Avatar's Blog

Avatar funds investment residential property purchases and refinances of all kinds - single family dwellings (SFD), duplexes, multi-family family dwellings, apartment buildings, and condos. If you are purchasing an investment residential property, you will need to have a minimum of 20% of the purchase price to put down at closing. Avatar can fund up to 65% of the value, and the balance of 15% can come from a seller carry back loan or similar subordinated loan.

If you are refinancing, get a local realtor to provide you with comps in the area, providing a good idea of what similar properties are selling for today. Avatar will send an appraiser to the site to determine the quick-sale value of the property. To avoid disagreements on the value of your property, be sure you have a realistic review of the current selling price.

When calculating the amount you will be able to borrow in a REFINANCE based on the value of your real estate property, use the following as a rule of thumb.

Improved commercial real estate (properties with buildings on them, not properties with road and utilities but no buildings) are generally funded at 65% LTV (loan to value). The term 'value' is defined as today's purchase price. This value is generally lower than the MAI appraised value of the property. MAI appraisals allow for varying amounts of time, depending on the type of property, for the property to be on the market before it is sold.

Hard money lenders use 'today's selling price' as the value because, in the event the borrower is unable to make the loan payments, the property must be sold as collateral within a short period of time. Private (hard money) lenders are smaller organizations than major banks or mortgage companies. They don't maintain entire departments whose job it is to manage and sell properties. Therefore, collateral property values must be the price which one can reasonably expect to receive if the property had to be sold in one to four months.

Ask local realtors to assess what you could get for the property if you had to sell it that quickly. Get lists of properties that have sold quickly in your area. Compare the initial asking price and the selling price. Make reasonable judgements about the amount by which you need to reduce the MAI appraisal figure to arrive at the quick sale value. This will help your working numbers to yield better projections for your planning purposes.

Avatar Financial Group can fund owner occupied residential properties in the states of Washington and California. In other states, if the borrower holds his residence in an LLC or similar corporate entity and the funds are to be used for business purposes, Avatar may be able to fund a loan.

In the event that a borrower is buying a residential property through a corporate entitty, the loan is considered a commercial loan. If the borrower is refinancing the property, a substantial majority of the cash out funds must be used for business purposes.

If you are considering forming an LLC or other corporate entitty and quit-claiming your residence into that entity, discuss the short and long term ramifications with your attorney and/or CPA before making the move. It may advantageous in the short term, but difficult to manage or disadvantageous in the long term. You will only be able to determine that if you know all the facts in advance.

Avatar Financial Group funds bridge loans for improved commercial properties. We are often asked what that term entails. For Avatar's lending criteria purposes, the definiaton of an improved commercial property is a piece of real estate with a building on it. If the real estate is comprised of land that has been subdivided and utilities and roads have been introduced to the properties, it may technically be improved, but it still does not qualify for an Avatar loan. This kind of property is still considered 'raw land' - it has no buildings on it yet.

Avatar does fund properties with very large land-to-building ratios. For example, golf courses, ski resorts, RV parks, trailer parks, etc. all qualify for Avatar hard money loans - and many of these types of properties have been funded in the recent past. The qualifier is that the property be income producing. Therefore, if a golf course has a substantial club house and a good balance sheet, it qualifies for a loan. Same goes for tennis clubs, and similar sport complexes. Even parking lots may qualify. Present a solid financial balance sheet and your income producing property is likely to qualify.

Many people are surprised to learn that Avatar Financial Group wants to see their last 2 years' tax returns and a Credit Report. If hard money is a loan based solely on the value of real estate, why would these items be requested?

The answer has to do with the validation of the borrower. Hard money lenders want to know that the borrowers they are lending money to are living 'on the grid'. To live 'off the grid' means you do not file tax returns. You may have no credit cards, conventional loans or mortgages, and/or you may not have bank accounts. People who live 'off the grid' often have a great deal to hide about their personal and/or business life. Especially in this day when our government needs to track where large sums of money are flowing from and to, it is important to validate the identity of borrowers and business use of private loan funds.

Be prepared to provide two year's taxes (signed) and a credit report. It's OK if you didn't pay a lot of taxes or your credit report is less than stellar. Avatar understands that people seek hard money for such reasons and understands that a wise businessperson will not pay more taxes than necessary. But Avatar does need to verify the identity and validity of our borrowers.

The biggest stumbling block to purchases of commercial real estate property when using hard money funding is the borrower equity portion of the project. Avatar requires borrowers to have a minimum of 20% cash equity on the table at closing. Avatar will lend up to 65% of the purchase price and the balance can come from a Seller Carry-Back loan or similar subordinated loan. If you are bringing a solid 30%+ to the table to buy a commercial property, Avatar may 'stretch' to meet you and supply the balance of the funding required to complete the purchase.

When presenting your loan package to Avatar, be sure to include proof of the location of the funds you will be using at closing. This will separate you from the many people who make loan requests are not serious buyers - they have no capital to put down to make the project a reality. Real borrowers/buyers have cash to invest and are ready to meet the requirements of hard money lenders for their portion of the equity.

When buying commercial real estate, remember that a hard money loan will be made based on the actual purchase price you are paying for the property. If you require a loan based on the retail appraised value and are looking for hard money, there are a few investor funded lenders who may be able to assist you. But be prepared to pay substantially higher rates and many points to get the funding accomplished. Points and fees are based on risk factors. The higher the LTV, the more you will pay.

If you are buying a property for $1,000,000 and want a loan for $1,000,000 or more, you are looking for construction or rehab money - even if the property's recent MAI appraisal indicates a higher value. "Value" is defined as "today's purchase price". It is the price for which a piece of real estate will change between willing partners. That number is what you are paying for it today - elsewise, the seller would have held out for a higher price. In the event that your loan goes sour, the lender must sell the property quickly. In that event, it is likely that the property will sell for the same sum you are buying it for - today's street value.

If you are seeking a hard money commecial bridge refinance loan, you may have already ordered an appraisal on your property to get a sense of its current value and determine what you are able to borrow against it. This is a good idea. However, it is important to note that MAI appraisers will take in to account that the seller has the leisure to wait for the 'right' borrower to come along and love the property, need it for business, or what-have-you.

Since your property will serve as collateral for a loan, in the event of defaujlt on the loan, the property will need to be sold off quickly to recoup the sum of the loan. In that event, the lender will have to sell off the property in 1- 4months. This will yield a lower value than what an MAI appraiser may assign to your property.

If you are seeking a hard money refi loan, low-ball the appraised value of your property to account for the quick-sale factor. Then multiply by 65%. This is the sum you are likely to get from the lender. Reduce that sum by the payoff amount of your first lien mortgage, as Avatar will need to fund in the first lien position. Contact any second or third lien holders to be sure they are willing and ready to subordinate to a larger first lien loan. This can save time and dissapointment down the road. Get the facts you need before making due diligence down payments and you will be pleased with your hard money loan..

Hard money lenders have entered the digital age. If you are a borrower or broker looking to work with a hard money lender, chances are you will be asked to send photos, financials - both personal and corporate, and executive summaries, and more via email.

Be prepared by becoming comfortable with emailing attachments, scanning photos, etc. Or go to a local business supply and service center and ask them to digitize your materials. This will save you time and make a more professional presentation of your loan request. When your loan requests arrive in simple to handle formats, your loans are more likely to be processed successfully and quickly.