Is it standard to pay a 3.5% up front Due Diligence Fee

Contractor · Winder, GA · Member since 2016 · 84 posts · 3 votes

I received a loan offer for a new retail center construction loan and they are requiring me to pay a 3.5% due diligence fee. Is that standard

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Rick Pozos

Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes

OMG a bunch of people basically have told you that it is a scam and you are still going to do it???? Sometimes hard headed people have to learn the hard way. You should never want something so bad that when others can see that it is a scam and you can not.

If you have done 4 of these already, how did you do them?? Keep doing them that way if you made money. You had to have made money or else you would not have done 3 more, right??

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Mark Creason
Real Estate Lender and Broker · Dallas, TX · Member since 2013 · 966 posts · 500 votes
9y
Originally posted by @Jessica Zolotorofe:

@Mark Creason what about a point commitment fee on top of DD costs? It's still way too high and I would be a little careful for sure and make sure I did my homework, but it doesn't initially (without more details) scream scam to me. Depends who this lender is and whether they are reputable. @Jim Bryson is this a hard money or bridge loan or a real construction loan? When you reference a "contract" it leads me to believe you are dealing with a person, not an institutional lender. Have you shopped any real banks?
Jessica,
Sounds like Friendly Bob's loan sharking service.
Mark
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Jessica Zolotorofe
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
@Mark Creason you can offer a package deal, not only will you sell the bridge, but your friend, Friendly Bob can offer some great financing!
Ok, all kidding aside, this sounds like it could easily just be a misunderstanding of the loan terms, or it could be that the loan is totally legit and you will see 100% of the money, but the lender just thinks they can get one over on you and make a few extra bucks on fees, and then it could also be a total 'take your money and disappear' scam. If you're getting a feeling like it could be the latter, follow your gut, dump the broker faster than you dump the lender and move on from both. But first, shop around (with a different broker, or on your own) and see what else is out there. If there is no other option, try to negotiate this one to a more reasonable place. Also see if you can get the lender to provide you with a reference - someone they provided financing to in the past and then check the public records to see if they actually had a mortgage on that person's property. And google this guy. A lot. If this is your ONLY option, double and triple check before you send him a penny, but again, sounds like you should have way better options available. Keep us posted. Very interested to see how it works out. Good luck!
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Rick Pozos
Wholesaler, Rehabber and Landlord · San Antonio, TX · Member since 2014 · 2k+ posts · 2k+ votes
9y
OMG a bunch of people basically have told you that it is a scam and you are still going to do it???? Sometimes hard headed people have to learn the hard way. You should never want something so bad that when others can see that it is a scam and you can not.
If you have done 4 of these already, how did you do them?? Keep doing them that way if you made money. You had to have made money or else you would not have done 3 more, right??
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Jim Bryson
OP
Contractor · Winder, GA · Member since 2016 · 84 posts · 3 votes
9y
I had a partner before I ran everything through his name and it's been about seven years ago and it was done with conventional financing I don't have that option now
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Chad Clanton
Contractor · San Antonio, TX · Member since 2013 · 647 posts · 205 votes
9y
@Jim Bryson, I'm sure there's someone with equal or better terms out there, whether this is a scam or not. That said, sounds hinky to me.
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Rod HanksBusiness Member
Insurance Agent · Dallas, TX · Member since 2013 · 743 posts · 462 votes
9y
I would shop around for better terms and just make sure I do my due diligence on the lender first. I have heard horror stories about upfront fees.
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Jim Bryson
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Contractor · Winder, GA · Member since 2016 · 84 posts · 3 votes
9y
well this is the most serious offer. I keep messing around with lenders and January 11th my money goes hard on this deal. All of these lenders are wanting something else I do all the construction in the house on these projects and I'm below wholesale on developed centers. They want me to charge my standard construction rates which I'm great with but my 20% goes up and there I am trying to raise more cash. I could have already built this Center in the time of getting the financing if I had a streamlined process down 4 funding that would be great
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Mindy JensenPro Member
BiggerPockets Money Podcast Host · Longmont, CO · Member since 2014 · 7k+ posts · 10k+ votes
9y
@Jim Bryson , I have zero commercial experience. However, there are guys on this site who have done it before. While I don't want to deify @Wayne Brooks , his advice is spot-on just about 100% of the time. If he says it doesn't make sense, that it sounds like a scam, and that this isn't a good idea, I'd take his advice.
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Charles Worth
Investor · New York City, NY · Member since 2015 · 808 posts · 417 votes
9y
@Jim Bryson
There is a saying in the stock market that a stock doesn't know what you paid for it. It basically means stocks move irrespective of your personal situation. The fact that you need funding doesn't affect the merits of the funder here. Their offer is strange and you seem to be taking a big risk. If you do want to go forward why not try to make your own offer. What is their concern? Is it spending money upfront and not doing the loan? If so, offer to pay the costs but only to reputable company for appraisal, environmental, etc. Make sure its a real company with verifiable information. If they say no its almost certainly a problem. You can also offer to setup an escrow account with terms set beforehand. This is a little more costly but can save you a lot of issues. Again if they say no that is another red flag.
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Percy N.
Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 904 votes
9y
@Jim Bryson, have you borrowed money from this specific lender before or know anyone you trust that has?
It seems that you are ignoring some pretty big red flags. Think about it, a potential scammer would outline everything the way you describe your lender has, only to disappear. Just because a broker recommended them does not make it a good or safe choice.
Offer to put the 3.5% into an escrow account with a 3rd party and see what they say - their answer will speak volumes.
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Jim Bryson
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Contractor · Winder, GA · Member since 2016 · 84 posts · 3 votes
9y
I started talking about my lawyer review and I hadn't heard anything back today they were sending me the info to send the wire
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Jessica Zolotorofe
Attorney · NJ · Member since 2016 · 1k+ posts · 794 votes
9y
Great advice @Percy N.!
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Jim Bryson
OP
Contractor · Winder, GA · Member since 2016 · 84 posts · 3 votes
9y
Originally posted by @Percy N.:

@Jim Bryson, have you borrowed money from this specific lender before or know anyone you trust that has?
It seems that you are ignoring some pretty big red flags. Think about it, a potential scammer would outline everything the way you describe your lender has, only to disappear. Just because a broker recommended them does not make it a good or safe choice.
Offer to put the 3.5% into an escrow account with a 3rd party and see what they say - their answer will speak volumes.
Yeah when I mentioned lawyer and told them to send me some information on the lender where I can check them out before I send my money and that's the last I've heard of them.
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Bryan Hancock
Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes
9y
@Darryl Dahlen or @Kevin Yeats may be able to help you out too. Keep shopping. The terms of those "loans" sound pretty close to the scam end of the spectrum.
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