Kris Gillmore and Clay Sparkman
Over the past three years we’ve all watched real estate prices come crashing down, in many cases forcing lenders to foreclose and take back the property. Although this is a sad misfortune for some, it is a tremendous opportunity for others. With regard to quick-flip investment property, I have always been of the opinion that the profit is in the purchase, not in the renovation or sale. And now more than ever banks are willing to unload their inventory at a discount below market value.
To encourage the sale of the growing home inventory, President Obama instituted a short sale program this spring offering small incentives to lenders to accept amounts lower than the principal balance. It is questionable whether or not this program has actually been effective. However, now the issue is being further pressurized from a different direction. With GMAC, JP Morgan Chase, and Bank of America freezing foreclosure or putting selective foreclosures on hold, the game has changed again. It is my suspicion that this will lead to new opportunities for investment buyers, as banks begin bending over backward in search of a way to extricate themselves from the mess they are in, and this will certainly include any number of short sales that the banks were previously unwilling to consider.
As you know from previous posts, Fairfield Financial is laser focused on doing these types of loans. Here are some guidelines for what we’re looking for and what we’re generally able to fund.
70% of the ARV – Depending on the area and the strength of the borrower, 70% LTV is our target (including fees). We hold construction funds in an escrow account, which enables us to loan off the ARV, not the purchase price.
Loan Size – Right now our sweet spot is in the $150,000 – $250,000 range, although we’ll consider loans from $50,000 – $500,000.
100% Financing – Yes, we can finance 100% of the acquisition and rehab costs, assuming that the LTV is appropriate.
Down Payment – We do require that the borrower have some skin in the game for at least the first few loans. Generally speaking, this amount can be as little as 5% down, but it’s really a case by case basis that depends on the property and the strength of the borrower.
Secondary collateral – If a down payment isn’t feasible, we can always consider the use of a second property as collateral. This is another way to put some skin in the game.
Primary Residence – We can consider purchase and rehab loans for personal use in the state of Oregon only. The same terms apply to personal and investment loans.
Term – Typically, these are 12 month deals with no prepayment penalty. Multifamily rental properties can go up to five years, but these are all on a case by case basis.
Exit Strategy – As always, this is critical. We’re looking for borrowers with a solid exit plan.
Knowledge of local market – This goes hand in hand with the exit strategy. We want to be sure that our borrowers are familiar with the current market trends, and that their plan is consistent with local market activity.
For more information on this matter, please visit the Rehab and Construction loan FAQ on our web site at http://www.privatemoneysource.com/articles/rehabfaq.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
Tags: hard money borrowing, hard money brokering, hard money investing, hard money lending, hard money loans, Multifamily, Oregon, private money borrowing, private money brokering, private money investing, private money lending, private money loans, Quick flip loans, real estate, real estate investing, real estate rental, rehab loans
