All Forum Posts by: Theodore Rivera

@Sharon Tzib Thanks for taking the time to post the numbers for the Houston market. 

@Ashley Hirtle I having some experience in private lending in the Houston market. There are lenders out there who do lend based on asset rather than what appears on your credit. Yes, experience does play into whether a private lender would loan on a deal, but then again so does character and a few other things. Lack of experience can be overcome by bringing on experienced members onto your team. If you lack rehab experience hire an experienced GC. If you buy right you should have no problem finding a lender who will lend based on asset value. Example: Property value after rehab $100k, purchase $50k with a rehab of $20k. Those numbers would work all day long for an asset based loan. Keep looking.

Huy,

You're certainly asking a lot of good questions, but as James C  stated "trying to categorize them is like herding cats" they are all over the place with regards to how they lend their funds. 

Have you considered a private lender? A loan from a private individual, rather than from a organized lending company which is where I would categorize an HML. A private lender would be more in line with your "uncle Bob", "best friend Steve", or "neighbor across the street". Private lenders generally tend to be a little more flexible with their lending practices, thus easier to work with.

As long as your deal makes $ense, you should have no problem finding someone to fund your upcoming projects. 

Providing your 4-plex numbers above are accurate, I foresee you having no problem in getting that deal funded. 

@Sam C. I have been a practicing private lender here in Houston since 2014. If you are interested in learning more about becoming a private lender let me know. We can certainly meet for coffee to discuss some of the in's and out's of private lending. Feel free to reach out to me or send me a private message. 

@Nishi Lagoo You mentioned you have seen pictures but have not walked the house and that this is your first purchase. $30k for a flooded house rehab? I seriously doubt it. Salvaged cabinets in 6 inches of water? I would think not. Did the wholesaler provide you the numbers? Or did you arrive at those numbers? If you used the wholesale numbers, I would consider them useless. Do your own due diligence on deal, run your own comps, get a general contractor or a friend in the business who can help you with the rehab costs. Vet the wholesaler. Can he or she provide references? 

@Ayman Elmasik There are plenty of private lenders in Houston and finding one shouldn't be a problem. Here is how I view private lending. First and foremost, private lending is relationship based, meaning if a connection is not made between lender and borrower, typically no deal is made. Secondly, comes experience, does the borrower have experience and to what level. If there is lack of experience at any level, then who does he/she have on their team that can assist in that area (i.e. construction, deal structure etc). Does the deal make sense. Did the borrower buy property at the proper price point to be able to interest a lender when all is said and done. Vet borrower and deal. 

Here are some basic guidelines from a private lender perspective. Purchase price 70% to ARV minus repairs, attorney drawn promissory note, deed of trust along with some additional documents, closing at a title company, title insurance for borrower and lender, hazard insurance with lender named as additional insured, repairs costs held in escrow and distributed in conjunction with rehab progress. Let's not forget flood insurance if in flood zone. When all is said and done, the risk from a private lender is mitigated. Worse case scenario would be foreclosure in which lender would have to take possession of property at 70% to value. This would allow lender to take over rehab, or quickly market in wholesale market for quick resale.

Not all situations can be seen from the onset, however one can drastically mitigate the possibility of a project failing using the above mentioned as a guideline. 

@Alex A. I would agree. Interest income.

@Sharon 

@Sharon Tzib I simply want to say thank you for your consistent output of the Houston Housing updates. 

@Toyin Dawodu You post hit home, not so much from a borrower perspective but from a lender perspective. In the last year or so I have heard more stories from borrowers describing what you have mentioned on your post. 

I believe this is in part to the tie in that these lenders have with conventional institutions along with the rollover transitional loans they are marketing. I have seen heavy marketing by these hard money lenders go in the way of providing funds for purchase and rehab of properties with a semi-automatic roll over to a long term 20 year amortized loan which are being underwritten by "conventional means". 

Good, bad, or indifferent? Well that depends on needs of each specific individual or services that are provided by HML's or private lenders. All in all, I believe Toyin has provided some insight that I too have seen in the market place. As for me, I will continue to serve the needs of my investors.

@Rae Dolan

1. Here is the general answer for the 10%, 12% interest, and points paid upfront or on the backend. It all comes down to what you and the lender negotiate. What would I personally agree upon as a private lender? 12%, monthly interest only payments and 2 points paid on the front end. I personally wouldn't be too concerned about the 3 month minimum being that the sooner I get my money back the sooner I can make another 2 points on the money, and if I'm doing things right I should have no issue finding another borrower. Again I emphasize, that would be my criteria. However if you found Mr. and Mrs. Jones who have a pile of cash sitting in a bank account earning a whopping 1% interest, then they may be thrilled to know someone who would be willing to give them 8% interest on their money with no points. 

2. Yes, most lenders would prefer 1st lien position, however you might be able to find one that might take a second providing the deal makes sense. However to eliminate the 1st position and 2nd position with two lenders on the same deal, each of the lenders would need to agree to take an undivided interest on the loan based on their percentage of money funded. That would allow both borrowers to take 1st lien position. 

3. The private lenders are paid back by foreclosing on the borrower, and if they did their homework correctly, the money they funded would be at about 70 to 75% the value of property at that specific time. They simply take the property from borrower.

4. So how does private lending work? You network, run into a lender, invite them for coffee, get to know each other, talk about real estate, and if all goes well, you get to go on another date where you are the borrower and they are the lender. With private lending, it's all about the relationship.

5. A good flipper as well as a good private lender, would be able to assess the value of a deal by running comps on the property for the After Repair Value. They would also be able to assess the property in it's current condition to estimate the cost of rehab within a 5 to 10% margin. They would also take into account holding cost based on planned exit strategy. There should never be an excess of 300K of unused funds on a 500k deal. That's like saying you had a 100k deal but only ended up using 40k and had an excess of 60k. As a lender I would be thrilled to fund such a deal but honestly this should never be the case. 

5b. Refer to answer 3

Yes, always use an attorney and always close at a title company.