Hard Money Loans


Hard Money Loans: Sherman Bridge Lending
29 Jul 2013

Hard Money Loans: Sherman Bridge Lending

Sherman Bridge Lending provides investors with capital to acquire distressed single-family properties. They provide acquisition funds, repair funds and even a 30-year loan to open the door to heavy cash flow.

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Business Name: Sherman Bridge Lending
CEO: Kurt Carlton
Geographical Location: Throughout Texas

What are some examples of the kind of real estate deals you primarily lend to?
We lend on single-family homes and small multi-family buildings. We have a fix-and-flip loan product and even a Self-Directed IRA non-recourse loan. Our specialty is our “total landlord solution” where we assist a landlord in developing a finance strategy. We lend the money to acquire the homes, fix them up, as well as 30 year fixed rate financing that opens the door to heavy long-term cash flow.

Do you have a minimum or maximum loan size?
Loans range from $50,000 to $1,000,0000.

What is your typical loan period?
Our loans range from 3-month construction loans to 30-year landlord loans.

What kind of investors are you looking to do business with?
We like to work with people who can drastically improve their ROIs on a property, especially during the summer months when single-family real estate is usually at its annual peak. As for landlord borrowers we like to see good credit, decent cash reserves, and documented income. These always play a huge factor in their success. If we don’t believe the investor will be successful we will pass on the deal.

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What criteria do you use to assess a loan?
Open collections, history of fraud, open IRS liens, no cash reserves, or if we flat out think the investor will not be successful. I have bought and sold more than 1,000 homes and have experienced 100’s of millions in investment real estate transactions. We have a good idea of what will work and what will not. Because of this we have less than a 0.2% default rate.

What are the main reasons you would decline a loan?
We do not lend money to first time homebuyers. If we don’t believe the investor will be successful we will pass on the deal. We are very specific with the type of investor we are looking to work with. Our most successful buy-fix-sell borrowers are individuals who know how to manage multiple projects and they are able to leverage our money into multiple projects at once.

What are your typical terms, rates and fees?
Current rates are approx. 4% for 30 year fixed investment loans. The construction phase is an interest only rate of 9.99% and we charge 2-4 points at origination.

We provide acquisition funds, repair funds, and even a 30-year loan to open the door to heavy cash flow.

Why should an investor consider lending from you?
We’re much more affordable than other hard money lenders. Investors can buy a house for about 30% of the cash investment banks require, which allows them to buy more houses and gain 3 times the equity, 3 times the cash flow, and 3 times the debt reduction and appreciation.

But I believe the greatest benefit we offer is that we are a success based lender verses an asset based one. A great deal of our underwriting is committed to whether the investor will have success. That’s why our default is one 10th of the industry standard.

Why would an investor go to a hard money lender instead of a bank?
A bank usually requires 20-30% down plus closing costs. Additional repairs are generally not included. With hard money, your down payment is tied to how deep of a discount you were able to procure the property for.

Generally we see about 70% less out of pocket for our deals. This translates into the ability for our investors to purchase more properties, which can equal much more wealth when you’re buying at a deep discount and picking up 20-30% in sweat equity on each deal.

What should investors look out for in a hard money lender?
If a lender says things like “I don’t even pull credit” then it should be a red flag. This means they are only interested in the property and the success of the investor means very little to them.

In the long run they will often lend far less against an asset, which will translate into more money out of pocket for the investor. This can often happen the day before or the day of closing, when they know you are past the point of pulling out of the deal.

If there is a problem once you’re in the loan, they are more interested in the property than helping you get through the project successfully. However, if the lender is interested in your personal qualifications it’s usually a good sign. It means they are looking for a partner verses a property.

Not sure what a hard money loan is? Read our article When hard money loans make sense to learn more!


Hard Money Loans: Rehab Cash Now
15 Jul 2013

Hard Money Loans: Rehab Cash Now

Rehab Cash Now is a national hard money lender. They work directly with experienced real estate investors to finance the purchase and renovation of non-owner occupied properties. Through their direct loans, Rehab Cash Now is keeping Americans working by putting a cash infusion back into the economy and the local communities.
 
Managing Director: Jeff Tesch
Business Name: Rehab Cash Now
Geographical Area: Throughout the U.S. but mainly in the Northeast.

How and why was your hard money lending business established?
Rehab Cash Now was established in response to the constriction of traditional funding sources available for real estate investors. The money simply isn’t available otherwise for rehab projects.

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Do you specialize in certain types of loans or property?
We specialize in only non-owner occupied real estate.

What is the profile of the typical investors you lend to?
Our typical borrower is an experienced real estate investor or a well-seasoned contractor whose main business is fix & flip.

What is the size of your current investment pool?
Rehab Cash Now lends several million dollars annually.

Do you have a minimum or maximum loan size?
Our loans range from $50,000 to $2 million or more.

How long is your typical loan period?
We write 1-year loans.

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What are your typical terms, rates and fees?
Our loans are set up as interest-only with a balloon payment of the principal due at maturity. Typically the loans are for one year with 1% interest per month for the term of the loan. Besides the cost of the appraisal, there are no upfront costs before the loan is issued. Closing costs vary based on the particular transaction.

How important is a credit score to obtain a loan from your company?
Credit is important, but it is a small piece of the lending puzzle.

What criteria do you use to assess a loan?
As we review a loan request, our main focus is on the property and the project itself. We consider the purchase price of the property, the “as is” appraisal value and the renovation estimates. Naturally, we review the applicant’s credit and background, as well as the availability of funds being committed to the project.

What are the risks and benefits of using a hard money lender?
It is important for the borrower to have a strong understanding of property values and trends, and the project at hand. It can be risky for unseasoned investors attempting to make quick money without the proper tools of the trade.

Why would an investor go to a hard money lender instead of a bank?
For a lot of the projects we fund, traditional banks are simply not an option, regardless of the strength of the project or the borrower’s credit-worthiness. Also, we can close a loan in a matter of days vs. the months it takes with a traditional bank.

As a private lender, we realize and understand hard money transactions and the variables the investor may face.

Can an investor’s existing real estate portfolio affect loan eligibility?
For traditional banks, a maximum of 5 properties is the standard qualifying cut off. As a private lender, we accept unlimited property portfolios.

What kind of portfolio would get the best loan terms?
For the best loan terms, the borrower would have to have a low Loan-to-Value portfolio, excellent personal credit scores, and income producing properties proven with leases and verified by tax returns.

Why should an investor consider lending from you? Is there anything that your business does differently to other hard money lenders?
We are the direct lender and provide our own funds for the projects. We lend up to 80% of the “as is” value of the property, which is generally higher than most private lenders. We never charge a pre-payment penalty, and there’s no application fee, either.

Not sure what a hard money loan is? Read our article When hard money loans make sense to learn more!


Hard Money Loans: Pine Financial Group
08 Jul 2013

Hard Money Loans: Pine Financial Group

Pine Financial Group loans private money to real estate investors in Colorado and Minnesota. They loan 100% of the purchase and repairs so their clients get into their projects with little or no money down. Pine Financial Group only succeeds when their clients succeed, so their clients’ successful projects are their top priority.

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Company: Pine Financial Group
President: Kevin Amolsch
Geographical Location: Colorado and Minnesota

What are some examples of the kind of real estate deals Pine Financial Group primarily lends to?
We do mostly fix and flips but many of our clients use us as a rehab bridge loan to buy rental properties with little or no down payments. We have also expanded into new construction projects in established neighborhoods.

Do you have a minimum or maximum loan size?
We don’t have a minimum or maximum. We have loans ranging from $25K to over $4M.

What is your typical loan period?
Our typical loan is 9 months but we will extend that for larger rehabs.

What is the size of your current investment pool?
We have access to over $30M.

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What are your typical terms, rates and fees?
Typical terms are 4 points and typical rates are 15% interest. We also charge a $100 fee per draw for our inspector to view the construction progress.

How and why did you start your hard money lending business?
I love real estate and I love putting deals together. There is a need for private lending (hard money) because it can be a real challenge to line up financing using more conventional methods.

What is the typical investor you lend to?
The typical profile is a newer investor wanting to fix and flip houses. They have money in the bank to act as reserves but they also understand the power of leverage.

Pine Financial Group only succeeds when their clients succeed, so their clients’ successful projects are their top priority.

What kind of investors are you looking to do business with?
We don’t really care about credit or income but we want someone that has some reserves.

What are the criteria you use to assess a loan?
We focus mostly on the deal. We need to feel our client will have success. From there we want to see a minimum of 7.5% of the loan amount in liquidity after closing. Finally, we document income and pull credit but don’t put much weight on either of those.

What are the main reasons you would decline a loan?
We will deny a loan if the client has tax liens, judgment liens, or a lot of collections that could turn into judgment liens. Other main reasons for denying a loan are the quality of the deal or lack of liquidity. Partners and co-signors can always help with the liquidity requirement.

How can investors keep from getting disqualified for a loan?
The biggest thing a borrower can do is get experience and build up their bank account balance. Most of our clients will partner with someone if they don’t have the funds on their own. We also see borrowers wholesale deals to get a little cash so they can do the next one on their own.

Why should an investor consider lending from you?
We are the most established lender in the markets we lend in. We offer frequent borrower discounts and have plenty of money to lend. We also have a really flexible repair draw schedule and can make an advance at closing so investors can start buying materials.

What are the risks and benefits of using a hard money lender?
A major risk is that the money is expensive and could eat up your profit if there are delays. You need to stay on top of your project to keep your holding costs to a minimum.

There are many benefits. The big one, of course, is high leverage. You can do larger, more profitable projects with a hard money loan. Also, with less money into a deal you shift risk to the lender. Hard money lenders don’t normally report to credit agencies so your only risk in a deal is the money you have in it.

Can an investor’s existing real estate portfolio affect loan eligibility?
If an investor owns other properties it shows that they have some experience, but not owning property will not hurt your chances of getting a loan from us.

What are some signs of a bad hard money lender?
I have heard of hard money lenders not setting repair funds aside and loaning that money to someone else. That is obviously a big risk because your repair money might not be available when you need it.

Lenders that are financed with debt could run out of cash. I have heard of lines of credit getting reduced or even eliminated. If your deal is in the lender’s pipeline and the loose access to cash you are the one that gets hurt.

Not sure what a hard money loan is? Read our article When hard money loans make sense to learn more!


Hard Money Loans: The Norris Group
01 Jul 2013

Hard Money Loans: The Norris Group

The Norris Group provides hard money loans to Southern California real estate investors. We have five programs including fix and flip, long-term rental programs (8 years), and two new construction programs. We lend to individuals, entities, partnerships, trusts and can even provide non-recourse loans for self-directed IRAs.

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Company: The Norris Group
Vice President: Aaron Norris
Locations: Southern California, including Kern, Orange, and Los Angeles Counties.

What types of real estate deals do you primarily lend to?
We lend on single-family, non-owner occupied real estate (1-4 units). Our fix and flip program funds everything from the $40k flip in Bakersfield to the million dollar renovation flip on the coast.

Our long-term rental program is perfect for investors working in areas that cash flow like the High Desert, Inland Empire, and Lancaster. The 8-year term on these allows for cash flow with lots of equity upside.

The new construction programs we have are for investors who are building from the ground up on finished building lots. You can check out examples of our previous deals here.

Why was The Norris Group established?
Banks won’t consider looking at properties that need lots of work and it’s incredibly difficult to get financing for full-time real estate investors with a standard paycheck.

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Do you have a minimum or maximum loan size?
We have a minimum $2,500 fee for origination so it really depends on how much the investor is willing to pay in proportion to what they are looking to borrow. We do fund loans under $50k and rates can get better if an investor is a doing a high volume of deals. We’ve funded deals over $750k in larger Southern California cities. All of this really depends on the loan program and the deal.

What is the profile of the typical investor you lend to?
We don’t really have a perfect prototype. It ranges from the part-time investor flipping 2-4 properties per year while they maintain a full-time job to a full-time investor amassing a large rental portfolio with 100+ doors. It’s really all over the board and we like them all.

It’s especially rewarding for us to watch new investors grow into part-time and then full-time investors.

What are the risks and benefits of using a hard money lender?
The risk is really going to be around planning cash flow and your exit strategy. If you know the market well, have a great deal, and know your exit strategies, that will limit your exposure.

A hard money lender will help you leverage the cash you have to do more deals instead of putting all your eggs in the one basket. Hard money lenders are also often less expensive and less hassle than having an equity partner.

What are the criteria you use to assess a loan?
The main points for consideration include liquidity, the real estate deal itself, credit, experience, and professionalism. One consideration might help outweigh another. The most important element is liquidity. We want to make sure the borrower has enough liquid working capital to successfully get through those “uh oh” moments and still be able to put food on the table.

Experience is a plus but not always mandatory. For instance, if a borrower is new and plans on doing a new construction project for their first transaction, that might cause us concern without seeing some major planning beforehand or at least a team member that is very experienced in new construction.

Finally, professionalism is key. When we get things like entity documentation, title and preliminary reports and correctly signed docs in a timely manner with all parties on the same page, it’s amazing how quickly we can get things done. It’s also always nice to work with real professionals who are polite and courteous.

What are the main reasons you would decline a loan?
We will say “no” if we feel a deal will put the borrower or private money at risk, so having a good ‘numbers’ is very important. We do look at credit, mainly checking to make sure we’re not getting into business with someone who has a track record of never paying their bills. When we present a deal to our private money, we’re not just selling the deal, we’re also selling the borrower to some extent.

Why should an investor consider lending from you? Is there anything that your business does differently to other hard money lenders?
We’ll say “no” if we feel the numbers don’t work. We’ve saved many investors from making bad investments by doing so.

The Norris Group also provides a ton of free information including our award-winning radio show that interviews internationally-known economists, association presidents, thought leaders, and local experts. We also have our own buy-sell business so we are not only lending in the market, we’re in the market understanding what it takes to succeed.

Not sure what a hard money loan is? Read our article When hard money loans make sense to learn more!


Hard Money Loans: Buy Now Hard Money
24 Jun 2013

Hard Money Loans: Buy Now Hard Money

Buy Now Hard Money is a hard money lending business that caters to real estate investors in the eastern Massachusetts and southern New Hampshire. They also provide construction and acquisition loans for single-family redevelopment, small multi-family and commercial projects.

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Company: Buy Now Hard Money
Manager: Ann Bellamy
Geographical Area: All of Massachusetts east of Worcester, MA and all of New Hampshire south of Concord, NH.

What are some examples of the kind of real estate deals you primarily lend to?
We primarily lend to fix and flips as well as acquisition and construction for small multi-family and small commercial properties.

What is the profile of the typical investors you lend to?
We lend to companies in the business of redeveloping distressed single-family properties and small multi-family properties. We do not lend to people occupying a home.

Do you have a minimum or maximum loan size?
Our loan range is $50,000 to $1 million.

What is your typical loan period?
6-12 months.

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What do you look at when assessing a loan?
We look at the loan-to-value ratio (LTV), after repair value (ARV), the property’s location, rehab plan for the property, exit strategy, skin in the game, and experience level of the borrower.

What are the main reasons you would decline a loan?
We could decline a loan for insufficient cash or collateral, poor exit strategy, inexperience, poor marketing plan to sell the property, high LTV, bad location, or negative features of the property.

How important is a credit score to obtain a loan from your company?
Buy Now Hard Money does not use credit scores. However, if you have a good credit score and would like to supply documentation, it will strengthen the application.

Why should an investor consider lending from you?
Buy Now Hard Money is a specifically local company with a large network of local connections. We come to each property and can respond quickly. We make ourselves available at our own local networking meetings for education and communication with borrowers and potential borrowers.

We have many local references from experienced investors to new ones.

What is the difference between a good and a bad money lender?
Credible lenders don’t charge upfront fees. Upfront fees should only be paid to third party providers such as appraisers or attorneys. Buy Now Hard Money does not change the terms at the closing table, and we don’t charge undisclosed back end fees.

What should potential borrows look out for?
Investors should watch for upfront fees, which are not contingent on closing the loan, and carefully read the note and mortgage/deed of trust before signing. Newer investors may want to retain their own counsel, even though that adds to the cost of the deal.

Can a bad money lender lose money for a borrower?
If a lender commits to construction disbursements, but does not have the funds to disburse when the draws are due, that can cost a borrower their contractors and profit.

Also, a borrower can lose a deal if a lender commits to a loan but delays the closing and pulls out at the last minute because they didn’t get funds back from another deal.

Do you have some tips on how to avoid a bad money lender?
Credibility and reputation are important. Screen your lender, Google them, and ask around within your local network as to who they use or recommend for hard money.

Not sure what a hard money loan is? Read our article When hard money loans make sense to learn more!


When hard money loans make sense
06 Jun 2013

When hard money loans make sense

Across the globe, savvy real estate investors are buying up as much property as they can due to the continuing buyer’s market. Yet, funding multiple properties can prove challenging:

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  • New investors may lack credit or capital while those with larger portfolios may have exceeded their debt-to-income ratio.
  • Investors seeking to flip houses often stumble over FHA’s guidelines limiting or prohibiting ‘flips.’
  • Banks won’t fund properties that need a lot of work. They also don’t easily fund investors who draw 1099- versus W-2-wages.

A Hard Money Loan, or HML, can be an excellent solution to these and other funding barriers. How do they differ from traditional mortgages and how do you select the right one for your project?

Hard Money versus Traditional Loan

When investors seek hard money, they quickly realize that the lenders evaluate the property’s risk and potential earnings more closely than the applicants’ credit and income statements. Probably the biggest factor lenders weigh is what the property will sell for – quickly – in case the borrower defaults. The subject property also acts as collateral. Documentation is light for a HML but considerable for a bank loan. Using hard money invokes higher loan fees but quicker processing.

When shopping for a HML, you need to know how your loan is structured, how it is applied to your needs, and how to qualify for the best terms.

Structuring Your Loan

Hard money lenders first evaluate a loan based upon the property’s Loan-to-Value (LTV) Ratio. Lenders describe this as ‘the amount the property would yield at a fire-sale.’ The actual formula is shown as:

Loan to Value Ratio =

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Mortgage Amount
                                                         
Appraised Value of Property

Lenders often seek percentages at or under 65%.

So, if you want to borrow $150K for a house worth $180K, the LTV is 87%. This deal would not be widely appealing. But if you supplied 20% cash or collateralized real estate, the LTV drops to 67%. The lender would find this more likeable, especially since you are not asking for 100% funding.

Note that some lenders won’t fund 100%. Kevin Amolsch, President of Pine Financial Group, Inc. says, “We loan 100% of the purchase and repairs so our clients get their projects with little or no money down. We only succeed when our clients (do) so (their) successful project is our top priority.” The company lends to fix-and-flips and new construction. They require that borrowers have some cash (for 100% loans) to minimize their risk.

Ways to use Hard Money Loans

Since HMLs are not tied to FHA, Fannie Mae/Freddie Mac, or other government-sponsored regulations, they are used in many situations. Contrast that to traditional, commercial loans: Acquisition Loans acquire property; Acquisition and Development Loans acquire and develop property; Development Loans, you guessed it, develop. There are dozens of commercial loans and what’s mind-boggling is that each one is governed by different sets of laws.

Note that some lenders won’t fund 100%.

Although the HML is usable for any loan that the lender allows, still do your homework. Just because you can get hard money for your construction project does not mean it is your best option. It is almost certainly the most expensive option. Get a couple of quotes from mortgage brokers. A traditional bank loan will be worth the paperwork-headache if you qualify.

Also consider that low documentation isn’t always desirable. Sherman Bridge Lending makes HMLs for acquisition and repair. Kurt Carlton, CEO, comments, “If a lender says, ‘I don’t even pull credit’ it should be a red flag. This means they are only interested in the property and the success of the investor means little to them.” You don’t want your lender to be championing your default, whereby they get the property.

Fees and Terms

Terms aren’t nationally standardized so comparison shop and negotiate. What are ‘the usual’ fees? Rehab Cash Now is a national lender that offers loans at median prices. Jeff Tesch, Managing Director, explains, “Our loans are interest-only with a balloon payment at maturity. Usually, terms are one year with 1% interest per month [12% annualized]. Closing costs vary.”

The Norris Group is another HML that charges typical fees, evidenced by their posted rates. However, VP Aaron Norris, reminds us that ‘terms’ means more than financial and that ‘professionalism’ can differentiate applicants. “When we get docs in a timely manner, correctly signed, it’s amazing how quickly we get things done.”

Putting it All Together

Although the HML is usable for any loan that the lender allows, still do your homework.

Borrowers should always compare various lenders’ qualifying criteria and terms. These include interest rates, annual percentage rates (APR), points, closing costs, LTV, work out solutions, prepayment penalties, and closing intervals. You should ensure you meet the basic criteria required, then spend some time to rate the lenders, and schedule meetings accordingly. Finally, prepare a formal presentation to pitch yourself and the property, ensuring you cover the following sections:

  • The People: Bios of Borrowers, Loan Applications, Credit Reports, Identification, Brief Resumes, References.
  • The Property: Purchase Agreement, Appraisal or BPO, Insurance Binder, Title Commitment, Photos, Repair Estimate.
  • The Numbers: HUD1 including Acquisition, Repair, Purchase, Closing, Holding, Realtor Costs. Highlight the After-Repaired Value; Projected Profit and Timeline.

By taking the time to understand the characteristics, qualifying criteria and the best uses of Hard Money Loans, investors can maximize their purchasing ability during a buyer’s market and enrich their real estate portfolios.