Clay Sparkman
I firmly believe that the best way to learn about anything complex is by doing. The second best way is by example. If I could provide you with a private money loan simulator I would, but I haven’t figured out how to do that yet (though I assure you, we haven’t given up on the idea). So for now I will continue to rely on examples as an aid to help demonstrate how private money might be useful to you as you go about your daily business as a lending professional. Some of you will never need private money, others might need it 2-3 times in the course of your entire career and still others will have the chance to use it several times monthly. The important thing is to know when you need it.
I’d like to profile a small commercial loan that we closed, as I think it embodies many of the good qualities of private money, and it neatly demonstrates a classic win-win scenario.
Scenario: We were approached by a Loan Broker representing a retired woman who had worked 20 years in the hospitality industry. This woman decided that she would like to live near her family and own a motel/resort, so as to get back to doing what she loved and to create a business that her family could be involved in. She made an offer on an REO motel/resort property and was able to get her offer accepted at $240,000. The property appeared to be just what she had dreamed of.
Problem: Now, even though this woman had near perfect credit (766 mid-score) and an excellent track record in the hospitality industry, there were some factors that banks just couldn’t warm up to. First of all, the property, though quite spectacular for the money, was a bit rough around the edges (most REO properties are). Secondly, our borrower only had $15,000 to bring to the table as down-payment money for this transaction.
Analysis: We took a hard look at the property. The tax assessed value was $359,750. (This looked good, but tax values can be deceptive with distressed properties.) We did some comp work and couldn’t turn up many good comps, but found one or two that seemed to support the higher value for the property. There was no time for an appraisal so we had to do the best we could with the information we had available on short notice.
Solution: Since we weren’t quite certain about value and had to move fast, we made arrangements with the borrower to place a second against her primary residence to further secure the loan. Her residence was on the market, so we worked it out–between us–that when she sold, we would release it as collateral for a principal pay-down of $45,000. We put her into a 12% loan for three years, and she figured on selling her house, paying down the motel loan balance, cleaning up the property, showing income on the books, and seeking conventional financing within the year.
Now, an invitation: please send me your questions about private money and I will answer them publicly in an upcoming blog post (so long as they are fit to print).
– 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: Commercial loans, finding lenders, hard money borrowing, hard money brokering, hard money loans, Oregon, private money borrowing, private money brokering, private money loans
