“I don’t understand paying that rate for a loan!”
Ok. Fair enough. I know our loan products aren’t for every situation. And, if I were to ever forget it, there is always someone there ready to remind me, sometimes very creatively.
Yet, over the past few years, I have originated millions upon millions of private real estate loans for acquisition, construction, rehab, refinance and cash-out. All are happy clients. They are happy because we were able to help them accomplish their goals. Therefore, I am proud to say that we have successfully created creative solutions for a lot of people’s problems.
Could we help you? Here are some guidelines:
Hard money loans are perfect for people who:
* Are unwilling or unable to secure traditional financing because the heavy paperwork, difficult underwriting or stringent credit requirements
* Are seeking a faster close than is usually available from banks and traditional mortgage companies – we have closed land loans in as few as five days before!!!
* Have had a hard time finding another financial partner who can see and believe in their vision.
* Need to expand their business and their land or property assets are more valuable than cash they might have on hand.
* Want to keep more of their own money in their pockets for other expenses
If any of the above describes you or your clients, a hard money loan might be a good match for your financial needs.
If you have a question, just give me a call. For now, let me address some of the most common questions that I receive:
Q: What kinds of loans do we originate?
Well, we do a number of types of commercial and investment property deals from new construction to rehabs to church financing and permanent mortgages on income properties such as retail centers, car washes, convenience stores, etc. However, we really have a lot of fun with hard money lending.
Q: Who are our best clients?
To answer this question, let’s look at some real scenarios in which my team helped provide financing:
* A gaming ranch in South Texas received a cash-out refinance from us
* A developer in Galveston recently used us to secure his subdivision development financing
* A small business owner in Conroe used us to pull cash out of some inherited property to help launch her adult care facility
* A rancher in the Dallas area used us to purchase additional land near his property
* A small business owner in San Antonio used one of our loans to restructure his business debt
* A Houston builder pulled some cash out of a few downtown lots to fund a project in south Houston and pay some past due property
In each of these cases, we proved to be a timely business partner to help the Borrower reach bigger goals.
Q: Can you explain this whole interest rate issue to me?
Back to the matter of interest rate. I would agree that 14% could be a high rate for a typical consumer loan that is fully amortized with principal and interest payments. However, when the Borrower has other uses for the money that will generate much higher returns than 14%, paying such a rate in exchange for lowering your risk and keeping more cash in your pocket, can make all the sense in the world. Further, we are much cheaper than an equity partner, who is typically going to want 20%, 25% or even up to 50% of the profits from your deal.
Now, as regards to cash-outs, forget it! Most banks and traditional lenders wouldn’t think of providing a cash-out refinance on land. On the other hand, with hard money lenders, you’ll have a check in your hand within a day or two of leaving the closing table!
Partial releases? Most banks aren’t going to provide you with a partial release of lien if you want to sell a part of your land or property while you still have debt on it. That’s another feature of most hard money loans that a lot of Clients appreciate. Most hard money lenders are open to any number of creative approaches and structures to helping you reach your goals.
Sometimes landowners think the only way to pull equity out of a property is to sell it. NOT TRUE!!! Why not consider taking a loan against your land, keeping title to the property and pay back the loan later? After all, you can still sell it if the right offer comes along and pay back your loan with the proceeds.
Sometimes our clients will pull cash out of a property just to have the money needed to restructure it and market it for sale. Then they sell the property, pay back our loan and move on to bigger, better and more profitable and relaxing things.
Finally, a common tactic is to use private money to close a deal that is time-sensitive and refinance into another loan structure once you have time to shop and secure something that fits your needs. People use us to close the quick deal all the time.
Q: What is the process for originating one of these loans?
Our process is fairly simple. Here it is entirely:
1. We make sure that the Client has either the title to the property or has a contract to purchase it by ordering a title report and/or asking for a copy of your purchase contract.
2. We need to determine the value of the property. An appraisal or (sometimes) tax records can show this.
3. We will look for the existence and balance of any debts, liens or other encumbrances against the property. The title report usually shows these and we will make sure that they are all paid at closing.
4. We will become familiar with the size and dimensions of the land along with its legal description. We can see this from the survey.
5. We want to feel comfortable with the condition and general marketability of the property. We also want to have confidence in the Borrower’s ability to execute their plan. A site visit and meeting with the borrower will help with each of these.
Reputable lenders – the only kind with whom we do business - are not in the business of taking property. They only want to make good loans and help people reach their goals!
Q: What are our money sources?
I am a banker and a broker. We will broker deals that don’t fit what we do to other Investors and Lenders. However, we specialize in placing our loans within our private network of Investors and individuals. If you have something, please send it!
Q: Tell me again, how fast can most hard money loans close?
We can close most of the purchases and cash-outs within a couple of weeks. We will examine your request and, if we are interested, we will schedule a site visit within 48 hours normally. Development loans can take several weeks, mostly because we’ll need to order more thorough appraisals and other third party reports. I usually tell people that we can close loans as quickly as we receive the documents we need.
Q: What other fees and charges are involved?
Due diligence fee, third-party reports and appraisals and surveys are paid for by the Borrower when required. We charge an Origination and Brokerage Fee along with our lending partner. Altogether, this is normally between 4 and 6 points (percent) of the amount funded.
Q: I might have a loan request for you to consider. What do I do next?
Give us a call. Write us e-mail. I hope this article answers most of your questions about private lending and that you are more comfortable with the product and the process and that you will call me with your next loan.
To your success.
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Mark Anthony McCray is a Texas-based mortgage banker. Write mark@hardmoneyexpert.info or call 281-846-5720.
PS - Also, we have a great educational program available for download for those of you who are looking for guidance in placing commercial loans on your own. It's available here: http://hardmoneymusings.blogspot.com/2011/08/how-to-broker-commercial-and-hard-money.html
