Hard money loans? I want to sell my subdivision...

I am interested in buying subdivision property.
Call me and let's chat.

Tim, I finally have a hard money loan that will work for you...

Motivated Broker: Jim, I have a perfect loan for you. I know that the last few
didn't meet your approval, but this loan request is perfect.

Hard Money Tom: Great. Tell me about your hard money loan.

Motivated Broker: I know that you only do commercial and land loans. This
property is 3 lots with a duplex on one, a 4 unit on the other and a regular
house on the third lot. These are NON - owner occupied. Jimbo, this is slam dunk at 65% LTV. How quickly can you close?

Hard Money Tom: Sounds like you have a residential loan...

Motivated Broker: No. In Minnesota, we call non-owner occupied houses a commercial loan. It's a semantic thing. This would be commercial.

Hard Money Tom: Interesting... So, you can call it whatever you want?

Motivated Broker: Yea, it might look like a residential deal, but we call it a commercial loan here in Minnesota. Timmy, can you increase my broker fee to 6%?

Hard Money Tom: I am short, fat, bald and rude. If I lived in Minnesota could I describe myself as a George Clooney look-alike?

You still lending hard money for land and commercial properties? I hear that all lenders have shut off the spigot.

If you have a "common sense" loan scenario, then I still have money to lend.

For me to make a loan, I cannot stress how important the "true" value of
the property is.

Almost every call I get now is someone who says, "The land
is really worth $2,000,000 but because of my special software (or whatever),
I am able to purchase the land for only $500,000.

So, I need a loan for $1,000,000 to buy this $500,000 property..."

PASS.

Not what I do.

Thanks for playing.


PS - want a $250,000 loan to buy that $500,000 piece of land? Let's chat then.

What's the property worth?

"This property is easily worth a million"
"You couldn't give me that property"

"The best appraiser in the region says it's worth about a billion"
"I wouldn't lend 2 wooden nickels on that dump"

"We had an offer for a trillion dollars, and turned it down"
"If you dumped $500,000 into this property, it would be worth about $550,000"

Value. Equity. "Skin" in the deal.

What is the real estate really worth?

Ask seven different people, and there is a good chance you will get
seven "drastically" different answers.

Don't believe me? Let's ask around...

Owner: It is easily worth a million bucks.
Buyer: I think it's only worth $500,000.

real estate agent (for seller): What do you "need" out of it?
real estate agent (for buyer): I think the value could be there.

Appraiser (pressured by seller & agent): Well I could use "these" comps...
Appraiser (pressured by lender): Actually, I could use these "other" comps...

Lender: I think it's worth $400,000.
Seller: If I don't get at least a million, I won't sell.

Buyer (when informed that the loan will be based on the lower of
purchase price or appraised value): I think it's worth two million.

Attorney: I need to put my staff on this assignment. We should have an answer in
about 3 weeks of billable time.

Tax assessor: The mileage rate less the school deduction, carried over to the past and present zoning, leads us to the senior discounted rate of... unless, you don't qualify for the senior rate, at which time the parsec will be re-utilized...

Ex-wife: I don't know what it's worth, but I better get 50% of it.

Barber: The old Perkins place? Shoot me in the foot... Back in the day, it was worth about 4-5 million dollars. Now? Slap me upside the head... I heard that it's got issues now. Not worth a 6 pack. Next!

Senator: We need more jobs for this region.

O.J. Simpson: I don't know what it's worth. But if you see the guatemalan killers, let me know.

MORAL: Everybody has an opinion of value. Some good, some bad.

QUESTION: So who's right?

ANSWER:

Hard Money Lender, Why should I use a Hard Money Lender?

I am a hard money lender. I make loans on commercial property and land.
I cannot make residential home loans.

If you have recently "graduated" from a weekend seminar on flip'n houses,then I cannot help you. Remember, I am not a hard money lender that can make loans against houses. I only can lend against commercial property or land.

Most of my hard money loans are "cash back" refinance loans to the existing owner of the real estate. I am usually not the best source for someone trying to purchase a commercial property (or land) because of the fact that I limit my loans to typically 50% of the purchase price. And most buyers do not have the other 50% to buy the property.

So the typical loan I make is to someone who already owns the real estate. The borrower has a large equity position in the property, and usually wants to tap into the equity in the property to use for whatever reasons they may have...

The deal with a hard money lender like me is that I am NOT going to ask for tax returns or bank statements, but because of this, the loan will be expensive as far as interest rate and points. Also, keep in mind, my loans are usually only one year in length. This means that the borrower only has 12 months to figure out how to pay me back. Typically, this means getting another loan to pay me off, or selling the property.

So, bottom line: My money works great for equity rich commercial/land deals where the borrower understands that it will be expensive and short term money in exchange for no tax returns/bank statements or documented income from the borrower.

Hard money lenders like me are not the answer to every loan scenario. Actually, hard money loans are just a tiny sliver of the lending community, but our niche in the lending market place certainly is welcome relief to many who need us.

Want the full skinny on what I do? Check out my hard money lender website.

Want to see if you can be a hard money lender? Take this test:

What follows is a true life (happened yesterday), example of a potential hard money deal.

Broker: Here is a nice loan for you. Property is a 10 unit apartment outside of Dallas, TX.
Property will appraise for about $1.3 million. Due to the fire, the owner just wants to sell the property and be done with it.

My buyer has negotiated a purchase price of $780,000 (which would be 60% LTV). He is a good borrower, with a 589 score.

Buyer intends to use $200,000 of the proceeds for fixing up the fire damaged units.

How fast can you fund this 60% LTV hard money loan? Buyer is a licensed contractor, and has already received numerous sub-contractor bids to fix up this property.

Expected time to re-model should be 2-3 months, at which time the buyer is simply going to sell the property for around $1.7 million or so. This will probably only be a 9 month loan for you.

OK - that's the hard money loan request. DEAL or NO DEAL?

send me an email with your answer: mailto: I have an answer to your hard money test

Good luck to all who answer.

Is it me? Have I lost my mind? My compassion? Am I too cynical?

Typical conversation I have with a borrower:

Hardmoney Tom: Your property sounds fine, and I like making 45% loans on 20 acre parcels in Texas.

Potential Borrower: Great, how quick can you fund it?

Hardmoney Tom: I typically fund 3-7 days after I receive title and appraisal. Tell me more about this cash back refinance... How much do you still owe on it?

Potential Borrower: The bank is really jamming me up on this. The loan guy at the bank is a complete moron, and I refuse to call him anymore.

Hardmoney Tom: Oh, you are current on the existing loan aren't you?

Potential Borrower: Yeah. I have been setting aside all the payments for the last 6 months.

Hardmoney Tom: Setting aside? What does that mean? Are you current and up to date with the existing loan you have now?

Potential Borrower: Yeah, I have some of the payments right here. The jerk at the bank told me they won't accept my payments anymore. Can you really fund this new loan in the next 3 days?

Hardmoney Tom: Hmmmm... Sounds like the "idiot" bank has you in foreclosure. What happened? And when is the foreclosure sale date?

Potential Borrower: I told the guy at the bank that it might be a while for me to get back on my feet. But I specifically told him that eventually, I would get all my missed payments caught up.

Hardmoney Tom: How many payments behind are you?

Potential Borrower: The bank says I am 11 payments behind, but that's not right. They have some stupid accounting system... The foreclosure sale is set for next Friday. Can you close this new hard money loan in the next 3 days like you said you would.

Potential Borrower: I just want to get away from this bank... I don't like them.

Potential Borrower: I am not that picky about interest rate, but we do need to close quick.

Are Hard Money Lenders really trying to make loans and then Foreclose on the real estate?

Nope.

Certainly not a hard money lender that makes loans nation wide. But, if you have some little ol feller making loans only in his local neighborhood/area, then I would imagine that this "loan to own" scenario does happen.

My experience is that when a borrower defaults and I have to go thru the foreclosure process on one of my hard money loans, what typically occurs is that the property mysteriously is not worth what the appraisal indicated it was worth.

Now how could that happen?

Borrower drama, Attorneys, Bankruptcy court, Bankruptcy trustees and judges, WAY to much brain damage to make a living going that route... Only in about 1 in 20 deals will a lender go through a default, foreclosure, fix up, re-sell process and come out "smelling like a rose."

This is just my experience...

Do you lend in Africa, The Caribbean, South America?

No.
I can only make hard money loans in the USA.

Loans are based on the value of the collateral.

Let's scrutinez this potential deal: This borrower inherited 2 land parcels about 2 years ago and both are free and clear. He now wants to refi both parcels and get as much cash out as he can to put into his business. Let's see if we would help him out...

The borrower:
Bad credit borrower - Never paid a creditor in his life, pulling a 469 credit score.
No income - Self employed corn cob pipe maker, never filed a tax return ever.
Recently divorced - He has no idea why she left him.

The property:
Property "A":
7 acres just outside of town.
Utilities in street adjacent to property.
Friendly real estate agent says property is worth about $400,000.
Just 1/4 mile down the street another 6.5 acre parcel sold within the last
2 months for $415,000.

Property "B":
8 acre parcel located 55 miles away from town.
Good hunting area. No utilities, power just about 4 miles away.
Friendly real estate agent says that a 12 acre mobile home park with 33 spaces
just sold last month for $600,000. The mobile home park property is only 9
miles from this parcel. Also of note is the fact that another 115 acre parcel
sold about 8 months ago for a reported $500,000, and this 115 acre parcel is
just in the next county about 17 miles away. Based on these comps, agent feels
our 8 acre parcel should be worth about $300,000.

I would be happy to make a loan against property "A", but I wouldn't touch
property "B."

Reasoning: I don't really care about the borrower that much... He sounds like a nice guy.

Property "A" has good supporting "comparables." Similar property
to the subject, that is close by, that has sold recently to indicate what is
the current value.

Property "B" does NOT have good supporting comparables (comps). Lacking
good comps means that the appraiser/agent/borrower/lender is just really
GUESSING as to what the value of the land is.

If the property has GOOD comps, and if it can be determined with great accuracy, what the current value of the property is - then I am more than happy to make a hard money loan on that property!!!

If the property does NOT have good comps, then even if the borrower is Paris Hilton, I would say, "thanks, but no thanks" on her potential hard money loan.

"Tom, this is Al with Smoke-n-Mirrors Funding..."

"Hi Tom,
Hope you had a nice holiday! How was the family? Blah, blah, blah...

Tom, I have a nice loan to submit to you -

The Property: 150 acres of prime Texas dirt. It's a great location,
recently rezoned commercial, and I understand Wal-Mart is moving in next door.
Borrower bought the property over 5 years ago and only owes $800,000 against it,
and it recently appraised for $3.7 million!

The borrower is only looking for a 45-50% LTV loan, and wants to have a 2 year interest reserve holdback out of the loan proceeds. The borrower expects to have his $20 million dollar construction loan in place to pay you off prior to the 2 year balloon date.

Tom, how quickly can you fund this slam dunk loan? The borrower is getting a little antsy..."

Tom thinking to himself: Man, this does sound like a decent loan so far. But, I have dealt with Smoke-n-Mirrors Funding before and based on previous calls I think I need a little more info about this slam dunk deal.

Tom: Al, sounds great so far! Tell me more about the borrower.

Al: We have a good borrower, but he has fallen behind on the existing mortgage with the bank. He just doesn't get along with the guy at the bank for some reason. Anyway, the bank
had him in foreclosure, so our borrower had to declare bankruptcy to hold off the auction.

This loan will get him out of the bad deal he has with the bank. How soon can you fund it?

Tom thinking to himself: Al, you piece of work you. Were you NOT going to tell me about the little issue of the borrower being in foreclosure and currently in bankruptcy?!?!?

Tom: Al, I would love to get involved with this slam dunk deal, but I think I hear my wife calling me... yep, gotta go.


Note: Every deal has some "hair" on it. Why is it that every one wants to gloss over the bad part of the loan? In 99% of the cases, it will eventually come out at some point in the processing of the loan. Why not address the "issues" up front, and see within the first 2 minutes if it will be a deal killer?

So a broker calls me and says, "I've got a hard money loan that is right up your alley."

Great. Tell me about this loan.

"You do land deals right? This one is a sweet 50% LTV deal on a water front lot in Florida. We have a good borrower with a 720 mid score who has owned this waterfront lot in Florida since the '80's. Property should be worth about a million bucks right now, and after he develops it the property will be worth about $3-4 million.

Can you get him a 11.95% rate for this slam dunk deal?"

Yes, happy to. Just like you mentioned, this does sound like it's right up my alley.
Fax me a 1003 and credit on the borrower. I will then fax over a Letter of Intent. Once the borrower signs the letter of intent, I will call a couple local appraisers so we can verify the current value of this waterfront lot.

"Oh, this guy doesn't want his credit pulled. And he told me that he doesn't need to fill out any forms, because this is a hard money loan, and the property is very valuable.

He also is not sure that an appraisal is necessary because right now the lot is actually under water. His plan all along is to take the loan money and build a boat moorage facility on the lot.

He does want to know if you can fund it by the end of November? Can you please expedite because I get the feeling he will take this loan to another broker if I can't find a lender quick."

The preceding is true. The Truth is actually stranger than fiction. This type of stuff is hard to make up. I have not changed the names to protect the innocent or guilty.

Florida swamp land? No. This was Florida completely under water land.

Hard money brokers: Love 'em or shoot 'em?

60% of the loans I look at are submitted to me via loan brokers. Now understand, I do NOT make any residential home loans.

Of the brokers that call me, almost all of them are brokers who primarily only handle residential home loans. These residential loans are made to the home owner/borrower and immediately sold to a big quasi government agency like Fannie Mae or Freddy Mac.

In other words, the broker is only getting a commission on the transaction, and once the loan is closed and sold off to Fannie Mae, the broker could care less about the loan, the borrower, the lender etc.

Believe it or not, most loan brokers don't give a rip about anything associated with the loan, other than closing it and getting paid a commission (I know that sounds strange).

The problem for me is that I am loaning out my money. It doesn't get sold to anyone. I live with the loan (good or bad).

Now if the broker only gets paid if a loan closes, and gets squat if the loan doesn't close, do you think it is out of the question that some of these brokers could be "fudging" some of the information on the loan applicants or property?

U.S. Treasury Department's Financial Crimes Enforcement Network (FinCEN) reported that mortgage loan fraud in the United States rose 35 percent in the past year.

Smokey Bear says, "Only you can prevent forest fires."

President Reagan says, "Just say no to drugs."

I say, "don't go to jail, tell the truth on your loan."

I just got off the phone with you, and you mentioned that the interest rate would be 13.95%

"That is an outrageous interest rate! Who do you think you are?"

I am just a private hard money lender.

My money is not appropriate for every borrower.

Let me share something with you. This blurb is posted on the main web site: http://www.hardmoneyonly.com

I will only consider your loan request if you have been turned down by another bank or lender.

If you have not been turned down, please stop now, do not continue and I would encourage you to call your local bank first.

You should first try getting a long term, low rate loan with your local bank. The reason for this is that I only make short term, high interest rate loans.

If you can get cheap, long term bank financing, then you should.

If you (or the property) cannot qualify for a bank loan, or if you don't want to jump through all the bank hoops, hurdles and red tape, then please call me.

Outrageous interest rate? Maybe.

25 years ago, we drank water from the garden hose. Now people are paying $2 for a bottle of drinking water? Now that's outrageous.

Hard money loans - Value, Value, Value. What is the property worth?

Consider this scenario:

"Mr. Hard money lender, my property is worth $1,200,000. I have owned this vacant commercial property for 4 years and only owe $315,000 against it. My fico score is 618 and I am self employed. Can you make me a 50% loan with no bank statements, no tax returns, no nothing, other than an application, title insurance and an appraisal?"


My response, "Of course I can. All of my loans come down to clean title and acceptable appraisal to verify the value. So, in this case I am happy to make a $600,000 loan against this property. Let's get going with it."

Now let's fast forward 8 days...

"Hey Mr. Hard money lender guy, this is the appraiser calling you about that vacant commercial property. When I went out to do my appraisal of it, I noticed that there was a FOR SALE sign posted on the property, from a local real estate agency here in town.

When I called the local listing agent he mentioned that the asking price for the property is $850,000. He mentioned that it has been on the market for just under 4 months.

Oh, and by the way, the borrower keeps calling me. He wants to know when my appraisal will be completed and he keeps pestering me about the fact that the property is 'easily' worth $1.2 million. Since you are the lender and the client on this appraisal, I just wanted to give you a heads up about this."

Deal or No Deal?

Why did the borrower represent that this property is worth $1,200,000?????

The propety is sitting on the market and NOT selling at $850,000. Is this borrower on crack? Is the borrower trying to scam the lender? I gotta tell you, I see this happen all the time...

NO DEAL.

Mr. Borrower, your "pants are on fire."

"OK Mr. funny guy, are you saying that you will make a hard money loan on any real estate if it makes sense?

Fair question to ask me.

Answer: No I won't.

Consider this scenario:
Property with only $250,000 in liens against it.
Borrower thinks it will appraise for $1.2 million.

"But I want to refi my old gas station property. I will be turning it into a pizza parlor (once my ex-wife moves out). Just because the IRS has liens against me is no reason to deny this loan. And I really don't think the old Environmental Protection Agency will enforce their cease and desist order..."

Thank you for playing. PASS.

Even though a ton of equity in the property, I would pass on this lending opportunity.

Have a great day!

"Currently a taxi driver, 532 score, nothing down..."

I just got off the phone with broker Toby. Toby said, "I saw your web site and thought this might fit, because you offer hard money loans with 100% CLTV. I have a deal were the seller is motivated to sell the place and carry back a big 2nd position loan."

I asked Toby to tell me about my potential borrower and the property:
"He is currently a taxi driver and has a 532 mid score. The property is a restaurant but has 2 extra lots. Property value and purchase price is $3.3 million, and the taxi driver doesn't have any down payment. Oh, and the restaurant needs some fix-up and updating done to it. But, the bikers like to eat there..."

Sound like a good deal for your local community bank? NOT!

Want to know what my response was to this hard money loan request?

"Toby, I can offer a loan on this scenario, but I would only be interested in making a 30-40% 1st position loan. The seller can carry a big 2nd. My interest rate and points would be 14.95% and 7 points at closing."

Expensive? YES.

Would you lend your own money on this deal?

Will you really make a loan to a bad borrower?

I am an equity based lender. Would I be comfortable making a loan to a borrower who
never pays anyone back? It all comes down to the property...

What I have to consider as a potential lender on every deal: If the borrower defaults, can I re-sell the property relatively quickly, and for how much can I sell it?

Answering this question is the "bottom line" in considering any potential loan I do.

Question: Will I make a hard money loan to bad borrowers?
Answer: Of course I will.

Question: Will I make a hard money loan on any deal?
Answer: Absolutely NOT.

Why would a bank lend 100% against a frumpy, dumpy house, but not lend 45% against 20 acres of land?

I dunno. It doesn't make sense to me.

Read the post down below under the title of
"Tell me again why banks won't lend on land?"

Hard Money For Land or Commercial Property

Hard Money For Land or Commercial Property

Back to hard money land and commercial loans

Appraisal dilemma!!!

di·lem·ma (dĭ-lĕm'a) n.
A situation that requires a choice between options that are or seem equally unfavorable or mutually exclusive.

Appraisals - the black box of the hard money lender...

Consider the scenario: Two identical 5 acre parcels sitting side by side in Oshkosh, Wisconsin.

Parcel #1 is owned by Jack Handey. The property has been in the family for 30 years and he just loves the natural look and feel of the vegetation: pasture type grass and nice tree cover. Jack loves bird watching on the property and would never want to disturb this little slice of heaven. Even though Jack feels the tax value of $70,000 is way to high, he loves this little paradise.

Parcel #2 is owned by Big Thinkers, LLC. They bought the property last year and intend on building a new "Super Jackpot" Casino and Hotel on the property. Once the magnificent casino and 20 story hotel is completed, it will be worth about $50 million dollars. The cost to construct and complete the "Super Jackpot" will be $40 million dollars.

By using simple math, we can obtain the current land value: $50 mill - $40 mill = $10 million

Question: Two identical parcels - is the value $70,000 or is the value $10 million?

Did you know you could get a local appraiser to give you either value?

Tell me again why banks won't lend on land?

After extensive research into this question, I have some significant findings:

Some banks will lend on land deals (usually it means that the borrower is A+ credit).

Most banks had a rash of land defaults in the "Great Depression" of 1929-1938.

Ever since then, the Bankers Manual of Lending has been handed down from bank president to bank president over the ensuing years...

Chapter 2 in the Bankers Manual of Lending is entitled: "Make a bad land loan and you are toast!"

Chapter 13: "Learn from the past - Don't lend on land"

Chapter 21: "Would you rather have a loan on income producing property, or on 30 acres of bare dirt? (that isn't bringing in a penny of income)"

As you can see, this secret banking manual is the reason why it is so hard to get a loan on land.

If you need research on other "hot" lending topics, just let me know. I will have my crack research team get right on it.

If you want to skip the research and just deal with a no-nonsense
hard money lender that specializes in land loans
then feel free to check it out.

Chapter 32: "Grooming habits of a banking professional" - The part about nose hair had me howling..

Hard Money for Land - Why don't I just go to the local bank?

Let's start with a few definitions:

Land: Any type of land. A lot, acreage, a subdivision, farm ground, land is anything that doesn't have a building or structure on it.

Land is NOT to be confused with a house, a commercial building, a business property etc.

OK - that was pretty easy. Let's continue...

If you are trying to get a loan for the purchase or refinance of land, then the first thing you need to do is to call your local bank and simply ask them if they CAN make a land loan. Many banks cannot or will not make a loan against plain land. Why? I do not know.

If you can find a local bank willing and able to make a loan against your land, then my recommendation is to take it. My money will probably be more expensive to you than the banks money.

The bad news is that IF you can find a bank able to make a land loan, they will take forever to actually close the loan.

The reason Hard Money Land lenders exist is because of the void in bank lenders for land...

Overheard at the lending department of a local bank...

After hearing the borrowers request for a land
loan, the local banker said, "I'll carefully review
your land loan proposal and get back to you with
a "no" as soon as possible."

Looking for a land loan? Need a prescription to prevent hurling? Try Hard Money Lending...

Hard money lending is for people or properties that do not meet, or do not want to meet the lending guidelines of the local banks.

Some banks will vomit if you ask them to make a land loan...

Some borrowers will vomit when asked to provide ALL the red tape documentation that most banks ask for...

Hard Money lending: Helps prevent the spread of vomit :-)

(For immediate relief from potential loan sickness check out this hard money lender)