All Forum Posts by: Doug Smith

I've come and gone over the years. I've been a premium member and I've cancelled. I think the platform has great potential, but if you look at the vast majority of posts recently, there area. lot of first post/no vote "investors" that are pretty obviously not real. I must agree with you. 

HI @Erik Estrada, I actually just ran into this with a private equity group with a robust retail platform that is trying to break into wholesale. They sent over an agreement that gave us little protection. I've found it better the avoid working with groups that have a strong retail component. It's been my experience that as soon as business slows down on the retail side they start back-soliciting the clients of their broker partners. We also don't work with groups if they refuse to provide us guidelines to work from. I have no issue signing an NDA to not share those guidelines, but if we're going to put together a solid package that meets their guidelines, it's hard to do if you don't know the guidelines. Otherwise, we're wasting everyone's time including ours, our customers' and our lenders'. It's also been my experience that the groups that fund investor deals are seldom run by credit people, so the guidelines can be all over the place. I'm with you, Erik. 

If you're buying at auction, then yes, it's hard to turn the aircraft carrier that fast, but also as a lender, I often find that borrowers wait until the last minute to discuss deals with us. Often, we'll provide them with a list of documents we need to get to be cocked and ready, but they will wait until they have a deal under contract to send us what we tell them we're going to need. I would say to all borrowers, do yourself a favor and chat with your loan officer early in the process. Never say "you don't need that document". Give them what they ask for and do it as quickly as possible. Then, when you find the property you want, they can swing into action without delay. I'm not exactly answering your question, but as a lender I know that there are ways to cut the amount of deals lost to financing down dramatically. 

 Most lenders, us included, want to see skin in the game. You are correct in that. It's common knowledge in the banking and lending community that the default rates on loans are inversely proportional to the amount someone puts down. Borrowers that do at or near 100% financing statistically default at a rate much, much higher than those that are putting a chunk down. Most bridge lenders might allow some seller carryback, but we'll not allow someone in second position on that type of loan. The deal you're describing is not something we could get comfortable with,but there might be individual bridge lenders (I hate the term "hard money") that might allow it. 

We will usually pay out the proceeds in a series of "draws" at various stages of completion. Let's just use an example. Let's say you purchase a lot for $100,000 and you are going to build a home on that property at a cost of $300,000 with an estimated "As Completed Value" of $500,000. We could also you use same numbers for a flip...you buy the house for $100K, renovate at a cost of $300K and get an As Repaired Value (ARV) of $500K. The concept is the same. We'll count that $100K you paid for the property as down payment, so lending you the additional $300K would put you at a Loan to Cost of 75% ($100K + $300K renovation budget = $400K cost and a loan of $300K). We would close and then you would start working on the project...usually advancing your own money into the deal. Then, when you're ready, you tell us "I want to pull some of the $300K out ot cover the work I've completed." We'll make sure you've actually done the work and then wire you those funds to recoup what you have into it. Then you do more work...and we issue another draw...and so on. It's more complex than that, but that's the gist of how it works. When you get the Certificate of Occupancy (CO) and sell the property, you pay back the loan and keep whatever is left. You'll usually pay interest payments each month, though there are multiple variations on what that can look like. Some, at the end, can't sell it or want to keep the property, so it's then refinanced into a longer-term loan like a DSCR loan, etc. Did very basic explanation help you?

That's areally interesting take from a local. Thanks for sharing. We have a lot of loan customers that build ground-up in a similar market in NE GA. I'll definitely keep your post in mind and ask more questions. I appreciate it. 

Hi Ricardo, Thanks for sharing. Was this your first time doing a construction deal? The only reason I chime in is that "we lenders" like to see that a client has some experience before we get aggressively fund them for a reason. I'm curious. Was the experience what you expected? Did you run into a lot of curve balls? I thought I was ready for my first one when I did it as an investor and my learning curve was exponential. I made a ton of mistakes. Just curious as to your experience with it if it was your first time doing new construction. Take care. 

I started to answer this before I realized how old the post is, but things have changed since you posted this. It used to be that DSCR loans could only be done in the name of an entity, but later they started, allowing them to natural persons provided they could show that it was for investment purposes and that they owned a property. Recently, however, a couple of lenders have started to allow people to buy homes using the DSCR even if they don't own a property currently. They do have to show that it is for investment purposes and it has to make sense. For instance, I had a NY attorney that lived in the city, but wanted to buy a duplex in Florida. We currently are closing one for a couple that live in a very high-end school district for a couple more years while their children are attending school. They don't want to buy their. We were able to make it make sense. The DSCR rules are getting more and more aggressive as time goes on...and the rates are really attractive right now. Sorry to post so late on this, but after I read it, I realize things have changed dramatically. I wish you well in your investment journey.

 Thanks, Benjamin...that's one reason we have trouble hiring good morning people. Many are great pros...others like to sit and wait for the phone to ring without studying guidelines or economic data. I saw that that there is currently the biggest spread between the number of sellers with their homes on the market and the number of buyers...ever (many more sellers than buyers). My fear is that buyers will say "gee...I am going to wait until rates come down more." causing a housing death spiral. Let's hope that doesn't happen. Rates are historically really great right now, but people remember the insanely low rates of 2001 and think that was normal. We're actually, historically, pretty good right now. Thanks for the kind words, Benjamin. 

Hi Gregory, I will admit that I use AI for basic research and answers, but I often find that it provides incorrect info. It does, however, point me in the right direction to go and research. Regarding BP, I have been on and off the platform for many years. Sometimes its hard to watch answers or posts from people that hold themselves out as experts but, in reality, they haven't a clue. I do use both BP and AI to get ideas and opinion, but I always review that with real experts. I know it's frustrating to answer questions in areas where I am an expert only to get the answer "but Chat GPT says". To your question, both are simply tools to point you in a direction. It's on us all that, when we get an answer from AI or BP, to research it for ourselves with real experts. That's my 2 cents. Good luck to you.