All Forum Posts by: Edwin Epperson

@Daniel Young I understand your position, but please consider what @Alex Breshears says. She is a smart, and intelligent lender and investor. I will comment that trying to deceive your lender that you will not live in the property is absolutely wrong, ethically, morally, and legally. Every lender I know, that lends to investors requires multiple disclosures (ie legal documents) stating that you will not be living in the property, EVER, for the duration of the loan, and that the loan is B2B purpose only. I do this for every one of my loans. The way they will know, when you request a draw, for work completed they will find out. Also Just because the property is owned in an LLC, does not negate this from being enforced. Be careful about whose advice you consider. Stick with Alex, she's the real deal.

@Jennifer Hoops, I am not sure what your understanding of 2nd position loans are, but you do realize that you asking for a 2nd position that would bring your CLTV (Combined Loan-to-Value) over 86.9%, right? As @Kerry Baird and @Andrew Postell have already mentioned, hard money is typically reserved for non-owner occupied, investment loans, securing assets that are not your primary residence. More so, as a private lender, who is in the business of making loans to investors, if my capital is going to be in 2nd position, I would never consider going over 60% CLTV. In this environment of the RE Market beginning to cool off, economic turmoil and inflation at 40yr highs, I am not willing to go over 50% CLTV. Of course, I am not in your neck of the woods, however, I have never met any lender, private or hard money that is willing to go above 60% CLTV, in 2nd position on a primary residence. If you do happen to find someone who does that, I'm sure 99.9% of all BP real estate investors would love to have their contact. I think maybe if you had a more realistic scenario it would be easier to find a lender for 2nd position, even if it's your primary residence, but seeing that your current 1st position loan is already at 56% LTV you may not find anyone willing to offer more leverage. Again not trying to rain on your parade simply stating what I know and experience in the marketplace as a lender.

@Mark Woo I 100% concur with @Joseph Medina. The fact that you stated they are ONLY contributing capital could read as they are completely passive, which is not a far step at all for an attorney to read this as offering security. This is an issue I consistently see being violated on BP, investors "advertising" equitable positions. If you were asking for a loan then the lender is creating the security themself being the MTG/ DOT. But when you hold yourself out as being the one who will be the active investor and they are a passive investor then you are treading on murky waters. Care should be taken, but best wishes and much success, and I hope you are able to do what you plan on doing.

@Jerome C Brown CAUTION CAUTION CAUTION!!

I absolutely agree with @Scott E.. You must be organized, and you should absolutely know what documents to present them.  If not, you're not ready to discuss them investing in your projects.  Also, you must run all of this by an attorney, you could be walking a dangerously think line with the SEC.  Also, I want to ask if the individuals who are INVESTING in your project, are in the business of making loans?  That is the definition of a "Private Lender".  Too many times here on BP, the term "Private Lender" is thrown around too loosely.  A Private lender knows how to process (gather the requested documents from the borrower) how to underwrite (protect their investment, ie the loan, through internal analysis and guidelines), and most importantly how to mitigate the risks.  It sounds, based on your description, that the individuals who are investing in your project, are not in the business of making loans, but rather they are willing to invest in your project based on trust in you, is that an accurate statement?  If so then call them private money, not private lenders.  If they are private money then EXTRA care should be taken to ensure they are protected, meaning ethically, you should look at your project and all potential points of failure and insulate them from loss, ie you assume the exposure to risk.  Also HOW you are raising your capital from these money sources is just as important.  If they are investing in your project based solely on trust in you, and if the project goes sideways, and they hire an attorney to come after you, the first thing their attorney will look into is were they sophisticated enough to make a decision on their investment and did you follow the SEC guidelines in raising capital, especially if you have more than one person investing.  You should take care to ensure that the investor lending you capital is secured via a mortgage/ deed of trust.  I deal in this world all the time, if you have specific questions please reach out, happy to discuss, and provide some feedback/guidance.  Best wishes and much success, be sure to do it legally and always in the best interest of your capital investors.

Ahhh I see.  What you needed was Transactional Funding to facilitate a double close.  Reach out next time your in a situation like that, I can help

@Andre Garbo, I think you might be using the wrong term. Gap Funding is closing soft costs, such as down payment, lenders closing costs, title costs, etc. If you're looking for a loan (typically a purchase/refi loan that will be in 1st position) that would be more in line with what I think you're asking. This is unless of course, you have no money to put into the deal, and you're asking for a lender to cover the entire purchase and closing costs, which in that case there are no lenders (professional anyway) that do that. I personally just did this type of financing structure with an investor here in Tampa, FL. I provided 85% of purchase and 100% of the "cleanout" cost, and the investor is turning around and listing it for sale on the MLS. I still structured it like a regular loan though, 6-month, interest-only term. Now I have done business with this investor before, a lot. And if he had wanted to wrap in the interest payments for 6 months I would have done that, as well wrapped in the closing cost or even had the closing costs paid back on the back end, but this was only due to the fact I have an existing relationship with him. I think for someone to offer you some different strategies maybe you could provide some of the following items:

Purchase Price:
Projected clean-out costs:
Projected "Whole-tel" As-Is Value: (value you expect it to sell on the MLS after cleanout)
Projected Renovation Costs:
Projected ARV: (What the Future actual value would be based on an investor going in and completing the actual renovation)
How Cash can you put into the deal:

With this information, it should be much easier to identify your strategy as well offer the deal to a private lender or even private money investor.  (They are different)

@Matheus Santos I'll extend a warm welcome to a Coloradoan!  We love our summer, water, and cigars!  I'm assuming based on your comment you will be working on McDill AFB.  Are you currently involved in USASOC or SOCOM?  I got out in 15 from 7th SFG as an 18E.  Reside here in Tampa, and invest in RE through lending.  Also, manage a small crypto fund, I know pretty broad risk levels but it piques my interest.  Happy to help out if you need it.  I would say to pin-point a zip code in 2022 for where you will invest in 2024... may need a second consideration.  There is a lot of growth to the North of Tampa, Wesley Chapel, Zephyrhills, and Dade City.  These places are exploding in growth, but may very well be cooled down in 1.5 yrs when you get out.  Also, you will very much want to consider your investing strategy as far as loan qualifying factors, and where the rates and economy are at.  I would say look at several zip codes, in the areas I mentioned for future growth, and look in the zip codes in areas of Ybor City, East Tampa, and Temple Terrace for gentrification growth.  There are some really stable markets that do not have the age yet to justify getting properties under contract with steeply discounted prices (at least they are not as available as in the gentrification areas I mentioned.  These stable areas tend to be Carrollwood, New Tampa, South Tampa, and West Shore.  Of course you can find deals anywhere at any time, but for best practices, those are the areas that have different levels of real estate activity and it will be up to you to determine your strategy.  Best wishes and if you are ever in town visiting between now and 2024 hit me up, always happy to meetup, smoke a cigar and chat business.

@Miles Tiglao you are touching the tip of the iceberg of confusion within the industry of lending.  The variations of terms, and definitions between what is a Hard Money vs Private Lenders, and why when someone is told to look for "Private Lenders" they seem to be coming against the same issues for qualifying with a Hard Money.  Is there no difference and why does everyone's default statement say, "Find a private lender, they will be more favorable on terms?" when in reality that does not seem to be the case.  There is a third type of money out there, and I think it's more appropriate for what many RE Investing courses and Gurus teach and that's called Private Money or "OPM".  Now by definition, OPM could be a private lender, meaning they "Loan" you the money and it's secured to the property you are buying.  The problem is they don't know how to underwrite, vet the borrower, property or project, nor understand anything about mitigating risks and shifting those risks.  In the industry of lending they are not a "Lender" they are simple a capital provider, and investor.  When most experienced RE Investors or Gurus say, "Find a private lender" what they are actually saying is find OPM/ Private Money.  I have my own thoughts on why I think this is the worst advice ever, especially for newer investors, but I won't get into that here.  Rant over, now to address some of your questions.

#1: Are private and hard money lenders required to have a license? Whether someone needs a lic or not really depends on three primary factors; State, and Borrower, and Asset Type. Some states require a lic regardless of borrower and or asset type. There are approx 42 states that do not require a lic. if the borrower is an entity. So HML and PL are not required to have a lic if they are lending in those states, as long as certain qualifiers are met. This is where it can be tricky. Some states require a lic, if the asset is a SFR 1-4 unit, regardless if the borrower or lender are entities. Some states, such as mine in FL, will view a loan as a consumer loan (meaning the lender must have a lic. and met all the CFPB requirements to make a consumer loan) in the case the borrower was an individual, even if non-primary resident disclosures and B-2-B purpose loan disclosures were signed by the borrower. A great resource to find out which states require lic. For a specific type of lender check out Geraci Law.

#2: How do you guys vet a lender to make sure they are legitimate? I actually posted a video on my company's page concerning this very topic.  It's a concern and one that many newer investors have concerns about.  If you want to watch the full presentation you can do so on my company webpage, but the highlights are this:
RE Lenders require collateral
RE Lenders require "Skin-in-the-game"
RE Lenders ALWAYS mitigate risks, the primary way they do this, require more "skin-in-the-game" from the borrower
If you ever find a "lender" that uses a "free" email service this should be a huge red flag.  If they are advertising to be a "private lender" yet they are not operating a company, big Yellow flag.  If they don't have a website (big yellow flag)/ social media accounts (small yellow flag) and a consistent presence (small yellow flag) then be more diligent, and ask for referrals.  If they are advertising themselves to be a "local private lender" but you can never get through to them on the phone, big Yellow Flag.  If you cannot meet with them, in person, a yellow flag, even Red in my opinion.  A True Private Lender values the relational aspect of the business, so meeting potential investors face-2-face is highly valued in our eyes.  Hope this helps, and best wishes and much success in all you do.

@Nicholas Moran as a private lender in FL, I agree with @Chris Seveney. HML and PL both will require significantly more than 1% down. The type of private lenders that @Account Closed mentioned are not private lenders, they are called private money.  Private lenders are in the business of making loans.  We have the knowledge, time, and resources to make this a full-time job.  Most importantly we know how to mitigate risks and shift those risks to the borrower.  The type of "Private Lenders" that new RE Investors are told to find by Gurus, and RE Investing courses, are actually people who have no idea about being a lender, how to vet a borrower, project, or deal, and are primarily based on their investment decisions on trust, whether they like the person they are investing with.  Thats neither sophisticated nor wise, but I digress. These types of investors make it easy for inexperienced, newer RE INvestors to raise money because of those relationships, though I personally feel that this is the wrong approach for newer investors.  At the end of the day you should have at least 20% down, maybe even more with the changing environment, and you should find a capital partner (private money) to front the down payment, and even soft costs for your loan, and offer them in exchange equity or profit participation.  The capital stack structure needs to make sense and too many times I see new investors placing debt even in a historically equitable position, and they get themselves in big trouble.  My 2 cents, best wishes and much success!

@Michael Voltner yes as is the case with most builders, even high volume builders. It's always a matter of cash flow restrictions. That is why going with a lender that will offer a draw process would be beneficial. Let's assume vertical construction cost will be $280,000. Let's then assume you have $100K liquid. Now obviously you could not finance the entire build with your capital, you don't have enough. Even if a lender were to offer you the $280,000 assuming the ARV is enough, and pay that to you in full immediately after construction that still doesn't help right? So finding a lender who would do a draw process would work. In this case, let's say you break that $280K project down into 6 draws of $46,667. This means you start the project and put $46,667 of your own capital, which leaves you $53,333 of your own capital. The lender would send out an inspector to make sure the project actually has $46,667 worth of construction completed (all based on a line item breakdown, which I'm sure you're familiar with) and then they wire you back your $46,667. Now you have your original $100K back in your account and you continue to "recycle" that same $46K into your draw 2, then draw 3, and so on. In this way you're able to build a $280,000 with effectively, only $46,667. It's a great solution for a cash-strapped builder. Of course, this does not help matters if you have no capital at all. But there are ways around that; equity structures, subordinate debt, LOC's ect.