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

Squeezing loans into the box (by thinking outside the box)

Clay Sparkman

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

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

Sometimes if a deal is close, but just a little high on the LTV, we will look at carrying back our fee or a portion of our fee (and any broker fees as well).  With riskier development loans, it can make a big difference to the lender if that LTV is a few points lower. By carrying fees in this manner, it gives the lender additional security if the deal goes bad. Certainly, if the broker is (or brokers are) confident in the project, and has the ability to hold off on those fees, it can sometimes make the difference between a go and a no-go.

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

These options don’t all work all the time and sometimes none of them work, but they do provide some nice tools for converting a marginal investment into a desirable one.

– Clay (sparkman@lendicom.com, 503-476-2909 or 800-971-1858)

Clay is Vice President of Fairfield Financial, a primary source for private money loans since 1964.  Fairfield works with a broad range of private money investors, in a broker capacity, finding, underwriting, presenting, closing, servicing, and when necessary, assisting in the workout of difficult loans.

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