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

The Private Money Broker

Real estate values – what's next?

January 29th, 2019

S. Clay Sparkman
It has been quite a challenge this past dozen years predicting the movement of real estate market values. Values spike. values crash, values spike again, and then … maybe get a little squishy. Also, note the strange happenings in the national political machinery. It might be perilous to ignore this entirely.
For anyone who has been paying attention, I believe it would be hard to make a confident projection at this point.
In reading through some of the analysts and prognosticators, I felt that the following item by Caroline Feeney at Forbes did a nice job of identifying some of the factors and trends at work and codifying a reasonable scenario going forward.
Her column is at:
Real Estate Markets Cooling Across the Country, And It’s Not Just The Winter Effect
If anyone out there has any thoughts on this one way or another, please give us your thoughts.
Regards,
Clay Sparkman (503.476.2909, clay@privatemoneysource.com)

Rehab and construction loan FAQ (revised)

January 18th, 2019

Clay Sparkman
Here is an updated version of Fairfield’s Rehab and Construction Loan FAQ.
One of the most promising areas, at the moment, for real estate investors and brokers, by all indications, is REO, rehab, and quick flip of 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 1-5 years that are the most vulnerable.
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.
We tend to receive an endless parade of questions from lenders, brokers and borrowers as to how to best structure these types of loans, so here is an example (representative I think) of how one organization (Fairfield) 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. Our maximum back-end LTV is 75% and our maximum front-end LTV is about the same (with a little more flexibility), though in the present market we try to keep that closer to 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 $100,000 for the acquisition of a property and $20,000 for construction funds and thus wishes to borrow $120,000. If the completion value of the property is conservatively figured at $185,000 based on comps provided by the borrower, the back-end LTV will be 120/185 or 65%.
Okay, so then what is “front-end” LTV?
Front-end LTV is the LTV immediately upon the closing of escrow but prior to any construction. In the example above, it is a little tricky to talk about the current value of the property since it is a fixer (and fixers are tough to comp directly), but if we determine that the AS IS value of the property is $135,000 then the front-end LTV is 100/135 or 74%. Generally, with rehab projects, if the back-end LTV is in-line, then the front-end LTV will be in-line also. This is because with rehab projects, the profit is made in the buy, not so much in the construction or the sale.
With construction loans, on the other hand, it is usually the other way around. The profit is made in the construction and generally not in the acquisition of the land. So, with construction loans, we need to work a little harder to make sure that the front-end LTV is in order.
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 enough.
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?
Generally, not 100%. We like to see “a little skin in the game,” The amount of required down payment may be quite low. It all depends on the particulars of the borrower and the project. Our very strong repeat borrowers are sometimes able to leverage 100% and are not required to bring any money into the project. And borrowers with additional collateral, as well. It really depends on two factors: (1) How strong is the borrower? And (2) How well is he buying?
How does the construction money get disbursed?
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 valid, 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 a little 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, I’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 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 and income), 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 (a) make payments for the duration of the project (if an interest reserve account has not been set up) and (b) 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 11-14%. 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.
Does the borrower pay interest on the full amount of the loan or only on the funds that have been disbursed?
The borrower must pay interest on the full amount of the loan for the duration of the loan. The funds are being held in trust by Fairfield Financial on behalf of the borrower. As such, the funds are not available to the lender throughout the duration of the loan and thus the lender has committed these funds and cannot utilize them in any way or earn interest.
What fees are involved?
We charge a loan fee equal to 5% of the gross amount of the loan (sometimes this can be less). We also charge a doc prep fee (generally $675) and an account-servicing setup fee which is based on the size of the loan and averages about $650. We also charge a property inspection fee, which is based on the size of the loan and the location of the property (typically $500 for local loans). 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?
There is no pre-payment penalty (except in rare cases.)
What happens if there is money left in the construction account upon completion of the project?
Excess funds will be credited to the borrower at the closing of escrow.
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. We review a complete loan packet. We ask that this be sent via overnight mail or via email as an Adobe Acrobat file attachment. 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 (if available)
    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)

13.  If all this checks out, we ask the borrower for a refundable deposit (generally somewhere between $500 and $2000). The deposit should be in the form of a cashier’s check or money order. We provide a conditional Loan Commitment Letter at this time.
14.  If the property checks out, we draw up the documents and close the loan through escrow.
Is the deposit 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)
Vice President of Fairfield Financial, lending since 1964.  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 Financial for consideration: http://www.privatemoneysource.com/loanproposal.php

Promotion: December new broker special

December 7th, 2018

S. Clay Sparkman

As December typically slows down, we often find ourselves torn between (a) just enjoying the holidays, and (b) keeping the business up and running at an acceptable level. (I’ve been through 24 holiday seasons with Fairfield, and it seems like it is always a challenge figuring out how to strategically approach December.)

This might help some of the brokers out there: We are going to offer a special this month that might help some of you get files off your desk which you don’t know what to do with, and hopefully make a client happy and get a nice payday as well.

Here is how it works:

(1) This promotion is only for brokers who have not closed a loan through us previously. We are interested in forming new relations that may be mutually beneficial for many years to come. (Currently, I would estimate that 70% of our borrowers/brokers are repeat clients or come to us via word of mouth.)

(2) We will only be charging 2.5 points on these promotional loans. As a broker, that gives you more room to make more money on the transaction. (This is the lowest point-price that we have ever offered.)

(3) You must register by simply sending an email to me at clay@privatemoneysource.com with the words “REGISTER DECEMBER PROMO” in the subject line.

(4) The loan must be submitted to Fairfield in December (but not necessarily closed in 2018).

(5) The minimum loan size for this promotion shall be $100,000.

That’s about it. Let me know if you have any questions.

All the best in your endeavors this holiday season, Clay

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

Using a private money option

November 26th, 2018

S. Clay Sparkman
Just about every broker should have a private money option to go to. Here are a few quick tips on how to get that going.
(1)   Find a Lending source that you like and trust. Also, make sure that they will work with you, guiding you through the process AND giving you quick feedback as to loans that you run by them on an ongoing basis.
(2)   Read through their loan specification guidelines and discuss these with them so that you have a decent idea of where private money might be a better option than a bank loan.
(3)   Find out what their sweet spots are. Ask them: Where do you bring options or value that a bank cannot?
(4)   If they want large non-refundable deposits up-front, I suggest that you don’t work with them.
(5)   Whenever a loan comes to you that doesn’t fit your ordinary lending criteria, think about private money. Would this scenario be a good fit?
(6)   If you feel like talking this out a bit with someone in the industry, give us a call. We are a small family business, started in Portland, Oregon in 1964. I myself have been at it for about 25 years, and I’m still learning new things every day.
All the best in your endeavors, Clay
– Clay Sparkman (clay@privatemoneysource.com, 503-476-2909)

Promotion: Quick flip loan special extended through end of 2018

November 7th, 2018

Clay Sparkman
Quick flips, rehabs, temporary acquisition loans, short sales, and bridge loans are among the many short-term loans that we most like to do.
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 prepayment 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) or any other short-term loans
  • 6-month term
  • 10-11% (depending on LTV and down-payment)
  • 2.5 points
  • The option to extend for additional months at a rate of a half-point per month may be offered. 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 consideration. The Borrower must be timely on first 5 payments (paid within the grace period), and not past the balloon date.
  • 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

Sample loan

October 23rd, 2018

Clay Sparkman
Here is an example of a loan that we recently placed. We like to give samples from time to time.  Not only does this give borrowers and brokers a better idea of the kinds of things that we do, but it also gives them a nice working format for presenting new loans.

Kristopher Gillmore

Fairfield Financial Services, Inc

3327 SE 50th St, Portland, OR 97006

Phone (503) 319-7294 / Fax (503) 419-4219 / E-mail: gillmore@privatemoneysource.com

REAL ESTATE PROSPECTUS


SECURED LOAN
Purchase and rehab of Single-family residence in xxxxxx, OR
Loan Details

  1. Loan Amount: $240,000
  2. Term: 1 year
  3. Interest Rate: 11%
  4. Monthly Payments: $2,200 Interest Only
  5. Security:  Deed of Trust in 1st Position security interest in real property located at xxxxxxxxxxxxxxxxxxxxxxxx
  6. Projected Value of property by Borrower’s estimate based on recent comps:  $360-$375,000
  7. Projected LTV by Borrower’s estimate based on recent comps: 64% – 67%

Loan Overview
xxxxxxxxxxxxxxxxxxxx are purchasing this property through their LLC, xxxxxxxxxxxxxx, LLC, and are requesting this loan for the purchase and rehab of the property.  xxxxxxx is an experienced realtor, and she and her husband xxxxxxx are experienced real estate investors.  xxxxxxx is a realtor that I’ve used personally, and I’ve referred her to several of our borrowers and lenders to sell their houses.  In addition, Fairfield has used xxxxxxx for valuations on a number of properties that were used as collateral for our loans. After the renovation, they intend to rent this house for $1,500/month. They will be putting approx. 43,000 down toward this purchase, and 30K will be held back for the renovations.
Eventually, they plan to build a 700sf ADU on site, and rent that out for an additional $1,500/month.  They intend to use their HELOC for the construction funds on the ADU; that would not be a part of this loan.  Ultimately, they plan to refi this property and hold it as a rental.  However, they are prepared to sell the property should they be unable to refi.
Property
The property has a 924sf home with a large shop on approx .1/3 acre.  It is a 2-bedroom, one-bathroom home, and photos of the property have been provided in the packet for your review. The listing can also be viewed here: xxxxxxxxxxxxxxxxxx. The listing can also be viewed in the packet as part of the comps that have been provided by the borrower.
A construction budget has also been provided in the packet.  xxxxxxx and xxxxxxx plan to do as much of this work as possible.  Xxxxxxxx is in the process of getting her General Contractor’s license, and plans to get that prior to building the ADU.  They have also included a resume of relevant experience.

Valuation
xxxxxxx has provided a CMA as well as a written Comp value Analysis explaining the logic used in her valuation. This has been provided in the packet for your review. Ultimately, they estimate the projected value of the property to be in the range of $360,000-$375,000

Income
A Commercial application has been provided by the borrower with both xxxxxxx and xxxxxxx’x financials, as they will be personally guaranteeing the loan.  They report a combined income of $190,899, and a net worth of $513,918.
Credit
The borrowers have also provided their own credit reports, which are included in the packet. xxxxxxx has a mid-credit score of 697, and xxxxxxx has a mid-credit score of 619.  These reports have been provided in the packet for your review.

Promotion: Best promotion we have offered in 54 years

June 5th, 2018

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) or any other short-term loans
  • 6-month term
  • 10-11% (depending on LTV and down-payment)
  • 2.5 points
  • The option to extend for additional months at a rate of a half-point per month may be offered. 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 consideration. The Borrower must be timely on first 5 payments (paid within the grace period), and not past the balloon date.
  • 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

Some interesting real estate and hard money loan articles

May 2nd, 2018

Clay Sparkman
As I go about my way, trying to make sense of real estate markets in various parts of the US and in the US in general AND trying to determine what that means for the private money loan business, I come across articles that I feel are probably share-worthy. In that spirit, I have linked to several articles here which you may find interesting and/or useful
7 Questions to Ask Hard Money Lenders
10 Things I Wish I Had Known Before I Bought a Foreclosure
Seattle-area home-price growth from current boom has surpassed last decade’s bubble
The most profitable ZIP codes in the Triangle for flipping houses
All the best in your endeavors,
– 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

Greatest Promo Offer by Fairfield – Private Money Loans

December 6th, 2017

Clay Sparkman
We at Fairfield would like to run a special loan program to give this holiday season (and the sluggish period typically coming out of it) a kick in the butt. Hey, we can celebrate with our families and friends, and still get a few things setup and ready to go in 2018, right?
Here is how it will work: Starting immediately, we are offering a significant cut in our private money loan rates. Our regular charge for a 12-month bridge, construction or rehab loan (with no prepayment penalty) is generally 4 points and 11%–with the rate dependent on the particulars of the loan.
For the months of December (2017), and January and February (2018), we are offering (via brokers and other third-parties, and directly to borrowers as well) 12-month private money loans (with no prepayment penalty) priced at 4 points and 11%, and with no additional fees (we ordinarily charge three separate loan prep and processing related fees). We will also be giving a one-point rebate fee to the broker or third-party arranging the loan, or to the borrower (if the loan is arranged directly via the borrower). (Also note: Longer terms may be arranged but must be negotiated and will most likely be somewhat more expensive.)
Thus (and this is the best that we have ever offered): the effective rate for these loans will be 3 points and 11% for one year, with no additional fees or prepayment penalties.
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 PROMO2018” in the subject line and your name, company name, and phone number in the body of the e-mail, no later than 1/15/18.
(2)   You must submit a summary of your loan no later than 1/31/18, and FFS must approve the summary.
(3)   You must submit a complete loan packet, as required by FFS, no later than 2/28/18.
(5)   The loan must close no later than 3/31/18.
Check out our web site 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 2017–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

House flipping wisdom worth noting

August 16th, 2017

Clay Sparkman
I try to keep an eye out for good information on the status of property flipping. Here are a few things that I have come across recently.
With regard to the best cities for home flipping (as of May):
The 25 Best Cities for Flipping a House
Taylor Tepper at Money
May 25, 2017
http://time.com/money/4784913/house-flipping-best-25-cities/
Another article of a similar ilk (quite recent).
Richie Bernardo, Senior Writer at WalletHub
2017’s Best Places to Flip a House
August 1, 2017
https://wallethub.com/edu/best-cities-to-flip-houses/23158/
This is a good article from 2016. The ideas are still applicable.
House Flipping in 2017: 5 Tips to Help You Turn a Profit
Nathan Pyles at House Flip Mentor
September 12, 2016
http://www.houseflipmentor.com/house-flipping-tips-for-2017/
And here’s some good information.
Home-Flipping Profits Just Hit An All Time High: These 10 States Offer The Highest Return Potential
by Tyler Durden at Zero Hedge
Mar 17, 2017
http://www.zerohedge.com/news/2017-03-17/home-flipping-profits-just-hit-all-time-high-these-10-states-offer-highest-return-po
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