We just sold a $200,000 1st Trust Deed for a non-owner Condo two blocks from the beach in Santa Monica, CA. The yield was 10.0%  for 2 years, with 6 months interest guaranteed. The Property was nicely upgraded and had ocean views from the balcony.  This refinance was particularly attractive because of the low loan-to-value 22%, the ocean views, and the proximity to the ocean.

• Loan Request: $200,000
• Loan to Value: 22%
• Rate: 10.0%
• Yield: 10.0%
• Type of Property: CONDO
• Term: 2 year
• Interest Guaranty: 6 mos.
• Full Appraisal Value: $950,000
• Condition of Property: Excellent
• Rental Income: $3800.00

We just sold a $65,000 2nd Trust Deed for a non-owner SFR property in Bell, CA. The yield was 12.25%  for 1 year, with 6 months interest guaranteed. The Property was nicely upgraded.  This was a refinance – a Second TD, somtimes called a Junior Lien. The  existing First Trust Deed was nine years seasoned only $75,000 @ 5.25% for 15 years, so significant principal reduction was occuring monthly. Combined loan to value was 53.8%. 

• Loan Request: $65,000
• Loan to Value: 53.8%
• Rate: 12%
• Yield: 12.25%
• Type of Property: SFR
• Term: 1 year
• Interest Guaranty: 6 mos.
• Full Appraisal Value: $260,000
• Condition of Property: Excellent

These are important questions that need to be asked and answered.  While rate, cost, and terms are advantages to Fannie Mae or Freddie Mac institutional mortgages, many borrowers do not fit into the strict guidelines that are now dictated by conventional lenders. So, while borrowers would prefer the less expensive route, most would prefer to have the  real estate investment, the tax relief, and the security of homeownership, versus missing the opportunity altogether.

Additionally, there are advantages to private money loans.

First, there is the paperwork requirements and loan conditions. While banks seek several years of tax returns, rental income history, seasoned downpayment, proof of reserves, strong debt-to-income ratios and consistent earnings, private investors rarely need such items. Rather, private investors seek a strong equity position, typically 40% or more, and clear title.

Second, the credit requisites. Typically, banks want to see a Fico score minimum. Some borrowers get derailed due to this issue, because of a divorce, unexpected medical expense or loss of a job. Some are instructed to wait three or more years due to a short sale, bankruptcy or foreclosure in their past. Private money lenders will look at these flaws, but with much less interest. Again, the substantial equity position and clear title are considerably more important.

Third, the timing involved. Private lenders are typically much quicker from application to funding than institutional lenders. Banks and brokers require a myriad of paperwork and conditions to be met. Files get sent into a pipeline where they are reviewed. This often becomes a beauracratic nightmare, often delaying files. Many of the loan officers I work with tell me that 45 days is now the norm. Private lending takes 10 working days or less, for the most part. Many times, short sales or troubled Sellers do not have the time to wait for a 45 day conventional closing.

The most important component of a good file is the executive summary. Sometimes called a Pro-Forma or Summary, the Executive Summary is a general overview describing the borrower, the collateral, the request, and the compensation. It explains in outline terms what the borrower and broker are seeking in a condensed version, making it very simple to understand as the investor. Very often, this is all I need to decide if this is a file worth reviewing!

Here is a version of an effective executive summary for your review. Please feel free to use this as a template!

Loan Summary

Borrower:              Bob & Sue Smith

                                       Self-Employed Investors

                                       Fico 620                                            

Subject Property:             6238- 6240- 6242 First Avenue/Chula Vista, CA

 Type of Property:             Triplex

 Rents:                                 $900/mo, $900/mo, & $1200/mo

                                                 $ 3000/monthly income

 Purchase Price:                $350,000

 Loan Request:                   $175,000      1^st td      Purchase  Loan               

Value:                                       $350,000       (based on purchase price & Broker Price Opinion) 

Loan To Value Ratio:           50% 

History of Property:         Borrower needs to 1031 into another rental after property was sold. 

Use of Funds:                  Borrower’s are using funds to purchase property. 

Exit Strategy:                  Borrower will refinance property, upon a year of rental roll seasoning. Borrower has good credit and property easily debt services to where an institutional lender would loan; however, borrower has purchased a short sale and due to the current lending environment, they cannot close quickly enough for short sale lender. 

Collateral Offered:           First Mortgage on Property 

Items Included in File:     1003, executive summary, photos, credit report, proof of deposit, contract, title, escrow, closing statement from other property, short sale agreement letter. 

Terms:                            Term to be 2-3 years. Broker Points to Joe Lender to be two (2) . Close of escrow to be 10 days or sooner                                     

Submitted By:                 Joe Lender

Unlike mortgage banks or agencies like Fannie Mae or Freddie Mac,  which have credit FICO score minimums, income to debt ratios,  job and capital reserve requirements, private lenders base their decisions almost entirely upon equity – the value of the property versus the debt owed.

So, while you or the property do not qualify for a conventional bank mortgage, whether due to credit flaws, income documentation challenges, condition of the property, or rigid bank guidelines, a private individual lender will approve your request, as they focus almost solely on the equity protection of the property to justify the loan.

 Hard money lenders’ terms will vary from lender to lender, and case by case. This is because each individual lender- investor has their own threshold of risk.  Some individuals prefer more risk and reward, while others prefer lower rates and more equity protection.  Either way, private money loans are more expensive.

At Cushner Capital Group, we fund California Single Family Residential, Condo, Rehab, Commercial, Mixed Use, and very specific land and ground up construction loans. While we prefer non-owner properties, we still offer owner-occupied financing; however, owner-occupied residential loans are subject to considerably more scrutiny and disclosures. This is primarily due to the various laws and recent government decisions.  

Guidelines for non-owner or investment properties are much more liberal.

Our investors prefer metropolitan California neighborhoods, as rural properties tend to cause investors to worry about the ability to resell the property. They prefer to be in first position, but will consider Second Trust Deeds, depending up on the situation -  type of first TD, size of first TD, combined loan to value, etc.

If this description applies toyour situation, then you may be an ideal candidate for a private hard money mortgage loan! Please fill out the questionnaire below, so that we can help you achieve your goals!

LOAN AMOUNT – $55,000

YIELD TO INVESTOR  – 10.5%

TERM – 3 YEARS

PROPERTY VALUE – $250,000 (BROKER’S PRICE OPINION)

LOAN TO VALUE – 22%

RENT -  $1400.00/MO

TYPE OF PROPERTY – TOWNHOME

SIX MONTHS INTEREST GUARANTEED TO INVESTOR

With a self-directed retirement account,  you can invest your retirement dollars in non-traditional investments including: Real estate, private placements, life settlements, trust deeds, oil-gas-energy and thinly traded or limited offering investments, both public and private.

So, if the fear of an uncertain stock market or the unending torment of tenants, home repairs and spiraling values continue to disrupt your retirement planning, perhaps fixed trust deeds at 10-12% might be reassuring!

There are many companies to choose from that can direct  your IRA. I have contacted three and spoken to them.

udirect IRA – www.uDirectIRA.com

Entrust – www.theentrustgroup.com

Pensco – www.pensco.com

Unlike banks, however, private loans are not based upon a borrower’s fico score or debt to income ratios; rather, they are based upon the collateral – equity in one or several pieces of real estate. This “equity position” is the safety that protects the investor. Typically, the threshold is 60% loan to value, although on certain types of loans or properties,  the ltv may go higher. Additionally, private loans are shorter than most institutional mortages.

Should the private note go into default, the investor can initiate the foreclosure process, and can ultimately take back the property. And while Cushner Capital Group will always try to limit and mitigate this risk, there is always the chance that the property will go back to the lender.

Preparing a Hard Money File  

If you are planning to send me a file to review, it is important to create a favorable scenario for the investor. Of course, you are advocating for the borrower, but there must be a win-win philosophy to ensure the investor is satisfied. Keep in mind the five major criteria investors seek when making private real estate loans. Prepare your executive summary or pro forma specifically addressing these main concerns with viable answers. Remember, keep the story brief and provide any documentation to support the borrower’s scenario.

CASH FLOW OR INCOME OF PROPERTY

USE OF FUNDS & EXIT STRATEGY

BORROWER’S PAST CREDIT HISTORY 

LOAN TO VALUE RATIO

TYPE & LOCATION OF PROPERTY

In addition to the brief executive summary, investors want to see a loan application, a credit report, and a recent appraisal (or recent pictures and comps).
Lastly, it is important to highlight the borrower’s cash in the deal (“skin in the game”), as well as understand the intention of the cashout monies, if it is a refinance.  The exit strategy is critical in today’s chaotic marketplace. How does the borrower intend to pay off the private investor?

Feel free to call me should you have questions or concerns.

Michael Cushner, Broker 

(760) 845-9035! 

www.privatemortgages4u.com

1. A stock’s value fluctuates constantly. A trust deed’s value is always fixed and stable.
2. A stock is typically backed up by a conglomerate of equipment, property or services, sometimes outside the US. A trust deed is collateralized by real estate within the US, most often by homes or property within the investor’s local area.
3. A stock owner is in third position (behind bondholders and preferred stockholders). A trust deed owner is usually in first or second position.
4. A stock broker charges a fee to every investor, while your trust deed broker usually charges no fees to you.
5. A stock either pays no dividends, or pays dividends well below the prime interest rate. A trust deed pays well above the prime rate.
6. A stock’s dividend payments to you may be legally halted at any time by a board of directors. Trust deed payments can never be legally halted (even if the person files for bankruptcy, your interest clock keeps ticking!).
7. A stock’s price is fixed at a given point in time. You cannot negotiate with the Seller. A trust deed’s price is open to negotiation between you and the seller.
8. A stock’s value is dependent upon forces which the investor has not control over (other people’s actions). Typically,  the trust deed is well secured and largely predictable. 

Please call Michael Cushner for more information – (760) 845-9035!