Clay Sparkman
As I’m sure most of you will agree, it takes more contacts to get a loan done these days. Lenders are more selective and an increased number of borrowers are turning to hard money. More borrowers are talking to brokers, and then brokers have to talk to more lenders to find funding. The end result is more work for you; so to stay even you have to be more efficient in your process and presentation of these loan scenarios.
Fortunately we are equipped to screen your loan scenarios quickly, efficiently, and at whatever ridiculous hour of the day or night we may be working. Here are some ways to submit your scenarios to us that will be faster, easier, and more efficient for you, and in turn will solicit a quicker response.
One way to submit a loan scenario or question that will really save you time is through our website. Our on-line submission form can be found at: http://www.privatemoneysource.com/loanproposal.php. This form provides us with what we need to properly assess your scenario and in some cases issue a quote right on the spot.
When using the contact feature at http://www.privatemoneysource.com/contact.php, please be sure to leave a specific question or basic summary of your loan request with your contact info. Because we receive such a high volume of leads and phone calls, a request for a return phone call with no summary information or specific request will often have a lower priority and may take a few days to return.
Probably the best way to reach us initially is through email. I do enjoy speaking with our brokers and staying in touch, but sometimes I can return an email in the time it takes to dial the phone and connect to that person live. This industry affords us the luxury and sometimes demands that we work outside of normal business hours. I don’t return phone calls after 5pm, but I can respond to your email at all hours of the night.
For initial screenings and general questions these electronic submissions can save you a lot of time. An emailed summary with a brief description, on-line proposal, or even a list of the location, property type, and loan size is a tremendous help. If it’s not something we can do we’ll let you know fast so you can move on, and if it looks interesting we’ll let you know immediately and request any required information.
If you have a loan that might fit with these parameters, please e-mail me at clay@privatemoneysource.com or submit by entering a brief summary at http://www.privatemoneysource.com/loanproposal.php. 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, but is able to source loans nationwide. To submit a loan to Fairfield for consideration: http://www.privatemoneysource.com/loanproposal.php
The Private Money Broker
More time left for you
April 19th, 2012FFS has new source of private money funds nationwide
April 12th, 2012I am pleased to announce that we now have a new source of funds nationwide, and for larger loans than what we have typically been able to do. The basic parameters are as follows:
ELIGIBLE LOCATIONS
Anywhere in the United States
ELIGIBLE PROPERTIES
Income producing commercial real estate properties including multifamily, but no construction
TRANSACTION SIZE
$2 million to $15 million
Max LTV
Up to 65% of Lender’s assessed value – will accept cross-collateral to support equity requirements
RATES
12% – 15%
ORIGINATION FEES
3% – 6%
DUE DILIGENCE DEPOSIT
EXIT FEES
Negotiable
LOAN TERM(S)
6 – 36 months, extension options available
CLOSING TIME
2 – 4 weeks is typical
DUE DILIGENCE DEPOSIT:
Upon acceptance of the term sheet, Borrower will be liable for all out-of-pocket third party expenses (including but not limited to environmental, property condition report, ALTA survey and Legal fees), and shall make a deposit of $10,000 to $15,000 to cover such expense. Lender will not require an Appraisal. Any remaining due diligence deposit will be refunded to the Borrower at closing.
If you have a loan that might fir with these parameters, please e-mail me at clay@privatemoneysource.com or submit by entering a brief summary at http://www.privatemoneysource.com/loanproposal.php. 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
Make your borrower's projects and submissions More robust
March 26th, 2012Clay Sparkman
In the current climate, it’s getting harder than ever to impress potential lenders with your client’s loan scenarios. It may be that times have changed permanently and that it will be years before lenders return to their pre-2007 comfort level. Until then I thought I would make some suggestions to help you to re-think your borrower’s loan scenarios and try to make them more robust.
By robust, I mean strengthen your loan scenarios for your clients so that they can withstand potential negative factors that might otherwise harm your ability to perform as promised. Things seldom go as planned and when they go wrong, it’s good to have the ability to weather bad tidings. What if it takes your client longer to sell the project than expected? What if the value of the finished project has dropped since it was started? What if a government approval is held up for reasons your borrower can’t control? All of these things could severely impact your borrower’s ability to perform.
Lenders are critically aware of these items (especially in light of the difficulties in the real estate marketplace during the past 4+ years) and now look to see if a potential borrower is also aware of these items and has a plan to deal with them (and even better, two tiers of backup plans). To that end, I would make some suggestions to help you make your client’s scenarios more robust.
Lower LTV’s
A low LTV can forgive a lot of sins. In the past a 75% LTV was considered the maximum LTV we would consider. While that is not impossible now, it’s more of a low probability event that you’ll find a scenario that can present well at 75%. You should be thinking below 65% or even 60%. Lenders now want a larger cushion to protect against property devaluation. Not only that, having a borrower with more equity means you’ll have some room to work with if you need a loan modification or workout. There may also be enough equity to borrow against to do some debt service on the loan (if need be).
The days of heavy leveraging are over for the time being and we’re ready to work with you to bring your client’s LTV down. You can consider additional cash, seller carries, subordinations, and cross collateral as techniques to lower the LTV. This is where hard money has always shined. We can get creative in helping you to sort this out.
Multiple Contingencies
Nothing ever goes as planned. The borrower should plan for that. Having back-up plans shows that they’re aware of this and prepared to make adjustments if necessary and respond to changes in the marketplace (all of our best developers have back-up plans to their back-up plans). If they can’t sell the house, maybe they should be ready to have it rented. They should build in extra time for delays if they’re waiting for government approvals. If the market changes mid-way into their project, how will they adjust to fit what the market wants? These considerations are what are on lenders mind’s as they’re reading your proposal. If your borrower has well considered answers and plans to deal with multiple contingencies, they’ll demonstrate to their potential lender that they’re a careful planner and prepared for what may happen down the line.
Finally, the most important of these contingencies is being able to do the long hold. It’s so important it deserves its own section.
Do the Long Hold
The common enemy to most real estate development is time. Market trends come and go. Projects can be delayed. Things inevitably take longer than expected. All along the clock is ticking. You should consider that your borrower might end up not being able to exit as soon as they expected. When this happens, have they prepared for the long hold?
Debt service would be critical going forward. Do they have enough cash flow to sustain payments? Is there enough equity to borrow again if needed? These are the questions that the lenders will ask about your borrower. Having a plan to do the long hold (if need be) goes a long way to inspire confidence for lenders.
These three suggestions will go a long way to making your borrower’s projects and loan requests more robust. Following them (and working with your borrowers on their development plans, before asking for funding) will give you and your borrowers a greater chance of getting funded.
If you would like to discuss private money loans further or run a particular scenario by us, please e-mail me 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
A Note on Relationships
February 23rd, 2012Clay Sparkman
I’d like to take this opportunity to highlight a loan that we were able to get into escrow 1 week from the time the borrower submitted his scenario. This is not something we can do every time, but very possible for a proven borrower that knows the dance. I’ll refer to this borrower as Benjamin.
The first loan is always the hardest. We have a very good track record on our loans due to our strict underwriting guidelines, and we require a lot of information. When we talk about building a relationship there is more to consider that just the property. Our first loan with Benjamin took about a month to exchange this information and do the appropriate research. It was a lot of work, and we were down to the wire on the purchase agreement, but the foundation was laid.
We’ve worked a few deals over the past year, and Benjamin’s 2nd loan with us has recently paid off. Now that he has successfully exited two loans, he’s developing a reputation with our investors. The construction was completed within the budget and the anticipated time frame, and he was never late with a monthly payment. When he came to us with a new scenario, he knew exactly what information to send. In the course of one Friday morning, I looked it over, approved the scenario, Benjamin wired us his refundable deposit, and I called our property inspector. By Monday, the inspector informed me that the property checked out. On Friday, one week after Benjamin’s initial email submitting his property, Loan docs were out.
We value our relationships, and work very hard to maintain them. Multiple deals with a borrower become easier and easier, and our relationships with brokers is the same. The first one is always the hardest, but it gets easier and faster over time.
We also have a rule with brokers, that if a broker brings us a repeat borrower, each deal has to go through that broker. If that borrower were to come to us directly, we would refer them back to that original broker before we would proceed with the loan. We’re happy to work directly with those borrowers, but only after including that broker’s fee, and with the broker’s consent.
This business is filled with short term relationships with many different people, but it’s the long fruitful relationships that make our business successful.
If you would like to discuss private money loans further or run a particular scenario by us, please e-mail him 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
To Pre-Approve or Not to Pre-Approve
February 17th, 2012Clay Sparkman
We’ve been getting a lot of requests for pre-approval letters lately. Many of our loan requests are for rehab loans, and it can be difficult to submit offers without an approval or proof of funds letter. Unfortunately most of our clients don’t have an extra 200K sitting around for the proof of funds, and many lending institutions won’t take a loan request seriously without a purchase agreement. In this market, a pre-approval letter can be a useful tool in taking that first step of getting an offer accepted, but it’s important to understand what that pre-approval means.
Our pre-approval process is an initial screening of the borrower’s income, net worth, credit, and experience. As an equity lender, this is only a portion of the information that we’ll need to underwrite a loan, but it is something we can look at before a specific property is secured to start the process. This pre-approval process puts the potential borrower in our system, speeds up the initial approval of the property, and allows the borrower to submit minimal information directly to a loan officer. Please keep in mind that the pre-approval letter is a useful tool, but our decision to pursue a particular loan is ultimately dependant on the property itself.
If you’d like to be considered for pre-approval, please submit the following:
- a copy of this request
- a completed and signed 1003 and the following signed disclosure forms. The 1003 and other forms can be downloaded at http://www.privatemoneysource.com/resources.php
- privacy notice
- credit report authorization form
- patriot act information disclosure
- military service disclosure
- a copy of your current credit report. If you do not have a credit report we can pull one for you.
- a resume or description of your relevant background and experience.
- a description of your property investment plans for the upcoming year
- a one-time fee of $150 to cover our pre-approval costs.
Please mail this to:
16055 SW Walker Rd #247, Beaverton, OR 97006, ATTN: Clay
If you would like to discuss private money loans further or run a particular scenario by us, please e-mail him 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
Small Is Beautiful
February 10th, 2012Clay Sparkman
Generally speaking we are quite willing to consider small loans. We realize that we will never get rich doing small loans, but we also remember what got us where we are. The large loans can be quite fickle, coming and going as they please, but the small loans seem to be there when we all need them the most. The large loans help us buy that new flat screen TV; the small loans put food on the table.
So this week I thought I’d profile a small loan that we closed previously, so as to give you a sense of the kind of thing that I’m talking about here. We had a woman come to us looking to borrow money against a free and clear small commercial condo in Gresham, Oregon. It is a tiny space being leased to a local barber. There were some potential negatives: (1) the borrower didn’t know what the value of her property would be and didn’t have an appraisal, (2) she was looking to pull cash out to use for personal purposes, and (3) the residential portion of the condo had not completely sold after construction of the building and so were being utilized as rentals. Overall though, we liked this loan. The borrowers were basically solid, the property was basically new and attractive, and the tenant had a good track record.
We felt it unreasonable to require a commercial appraisal in order to make a $60,000 loan—so we looked at all the available info: original purchase price, income, and one or two local comps, and were able to settle on a basic opinion of value.
We made the loan: 65% LTV, 13.5%, 3 years, and with no pre-payment penalty or minimum interest—so the borrower would be able to repay as soon as a conventional option became available to her–without taking an additional hit.
Bring us your small loans. We’ll give them close look. We’ll give them a fair chance.
If you would like to discuss private money loans further or run a particular scenario by us, please e-mail him 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
What's Going On Out There?
February 3rd, 2012Clay Sparkman
With the decline of real estate prices and concern about the global economy, there is a lot of speculation regarding the timeline of this recession. In conversations with brokers, investors, and developers throughout the country, the topic often turns to one common question: what’s going on out there? I’ve heard what the experts say, and certainly these people are more qualified than I to make statements regarding the indicators on the global and national economy. However, I do have my finger on the pulse of the hard money market in regional pockets throughout the USA, and here are some thoughts from someone down in the trenches:
It seems like a lot of people are looking ahead to better times in 2012 and viewing this as a time to position them self to take advantage of a low and potentially turning market.
A considerable portion of our loan inquiries are for the purchase of discounted properties. There are always requests to purchase distressed properties, but in this market there are properties available that require little if any work. The goal here is to secure these properties as rentals and refinance through conventional means or make a quick flip. The strategy obviously is to purchase these properties at somewhere near the bottom of the price curve and make the best buy possible. Many would argue that we haven’t quite reached the bottom yet, but this increased activity might suggest that we’re getting close—at least in a handful of regional markets.
I also have the opportunity to talk to a variety of contractors. Just as my phone seems to be ringing more frequently, a number of these contractors have reported increased activity. This seems to be another indicator that we might be reaching the bottom. This increased activity suggests that these investment opportunities have become ripe for the picking.
To answer that initial question: the hard money wheels are turning. We keep data, and we’ve seen a significantly increased volume of loan inquires (particularly for projects and investments) over the past 3-4 months, and it looks like investors are getting ready to pick up some of this huge inventory of discounted property. The timeline is a matter of speculation, but with this increased activity, real estate sales volume could be on the rise. As this decreases the inventory, prices could stabilize and the market might even rebound. Maybe this is wishful thinking, but either way there is opportunity out there.
If you would like to discuss private money loans further or run a particular scenario by us, please e-mail him 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
Calculating LTVs for rehab, development, and construction loans
January 20th, 2012Clay Sparkman
We thought a quick primer on LTV calculation for projects involving construction would be of use to most of those who utilize or broker private money.
You really need to use two LTVs. We use a Front End LTV (F-LTV) as well as an After Repair Value (ARV) or Final LTV (LTV), when evaluating loans. We do this to analyze risk at the start of the loan and again when the project is finished. This is to ensure that our investors’ capital is protected going into the loan as well as coming out of it (and throughout the construction process as well).
Let me give you an example. Say you have a property that is worth $150,000 ‘as-is‘ and you are buying it for $90,000. The most we could lend you toward the purchase of the property would be $105,000, or 70% of the value of the property ‘as-is’, before any construction (note: max LTV’s can vary, so it always helps to ask). As a result, you would need to get the net loan amount (purchase price or payoff amount minus down payment), closing costs, and interest reserve to add up to be under $105,000. Keep in mind that interest reserve may be optional. If you can show that you don’t need it, then you may drop it from the calculation. Here’s the formula:
Front End LTV =
Net Loan Amount + Closing Costs + Interest Reserve/As Is Value
This calculation should be under 70%. If it isn’t, you can drop the interest reserve (if it is not needed to make the loan work), bring in some cash, bring some additional collateral or have the seller take a ‘carry back’ and subordinate it to our loan. There are various ways to creatively build in some equity. The lower this number is the better. You’ll get better interest rates and a greater chance of approval. If you come in with an F-LTV of 65% or under, you’re looking very good.
For us, F-LTV is the more important of the two LTV’s. This number must work or you’re not even getting to first base. Also, if this number is in line, your LTV’s will stay in line to the end. This is because once you start the construction you’re adding value to the property by more than the cost. So, theoretically your LTV should go down or stay the same as when you started building.
Once the F-LTV is in line we can then talk about construction costs. Obviously construction adds value. We hold the construction funds in a construction draw account so we can make sure that the project is proceeding on time and on budget, and that work is paid at the time of completion. Basically, need to ensure that value is being added as the project funds are advanced.
Once you’re done with construction, we can talk about the ARV or Final LTV. The formula for this is:
Final LTV (or the more traditional ARV) =
Total Loan Amount (now including construction hold-back)/Future value (or ARV)
That’s it. Once you get the hang of it you’ll understand why it’s a good tool.
– 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
Hard money – it doesn't have to be so hard
January 12th, 2012Clay Sparkman
In my 18 years of working with loan brokers on private money transactions, one of the most significant difficulties I have encountered has been simply making our process understood—in other words, explaining the sort of information, the timelines, and the expectations that are suitable and necessary to a private money transaction. It seems that brokers unfamiliar with private money tend to fall into one of three traps: (1) They are intimidated by the idea of the process, and so simply don’t proceed; (2) They come into the process exactly as they would come into a conventional transaction; or (3) They think that since it’s private money, there are no rules and recklessness is acceptable. All three of these mindsets are equally disastrous to carrying a private money loan through to its conclusion, and merely result in wasted time and effort—for all parties involved.
The goal of any private money loan process should be efficiency. In other words, the goal should be to either close the loan or get to a “No” as quickly and painlessly as possible. It’s all about a simple and streamlined exchange of information in definite stages.
Over the years, I have worked out a very simple system that has been proven to be highly efficient. Our underwriting process works as follows:
Step 1
Broker submits a summary of the loan scenario to Fairfield. This may be done via phone, fax, e-mail, or on-line submission form. I highly recommend that brokers consider using the online submission form on our website, as it is designed to ensure that the necessary information is provided. The online form is at the following link: http://www.privatemoneysource.com/loanproposal.php
If the scenario is not one that Fairfield can act on, we will tell you right away and the process will be terminated.
Inefficiency traps
(1a) If a broker submits an incomplete summary we will have to go back and forth for a while until a full summary is obtained.
(1b) Some brokers choose to skip this step altogether and jump straight to step 3. This has almost always proven to be a complete waste of time and resources.
Step 2
Having obtained a complete summary, a Loan Coordinator for Fairfield will provide a ballpark quote regarding rate, fees, term, and loan conditions. The broker shall then take this information to the borrower, discuss and explain it, and make sure that it is acceptable to the borrower. If it is not acceptable to the borrower, then the process is terminated.
Inefficiency traps
(2a) Many brokers, it seems, are reluctant to approach borrowers with the facts of a private money loan. Apparently they are hoping the borrower won’t notice the rate and fees, or are hoping to have them far into the process so it will be difficult to back out. This is a huge mistake. If the borrower isn’t fully on-board from early on, most likely a great deal of time and energy will be wasted.
Step 3
The broker shall contact Fairfield to say that the loan is a go. At that point the Loan Coordinator will provide the broker with a list of items need in order to process the loan request. The broker shall collect the appropriate items and overnight mail or e-mail these to Fairfield.
Inefficiency traps
(3a) If the broker fails to get appropriate checklist of needed items, they will most likely submit items that are not required and fail to submit certain items that are required. This is a waste of time, copy paper, and postage (time being the most precious and notable resource wasted).
(3b) If the broker faxes the packet, it will not be of suitable quality for processing the request. A single image file containing the packet may be e-mailed, but generally I have found that this is problematic in one respect or another and leads to a loss of time.
(3c) If the broker e-mails a vast array of individual files, this is very difficult to make sense of. We request that you prepare a single Adobe or Word file with all of the information organized and displayed appropriately.
Step 4
Fairfield will generally review a file submission within 48 hours. If details come out that are problematic, additional information or supporting documentation may be requested. If the loan proves not to be doable based on a complete review of the file, the loan process is terminated at this point. (Generally this would be the case if the documentation did not support the concept initially submitted in step 1.)
Step 5
Fairfield will ask for a refundable deposit (the amount to be determined by various practical aspects of the loan) and a loan agreement letter will be drafted.
Step 6
Upon receiving the deposit and a signed copy of the letter, Fairfield will make an appointment to personally inspect the property.
Step 7
Fairfield performs an on-site inspection of the property (and visits various comparable properties). This is generally the final step in the underwriting process. It is rare that a loan is terminated at this point because the process leading up to this point has been rigorous and complete. Termination is only likely to occur if there is a notable discrepancy between what could be noted on paper and with photos regarding the subject property and the comps and what could be seen in person. (This occurs maybe 5% of the time.)
At this point, the underwriting is complete and the loan can generally be closed within 1 to 5 working days.
– 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
Everything you wanted to know about private money but were afraid to ask
January 6th, 2012Clay Sparkman
Private money is often misunderstood. Many industry professionals know very little about it, and fallacies and misconceptions tend to dominate the collective wisdom. As you know, as a subscriber to this list, I have made it my mission to try to educate professionals regarding the realities of private money. In this capacity, I spend a lot of time answering questions about private money. I figured it was about time to prepare a FAQ on private money and share it with this group. So here you go.
-What is private money used for?
Private money is generally used as a bridge: a way to get from point A to point B. It is generally a short to medium term solution (1-6 years), and there is nearly always an exit strategy going in. It is used for all types of real estate secured financing: commercial retail, restaurants, hotels/motels, marinas, elder care facilities, industrial, agricultural, raw land, land development, construction, rehab, multi-family, single family homes, manufactured homes, and floating homes. For a list of our private money loan programs, click here.
-What are the interest rates?
Private money rates generally range from 10 to 15%. The rate is determined by looking at a combination of factors: (a) LTV ratio, (b) strength of borrower, (c) condition/desirability of property, (d) actual cash-in or real equity contributed by borrower. Typically our rates fall in the 12-13% range. A list of our loan guidelines may be found here.
-What fees are involved?
We charge a loan fee generally equal to 5% of the gross amount of the loan. We also charge a doc prep fee ($675 or more, depending on the size of the loan), a property inspection fee ($500 or more, depending on the location of the property), and a collection account setup fee ($470 or more, depending on the size of the loan). There are no hidden junk fees.
-Can the fees be paid from the proceeds of the loan?
Yes, if there is enough equity in the project. This is frequently the case.
-Is there a pre-payment penalty?
Most of our loans have no pre-payment penalty.
-Why would anyone pay those kinds of rates and fees for a loan?
There are many reasons why a borrower would choose to use private money over a cheaper institutional option. For example, professional real estate investors like to use private money when buying because they are able to make offers which are not constrained by long timelines and numerous rigid conditions. Often times speed is a very significant factor in completing a profitable transaction and in those cases it often makes sense to pay for a short-term private money option rather than loose the deal. Frequently the condition of a property won’t allow for the initial financing with conventional money, and in those cases private money may be used. Often the type of property is a factor: banks don’t like lending on raw land and lots, but private money lenders are more inclined to do so. Cash leverage is another factor. Fairfield Financial, for example, loans based on the true value of a property, not the purchase price, so sometimes we lend most of the acquisition cost for a property.. The structure of the deal may be a factor. Most private money lenders allow the buyer to establish their equity through the mechanism of a seller carry back; banks won’t do this. The list goes on and on.
-What is the most common use for private money?
Our most common loans are probably construction, rehab, and land development loans. We have an entire FAQ devoted to these loans at: http://www.privatemoneysource.com/articles/rehabfaq.php
-How fast can private money loans close?
We have been known to close loans in a matter of a few days, but more typically, you should figure on 10-15 business days. (Keep in mind that it is only possible for us to move quickly if the borrower, broker and other third parties are moving quickly as well.)
-is an appraisal required?
Some private money lenders require them. We don’t. Evidence of value is a critical part of the private money loan process. However, it is our opinion that a good set of comps is just as effective in establishing value as a good appraisal. Many of our borrowers are professional investors, and we feel that they are qualified to perform the value analysis. This allows us to streamline the process. However, it is important to note that putting together a god set of comps is hard work. See the following article on our website for a detailed description of how to prepare a proper value analysis: http://www.privatemoneysource.com/articles/comps.php
-As a mainstream mortgage broker, I don’t see much of this type of thing. Why should I be interested in private money?
To be perfectly frank, it is my belief that mainstream mortgage brokers are being squeezed out of the industry. Lenders are ramping up their operations to better provide online loan sourcing directly to borrowers. We saw a similar thing in the travel industry over the past years. The travel agents that have survived, and even thrived, are the ones who effectively established niches within the industry. It is my belief that the same will be true for mortgage brokers. Plain vanilla loans can be easily processed in an assembly line fashion which easily translates to the world of the novice and a web browser. Niche lending, on the other hand, tends to be a hand-crafting of sorts, and cannot be easily automated. Look at private money. There are no absolute rules. Many factors must be considered in making a decision and frequently those factors are intangible. Ultimately a high degree of thought work and common sense is involved. Private money will always be a people process. So if you tell me, I am not interested in private money because I don’t do unusual loans, I say to you, You might want to reconsider.
-As a mortgage broker bringing you this transaction, how do I get paid?
It is simple. You bring us a borrower. We price the loan to you. (Think of yourself as a wholesale buyer.) You price the loan to your client, adding your fees as appropriate. You stay involved in the loan (or not) as you choose, and prior to closing, you submit a fee demand to escrow and receive a check directly from the title company. For more information on this topic, see: http://www.privatemoneysource.com/brokers.php
-Why do they call it hard money?
It is difficult to find an answer to this question. I’ve heard plenty of speculation. Some people say that it’s because the money is used for hard to do loans. Others say it is because the loans are hard to get or hard to pay. It is my belief that it is called hard money because traditionally it has been real money in the sense that it is not borrowed. Institutions loan borrowed money, and in this sense they loan soft money. However, I must point out that things have changed a bit over the years, and these days a good deal of hard money is in fact borrowed. (I would guess as much as 50%.)
-How do I go about doing a private money loan with Fairfield Financial?
There are basically four steps.
(1) First, run the concept by us. The best way to get started is to provide us with a high level summary of the loan. You may e-mail a summary, or you may use our online submission engine, which will walk you through the process. It is quite simple to use. You will find that at: http://www.privatemoneysource.com/loanproposal.php
(2) If we like the project concept and feel that the numbers are acceptable, we provide you with a rough quote.
(3) Once you approve the rough quote, we provide you with a list of items that we need to receive and review in packet form.
(4) We then review this loan packet. We ask that this be sent via overnight mail or send via e-email, as a single Adobe or Word attachment.
(5) If all this checks out, we ask the borrower for a deposit (average amount = $1,000). 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) We send someone out to inspect the property.
(7) 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.
-What needs to be included in a private money loan package?
As I said, we provide a list specific to your loan scenario. However, if for a list of our general packaging guidelines, please see the following: http://www.privatemoneysource.com/packaging.php
– 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
