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

What exactly do you want me to do for you?

Clay Sparkman
When evaluating loan requests, this is the fundamental question:  what exactly do you want me to do for you? It is impossible to count the number of times that I have receive loan packets or proposals that didn’t include a loan summary or any clear description of the request.  The process of evaluating a loan must begin with a well prepared summary of the loan proposal.  (This item might be called a loan summary, an executive summary, or a cover sheet.  We call it a Prospectus.)   I don’t know why borrowers and brokers are so reluctant to provide such a fundamental item when attempting to secure private funding for real estate projects.  I suspect that it has to do with the way banks operate.  They don’t require a summary so why should we?  And beyond that, I think that many brokers and borrowers simply don’t know what to include in a summary.  One of the ways that we have gotten around the problem is by including a loan submission form on our website which walks the broker/borrower through a simple electronic form.  At least in the initial stages of the application process, this seems to provide much needed guidance.
Ultimately, however, we will not accept a loan packet or submission which is not accompanied by an adequate summary, and if the summary is quite good, we will probably tend to be much more receptive to at least considering the loan proposal at hand.  For today’s post, I am including a sample of a prospectus (redacted) that we prepared for submission to our private money investors.  We actually place our prospectus on top of all the relevant documentation, data, photos, etc., scan it into Adobe, and then e-mail a link and password to our interested investors, so that they may review the loan proposal in its entirety.  Here then is what we consider to be a well informed prospectus.  I recommend that all private money investors insist on adequate documentation and don’t settle for less.

Clay Sparkman

Fairfield Financial Services, Inc

2727 NE Hoyt St, Portland, OR 97232

Phone (503)476-2909, e-mail clay@privatemoneysource.com


Purchase and rehab on 4-plex in Las Vegas, Nevada
Loan Details

  1. Loan Amount: $130,000
  2. Term: 2 yr
  3. Interest Rate: 13%
  4. Monthly Payments: $1,408.33 Interest Only
  5. Construction Holdback Account: $54,750
  6. Security:  Deed of Trust in 1st Position security interest in real property at xxxx Bassler Street, North Las Vegas, NV 89030
  7. Completion Value by Borrower Estimate / Comps is $220,000
  8. Completion Value LTV by Borrower Estimate / Comps is 59%
  9. Conservative Completion Value is $195,000
  10. Conservative Completion Value LTV is 67%

Loan Overview
This is a purchase and rehab construction loan for a 4-plex in Las Vegas, NV.  The property will be purchased as a bank REO for $78,000.  The borrower (hereafter referred to Flip Guy for the purpose of this sample) is bringing $13,000 to escrow in order to demonstrate some cash investment on his part, and requesting $54,750 to complete the construction on the property.  Flip is experienced flipping homes in Las Vegas, and has rehabbed over 200 properties in this area.  He currently holds 62 properties in his inventory.  42 of these homes are free and clear and all but 5 of his properties are rented and producing income.  Flip reports that these 5 properties are for sale.
Flip Guy has successfully completed four loans with Fairfield over this past year and a half.  In each of these loans the construction was completed and the properties were listed in under a month.  Both houses were sold and the loans paid in full well before the loans matured and Flip has never been late with a payment.  Before and after photos of two of these properties are provided as an example of his work.  In addition, Flip has provided before and after photos of a similar 4-plex that was not financed through Fairfield.
In each of Flip’s previous loans, his exit strategy was to sell the properties.  For this loan, he intends to refinance the property and hold it as a rental.  To be safe, he has requested a 2 year term, although he anticipates that he will be able to exit this loan in approximately year.  He will pursue a take-out loan as soon as the rehab is completed, which should take 1-2 months.  Flip will hold title to this property under his company, xxx, LLC, and he will personally guarantee this loan.
The subject property is 3040 SF and has 4 units, each with 2 bedrooms and 1 bath.  The 4-plex was built in 1963 and sits on a .21 acre lot.  The 4-plex is structurally sound, but is in need of cosmetic repairs.  Flip plans to update and modernize each unit of this house.  He will replace the flooring, paint, update the kitchen, and landscape the property to add curb appeal.
This property is approximately seven miles northeast of the Vegas strip and one block east of the Las Vegas Blvd.  It is located in a neighborhood that is primarily working class rentals.  There are three 4-plexes neighboring this property and they are all reported to be in good condition.
Completion Value Comps by Borrower
To determine the completion Value, the borrower utilized 7 comps in a close proximity to the subject property that range from $209,900 to $249,900.  Three of these comps are sales, while the other four are current listings.  Three of these listings have sales pending, but those pending prices are unknown.  Based on these comps, Flip estimates that the property should be worth $220,000 once the repairs are made.
Analysis of Comps by Inspector
Based on the average price/unit of all comps and listings, the value of the subject property would be $224,408, which supports the borrower’s estimate of value.  However, when the average rent is broken down to a conservative price/SF, and multiplied by the average gross rent multiplier (see inspection report), a value of 194,803 is suggested.  In addition, if the average sale price/SF is multiplied by the size of the property, it yields a value of $193,982.  Based on these calculations, the inspector suggests that it would be reasonable to consider $195,000 as a conservative value for this property.
A field report is available for review.
Market Trends
Altosresearch.com is a website that provides real time market data for single family homes, and was used to evaluate the Las Vegas market trends.  Average home prices, time on the market, and the current home inventory are all considered in the evaluation of this property.
Average home prices have continued to fall over the past year, and the median home price as of Nov 29, 2009 is $119,928.  There appears to be a significant decrease in the rate of this fall over the past few months, and in the past 30 days prices appear to be relatively stable.  Seven day averages show a very slight increase.
The average time on the market in Las Vegas area has been steadily declining over the past 8 months, and has dropped from 175 days at the high point in April 2009 to a157 days as of Nov 29, 2009.
The current home inventory is one of the most important factors to consider.  A decreasing inventory is often a precursor to stabilizing market.  Since its high point in April 2009, the home inventory has decreased by approximately 20%.  There is a current downward trend in the home inventory which could potentially explain the decrease in the rate at which home prices have dropped over the past few months.
Market trend graphs are available for review.
Flip’s first loan, the Pinedale property, sold in just less than 5 months from the time of listing.  Flip’s second loan, The Ashbrook property, was sold in just less than 8 months from the time of listing.  His next two loans, the Bengal property and the Almondwood property, each sold in approximately 3 months after the property was listed.
His average turn time is compatible with the expectations based on current market trends.  The price point at which Flip purchases these homes, his ability to rehab them quickly, his realistic approach to time on market, and the decreasing home inventory, seem to support his business model.
Las Vegas does not require any permits for the type of work that will be performed, nor do they require a contractor’s license.  The borrower will be ready to go as soon as the loan is funded and plans to have the house completed in approximately two weeks.
We were provided with a signed 1003 for Flip Guy, which states a monthly income of $55,000, and a net worth of $5,245,000.  Flip states that his monthly income is a combination of the rental net income and proceeds from the properties that he flips.  A copy is provided here for your review
Flip Guy has a mid credit score 686.  This is typical for rehab developers who use bank cards for construction financing.

— 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 Oregon and Washington, with potential to loan in:  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

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