some quick signs to look for :
is the value way, way higher than tax value of property or any property near your subject (you should always check)

is the exit a mysterious “take out” loan from a source , usually cant be verified

Is the appraisal vague and do the comps show property far away from subject

Is the borrower not the owner, is it confusing?

Is there a “hurry” to close

Beware, these are the signs of fraud. These will not close and will waste your time. There are some sophisticated scams regarding transferring deeds and ownership. They are harder to spot but you should always
INTERVIEW the borrower and owner of property. ALWAYS.

Just a friday afternoon thought….

I’m simple looking for feedback and want to discuss whats real when borrowing hard money from someone other than

the 3 f’s (friends and family).

we make loans from 12% t0 15% , pending deal size, complexity and risk profile.

Hard money is a bridge, its designed to be short term, not fixed for 30 years.

(yes this includes most private money too).

What are the real costs vs not doing a deal, losing your property or opportunity costs.

example: 500k loan, bank rate of 7% for a bridge, hard money 13%. Your real cost is a 6% premium for private funds, but if your in a deal right (at 70%, your sacrificing about 30k, or 120k vs 150k in profits, but yet you have access to capital and you get your deal done.

Simply looking for feedback on how borrowers and brokers view pricing on hard /private money loans.

Why complex?

Construction draws – who manages and when to sign off on draw releases

reviewing construction budgets : Many times a hard money would have to hire building /construction planner to confirm that the budget is sufficient to complete the construction.

Managing permits and city inspectors

Making sure contractors are paid (you don’t want mechanic liens down the road)

In order of preference, here are some construction type hard money deals that WE may consider in Texas.

1. finishing construction project (at least 50% complete) : usually these are deals banks were funding,but for various reasons the bank pulled funding or the borrower / builder lost the property due to foreclosure.

The project could be condos where the majority  were complete, apartment buildings or single family home that was left as a shell only.

2. renovation of property : Usually by owner or buyer of the distressed property

3. ground up construction :  New “to be built” projects are generally better for banks than private /hard money lenders. The borrower needs to exhibit strong experience and strong reserves. The loan to costs would be much a like a bank, only hard money may consider borrowers that may not be bankable due to ability show income via tax returns, may not have high credit scores and in some cases private equity and hard money may partner with borrower unlike a bank.

Please feel free to comment or even pitch potential projects.

Also, share your construction finance stories

As lenders we have all heard it. I post this as a word of caution to both lenders and borr0wers. One should watch for such signs when asking direct questions about a project or loan.
I make this post as a short tip on asking very direct questions , something I’m seeing quite a few have a hard time executing.

I also request comments , what have you heard when hearing this phrase – “here’s the deal on that…..”

50k or 3 million, a deal must be understood from the first contact and some facts need to be established. Asking direct questions is a critical part of getting the story of the deal.

See our Texas Hard money application for examples.

Scenario: you need down payment or cash to purchase a piece of property. Lets say you have identified an apartment complex in San Antonio and need Hard Money. Your other San Antonio investment real estate has current liens and you cannot use as leverage.

You call us about some apartment Hard money and we uncover that you have Oil Leases worth about 1 million. We would consider loaning against the oil leases & royalties to give you enough cash to purchase or use as down payment on the apartment building.

Other alternatives:
IRA (non recourse only), stocks and bonds, CD, some sort of annuity….

Thats why a detailed personal financial statement is critical even for hard money.

Should you need hard money in Texas, please let us know.

Just a short note about Texas land , prices and ideas.

Texas A&M Real Estate center is a great place to research land prices, articles and data.

See the rural land historical values.

As far as how this relates to hard money. Texas land is still demand whether it be recreational or for development.

If you have Land you wish to purchase or put up as collateral here are some quick thoughts and questions you will be asked.

1. Recreational /Rural land:
Do you have mineral rights
Is there water (creek, springs, wells, lakes…)
What is long term use (will it always be recreational?)
Is there hunting or fishing? Do you lease?

2. For Development:
How does it relate to path of growth
What is best use? What are alternatives
How much is usable? (note floodplain, restrictions, easements…)
What is zoning ?
Are utilities near or on property?
What is entitlement process like in the city /county?

Typical loans are 40 – 60% LTV on Land.

Should you need hard money on land please contact us.

Thanks

Mixed signals are being sent to the COMMERCIAL REAL ESTATE FINANCING MARKET, whether it is for commercial properties to be-built or existing refinancing or acquisition. The confusion comes from whether or not you are one of the “Big Boys” who have large nests of cash equity capital and debt capital, OR are you are a medium or small developer. The “Big Boys” have access to the large funding institutions, i.e. pension funds, REITS, banks, etc., that the medium/small developers have a hard time tapping into. Consequently, the “Big Boys” go into the prime markets first thus hindering the smaller developers even further. We hear everyday about the build-up of investment capital, but it is available primarily to only the “Big Boys” who have the “THREE C’s”!

In view of these circumstances it is IMPERITIVE that medium and small developers consider “THE THREE C’S” when seeking financing in today’s commercial real estate market.

“CASH RULES”! Due to the current and perhaps extended credit crisis, whether it is a bank for construction/ interim financing or institutional permanent financing, cash rules. On construction loans, expect to put up 25% to 30% hard “cash” (land equity is not included). On permanent loans expect to invest up to 20% to 30% of the property’s cost OR value, the lower of. HERE IS THE DIFFERENCE FROM THE “LONG-GONE” OLD DAYS. “You must prove you have the cash before lenders will consider your loan request”! The reason for this is due to the large number of request lenders are receiving that do not have the cash to close. This is clogging up the loan process system. Also, lenders are cherry picking loans. Those with any discrepancies are being declined immediately.

It is very important to have your CAPITAL STACK clear and verifiable. If you are using other people’s money, you must prove it is available. As a result of this, a very clear narrative from the applicant explaining the ownership structure is necessary, along with financial statements indicating the availability of the necessary cash investment. This will assist in getting the quickest and very best loan terms. Lenders like to see developers personally having a minimum of 10% of the cost in the property. If the balance of the cash requirement comes from others, the availability must be verified.

Sam Tayloe
President – Texas Commercial Mortgage

Telling the “story” of  Each Submission 

Investors looking for funding or joint ventures should be able to tell a “story” or paint a picture of the entire deal if they wish to be taken seriously. This means the background of project, why it’s a good deal, why x amount is needed and how the project will succeed and exit the shorter term hard money loan. Each deal is evaluated on its own merit not an underwriting matrix and a decision to work with a borrower or JV partner is based on a small window of opportunity via the “elevator pitch”-executive summary.

We have online Loan Submission for our Texas Hard Money loans :

Background and experience of the Borrower

One of the biggest challenges in the private lending business is extracting information from executive summaries and gathering information to present to our lending groups. Loan requests and business proposals should be prepared with the intent to answer all of the lender or investor’s questions.  A lack of prepared financial information or a reluctance to give information about the borrower raises a doubts.

Document Format

Summary /Story:__

Your ES should be limited to two pages of text in a Word document or PDF.  Use a file name that indicates the project name and the amount of the loan. For example, Texas Apartment Factory. Complete Hard copies should be sent later but are not helpful on the front end to move your project to the next stage, ie. (LOI,Term Sheet, Intent to fund…)

We have an outline to help write these if needed. Hard Money Quick Story-Submission:

Your loan request: (will include loan amount,terms and property)__

Tell the lender what you are after. If you want a loan, be specific. If you want an investor or joint venture, give the investor an idea of what this is going to cost him. Include exact details on the collateral being offered to secure the loan.The objective answers the first question for the lender. Give the loan amount, LTV, and terms you are asking for.

The lender wants to know how the loan will be secured and what his risk is. What is the property worth? You should always have at least  a tax appraisal (value given by taxing authority) before asking for a loan. The type of property and class should be indicated. What are you paying for it? Do you have a purchase contract? Are there deadlines?  Why are you buying this property? Lenders are specific about which cities they will invest in and need to evaluate the property based on current financials.

We use a standard Loan Applicaton for our Texas hard money and Texas Commercial Loans :

The Management (your Bio/Resume) :___

Many investment proposals indicate that the buyer will make improvements and change management to improve occupancy rates and cash flows. Indicate the experience of the management team, developer, or contractor and their track record. Indicate why you think you will manage the property better than the current owner. The lender may also ask for resumes.

The Market (do you have short Market study/comps and BPO-Brokers price opinion supporting your project)_____  

Understanding economics in your location is necessary when determining the market demand and why the market is stable or improving. This information can be obtained by commercial real estate firms in the area. Secondary market research from a credible source goes a long way.

Exit Strategy

Multiple exit strategies are a good thing. Your plan should briefly describe what improvements are needed and their cost, how much money you expect to make and the timeframe.  You should also indicate your contingency plan (have at least 3 altnernatives)  if things go wrong and how to access the profits or future financing plans.
Be prepared to discuss your exit stategy. Will you :

Sell your project/property to payoff loan?

Refinance with bank or another hard money lender?

Bring in cash or “fresh” equity?

Have you discussed the assumability of your current loan (requested  loan)?

Is JV or partnering with another or proposed lender possible?

These are the main exit strategies but there are more. Be prepared to discuss and have at least 3 alternatives ready.

Monty Busch

Urban Coyote Funding

www.texaslandfunds.com

214 213 8967