Clay Sparkman
One thing I can tell you about private money is that the regular rules don’t work there. And in fact, there aren’t really any rules that you can count on. At best, there are guidelines and these vary greatly depending on the broad spectrum of particulars that define a particularly loan request.
With private money, it is the entire story that matters. In general, it is not possible to say that one thing isn’t relevant or another is always a critical factor. When making a decision about a private money loan request, it is necessary to assimilate all of the relevant information, and what’s more, this information must be assimilated by a curious, creative, thinking individual–not a robot or a decision machine. There is no equivalent of the lender matrix in the world of private money.
The analytical process is powerful—particularly in contrast with the black and white criteria based “thinking” of the banking world. In order to demonstrate, I’m going to tell you about two occasions during the past three months when we did what no bank would ever do. We listened to the experts, and then proceeded to ignore their advice.
On the first occasion, we were approached by a land developer in Oregon with a somewhat unusual loan request. This man is an ongoing client of ours, and we respect him immensely for his knowledge and his ability to get things done. Let’s call him Mr. C. Mr. C wanted to borrow on a subdivision in process on the southern coast, and his request had an unusual aspect. It based the lot configuration of the site, and thus the appropriate current valuation, on a very obscure reading of the legal code. Mr. C showed me the code and explained to me what it meant, and I said that I tended to agree with his reading, but didn’t trust myself to interpret code in such a critical matter. I suggested that we run it by my attorney and get a conclusion in writing. My attorney came back with a view that appeared to be contrary to the conclusion of Mr. c, and so I took the conclusion back to Mr. C and he looked it over and said, “this is a county matter not a statewide matter; if I get a planner at the county to affirm my position in writing, will you go along with me?” I said that I would so long as the position was clear. About a week later, Mr. C forwarded an e-mail to me from one of the top land planners at the county and this e-mail quite clearly stated a position in line with that put forth by Mr. C. We went ahead and made the loan.
On a more recent occasion, we were approached by a broker representing a builder in Montana. The builder sought funding to build a large single family spec home. The builder looked good to us and the proposal made sense. An appraisal was already in process, so we said that we would go forward with the loan subject to the appraisal supporting the borrower’s opinion of value. When the appraisal was finished, everyone was a bit surprised: the appraisal came in significantly under value. We asked the borrower for their opinion on this and they said that it was very clear to them that the appraiser had failed to adequately value the daylight basement of the subject property and that this was the reason for the reduction in value. So we here at Fairfield read carefully through the appraisal and did some checking with realtors in the subject property area, and it was quite easy to conclude that our borrower was correct. We re-analyzed the value, based on a sensible square foot figure for daylight basement footage, and came up with a value of our own (a bit less than what the borrower expected, but a good $30,000 more than the face value of the appraisal). Again, we went ahead and made the loan.
The point I’m trying to make is that you need to think about private money in a different way. The making of a private money loan is a search for the truth. You won’t always get the answer you want from us, but I can assure you that listening, logic, and a broad understanding of the facts will ultimately determine our conclusion.
— 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: construction loans, hard money borrowing, hard money brokering, hard money lending, hard money loans, Montana, Oregon, private money borrowing, private money brokering, private money lending, private money loans, real estate, real estate investing
