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.
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.
posted by hardmoney Tom at
8:03 AM
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