All Forum Posts by: Farley Youman

Alex: you made some good points about "private lending", etc. I actually looked up the definition of private lending one time, and the best that the internet could come up with is that a company could call themselves a private lender if they have direct access to the money at their company. However, as you said almost everybody states that they are a private lender whether they are or not.

You used the key word- "individual". I would call this loaner a private individual source- with the emphasis on the word individual.

-You mentioned that the individual would have more flexibility. For their own sake of risk, hopefully not too flexible! They would need to be at least a little more flexible and of course faster to differentiate themselves from the big lenders.

-There are a lot of myths about private individual money. For example, that it has a lower interest rate. The interest rate can be whatever the individual sets it at, so it could be lower, but so far all the private individual sources I deal with are in the mid-range of interest rates for fix and flips. Most investors I deal with are happy to pay a little more for the expediting loan process to get it closed fast if need be- so as to not lost a great property deal.

In the lending industry, lenders see more default on payments with new construction than fix and flips. When it comes to lending to a builder that has not financially ever been on an operating agreement, the default rate goes through the roof. Thus, we do not even set up loans with new clients for new construction, unless they partner up with a builder that has financial experience with new construction. Here in Atlanta (and for the SE), I have a builder that has already been vetted by lenders. I sometimes set him up with my loan clients.

Since I set up loans every week, and deal with a wide variety of sources for the loans, I see what the lenders do to reduce risk. Their methods are extremely cautious and this is why they are able to loan millions per month and rarely have deals that go into default.

If I was in your shoes, I would also be extremely cautious, and would not set up a loan unless you partner up with an experienced loan broker that knows how to reduce risk. The set up cost for you to go with a broker would be no extra cost to you- the investor that borrows the money would pay the set up fee. Good luck to you Vito and everyone else out there wanting to loan money. When loaning money the right way, it can definitely be better than doing rentals, etc.

Benjamin: The great news is that you are still young and want to learn.

Please consider the following as you come up with your 10 year plan:

-90 percent of millionaires are from real estate- not stocks. It is not because you cannot be a millionaire out of stocks- some people are wealthy from this angle. It is just that a lot of people lose from individual stocks. For most stocks, you need to have a worldwide knowledge.

To be successful in real estate, you only need to know 1 or 2 zip codes in Columbus or another city in GA and you will be set. I suggest you use around 10K to 15K to get a hard money loan set up at 100 percent funding (no money down) to renovate a property and then rent it out- but do not target making just enough to pay the mortgage. Target at least $500 above your loan amount.

Start slow Benjamin but learn. Remember my mantra- not location, location,location, but instead be cautious, cautious, cautious!

I will be glad to help you with your pursuits.

A lot of people say wholesaling is the easiest way to go into real estate. Or, would it be easier to start off as a hard money loan rep?

I have asked 30 people in the southeast for an "informal" survey, but wanted to get input from the bigger community on bigger pockets. 

Which one is easier, and why? Thank you.

The easiest way to initially figure out if a deal is a good deal or not (for fix and flips) is by doing the formula every lender uses to qualify a loan (70 to 75% maximum of the ARV). The formula only takes a minute if you know your numbers.

For an easy example:

-purchase is 100K

-renovation is also 100K

-ARV is 300K

-Loan to value is 67 percent, so this is a "qualified loan". Not only that- it could be set up for 100 percent funding!

For a loan example that we would not qualify for a loan (unless you want to make a down payment):

-purchase is 150K

-renovation is 100K

-ARV is 300K

-Loan to value is 83 percent, so this is not a loan we can qualify you for unless you want to bring a down payment to closing.

Here in Atlanta, it is getting harder and harder to find deals under 70 percent because of all the competition. Thus, if you find a deal at 65 percent or lower, then sign for it fast. If you do not want it, please send to me!

>>>Please note that if a lender does not qualify you for the loan based off of the above formula, the deal is probably a bad one for you, or at least has a very narrow profit margin. There are always exceptions in real estate, so you may still be profitable- but less likely.

***The bottom line is that the lender formula is a good way to at least start the process of analyzing a deal. If it qualifies for a loan, then you could narrow this down more (how much profit you project). Finally, all of these numbers only work if you have the correct numbers- so have the best team around you to help you (wholesaler, real estate agent, contractor, and loan rep).

Getting with the right builder should be the best way to go for the following reasons:

-builders will know how to best guide you on the cost of clearing the land and the construction cost; and the arv (especially if they have done some nearby properties). Make sure you have the correct comps.

-a good builder should be able to advise you on whether a house can even be built there; I heard a recent story about a person who got a so called "good deal" on 2 acres of land- only to find out that they could not even build a shack, let alone a house! They already bought the land, so it was a total loss. Not a good way to get into real estate!

-and most importantly if you are needing a loan, we do not normally set these up for a person that does not have experience. Not sure if you have experience or not, but lenders will look for this in you and/or with the builder. I am not just talking about building experience, I am mainly talking about what I call "financial experience with building". In other words, has the builder made a profit by being on an operating agreement?

Good luck- be sure to be super cautious and do your research.

Banks are an option, but if they cannot complete what you want (or take too long), please consider a hard money loan.

I am checking to see if you have considered a SFH with a finished basement? One strategy is for you to live in the basement, and rent out the main part of the house to basically pay for your mortgage.  As you become richer (or even now), you could do this in reverse- you live in the main part and rent out the basement. You ask a good question about the cost of converting a SFH to a duplex. The time and money should definitely be considered, and also the city regulations.  Good luck Aaron.

Doug: great point about lenders that wait until the day before closing to state that they cannot do the loan, or change the terms at the last minute.  I had one loan source do this recently to one of my clients- and I will have never use them again.  You are right about losing the appraisal money- not to mention time, etc. 

When last minute changes are made by the lender and the client's purchase deadline passes- the deposit money is also lost.  Bottom line, low interest rates are easy to get, but the key at the end of the day is can the lender close in time with the original offer.

Winona:

To save you time from calling multiple lenders to come up with the correct loan product, in my opinion, you should get with a good broker. The broker has already made all those calls for other clients and will get you set up with the correct source. Depending on the broker and the size of the loan, there may be no extra charge by going with a broker and he/she will answer all your questions and guide you through the process.