Avatar's Blog

As another means of determining whether borrowers can afford monthly payments on hard money loans, Avatar looks at the past two year's tax returns for applicants. The purpose is to see whether the borrower has reported other income sources that should be taken into account for the purpose of the loan. It does not mean that other reported items will be used as collateral, or that they must be in some way be associated the with the loan request. Tax returns simply help provide a more complete picture of the financial status of the borrower. When tax records and P&Ls are widely divergent, a written explanation is appropriate in support of your loan request.

Before determining whether to fund a loan, Avatar Financial Group asks for P&Ls from the entity that will support the monthly payments. Revewiewing last year's and and YTD (which means uear-to-date) P&Ls (profit and loss statements) can help determine whether the borrower has sufficient cash flow each month to pay all the expenses and still have some money left over to put in their pocket.

In general, Avatar looks for a ratio of 1.2 : 1 of income to expenses on P&Ls. Knowing the purposes of the P&L, take a look at the P&Ls you are about to submit. Consider whether there are other sources of income you should acknowledge to Avatar to demonstrate that you can afford the monthly payments on the loan.

The three questions hard money lenders ask about any loan include: what isthe value of the subject property, how will the borrow make the monthly payments, and what is the exit strategy for this loan?

The last question is as important as the first two. Avatar funds hard money bridge loans with terms of one to three years. The reasons why people seek out hard money, which is arguably more expensive than conventional long term real estate backed (mortage) loans, are varying.  All contain some reason why conventional loans are inappropriate at the moment. The borrower must have a clear strategy for whatever current conditions exist that make alternate financing impossible or inadvisable within thirty six months' time.

When submitting your loan application, be sure to include a clear exit strategy containing what conditions exist today, what you will do to alter them and the timetable for refinancing.

Hard money lenders ask three questions before funding any loan:

1 - Is the property value sufficient to serve as collateral for this loan? (see below)
2 - Can the borrower comfortably afford the monthly payments?
3 - Is there a clear exit strategy?

Today, we will focus on quetion two.

Avatar Financial Group offers interest-only payments. Therefore, determing the monthly payment is fairly straightforward. Take the loan amount, multiply by the interest rate and deivide by twelve. Make sure to add any points into the loan, as they are wrapped into the loan to reduce your out of pocket expenses at closing.

Avatar likes to see a ratio of at least 1.2 : 1 of income to expenses. We are here to make loans that make sense for the borrower as well as the lender.

One of the most unnerving parts of obtaining a hard money loan is determining the quick sale value of the real estate property to be used as collateral in order to determine the size of the loan that will be offered to the borrower. The Letter of Intent indicates that a loan is offered by the hard money lender, pending the outcome of due diligence in the amount not to exceed 65% of the hard money lender's opinion of the appraised value. How can you know what your property value will considered to be?

Street value of real estate property is the value that the property will sell for today, not the appraised value. If you have a recent written appraisal, you can use that as a starting point for valueing your property for a hard money loan. By simply reducing it by a reasonable percentage, you might assume what the property would sell for in a quick sale scenario.

To get a better idea of its street value, contact a respected local commercial real estate agent. Ask what you can expect to get for your property if you needed to sell it with the next 3-4 months. Ask to see what has sold recently in your area that is similar to your property. If there are no similar properties close by, look farther away and look at closer properties that are not similar. Now is not the time to be choosy; now is the time to be pragmatic because that is what the hard money lender's appraiser is going to be. Make a reasonable determination of what your property will fetch and you will have less concerns over whether your loan request will be able to be funded. There is no sense in paying a down payment for the costs of due diligence if the money is merely squandered to learn that your property's quick sale value is insufficient to support your loan request. A little due diligence on your part in advance will allay your concerns.

When determining whether to fund a hard money loan, Avatar Financial Group asks three basic questions:

1. Is the value of the property sufficient to provide collateral for the loan?
2. Is the borrower able to afford the monthly payments?
3. Does the borrower have a workable exit strategy?

All the questions, documents, supporting information, and due diligence surrounding a loan revolve around these basic questions, as well as, of course, the proper legalities of the funding of a commerical bridge loan in each state. Stya focused on these questions as you review your loan request to get a good idea of whether your loan package contains the information that will enable a hard money lender to approve your loan.

With the continuing increase in the purchase of rental properties in some communities in the US, the result is a flooding of rental properties. Buyers, flush with cash, are purchasing properties at a record rate, increasing the prices of these properties while simultaneously increasing the availability and driving rental rates down. This divergence cannot last long.

 

When investing in residential real estate, consider whether your market is showing a glut of residential rental properties

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Today, we pause to remember those who gave their lives for the greater good of the society in which they lived and the principles in which they believed.

Good loan packages contain photos of the subject property - the property you mean to use as collateral for your hard money loan. Good photos make all the difference to your chances of passing the first stage of approval, in which the lender takes a glance at your property and decides whether it is interesting enough to consider funding a loan with the property used as collateral.

Good photo packages contain views of the property from the street, views of the street and surrounding buildings, reasonable close ups of the building, including one or more that show the whole building without a lot of other extraneous objects in the picture (get close enough to the building), a few that show one side, a corner, the entrance, etc., and some of the interior, showing important elements of the property. Poor lighting, positioning, or cropping shows properties to poor advantage. If you are really not able to take good photos, now is a good time to hire a local photographer to make your property 'shine'.

The volume of hard money or non-conforming commercial loan requests continues to climb in 2005. The first quarter showed significant increases in loan request across the US and in the western states in particular. Construction loan requests, as well as refinance, and purchase loan requests increased. This is an interesting sign of economic health and improvements. At the same time, the increase in non-conforming or hard money loans is an indicator that many conventional lenders are holding a hard line on lending criteria while developers, investors and businesspeople are in need of increasing amounts of capital, but are unwilling or unable to meet their often slow and onorous requirements. The result is that increasing numbers of businesses and individuals are turning to non-conforming or hard money lenders for their financial needs.

What does this mean to you, the reader? If you are reading this, chances are you are among the growing company of those seeking private capital for business purposes. It would be wise to consider that the laws of suppy and demand indicate that unless many more people become involved in private lending to meet this growing demand, you can expect hard money to become scarcer and more expensive in the coming months.