All Forum Posts by: Bradley Laddusaw

I would have to agree with @Kyle J. but would take that approach with any property you are considering leveraging.  In times of uncertainty, it is always great to leave some breathing room with all the properties you own.  

In some instances, our clients have taken out a low leverage point cash out refinance on a property they owned free and clear while obtaining a low leverage point acquisition loan on the rental property they are acquiring.  This effectively allows them to come in with little cash to close while keeping overall leverage down and manageable per property.

If you are planning to do a value add, I would have to agree, a seller carryback can be a great strategy granted the property is owned free and clear or has sufficient equity.  If the seller is levered up too much, they are unable to carry anything back as the proceeds of the sale will need to be used to pay off their current lender.

What some of our clients have done is pair up a low leverage point private money loan from my Company with a seller carryback.  This allows the loan proceeds from our loan to flow to the seller, (granted not a lot of debt is recorded against the property) which allows them to get some cash "now" for their sale. Then the seller carries back a smaller portion, limiting their exposure while earning a return.  With our loan sitting at a lower leverage point, it comes with a substantially lower holding cost while our borrower is able to obtain a loan close to 100% LTP.  I have not seen too many sellers willing to carryback a majority of their sale.

This strategy will really only work if you are adding value to the property of which will give you the opportunity to pay off both the lender and seller through a final sale of the property.  If there is not a value add opportunity, as some of the comments above alluded to, you will end up over levered with no viable exit.

Full disclosure, you may want to run these strategies by your RE attorney to make sure there are no disclosure/lending violations at risk due to the seller carryback.

@David Beasley, as a Hard Money Lender, we prefer that our clients reach out prior to so we could take a glance at the asset.  Yes, we are able to act real quick, but we may pick up a red flag or something on the front end that could affect your acquisition.  With that being said, we are a little more hands with each file vs. some of these larger companies that happen to be on Pause for the time being.

Our clients like to know where we sit from a leverage side of things as it may dictate where they submit their offer price at.  Again, each company is different but this is how we add value to our clients.

Feel free to reach out to me directly if you have any questions.

@Lee Lockhart, I would have to agree with @Jay Hinrichs and @Kyle J.. Ideally your EMD is sitting with an Escrow. If it is, they are not performing nor executing their part of the transaction as they need to be able to close the front end. A client of ours the other week had a deal unwind due to the Wholesaler not being able to perform on his contractual requirements to close the front end and have the property delivered vacant. In this instance, the EMD was held with escrow, Notice to Perform was issued, the Escrow was officially cancelled and EMD returned. This was in California and our first Covid19 affected deal.

It will be difficult to go this route if the EMD was paid directly to the Wholesaler. My fear is that they may not have even had it in contract if they all of sudden went dark on you. This would not be the first time this has occurred.

-Brad

This will be a continued trend in the Hard Money space.  The long term rental program was being offered by different companies across the country and it was a lot of the same money from the Capital Markets being provided.  The extremely high leverage rehab loans also were not being sold off to your traditional private lender, but the "Big Money" as well.  We are already starting to see loan structures and pricing to be marked to the pre-flood market pricing.  We will most likely continue to see more of a traditional bridge loan structure vs. a high leverage point Fix and Flip structure.  I broke this down the other day in an article.  It all comes down to supply and demand of capital and risk/return profiles.  Both of which were skewed over the past few years.

https://www.biggerpockets.com/forums/49/topics/819276-the-evolution-of-the-hard-money-space-and-then-pause?page=1#p4816256

@Jay Hinrichs, what you described is a main reason why we gained a lot of clients over the past couple of years.  We would see great pricing out there for a 6 or 9 month loan on a rehab that would take a minimum of 9 months to complete with no set backs.  Then extension fees would get tacked on for 1-3 months that more times than not would be more expensive than the original loan.  Great marketing on the front end but that dance can only happen so many times.

@Jay Hinrichs, thank you for adding context.  It is interesting how history tends to repeat itself in different forms.  A few of my investors have been lending since the 80's.  How does the phrase go?  You could put lipstick on a pig, but at the end of the day, it is still a pig?

Thanks again and I hope you and your family are staying healthy.

Going to message you privately.

@Kevin M Finley, the 30 year fixed rate rental loans being offered by private lending firms unfortunately are on a hard pause for the foreseeable future. If you are looking for an asset based loan, you could probably expect a reduction in LTV, increase in rate, and 1-3 year term. For income properties, depending on LTV, you may be able to get up to a 5 year, interest only loan.

@Chad Stark, I posted an article the other day on what happened with a lot of Hard Money Lenders across the country.  Long and the short is, the institutional money that flooded the market over the past few years, went on a hard pause.  For active real estate investors, they will need to adjust to what private loan structures were available a few years ago before this flood.  

Companies that are still lending are ones such as mine that are direct to the capital with little to no ties to the Capital Markets.

Here is the link to my article that might at some context.

https://www.biggerpockets.com/forums/49/topics/819276-the-evolution-of-the-hard-money-space-and-then-pause