Tag: Hard Money Loans

The Dirty 30: Where are they now?
28 Feb 2014

The Dirty 30: Where are they now?

Last year, we profiled 30 young investors on their inspiring start in the real estate game. We caught up with them recently to see how their investment portfolios were progressing and the lessons they’ve learnt in the past year. Here’s what they had to say…

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Beau: Real estate reality star

Beau Eckstein had a great 2013. Over the past year, he completed a luxury home renovation – his largest project to date. He is currently renovating a 2 unit building and was even cast in a reality show titled ‘Flip It To Win It.’ Beau says:

“2013 was an amazing year. If you bought anything you could have made money with the market upswing. However, it’s important to realize the market is going to be much tighter in 2014.

For this year, my strategies are to buy, fix and hold.

I’m looking at purchasing properties where I can add value.

The idea is to purchase multi-family units with a future exit strategy of converting into tenants in common (TIC) units.

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I’m also purchasing rental properties in affluent neighborhoods. The strategy of these purchases is to rent out the properties while working on plans to add square footage to maximize the selling price.

Incorporating a buy and hold strategy will help attain long term wealth. I would also encourage helping others invest in real estate. There is over $4.6T in retirement funds with only 2% of these assets being self-directed. We all need to take charge of our futures.”

Dan: Doubled portfolio in 1 year

Over the past year, Dan Botwinik was able to finalize a 70 unit acquisition he was working on and close a handful of other deals that almost doubled his portfolio to 400 units. Dan says,

“2013 was a big year for me and my partners at Cougar Capital Real Estate, largely made possible by the infrastructure investments made in 2012. Our biggest accomplishment was achieving significant rent increases to the 70 unit complex and creating a template for future developments. The complex appraised for $3.45M more than we paid for it, with an investment of $2M in construction – we paid $1.85M and it was appraised for $5.3M.

Improvements in sourcing and construction management are also allowing us to bite off larger projects and get them completed more quickly and to a higher level of finish, while still coming in at a compelling number compared to appraised value. This has enabled us to attract better tenants and have fewer headaches further down the ownership cycle.

These projects have also been helpful in determining which projects are the best fit, add the most value, and the fastest. We just bought another large complex near the original complex and the repositioning of the new complex no longer seems intimidating.”

Doug: Ready for renovations

After spending a year building the foundation of his business, Doug Medvetz was finally able to start buying and renovating houses. He says,

“Our first year was spent building the foundation of our business and though it is an important piece, it was not as exciting as our first year actually running the business.

Over the past year, we have been involved in 3 renovations. Initially, we focused on single-family homes and have already completed 2 single-family home renovations, but are now also interested in 3-family condo conversion projects and recently purchased our first 3-family condo conversion for over $500K.

The most challenging aspect of the business has been managing the financial side of the renovation projects.

We are currently using hard money loans to fund our rehabs. This requires us to negotiate with our contractors to take payment after they perform their part of the project.

That being said, we learned that when looking to partner with another company/investing group it’s best to form a 50/50 joint venture partnership and identify in writing the responsibilities of each group/company involved. In the future this is how we will structure most partnerships when renovating a house.”

Jonathan: Facing the storm

Hit hard by Hurricane Sandy, Jonathan Dieguez learned first hand why it’s important to have a diverse portfolio of investments. He says:

“Over the past year, I have been focusing on commercial real estate vs. residential. My company has shifted our business model from predominantly dealing with loss mitigation departments and homeowners over to asset managers and builders who ran out of financing on their development deals.

I also started a new company, Creative Equity Group, with 3 other partners which capitalizes on the new crowdfunding in real estate concept.

Hurricane Sandy also took a toll on my fully renovated properties. Not only do I still have properties listed for sale on the market, but my builders insurance did not cover any of the damages caused by the storm. Two particular properties were located right near the flood zones and have cost me a combined total of more than $150K in re-repairs and list price reductions.

However, my commodities fund with Absolute Capital Homes received a 23% annual return for 2013. This is a perfect example on why it’s so important to have a diversified portfolio of investments as well as multiple revenue streams so that if one suffers or underperforms, it’s not the end of the world.”

Peter: Quit his job to start a successful company

After acquiring 6 investment properties with a partner in Columbus, Ohio, Peter Lohmann fell in love with real estate and decided to quit his job as an engineer to start a successful property management company. He says,

“Starting my own company was both the most challenging and most rewarding thing I have experienced over the past year.

The best investment you can ever make is starting a successful company because all you have to do is invest a few grand and can have an infinite return.

Since starting the company in April 2013, our portfolio has grown from 0 to 150 units with 4 employees.

Although not much has changed in how I make investments, the most important thing I learned was the difference between debt and equity. Understanding that in a very practical way has helped me think more clearly about future investment opportunities.”

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: 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: 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.