus open up the possibility for more profitable deals. Last week I put up a blog post about a 12% and 2 point offering.

This week I’m putting up an alternative offer: 7% and 7 points.

As a private money rehab and property investment lender, we are able to provide a variety of creative solutions that are just not available via more conventional sources. If the parameters and circumstances are right, we are also able to overlook a number of issues that might be problematic with more structured lenders. Small to medium rehab loans are one of our sweet spots, and we are geared up to make as many as we can this season.

We are offering a significant cut in the cost of our premium loans. Our regular charge for a 12 month construction loan is 5 points and 10-12%–the rate dependent on the particulars of the loan.

Starting immediately, and for a period of six weeks, We are offering (via brokers and direct to borrowers directly) one year rehab, construction loans, and investment property loans on of up to 60% LTV, priced at 7 points and 7%. (We will even consider a longer term, up to 2 years, if the circumstances warrant it.) Also note that we charge no prepayment penalty.

The conditions are as follows of this promotion are as follows

(1)   You must register with FFS by sending an e-mail to clay@privatemoneysource.com with “PROMO-SEVEN-AND-SEVEN” in the subject line and your name, company name, and phone number in the body of the e-mail, no later than 6/30/16.

(2)   You must submit a summary of your loan no later than 7/7/16, and FFS must approve the summary.

(3)   You must submit a complete loan packet, as required by FFS, no later than 7/14/14, for the same loan for which you submitted a summary in June.

(4)   The minimum loan size for this promotion is $150,000.

(5)   The loan must close no later than 7/29/16 .

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. The real estate market is up and rising, and we are just now entering a new fix and flip season.

All the best in your endeavors, Clay

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

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

Promotional offer for real estate investors

June 8th, 2016

Clay Sparkman

We are running a new promotion, primarily aimed at real estate investors, to really get costs down on financing and thus open up the possibility for more profitable deals.

This is the best that we have ever offered, and we are running it in order to bring in new borrowers and give them the maximum opportunity to succeed at their venture(s).

As a private money rehab and property investment lender, we are able to provide a variety of creative solutions that are just not available via more conventional sources. If the parameters and circumstances are right, we are also able to overlook a number of issues that might be problematic with more structured lenders. Small to medium rehab loans are one of our sweet spots, and we are geared up to make as many as we can this season.

We are offering a significant cut in the cost of our premium loans. Our regular charge for a 12 month construction loan is 5 points and 10-12%–the rate dependent on the particulars of the loan.

Starting immediately, and for a period of six weeks, We are offering (via brokers and direct to borrowers directly) one year rehab, construction loans, and investment property loans on of up to 60% LTV, priced at 2 points and 12%. (We will even consider a longer term, up to 2 years, if the circumstances warrant it.) Also note that we charge no prepayment penalty.

The conditions are as follows of this promotion are as follows

(1)   You must register with FFS by sending an e-mail to clay@privatemoneysource.com with “PROMO-TWELVE-AND-TWO” in the subject line and your name, company name, and phone number in the body of the e-mail, no later than 6/23/16.

(2)   You must submit a summary of your loan no later than 6/30/16, and FFS must approve the summary.

(3)   You must submit a complete loan packet, as required by FFS, no later than 7/7/14, for the same loan for which you submitted a summary in June.

(4)   The minimum loan size for this promotion is $150,000.

(5)   The loan must close no later than 7/22/16 .

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. The real estate market is up and rising, and we are just now entering a new fix and flip season.

All the best in your endeavors, Clay

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

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

how 2-4 unit properies might be utilized (and financed)

June 1st, 2016

Clay Sparkman

Here, in The Scotsman Guide, is an article with an interesting take on regulations for financing of 2-4 unit properties and how private money might be utilized in a supporting role. I thought it might interest most Brokers and RI Borrowers. (By the way, if you are not familiar with it, The Scotsman Guide is an excellent resource.

Read here

Comments are always welcome.

- 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

Visualizing the industry

May 19th, 2016

Clay Sparkman

With regard to forward thinking (that is, how is the industry changing?): I thought you might appreciate this article, Private Lending Sector Making Big Noise for Real Estate Investors, by Ben Stoodley:

Here

Certainly he is correct with regard to his interpretation of current trends, and one must wonder how far this might all go.

Comments are always welcome.

- 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

Three potentially useful indicators of the likely movement of value

May 11th, 2016

Clay Sparkman

Any good real estate investor should be attempting  to assess whether property values are rising, falling,  or holding in the area of his/her latest potential investment. After all, the core question when buying investment property (particularly short-term) is, “what is value likely to do in the next year or so?” If you sense that values are likely to fall in a certain investment region, you had better take that into account when deciding whether or not to invest, and for how long. And if you decide to invest, given this information (whatever it may lead you to believe), you will be able to better assess your investment risk, potentially reward, and appropriate strategy.

The direction of property values is not an easy thing to predict, but if one really wants to inform themselves with regard to what property values might be doing in the near future, than there are three pretty good things to look at.

But first, what not to count on: If you are looking at whether or not property values are rising, falling or holding today, just remember that this is a trailing indicator. At best it will tell you what is happening now, and even worse, it may be a better indicator of what happened several months ago. Look at this info, but don’t take it very seriously as an indicator of what is going to happen next.

And so, here are three leading indicators that I would recommend you consider:

(1) The rural test: Ask  yourself what property values are doing in rural (or more remote) areas. Those values tend to lead the values of properties in more concentrated areas. So, if you are suddenly witnessing a notable fall in values in rural areas, chances are that other values in the region will follow.

(2) The time-on-market test: Determine what the average time on market is as you assess potential opportunities . For residential properties 3-6 months is fairly normal, and would tend to indicate that values will be holding for awhile. Last time I checked in Portland, the average time on market for residential properties was 1.7. This is a very low number and a very good indicator that values are on the rise.

(3) Look at the ratio of replacement cost to purchase price. If the ratio of replacement cost to purchase price is high, then property values are likely to rise, at least for the near-term future.

Let me know if you have any other indicators that you use. We would like to hear about them.

- 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

Home flipping

May 5th, 2016

Clay Sparkman

As you know, our sweet spot is for loans to real estate investors. In particular, we do a lot of fix and flip, fix and hold, REO, short sale , and new construction.

I feel that this recent Washington Post article, by Justin Pierce, “The four things you need to know to flip a home.” is a good article, and as such, I would like to share it with the community of those who invest in real estate and/or provide resources to those who invest in real estate.

The article is here.

I hope you find it useful, and always, I’d be interest in your input/feedback.

Thanks,

Clay

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

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

Our sweet spot: Rehab and Constrcution loans

April 21st, 2016

Clay Sparkman

One of the most promising areas at the moment for real estate investors and brokers, by all indications, is new construction, REO, short sale, rehab, and quick flip properties.  The opportunity to buy distressed properties at a low price point is evident in many markets.  And yet it is difficult for most end-buyers (with a non-profit initiative) to take advantage of these opportunities, as they are not prepared to deal with the financing challenges or the rehab work involved when buying one of these properties.  Thus comes a wonderful opportunity for those real estate investors who can size up a market effectively, move to buy challenged properties at below value prices, rehab them quickly, and get them back onto the market at a slightly below market price.

Another point in favor of this brand of real estate buying/investing:  Real estate investors who either (a) buy and sell quickly or (b) hold for the long haul are not as likely to get hurt by falling market values.  It is those who are planning to hold a property for 2+ years that are in the most danger.

And as we know, what is good for the borrower in this business is generally good for the lender as well. These types of loans may be some of the best that private money lenders can expect to see for the next year or two and thus the easiest to get funded.

With these thoughts in mind, it seems appropriate to duplicate here the Rehab and Construction loan FAQ that I publish on my company website.

We tend to receive an endless parade of questions from brokers, borrowers, and investors as to how to best structure these types of loans, so here is an example (representative, I think, of private money organizations in general) of how one organization goes about it.

REHAB AND CONSTRUCTION LOAN FAQ

What is your maximum LTV ratio for rehab and construction loans?

Well, it is important to talk about front-end and back-end LTV, because this is one of the most important parameters in our decision making process. Our maximum back-end LTV is generally 65% (though in certain cases we may go as high as 70%).

What do you mean by “back-end LTV”?

By back-end LTV, I mean the LTV at the completion of the project. For example: let’s say a borrower needs $90,000 for the acquisition of a property and $20,000 for construction funds and thus wishes to borrow $100,000 (he’s coming in with the rest at closing: $10k + loan fees and closing costs). If the completion value of the property is conservatively figured at $175,000 based on comps provided by the borrower, the back-end LTV will be 110/175 or 63%.

Do you require an appraisal?

For rehab projects, rarely ever do we ask for an appraisal. We know that professional investors must move quickly and that they are frequently the best source for data regarding the projected value of their project. If an investor tells me that he expects to sell a property for $200,000 upon completion, I say, “Show me how you have come to this conclusion.” A good set of comps is frequently an adequate substitute for an appraisal (though not always). (With construction projects, it is a little tougher sometimes to get a handle on the completed project, so on occasions we will ask for an appraisal.)

Are you able to loan 100% of hard costs?

Occasionally, though the borrower would have to cover the soft costs out of pocket. It really depends on three factors: (1) How strong is the borrower financially? (2) How well is she buying? And (3) How much relevant experience does she have?

How does the construction money get disbursed?

At the close of the loan, the construction funds are held back in a client’s trust account by FFS. From time to time, as a borrower completes the construction of a project, the borrower will submit a draw request to Fairfield Financial. Fairfield will review this request and, upon approval, release funds either directly to the subs/suppliers (if requested to do so) or to the borrower (if the borrower has already paid the subs/suppliers). Fairfield is responsible for ensuring that (a) the work is completed to an appropriate quality standard, (b) the project is on-budget (or if not on-budget, appropriate adjustments are made), and (c) that all subs and suppliers get paid for their work on the project. Borrowers are encouraged to make as many draw requests as they require, and if a request is complete, and deemed to be valid by FFS, we can generally disburse funds within 48 hours.

How much experience do you require from the borrower?

Well, it is nice to see a borrower come in with moderate to substantial experience, but I have learned over the years that success in this business isn’t as much about experience as it is about common sense and the willingness and the ability to work tenaciously toward the completion of a project. So if you don’t have experience but you can show me that you have the drive, the discipline, and the common sense, we’ll give you a chance.

What sort of credit and financial stability do you require from the borrower?

We don’t have specific underwriting guidelines. As far as credit, I am not looking for a perfect credit score (though we do have quite a few borrowers with credit scores in the mid-to-high 600s and 700s). I am looking at a pattern of payment over time. If a person has had a few bumps in the road or even a BK, for example, along the way, this doesn’t bother me. What concerns me is the borrower who has consistently shown a disregard for debt obligations over a period of time. I probably won’t want to get into a project relationship with this person.

Regarding financial strength (net worth, income, and liquidity), my primary concern is seeing that the borrower has either enough income (stated) or enough cash or liquid assets (stated) to get through the project (even if setbacks occur). That means showing the capacity to make payments for the duration of the project (if an interest reserve account has not been set up) and to deal with the situation if it becomes necessary to weather a few bumps in the road if the project doesn’t go exactly as planned. Beyond that, we don’t expect our borrowers to have any great wealth. We know that they are in the process of attempting to build something, and sometimes that starts from practically nothing.

What is the term of your loan and how are the payments handled?

The term of the loan is generally one year, though if a project is expected to require longer, we can make a loan for two years or more. Payments are made monthly and are interest-only. If there is enough equity in a project, we can arrange to have some number of payments held in reserve and applied to the loan for the initial period of the project.

What are your rates?

For this sort of thing, rates generally range from 11% (sometimes 12%). The rate is determined by (a) the LTV, (b) the strength of the borrower, (c) the amount of leverage involved, (d) the merits of the overall project, and (e) the perceived volatility of the local market.

What fees are involved?

We charge a loan fee equal to 5% (under certain conditions, this may be 4%) of the gross amount of the loan. We also charge a doc prep fee (which ranges from $675 to $2900, depending on the size of the loan; for example: 675 for a loan of $150k or less), an account setup fee (which is $470 plus $1/$1000 of the loan amount), and a property inspection fee (which is typically in the $500-$1000 range, but may be more if the property is far from our central location in Portland, Oregon). There are no hidden junk fees.

Is there a pre-payment penalty?

Typically, there is no pre-payment penalty.

What is the approval process?

There are basically four steps.

  1. The borrower (or a representative for the borrower) runs the project concept by us. If we like the project concept and feel that the numbers are acceptable, we proceed to the next step.
  2. If the project conceptually makes sense to us, we produce a quote, listing all of the relevant costs and other information for the requested loan.
  3. The borrower signs off on the quote.
  4. We review a complete loan packet. We ask that this be sent via overnight mail or delivered to the office (fax copy is not acceptable). An electronic packet is acceptable, provided that all items are in a single packet (either Word or Adobe). The packet should include the following items:
    1. 1003 for each borrower/personal guarantor
    2. Credit (tri-merge) for each borrower/personal guarantor (or permission to pull credit)
    3. Company financials if the borrower is an entity (2 years)
    4. A privacy notice signed by the borrower
    5. A purchase agreement (when property acquisition is involved)
    6. A preliminary title report
    7. A detailed line-item budget for all construction work to be done on the project
    8. Plans (for all construction loans, and for rehab loans that involve changes in the basic floor plan)
    9. Borrower’s estimate of the completion value of the project, and comps (or other value analysis) to support this estimate
    10. Photos of the subject property
    11. Borrower credentials
    12. A copy of contractor license, bond, and insurance (for all construction loans)
  5. If all this checks out, we ask the borrower for a deposit (generally somewhere between $500 and $1500). 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. 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.

How long does it take to put the loan together?

We generally ask for a minimum of two weeks from the time we review a project packet until closing.

– 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

Special quick flip loan program

January 26th, 2016

Clay Sparkman

It seems that quick flips are becoming quite common again, with the regular small time investor. This is a favorite niche of ours. We particularly like to make these loans happen.

As you probably know, we work with a lot of people who are doing quick flip properties/projects. That means: buying low, generally fixing up (though not always), and then selling fast, at a fair price, for a nifty profit.

Until now, we have made many such loans, and we have done so as follows: 5 points, 12-13% interest (on most loans), a one year term, and with no pre-payment penalties.

Lately we have had borrowers asking if we could offer a 6 month term with a lower up-front cost. The idea being that these folks could get in and out in six months or less—and thus save money on the cost of capital.

Well, we finally have an answer to that. We are presently offering the following program:

Six Month Quick Flip Loan

  • Available for quick flip loans (with or without renovation expenses involved)
  • 6 month term
  • 3 points
  • Option to extend for an additional 6 months is assured if borrower is timely on first 5 payments (paid within the grace period), and not past balloon date)
  • The additional extension, if exercised, will cost 2.5 points.
  • If the borrower is timely in making his/her payments, there most likely will be an extension offered (but the decision as to whether or not to offer an extension is ultimately at the lender’s discretion). Reasonable progress on the construction work will be a factor.
  • No prepayment penalty

We hope you like this program, and we predict that your clients will too. Let us know if we can take a look at a particular project for you.

– 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

Guest Post: Private Lending—Turning Trash Into Treasure

November 30th, 2015
Clay Sparkman

I came across this blog post by Jeffrey Tesch recently. It was originally posted at cpexecutive.com on October 19, 2015. After working to articulate the various practical issues of private money for many years, I felt that it would be nice to offer a fresh voice/perspective on the matter. I contacted a representative for Jeffrey at RCN Capital, and they gave me permission to post this article as a a guest post. Though I don’t completely agree with everything that Jeffrey says here, I would have to say that I agree with the lion’s share. I think that Jeffrey has done a nice job with this article.

Private Lending—Turning Trash Into Treasure

Lean in. We’re going to let mortgage brokers in on a little secret: There’s a ton of money to be made in private lending, and brokers today have a unique opportunity to cash in on this interesting scenario.

At a time when Dodd-Frank is putting the squeeze on traditional bank lending, private lenders are proving to be a much more viable and reliable option for developers and investors, and those who are tapping this unknown resource are experiencing a boon in taking advantage of a new profitable stream of income.

With limited funding options in today’s real estate market, it’s private lending that’s proving to be the path forward. But rest assured, the broker is always protected, and very well compensated in these transactions.

The key to success, however, is to first establish a relationship with a private lender, before the customer comes in looking for a loan. This can be a real game changer.

While no lending scenario is the same, the mortgage broker is always the liaison. The bottom line is that with every different lending scenario, private lending provides a myriad of options to create an innovative financing solution.

It may be all the same in a residential deal, but in a private lending scenario, for commercial loans on residential homes, every deal is different.

For example, a mortgage broker may have an investor who owns all kinds of properties and wants to buy another property. Or, the broker may have an investor who just wants to buy a property to fix and flip it.

Then there’s how to qualify the borrower: Some have a lot of cash on hand; others have very little, but have great equity. It’s all about working with that borrower to find the right solution for a private loan.

Traditional vs. Private

First, let’s review the differences between traditional bank lending versus private lending:

We begin with the purchase of an owner-occupied house, i.e. homeowner is moving into the house. This of course is not a deal that private lending underwrites. However, if the purchase is a non owner-occupied home, while some banks may like it, private lending lives on it.

And when it comes to the purchase of a home that’s in foreclosure, some banks may approve it, depending on whether the home has a certificate of occupancy; private lenders do these types of deals all day long.

For traditional bank financing on mixed-use properties, it depends on the bank’s appetite. Some banks in more urban areas are comfortable with mixed-use. Private lenders on the other hand covet the opportunity to finance mixed-use properties. It’s a win-win scenario for private lenders, brokers, and developers with rents downstairs of a commercial nature and apartments upstairs for residential living. It’s a perfect situation for the diversity of income.

Even for borrowers who have filed for bankruptcy, while lots of banks are turning these customers away, private lenders are a viable solution, especially if the borrower is coming out of bankruptcy better than ever.

With traditional banks, it’s all about fitting that borrower into a box. Private lenders take into account a series of outside variables. We don’t know exactly how the borrower’s poor credit score is going to impact the loan. However, if the borrower has cash, and is making money, then a private lender will do that loan.  If the borrower’s score got beat up because of foreclosures or short sales in 2009, 2010, or 2011, it’s not an issue for private lenders.

We want to know exactly what’s going on today with that borrower – not what happened in the past.

For distressed properties, i.e. if the property is beat up and has the opportunity to be repaired, private lending is exactly where it can help investors succeed.

And for investors with multiple properties, while many banks will place a cap on the amount of properties a borrower can have on their books, private lenders don’t have a cap. It’s all about track record. We want to know that the borrower is churning through those properties and making money.

Advantages of Using a Private Lender

Intelligent Lending Criteria

Private lenders can establish their own lending criteria, which gives an investor a greater opportunity to qualify for a loan. This means there’s nobody in Washington DC telling me what my rate is going to be, or telling me what the credit score has to be on my borrower. It’s our money, so in the commercial world, we’re going to set the rate and we’re going to set the term. So if we don’t get paid, it’s our problem, not the taxpayers’ problem.

A borrower can receive funding for a distressed non-owner occupied property, rehab property and new construction.

When traditional lenders can’t provide investors solutions, private lenders have more room for negotiating and can come up with creative answers. For example, if a borrower owns a home with a lot of equity that they’re renting out, and they don’t have cash, we will be happy to put a mortgage on that existing property, pull out some cash, and put that towards a new home that they would like to purchase.

It’s these creative solutions that private lending does all the time.

Alternative Loan to Value

A private lender may lend a higher Loan to Value than a traditional bank.

Quick Loan Closing Time

Private lenders will typically respond to all loan inquiries within the same day.

Closing in two weeks, no problem.

This is precisely where private lending really shines over traditional bank lending. Most private lenders will provide short-term, bridge financing for Straight Acquisition, Acquisition/Rehab (fix & flip), Refinance, Cash-Out and Lines of Credit.

The flexibility and ability to close quickly can provide borrowers with a clear business advantage and afford them a competitive edge based on speed.

While a traditional loan can take up to ninety days to close, private lenders can often close a loan in as little as two weeks, or even a few days. This can give the borrower a greater sense of security early on in the loan process.

How do brokers make more money?

Some brokers like to have minimal involvement, while others like to have heavy involvement. The amount of compensation earned depends on the broker’s level of involvement and the loan scenario. It’s just that simple.

On the minimal side, maybe a broker’s business is booming and he/she doesn’t have time to deal with a private loan, then he/she would hand it off to the private lender. Once the deal is final and we close, we send the broker a point, and the check gets cut at closing.

If the broker wants to be actively involved in the private loan, and wants to control the deal, we will ask the broker to help collect documents and put the package together, and then split the points at closing.

Compensation

All fees that are earned by the broker are disclosed on the commitment letter up front. Origination fees are charged up front, and private lenders split points with the mortgage broker.

Broker fees are memorialized on the HUD and a transaction-specific agreement is provided. There’s no ambiguity.

A check is sent directly to the broker at closing.

Basic Loan Qualifying Factor

Traditional rules apply in the world of private lending, and the common sense approach works every time when it comes to underwriting. It all comes down to income, credit, and equity. If they have two out of the three, then we’re going to do that deal. If the borrower only has one, then we’re going to have a problem.

Exit strategy is at the top. The first question is how will the borrower pay us back? Since most loans are only 12-18 months, exit strategy is key. We want to know how we’re going to get paid back.

Experience and background are fundamental. We like to know that the people we’re dealing with know what they are doing. As great as the HGTV shows are when it comes to fix and flip, it’s not the real world education that we’re looking for when it comes to making private loans.

Existing leases also help when qualifying a loan. This shows good solid income upfront, and typically comes to play when buying a multifamily home or small apartment complex.

Of course, cash reserves cure all problems. When a borrower with a poor credit rating comes to us after declaring bankruptcy, but has a great track record of fixing and flipping homes, and has $200K in cash, we’re going to make that loan.

Private loans are not for everyone, but can be a financial game-changer for those with poor credit or those who are self-employed. Mortgage brokers have a unique opportunity to grow and expand their own business through this creative funding source as well. Rather than disregard private lending as cumbersome or out of reach, brokers should embrace the chance to make money outside traditional forms of bank financing.

Jeffrey Tesch is Managing Director of RCN Capital LLC, a national, direct private lender. He is responsible for the day-to-day operations of RCN Capital, including sales growth initiatives, underwriting review with compliance oversight and leadership of senior level strategic planning. Joining the Company in 2010, Tesch led efforts to develop a national brand in private lending with the best practices and transparent products for a diverse customer base. Since RCN Capital’s inception, Jeffrey has personally underwritten over 1200 loans and overseen $250M+ in originations. Jeffrey’s previous real estate experience was as an investor in both commercial and residential properties, ranging from single family homes to commercial retail centers. Jeffrey currently serves as a member of the American Association of Private Lenders’ (AAPL) Ethics Advisory Committee. For more information about Jeffrey and RCN Capital, click on the following link: www.RCNCapital.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


Rental property financing in 2015 and beyond

November 16th, 2015

Clay Sparkman

In this year of 2015, it seems that finding funds for rental property purchase and holding can be a bit challenging–perhaps more so than in past years.

This recent article by Corey Dutton discusses the issue, and suggests that hard money may be a good route to go in certain cases.

I happen to agree with that point of view. However, keep in mind that most hard money is short-term (1-3 years), so it may be a good way to pick up properties quickly, and it may be a good short-term holding strategy (that is, until cheaper bank money can be obtained *or* until a property can be sold after a short-term hold, but it is not a good long term option, in most cases.

Private money is also a good way to pick up distressed properties, rehab them, rent them out, and then seek take-out funding from a bank. (This is something that we specialize in and our quite comfortable pursuing.)

We like rental properties in general, whether they be SFRs, MFRs, or commercial properties, so keep us in mind if you are thinking about going this route.

– 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

Prognostication regardiing the real estate marketplace

October 22nd, 2015

Clay Sparkman

Okay, it has been a good nine months since I last posted. Let’s just say it’s a long story. At any rate, I’m back–so expect regular postings going forward.

It looks like HML Investments predicts that this is a good time to consider hard money.

HML Investments Releases Latest Prognostication Regarding the Real Estate Marketplace

We are seeing a similar pattern. So if you have a loan on your desk–particularly if it is a bit unusual–consider hard money as one possible way to get it funded.

– 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

The early flipper gets the worm

January 15th, 2015

Clay Sparkman

We are running a new promotion designed to get fix and flip investors going fast in this new year. This is the best that we have ever offered, and we are running it in order to bring in new borrower and give them the maximum opportunity to succeed at their venture(s).

As a private money rehab lender, we are able to provide a variety of creative solutions that are just not available via more conventional sources. If the parameters and circumstances are right, we are also able to overlook a number of issues that might be problematic with more structured lenders. Small to medium rehab loans are one of our sweet spots, and we are geared up to make as many as we can this season.

Starting immediately, we are offering a significant cut in our fix and flip loan rate. Our regular charge for a 12 month construction loan is 5 points and 10-13%–the rate dependent on the particulars of the loan—but typically 12%.

For the month of January/February/March, we are offering (via brokers and direct to borrowers) 9 month construction loans – for ground up construction priced at 3.5 points and 10-13% (typically 11-12%.). Also note that we charge no prepayment penalty.

The conditions are as follows of this promotion 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, no later than 1/31/14.

(2)   You must submit a summary of your loan no later than 2/31/14, and FFS must approve the summary.

(3)   You must submit a complete loan packet, as required by FFS, no later than 3/15/14, for the same loan for which you submitted a summary in January or February.

(4)   The minimum loan size for this promotion is $150,000.

(5)   The loan must close no later than 4/15/14.

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. The real estate market is up and rising, and we are just now entering a new fix and flip season.

All the best in your endeavors, Clay

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

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

First of the year construction loan promotion

January 9th, 2015

Clay Sparkman

We have run this particular construction loan program on several occasions, and we are so excited about this particular niche that we are going to run a similar promotion to get the year off to a good start–for all of us. After all, at least in the more moderate climates, now is the time to get going!

As a private money construction lender, we are able to provide a variety of creative solutions that are just not available via more conventional sources. If the parameters and circumstances are right, we are also able to overlook a number of issues that might be problematic with more structured lenders. Small to medium construction loans are one of our sweet spots, and we are geared up to make as many as we can this construction season.

Starting immediately, we are offering a significant cut in our construction loan rates. Our regular charge for a 12 month construction loan is 5 points and 10-13%–the rate dependent on the particulars of the loan—but typically 12%.

For the month of January/February/March, we are offering (via brokers and direct to borrowers) 12 month construction loans – for ground up construction priced at 3 points and 10-13% (typically 11-12%.).

The conditions are as follows of this promotion 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, no later than 1/31/14.

(2)   You must submit a summary of your loan no later than 2/7/14, and FFS must approve the summary.

(3)   You must submit a complete loan packet, as required by FFS, no later than 2/28/14, for the loan the same loan for which you submitted a summary in January or February.

(4)   The minimum loan size for this promotion is $200,000.

(5)   The loan must close no later than 3/31/14.

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. The real estate market is up and rising, and we are just now entering the construction season of 2014–one that I expect to be the best we have had in quite some time.

All the best in your endeavors, Clay

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

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

Flexibility and creativity: the beauty of private money loans

November 5th, 2014

Clay Sparkman

This post was first published on this site on July 6th. 2010.

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 problem 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 an 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 a private money outfit such as ours and find out that we will loan 65% LTV against the value of this property.   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 costs) to the table to make this loan work, and so you are thinking that you’ve reached a dead end.

Well, 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 true value of the property.

If he can demonstrate that he is buying well, and that the true value is higher than the purchase price, then some private money lenders will be willing to base their LTV on the true value of the property.  In this case, if there is a strong case to be made that the property is actually worth 1.2MM, then a private money lender may be able to arrange to loan enough to cover much of the purchase of the property (how much, of course, depending on the overall “strength” of the borrower).

Solution #2:  The borrower may borrow based on the projected value of the property.

Say that he needs an additional $100,000 to complete the construction on the building, but that the building will be valued at $1.2M upon completion, then certain private money lenders would be willing to arrange a loan of up to $880,000 to cover both the purchase price and establish a construction fund.  The construction funds would then most likely be held in a trust fund and disbursed as the work is completed on the project.

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 $500,000 loan arranged by say Fairfield.  In this case, we may be willing to move forward with a low down payment loan.  With a strong borrower, we would, for example, be willing to make a loan for $500,000, of which $100,000 would go into a construction account for improvements and something like $30,000 would go toward loan fees and closing-costs, and the buyer would only need to come in with the $30,000 needed to cover loan fees and closing costs.

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.

Private money lenders are almost always willing to consider additional collateral, to make a transaction come together.  Say the borrower has another commercial building, this one in Lincoln City, Oregon, and that it is worth 1.6M with $750,000 owed against it.  The lender would quite possibly be willing to make the loan, with the borrower bringing in $80,000 cash and the Lincoln City 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, then it should be possible to negotiate and write into the loan a specific release clause provision stating that we are willing to release the Lincoln City property as security in exchange for a principal reduction, for example in this case, of $200,000.

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 sequence of boxes–and then leave the loans which must be hand-built, one by one, to people like us.  So come join us for some loan building and some creative problem solving.  It is not only lucrative but it is fun.

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

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

3 recent posts on hard money loans that are worth reading

October 21st, 2014

Clay Sparkman

Here are three three recent posts that pertain to hard money loans that will almost surely enhance your knowledge of the current state of the market.

Financing With ‘Hard Money’

Here

The Hard Money Loan Funding Process: A Guide for Rehabbers

Here

Hard Money Lenders Fear Overreach

Here

Let me know if you have any comments or questions, or if you think that you’d like to pursue a particular loan proposal.

– 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

Minding the gap

August 27th, 2014

Clay Sparkman

This article was originally posted at this site in May of 2013 at this site. Since then, we have seen the number of construction and fix/flip loans that we do increase significantly. This seems to be a sweet spot for the private money market. That is, we are able to fill what would otherwise be a void in the market–and we are happy to do so. Given that, I thought it would be worth posting this piece again.

It is our opinion and the opinion of many others that banks, though they’ve bounced back in certain areas, have not picked up the slack when it comes to funding rehab, construction, and development loans.

I have been on about this before, so I won’t go into great detail here. I think that the following post makes the case pretty effectively.

2013: Think construction loans

Getting down to brass tacks, we feel that this is a great opportunity for those in the private money business. In particular, we at Fairfield see enormous opportunity, in that (a) this need exists in such a desperate way, and (b) we have been funding and servicing such loans for many years—so it is an easy pickup for our company and for the many brokers that we partner with.

If you aren’t already familiar with our programs in these areas, please consider educating yourself further and seeing if there is not an opportunity for you to offer our products to your current and future clients.

With that in mind, I shall point you toward some prior posts that might help you get a handle on the particulars of our lending in these areas.

Here is our Rehab and construction loan FAQ.

This next article focuses more particularly on quick flips: 2013: The year of the quick flip.

Here is a post regarding our Draw process for rehab and construction loans.

And this post tells you how to go about Calculating LTVs for rehab, development, and construction loans.

I’ve always felt that people learn best by example. So with that in mind, here is an example of an actual loan that we placed.

And here

And here

And here

And here

Let me know if you have any questions, or if you think that you’d like to pursue a particular loan proposal.

– 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