Avatar's Blog

Now that Sub-prime has basically disappeared, the hard money-money lenders are pretty much the only source of capital for many people. 

Once a thought of a last resort strapped borrowers, hard money loans which have different lending standards than traditional mortgages, are attracting a larger, more affluent group of consumers.

Unlike a traditional mortgage, which is largely defined by credit scores and the borrower's ability to repay, hard money loans are based almost entirely on the value of the underlying asset. That means a borrower's income and credit score aren't nearly as important as they otherwise might be.

Borrowers needing a short term loan or a 'bridge' loan are required to have substantial equity in their collateral - either their home, investment property or commercial property - of 30-40%.

Consumers who need quick access to financing to close on a property in as little as 2 weeks or less are good candidates for hard money.

Consumers who do not meet conventional bank financing but have substanital equity in their property are good candidates for hard money.

Be prepared to pay higher interest rates and fees and you will want to refinance as soon as you can into a traditional mortgage.  Once that is accomplished there should be no reason for another hard money loan.

A good broker never tires of finding a good tip to get attention and positive response from a lender. Surprisingly, I find very few good tip lists out there. If anyone knows of some, please share them with me (just shoot me an email). Here's a tip even veteran brokers might find beneficial:

Commercial Broker Tip: How to stand out from the crowd on the phone.
A lot of a broker's time is spent marketing, making connections, talking to prospective borrowers, and making connections with people who might refer business to them. A good broker is a bit of a chameleon: s/he understands how to speak to people in ways that make them comfortable. Often however, when it comes time to communicate with the lender, the broker is either 'all talked out' or ‘stressed out’. The same skills that bring in the clients are lost at that moment. My tip is: find them!

Recognizing your ability to make people comfortable and using that skill when communicating with everyone at the lender's office is going to set you apart from the usual crowd. Chances are, the lender you're calling has already fielded calls from twenty two fast-talking and three grumpy brokers by 11AM. Stand out from the crowd by saying hello, providing your full name and pausing for a moment if the lender wants to write it down along with your phone number and email address. Introductions and pleasantries should take 10 seconds or less; lenders are super-busy people, as you have probably experienced. Remember, you want them to warm to you, not wish you'd hush up and get off the phone.

Pace your presentation and begin with the bare facts. Here's an example that works:

“Avatar Financial Group, this is Allison.”

"Hi, Allison, this is Evan Jones from Mutual Brokers in Texas. Thanks for taking my call. I have a client with a retail strip mall in Dallas that he wants to refi. The property was valued by an appraiser last month for $2.1 million. He needs $1.6 million to pay off a first and get some cash out. Can Avatar fund that loan by the end of the month?"

Slam dunk! You're suddenly my favorite broker of the day! A pleasant tone in your voice, a brief acknowledgement that you are speaking to a human being, and a clear statement of the bare facts in 30 seconds or less means we can both get this ball rolling now.

The easy part? - the pleasant tone in your voice, a moment to repeat the lender’s name and say thanks for taking your call.

The more work-intensive part? - getting all the bare facts before you start calling. Get the following for those precious first 30 second communications:

• property type - be as specific as possible in 4 words or less
• location - city and state
• value, including how and when it was arrived at - critical additional data that sets you apart from the crowd
• loan amount - a ballpark is ok; be clear about the minimum the borrower can take and the amount the borrower would optimally like.

That last one - letting the lender know the minimum and optimal loan amount – can really set you apart in a lender's eyes. It lets them know you are pragmatic and will work with them to get the best deal possible without killing the loan. You and the lender have a common goal – to fund worthwhile loans and make a good living doing it. Here’s just one way to let the lender know you are on the same ‘team’ and ready to help make a deal work.

Even if you don't get to the finish line this time, chances are when your name comes up, you'll be described as an efficient broker who handles solid deals. In other words, someone the lender wants to hear from. Good luck out there!

Hard money commercial lenders tend to fund up to 65% of what is commonly termed, "the fair market value" of income producing commercial real estate property. Brokers would have an easy and profitable career indeed if lenders routinely funded 100% of the cost of purchase or even up to 80 - 90% of the value of properties for refinances. Since that's not the case, here are a few tips for creative loan packaging that will help to meet the needs of clients as well as the funding requirements of lenders.

Blanket Loans are loans utilizing more than one piece of real estate collateral. Here's an example of a commercial real estate blanket loan:

Assume a borrower wishes to purchase a retail strip mall at a cost of $2,000,000. As a hard money lender, Avatar will lend up to $1.3 million (65%) for the purchase. The borrower must come up with the balance. Note that hard money lenders will lend up to 65% of the lesser of the actual price paid for the property or the appraised value. If the borrower is getting a 'fire sale' price and the property is appraised at $5,000,000, the 'fair market value' of the property is still $2,000,000. It is the price for which the current owner is willing or is forced to part with the property on the market today. Therefore, we work with a price of $2 million and a first lien loan of $1.3. Read on...

Assume further that the borrower already owns two other pieces of property: an apartment complex with a recent (6 months or less) appraisal of $1,500,000 and a skating rink valued at $800,000. The skating rink has been in the family for years. It is free and clear. The apartment building has a mortgage on it for $420,000. Both properties operate with some profit. Here's the summary:

 

Property	Value/Price	Mortgage
Skating Rink	$ 1,500,000.00	$   800,000.00
Apartment Building	$ 1,200,000.00	$   420,000.00
Total	$ 3,700,000.00	$1,220,000.00
	$ 2,405,000.00	65% of the value of additional properties
	$(1,220,000.00)	Less amounts to be paid off to current first lien creditors
	$ 1,185,000.00	Potential net additional funds from a blanket loan
	$ 1,300,000.00	65% hard money loan on the new property purchase
	$ 2,485,000.00	Total potential funds available by collateralizing all three properties

The borrower can potentially take out a loan to cover the cost of the purchase and have some extra working capital to make some improvements or market the properties as well. Blanket loans are an excellent way to get additional capital when 65% of the cost is insufficient.

I bought a television a couple of months ago. It’s a nice big LCD deal that now hangs on the wall of our living room. When we were buying it, my husband and I considered buying the television outright or purchasing the set on credit through Circuit City and Chase Bank. My husband and I are both young and have no college debt, so we thought; “What the hey! Let’s build some credit and take out an eighteen month, no interest credit line with Chase.” We took the television home and waited for our first bill.

A month later, my husband and I moved apartments and called Chase, among other institutions, to have them change the address on our bill. This process took quite some time: it appears that you cannot change your address online, and my husband went through a number of cyclical telephone systems until he found a disgruntled operator who would change our address. After all, one would not want our television bill to go to the wrong house... what if we somehow missed a payment!

A few more weeks passed and we were expecting another bill. Days went by, and no bill arrived. Logging on to our online account, we figured out why: the operator at Chase had typed in a completely erroneous address. Names have been changed, but the principle remains: say our street name is Eastridge Way North., the address had been entered as Eridge Way. No “North” in sight. No wonder the bill had not arrived.

We paid our month’s bill online and got back on the telephone to correct the error. This time, however, getting hold of a human being was far more difficult than it had been previously. The toll-free number on previous billing statements took us through a cyclical nightmare where computer after computer assumed we wanted to make payments, buy products and complete a myriad of other tasks that had nothing to do with changing our address.

Our next tactic was to try and fool the computers. Every menu we got to, we hit zero in an attempt to reach an operator. The first few people we were routed to said that they couldn’t help us, but would forward our call to someone who could. Three out of four times, we were sent to either a  new useless system or the original automated system that chases its tail in order to have you give it money. No pun intended.

The fourth woman appeared to be in a non-English speaking country, although she said her name was Jessica. She couldn’t change our address and she definitely couldn’t let us speak with a supervisor. Apparently, she didn’t have one. Jessica being pretty much useless, we hung up and called the actual store from which we bought the television. My husband ended up shouting over the top of the sales rep who insisted that he put us through to Chase’s billing department (read: automated lemming). Polite reasoning turned to anger and finally to begging as we literally pled with two different sales people that we be put through to a phone number that didn’t start with 1800, 1877 or the like. We’ll pay for the call! Please let us speak to someone who can fix our address!

Exasperated, a Circuit City manager told us the only thing she could do was send us back to the automated system, but that “if you press three a bunch of times, the computer will think you’re a merchant and it’ll send you to a rep.” With those highly technical, customer-service oriented instructions, we waited for the computer’s friendly tones and began madly hitting “3” on our telephone’s keypad. The success of our venture now depended on dictating our address to another person whose English was limited and who misheard the address twice before getting it right. We made sure not to hurry through the address, and we even spelled it out. Time will tell whether the person actually managed to fix our problem. The amount of time spent on the phone attempting to sort out this seemingly simple problem? Three and a half hours. Three and a half hours of our lives that, television or no television, we'll never get back.

The question is, why is it so hard to change one’s address through Chase Bank? Also, why does the bank wait for five days after you pay a bill online before processing it? My opinion is that this bank makes it particularly hard to do everything in order to have people mess up. They can offer eighteen month interest-free credit lines on purchases as menial as TVs because confused customers can think they’re making payments on time when in fact their payments are being processed after the due date and late fees and interest can be added to their accounts. Making it impossible to change an address also means that bills may arrive late (ours eventually arrived a week late). Another cute trick is to bombard customers with offers when they call and making it seem as though customers have to listen to all the offers before they hang up, for fear of negating everything they accomplished during the call. 

We have made three payments on this television, but we’re thinking about paying the whole thing off next month and working on building credit elsewhere. It’s just too dangerous to deal with an organization whose primary goal is to have you trip up. Although we realize that banks have to make their money somehow, we are not going to be the victims of this type of scheme. The TV was worth every penny we were charged for it; the nightmare of trying to pay for it wouldn’t be worth all the TVs in the world.

In recent years, everybody from middle school children to their grandparents has learned at least something about who to trust, and who to avoid, on the internet. While a great number of people are still fooled by spammers and fraudsters, the general population is becoming increasingly informed - and thus skeptical - of internet advertising and content.
Many reputable organizations undoubtedly sabotage their own success by producing awful content online. When you're on the production end of an internet advertising campaign, you should remember what you consider to be "red flags" and avoid committing these offenses yourself. As obvious as this sounds, it is incredible how many people still employ tactics that scream of illegitimacy. Although everyone has different tastes and levels of tolerance, here are a few things that, when displayed on computer screens, say little more to a user than "Get out of this page now."

 

One:

WRITING IN ALL CAPS is a very good way of saying "I have nothing important to say, so I'm going to shout, in hopes of someone hearing me. Multiple words that are entirely capital letters also tend to sound toneless and monotonous to the person reading them: Think of a person bellowing at you without any intonation in their speech. Annoying, isn't it? If you want your writing to pack a punch and be remembered, write something worth remembering. It's best to avoid using all caps completely, and if you think a passage need emphsis, using italics is less intrusive.

 

Two:

Incorrectly spelled words. None of us are walking dictionaries, and I am an atrocious speller; however, would you really post a billboard on a street corner in a busy city without spell checking it first? Also, despite the fact that everyone misspells words, publishing these mistakes makes an author look unintelligent and careless.
Glaring grammatical and stylistic errors. Not many people in your audience will be scholars of linguistics and grammar, or will know the intricate rules of semi-colons, but most people can spot the more obvious errors, such as randomly placed apostrophes, excess use of "..." and the omission of full stops. Also, simply running your text through a spell checker is rarely good enough, as the computer will not notice that you've written "there" when "their" or "they're" should have been used. Think that no one in a marketing niche would make this error? I have seen it numerous times and it always eats away at a writer's credibility.

 

Three:

Hideous social networking pages. I came across one commercial loan company's MySpace entry that played the song "Take The Money And Run" when a user opened the page. Another loan company had a poppy Top 40 song to play to visitors. Although the first page was probably trying to be funny and the second was trying to be hip, using music on any webpage, including MySpace, is a bad idea. Additionally, taking advantage of some social networking sites' HTML allowances in order to splash pretty pictures all over a page is a bad idea. It looks tacky and unprofessional.

 

Four:

Too much large/bold/underlined font. There is a saying in the newspaper industry about having information "above the fold." This refers to the content that people can see on the front page when the paper is folded in half. The same term now applies to web pages. Although different computers and different browsers show varying amounts of a page, what can be seen without scrolling is known as being above the fold. Having a dozen large, bold and underlined headings above the fold is as good as having no text at all. Users do not read the text, they just try and find something to look at that doesn't resemble spam. If this spammy text is all that's avaiable, the "Back" button will be looking like most clickable option.

 

Five:

Excessive color. Even though your color options appear to be infinite, you should not attempt to incorporate every color from fuchsia to lime green into your site. It is also amazing how many people know that green, gray and yellow don't look good together, but who still slap them next to each other on a webpage.

 

Six 

Big and/or numerous advertisements. If you need to run ads in order to sustain a business, try to avoid having the ads take over your page. Also, too many Google-provided ads will make your site look like a dime-a-dozen directory.

 

Often, financial companies and cut-price law firms are the major offenders in the realm of bad websites, so if you're in either field and can produce a nice page, you're already ahead.

Of course, everyone can add more to this list, such as annoying flash introduction sequences, but do make sure to stay away from the heavy-weight mistakes listed here. Your online reputation depends on it!

So, I was in Victoria, BC where I learned that the human eye has four receptors, not three. Until the year 2000, we knew about only three. That we should find a receptor in the human body we knew nothing about for all of recorded history is newsworthy enough, but take a look at what this receptor does!

The three light receptors we already knew existed, receive light and are used to 'see'. This fourth receptor isn't used for 'seeing'; it receives information from the kinds of light it is exposed to and send messages to the parts of our body that release melatonin. Assuming a natural exposure to the light of day (sun), we are exposed to a bluish light in the morning, something else midday and warmer yellow light toward the end of the day. We already know that our melatonin release schedule is tied to our ability to rise, shine, and sleep at night. Now we know a little more about how the release schedule is triggered.

Until the past century, almost everyone was exposed to the right kind of light at the right times of day. With the invention and spread of electricity and the development of large office and factory buildings with rooms that have no exposure to the outside light, things changed. With the small amount of information available to date, researchers already know that exposure to the wrong light or even the right light at the wrong time of day increases all manner of ailments, including for example, breast cancer. It is possible that over a million women a year can be spared this disease simply by exposing their eyes to the natural light of the sun. So far, we don't know how much light (lumens), exactly when and how long the exposure needs to be for optimal effects. What we do know is that this discovery is going to have serious impacts on lighting in commercial structures – and soon!

Commercial buildings with this new kind of lighting installed will be providing a significantly healthier working environment for the people who spend most of their waking hours on the premises.

Avatar's CEO, Jerry Zevenbergen had some very good personal news to share this week. J. William Zevenbergen was born on November 18th, the first grandson to a very happy Grandfather. At 8lbs, 14 oz and 21 inches long, mother and son are both doing very well. 

The Zevenbergens are adjusting to shorter hours of sleep and the demands of a hungry baby boy.  And Jerry is looking forward to expanding his role as grandfather.

It’s almost enough to make you cry. It’s definitely enough to make you take a hard look at your own financial plans. The story of Casey Serin, the twenty-four year old from Sacramento, California who has spent the last five years sinking further and further into debt after reading some real estate books and going to some real estate seminars, is a sad tale indeed.

Featured in Sunday’s USA Today, Serin also keeps a blog, iamfacingforeclosure.com, where he chronicles his journeys into $140,000 of debt. The list of what this young man did wrong in the property market is astonishing. He made his first foray into the real estate market at nineteen, purchasing a condominium while he was earning a $35,000 salary. Apparently, everything went smoothly until Serin decided do leave his salaried job and start his own company. A risky decision in and of itself, it did not take long for Serin’s mortgage payments to exceed what his income could have him afford. Selling the condo, he made $30,000 off the deal and proceeded to blow the profit on an array of things, including dates.

Serin’s tagline on his blog is includes the phrase “what NOT to do in Real Estate,” and this is definitely an accurate description of USA Today’s list of his mistakes. Using every shady and silly trick in the book, such as using “liar loans”, quitting a second job, buying sight-unseen and purchasing eight homes with no exit strategy, Serin is now considering bankruptcy.

If nothing else, this story is a neon lit, fifty-foot high billboard advertisement against educating oneself through self-help books and seminars. When the business you are attempting to get into could involve this type of serious financial disaster, you must seek better advice than “How To” authors. A young man such as Serin has (had?) decades to make money in the real estate industry, but he may well never live down the mistakes he’s made over the last five years. Nobody, buyers or lenders, wants to see this type of thing happen.

It rains in Seattle. Not, perhaps, as much as non-Seattleites may believe, but sometimes you can tell how this town earns its name as the Emerald City. Our trees are hardly ever in need of water.

However, the following is not just a Seattle story, because it rains everywhere. Last Saturday night, Seattle experienced one of its first torrential downpours of the fall, and residents at an apartment complex in the city found out first hand what kind of damage a leaking roof can do to their belongings. They also found out what happens when water is left to drip down drywall, soak into carpet and warp wooden doors for twenty-four, forty-eight and finally seventy-two hours. They then discovered what mildew smells like, and were spurred to wonder how much moisture inhalation is necessary before one develops pneumonia.

A leaking roof is a big problem in itself, but a leak that is not dealt with immediately is a serious health hazard. Appalled residents in the apartment building watched water dripping from light switches and smoke detectors, all the while waiting for the building’s management company to send in the cavalry. By Tuesday afternoon, a lone workman had placed fans in the four badly affected units, but the roof remained untouched. Wednesday rolled around, and residents were vacating their apartments, some preferring to stay ten miles away in Bellevue rather than sleep in a soggy, smelly building.

On Wednesday night, the roof was patched. By this time, however, the damage was done. It was too late. 

There are a number of things the building’s management could have done, both prior to and during this debacle that would have saved them much headache and a lot of money. It seems so silly to point out that roofs should be maintained to the highest possible standards, but in a likely attempt to save money, this particular building’s roof had not been properly cared for. It can be frustrating to fork over money, especially when a building appears to be in good shape, but maintaining the structural integrity of something like a roof requires work. In this case, properly repairing said damage will cost far more than what would have been required to keep the roof in good order.

Just take a quick glance through Washington State’s Landlord / Tenant Law: This company violated a slew of clauses. The law states that the landlord must, among other things, “maintain the dwelling so it does not... endanger the tenant’s health and safety”, “maintain structural components, such as roofs... in reasonably good repair”, “maintain the dwelling in reasonably weather-tight condition” and make repairs to “a condition which is immediately hazardous to life” within twenty-four hours of being given written notice. I don’t know a great deal about electricity, but I do know that having standing water underneath light switches that are also dripping is pretty dangerous. I also know that pneumonia isn’t nice. Because of these clauses, tenants are entitled to move out of they so wish, and they are entitled to a prorated refund on their rent as well as the normal return of deposits.

It is so sad that all this could have been avoided by a little proactive behavior by the landlord. Residents pay rent in part so that their landlords can afford to maintain their buildings: They do not expect to hand over exorbitant Seattle rates for the privilege of acquiring an indoor water feature. I implore you all to respect those who live or work in your buildings by respecting the buildings themselves. It is the stuff of nightmares to be flooded out of your home, so please keep your properties in a condition in which you would be comfortable living. The money you spend on maintenance today will save you lost rent, major repair costs and legal fees tomorrow.

I spent the weekend in Depot Bay, Oregon, at a timeshare resort. I was trying to get some work done, requiring internet connectivity. I was prepared - I had my Verizon Wireless card, laptop, charger, travel sized mouse and support materials with me. Confidently, I set up shop in the condo. No luck. Spotty connectivity for me; nothing for my daughter. We packed up our gear and headed off into the night, looking for connectivity on the Oregon coast.

Naturaly, the next day, the sales staff wanted me to spend some quality time with them. This time, I was with my daughter, so I took her to a sales presentation so she could learn how they work. Eagerly, the salesman launched into his spiel. Cutting him off gently, my daughter inquired as to whether internet connectivity was imminent. Otherwise, she pointed out, she wouldn't be a customer. Without connectivity, she can't work and without being able to work on the road, she'd be needing to find another place for lodging. The salesman was surprisingly nonplussed. He couldn't understand why she or I would want to work on a holiday. After going round and round on this for awhile, I finally laid it out as plainly as I could.

1950: One person in the family needs to work. The whole family stays home.

2006: One person in the family needs to work. The family packs up laptop, Frisbees, and swim suits - heads for the beach. Worker accomplishes necessary tasks in an hour or two. Spends the balance of the day in 'quality time' with the family.

The promise of the Internet is the mobility of the work environment. It frees us to move data around the glob without hauling files cabinets and removing secure data from the vault. It's time the hospitality industry caught up with the program. If you're in the hospitality development, renovation or operations business, take heed. Without wireless Internet access, your property will suffer decreasing revenues as the competition with wireless access eats your lunch.