Avatar's Blog

If you have a lot of documents to send to support your loan request, consider digitizing as much as possible. The days of hundreds of sheets of paper gracing the desk of the decision makers in hard money loans is fast coming to a close. Photos in particular do not fax well and are not accepted other than in hard mailed copies or via email. Email is eminently preferable, as it enables you to get your information to the lender quickly and efficiently without waiting or paying for postal service.

Anything that needs faxing can be scanned into a computer and emailed as well. If you establish an e-fax number for yourself, you can fax documents to yourself, which automatically converts those documents into an email-able format. Then you can forward them to the lender as an attachment.

It's well worth the time to learn a little about computers, e-faxes, scanning, and digitizing. It will enable you to correspond efficiently with lenders and get your projects completed more quickly and with greater success.

To determine what your property will sell for today for the purposes of a hard money loan, do what appraisers do. Look for old appraisals on your property. Obtain the tax records for the property. Ask local commercial real estate agents what you could reasonably expect to get if you had to sell the property within 4 months. Look at other properties listed in your area and determine what the price per square foot is for those properties. Compare them to yours in terms of desirability of location, condition of the building, the number of uses the building might have for different buyers, and the cost of running the buildings. Move your dollar per square foot up and down as you make these and other pertinent comparisons. You can arrive at a reasonable estimate of your property before you request a loan, so you will not be disappointed with the lenders opinion of the appraised value of the property.

I write more about property values and valueing your property for the purpose of getting a hard money loan than any other subject. Property values are the most difficult concept for borrowers to grasp, mostly because they would rather not grasp the reality of things. The simple truth is this:

Appraisals provide a value for property that is generally more than the property will really sell for. The selling price of property is called by several names - street value, today's value, quick-sale value, etc. All mean the same thing - it is the price the property will change hands for between willing parties today. Appraisals generally take into account a waiting time in which the seller is able to wait for the 'right buyer' who wants the property to pay a higher price.

Avatar Financial Group has documented read-to-fund times of two weeks or less. However, funding a loan in two weeks or less is rather the exception than the rule. Why? There are several reasons why a loan may take longer to fund. Most of the reasons you can do something about. Here are some tips to get your loan funded quickly.

1. Your Letter of Intent will come with a list of documents required for closing. Read it immediately and check off items that you have already.
2. Contact Avatar to see if any items are not applicable to your loan. If so, cross them off.
3. Then attack the list and gather the documents immediately. Many people wait til the last day and then discover that the loan cannot close because they have failed to provide a document or failed to sign one. Don't procrastinate; get the list tended to now. There are only 8 items on the usual list - get them today.
4. Start with the property Title and Survey. These can take a couple of hours or a week or more to obtain. Make sure Title and Survey don't hold up your loan. Ask your loan broker or Avatar how and where to get Title and Survey for closing.
5. Be sure to sign everything. More closing are held up for unsigned documents than any other reason. Sign everything and you will be sure your documents are ready for closing when you are.

May borrowers who fill out the loan scenario form on Avatar's website do not know what an exit strategy is. Here is a quick definition to help you understand the internal jargon used in hard money lending:

An exit strategy is the plan you have in place to pay off the hard money loan. Hard money commercial bridge loans from Avatar run between one adn three years. The rates are higher than conventional commercial bridge loans. The reasons people request hard money loans is because conventional loans will not work for them at the moment. Determine clearly why a conventional loan will not work for you now.

Do you need to close quickly and conventional banks move too slowly? Is your personal credit score too low? Is your business too new? Does the properyt no meet conventional lenders' criteria? Whatever the reason, determine what you will do to 'cure' that circumstance and how long it will take you to do so, you can obtain a conventional loan. Alternatively, if your exit strategy is to sell the property, indicate that when asked. An exit strategy is simply a workable plan to pay off a loan. Easy to answer once you know.

Many borrowers contact Avatar and/or other hard money lenders and launch into stories about their core business, life circumstances, and more which surround the hard money loan request. When making a call, email, or filling out a hard money loan form such as the one on this website, it is important to focus on the facts and numbers, rather than the story surrounding the situation.

The reason for this is clear - hard money lenders, and Avatar is no exception to the rule, field a lot of inquiries every day. The loans that get funded are the loans that come in with complete loan packages, including a personal financial statement indicating that the borrower is a person of substance who can manage the loan amount s/he is requesting, P&Ls from the business entity that will support the monthly loan payments, showing that the borrower has a handle on his financial data, and photos of the property showing that the property shows some pride in ownership or holds sufficient value to support the loan.

Once the hard facts are reviewed, the 'story' surrounding reasons why the borrower needs a hard money loan rather than a conventional mortgage comes into play. Keep in mind: lenders want to see the photos and numbers first. Then they will ask to hear the 'story'. Keep things in order in order to get funded.

The purpose of asking for P&Ls (profit and loss statements) when performing due diligence on a real estate property is to determine whether the borrower can reasonably afford to make the monthly loan payments without damaging the business or putting themselves so far out on a limb that the company is in jeopardy. Avatar looks for a ratio of 1.2:1 of gross income to expenses or better. This kind of fiscal health indicates that the company can afford the loan and still have a few dollars to put in the pocket at the end of the month. In the event of a problem, the borrower will be able to get over the bump in the road and keep on course without major impact to the company supporting the loan. Run your numbers. Make sure you can afford a hard money loan before you apply. Then provide the numbers you ran as proof of that ability when you make your loan request.

Hard money lenders come in all 'flavors' (aka specialties). Avatar Financial Group focuses on income producing commercial properties in urban and suburban areas of the US, including Alaska and Hawaii. Other lenders can fund land, construction or rehab projects. Each lender has a minimum and maximum loan amount. Many lenders will talk about their 'sweet spot'. This important "internal jargon" in the hard money lending industry is a description of a loan that fits the lenders lending critiera to a "T". If you know the specifics of your loan and can easiily describe them over the phone or in an email, form, etc. you will be able to locate and identify a lender who likes to fund loans like yours. With that information, you have a much better chance of finding the right lender for your loan - one who will say 'yes!'

 

If you are refinancing property, Avatar will send an appointed appraiser to the property to determine what the property will sell for today. The appraiser is licensed to do appraisals, but the work performed is not a complete MAI appraisal as conventionally understood. The appraiser performs consulting services to the hard money lender, determining the current condition quick sale value of the property. No report is available to give to the borrower - the service is to determine a current value, not to generate an MAI appraisal.

The value determined by this appraiser may be something less than the "retail appraised value" provided by an MAI appraiser. Standard appraisals take into account the fact that you would reasonably have a year or so to wait for the right buyer to want and buy your property. In the even that your loan defaults, the lender must sell the property quickly and move on. Lenders are not real estate or business owners. They do not want to own property. So the 'street value' of property you own and want to refinance is, once again, the amount that the property will change hands for today - or reasonably within 1-6 months.

If you are purchasing a property, it is important to calculate your loan and cash invetment required in the way that hard money lenders do. Here's what you need to know:

If you are buying a property, the word "value" in LTV, aka the Loan-to-Value ratio, is defined as today's purchase price - it is the amount you are going to pay for the property today. The appraised value of real estate is almost always more than what you will pay for the property. Your loan will be based on what you pay for it today. This is the "street value" of the property - the amount that the property will change hands for today.