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.

Recent increases in residential foreclosures have changed the face of the hard money lending industry lately. Back in March, I wrote about the onslaught being on the way. Well. that time has arrived.

Here at Avatar, we've been seeing ever increasing numbers of owner occupied residential requests. Of course, the sad news is, Avatar does not fund owner occupied residential properties with few exceptions. We fund owner occupieds in Washington and California, so long as the loan and property value meets our minimums.  And, we fund residential second homes, investment properties, etc. in other states. Again, those properties and loans have to meet our minimums.

Naturally, we get our fair share of rehab loan requests as well... and again, Avatar doesn't fund based on ARV, so we are not a good match for those borrowers either. 

But it is the owner occupied residential property loans that are most troublesome... and coincidentally for the serious real estate investor, the most interesting. Consider this:

Once all the people are forced from their homes through foreclosure, where will they live? Answer: Not in condos or other private residences. They will be looking for apartments. 

As I noted in the spring, the last standing rental apartment complex left standing in cities such as Miami, Tampa, Atlanta, Chicago, et al, will be one profitable puppy! 

With the rush over the last few years to convert apartment to condos and resell, there is a glut of such properties on the residential market. Those folks are also being foreclosed on. And they are looking to rent apartments along with all the SFD foreclosure victims.

If you have an apartment complex, let me know how your occupancy rates are looking these days. How are rents holding up compared to a year ago? Are you seeing what I am seeing - the fallout from the foreclosures should be filling your apartments now.

I've written about this continuing trend in residential real estate investments and it bears another mention today. MBA Newslink noted that fewer American families are able to afford their own homes... again. I've been reading similar headlines again and again in the last few weeks. This continuing trend means more and more families are going to be renting SFDs and apartments.

So - looking for a good real estate investment property? Look to apartment complexes in harder hit areas of the country. Families moving out of their homes are going to have to live somewhere... and in an area where all the apartment complexes have been converted to condos, the last remaining apartment complex is going to be a profitable little venture.

Hey brokers and lenders! Heads up! Take a look at what our new Fed Chairman had to say yesterday:

"The rapid growth in commercial real estate exposures relative to capital and assets raises the possibility that risk-management practices in community banks may not have kept pace," Bernanke said.

Can you believe it? This is the stuff hard money dreams are made of. This means the banks are going to tighten their regulations and lending criteria again. Which, of course, means more business for, wait for it.... private lenders!

Unbelievable, isn't it? Just when you thought you could not possibly be busier, the requests are about to pour in the door. Are you ready? For a copy of Avatar's lending criteria, email gillian@avatarfinancial.com I'll let you know what we fund, the funding time (2 weeks - really!) and anything you'll need to know to be ready for the businesses and investors who are going to need private money to get their deals done in the coming months.

The news is in from my Band of Intrepid Brokers -the BIB (To join this elect group, email gillian@avatarfinancial.com and send your thoughts about the State of Investment Real Estate in the US today). Here are the places that brokers and lenders are becoming concerned about:

• Tampa, FL
• New Mexico (the whole state)
• Southern CA (the whole darned place!)
• Hosuton, TX
• and most of all...... Las Vegas, NV

Why are they concerned? Real estate prices have been soaring as elsewhere in the states, but the BIB is seeing signs of softening, overbuilding, excesive vacancy, slower sales, and other signs of a slowing real estate market.

What's still hot?

• Seattle - fancy that!
• NYC - still has space to grow
• Charlotte, NC - but this one's getting close to overbuilt, so keep a sharp out

Have your own ideas about what's hot and what's not in US investment residential and commercial real estate? Share your crystal ball results with Gillian. Together, we'll keep an eye on the future and optimize everyone's efforts in the hard side of lending.

I went to Benaroya Hall to hear Nikolaj Znaider play his Stradivarius in Beethoven's Violin Concerto in D Major. Magnificent - don't miss this Danish maestro if he comes to your town. I was chatting with my friend, Sandy, during the intermission. Sandy noted that as she is batting around in a large house all by herself these days, she's been checking out homes in her area to see if it might be a good time to move.

Home builders, she notes are still keeping their heads in the sand about the grayiing of America. They continue to build multi-story homes, many of them smaller and marketed to empty nesters. But Sandy has special experience with what Americans are really going to need - single level homes or master suites on the main floor at the very least. Sandy spent a number of years caring for her husband who succumbed to multiple schlerosis last year. She explained to me that a master suite on the first floor requires a larger footprint for the house, making it more expensive to build - land is getting scarcer by the minute.

So Sandy's thinking of staying in her current place for awhile. She figures she'll have one of the homes that folks will be looking for - and there won't be many of them out there. Thinking of investing in residential real estate? Think ahead - America is getting older and they are going to need one level homes.

For the first time in eighteen years, the Fed will have a new leader. Al Greenspan will step down as Chairman and Benjamin Bernanke will take the helm. Perhaps no other person in government is as important to the US investor as the Chairman of the Fed. He sets the rates by which real estate mortgages are set nationwide. Avatar Financial Group sets loan rates against the Prime Rate. Most Avatar loans fund at Prime + 6%; as they float with the prime rate, we (and, no doubt, our borrowers) keep a pretty firm eye on the Fed Chairman’s whims concerning the prime rate.

Ben Benanke becomes Chairman on Tuesday, January 31, 2006. Stay tuned as we learn more about ‘the boss’.

 

Calling all apartment building owners! I am gathering info from owners around the country. Tell me the average overhead cost of your apartments in your area. Here's what I want you to do:

• Calculate your gross income per annum
• Add up all the expenses of the operation per annum
• Divide the expenses by the gross
• Divide that by the number of apartments

What you'll have the is operating expense expressed in a percentage per apartment per year. So - investors (with inquiring minds) around the nation want to know: how does my property stack up? Am I spending MORE than the average percentage per apartment, less, or about the same?

Email gillian@avatarfinancial.com Thanks!

Brokers around the country are reporting that during this busy time of year, they are seeing continued interest in condo conversion complexes, but less so than last year. I hear the the southeast is still largely designated as 'undervalued' in both residential and commercial properties. Residents of Charlotte, Atlanta, Jackonsville, Nashville, etc. note that the income levels in those 'undervalued' cities are not commensurate with those of the more expensive cities. But that doesn't seem to stop the price of housing and commercial properties from continuing to rise anyway.

 

Calling all brokers! I need your input. I've been writing tips and thoughts about the industry in this column for some time now. A few of you mention that you read it regularly. More of you mention that you read something in particular and take issue with the sentiment or agree.

Now I need your help in a big way. If you read this column, I need to know what's happening in your town. What laons do you specialize in? What's getting funded? What isn't? What are the trends you are seeing? Share your wisdom and I will share it (minus the proprietary stuff, of course!) with your colleagues.

Help me make this a banner year for all of us in the non-conforming lending business. I'm waiting for your emails at: gillian@avatarfinancial.com.