I have brokered dozens of hard money loans over the last several years. The last few years have changed significantly after the real estate bust in 2008. I have clients asking all the time about how to make it back after losing everything or hitting rock bottom when the market changed. I am interested in hearing about what other brokers/lenders have seen in the last few years. What is the best advice you can give to people making their way back? What have you seen that works and what should they avoid?
I have always enjoyed mentoring clients and meeting investors/lenders throughout the country. I am interested in hearing what others have seen that works for those fighting their way back. I also am always interested in hearing what I may have missed or learning from other experiences.
Also, for those of you that have fought your way back, please share your experiences. I think it is great to hear from you and pass on suggestions, hope and goals that have been achieved.
Your words are appreciated.
your in luck one of our biggest contributors has gone through it with great success introducing @Jay Hinrichs take it away Jay and Happy New Year
the old model of purely loaning by equity turned out to be a problem.
Ergo you see HML today requiring cash into deals.. they look at credit or history. And the day of making purely equity based loans is gone ..
Now caveat there are lenders that do that with their best clients .. but not generally if the borrower is not well known or vetted.
2010 was an excellent time to enter.. prices were crushed you could demand cash into the deals and you had a new crop of borrowers by and large.. so we are in the honey moon stage once again.
Thank You @Jay Hinrichs I agree. We changed the way we do loans and the requirements for getting the loans. We look at deals different and the borrower different. That being said, what would you tell borrowers wanting to re-enter the market that are struggling? I love sharing advice and experiences from others.
@Jay Hinrichs Hinrichs Hinrichs mentions one aspect that is certainly true with regard to the "skin in the game" requirements that the majority of us credible direct lenders are going to require. The purpose for this is not to make it more difficult for the borrower, rather it is because the outcomes for both the investor and the lender are so much better. This fact allows for greater success for both parties and at the end of the day, that's the goal...at least for us.
The other reality that exists today that did not exist prior to the most recent crash is the new environment relative to the rules, laws and regulations we all operate under in the post Dodd-Frank lending world. Licensing, and Servicing (among others) rules have changed demonstrably in all 50 states and at the federal level as well and continue to do so. There are a great number of "lenders" (actually brokers) and "lenders" (actually lenders), that ignore these new rules and regulations and just continue to do business as we all did back in the day prior to 2008. I see them all over BP posting all the time.
Lastly, the accessibility to money for the smaller mom and pop investors with rates, fees and terms that are better than they have ever been is wide open today. Hard Money rates from direct lenders like us are in the high single digits and low double digits which 10 years ago was unheard of. Origination points are 2-4 times lower as well. As Jay also points out, the qualifying criteria for "asset based" loans is also a bit more involved than in years past. In the big picture, when compared to the qualifying criteria for conventional loans, it is still much easier however and affords a great deal more "speed to market" opportunity for the borrower.
@Charlie Fitzgerald good points Charlie. In CA you always at least needed to be a RE broker to legally lend money.
however you know all the private money loans that float around.. just go to any REIA meeting.. any RIA meeting in NV were some private person is lending to some other private person on a 1 to 4 with no license is a violation of the law. Same in Oregon.. With the exception that in Oregon and I don't know about Nevada there is an exemption that you can do 2 in a year and 3 outstanding at anyone time, after that you need licensing.. Based on the Nasty Gram I got from the State of NV seeking a broker to do compliance for me in NV.. did not sound like you could originate even one loan.
And owner occ that's a who nother ball of regulatory wax.
I experimented and actually did my first loan with a company other than my commercial bank and or a conventional loan.. IE a HML.. I used Lending home and I got 2 points and 8.5 I think... and pretty good LTV.. their as is in house valuation came in far higher than we thought and we had a pretty good price.. so I want to say we used about 40k in cash to garner a 250k or so loan... but I have to front the construction then get repaid.. and they do charge on total loan amount and not funds that are outstanding. ( like our commercial banks) but on these larger deals were your borrower 80% to pay for the property and 20% or less in rehab cost that's not the end of the world.. Now this was pretty painless for me. they did a back ground check and I had to give them the names of all my LLC's and they checked public records in all 50 states ( automated program probably have a fatco product) to prove that I have the 200 flips in last 36 months or whatever it was to get their lowest rate.. ... Folks starting out I am sure will not have it as easy as we did..
I borrow from my commercial bank on new construction at 7 apr... so this at roughly 10 and in a state I don't live in was pretty good I thought I signed up to be a correspondant with them.. But when I do that the rates to the borrower go up.. and I really just did not want to hassle with all the NMLS stuff as I am here in Oregon .. so I put my license back on Ice.. So that's my experience of late both as a consumer and well I am not a lender anymore and really unless I buy a on going company will not be a Lender in a state that requires NMLS.. 17 states to my knowledge do the rest if you do business purpose loans you do not have to be NMLS licensed... and Of course I only lend my own money so there is no servicing issue if I was to do it. I would service my own.
For the basically what would have been bankable ( community bank borrower) pre 08 is now your HM borrower looking for their best deals. Because the misnomer of no money no credit asset based is generally as we have talked not the environment we are in and we should not be.. that was a lousy model.
All good comments.
Yet in the end it boils down to risk.
1. Interest rate risk
2. Quality of Collateral
3. Repayment Risk
4. Liquidity Risk
You need to get a borrowers to understand this. Yes there are HM brokers that will try and milk a deal dry. That is why a CD is .05% adHard Money is 9%+.
Good stuff Jay. You are correct about NV...no freebies here. LOL. Your next HML deal better come to me! We're very comparable to Lending Home all day every day and usually less for all similar programs and our process is not quite as invasive as theirs is... :) Happy New Year my friend. I wish you a very prosperous and peaceful 2016.
Thank you, good information definitely and what I share with my clients also. To dig a little deeper, there have been several that have made it back after losing a good chunk of change, or everything. Any advice you would pass on for those starting all over?