Avatar's Blog

 In hard money or commercial bridge loans, loans are made based on the market value of commercial or investment residential real estate property. If you are buying property, market value is defined as the price you will pay for the property. This is known as 'today's street price' or the true value of the property. It is what a lender can expect someone to pay for the property if the property needs to be sold quickly in the event that the loan cannot be paid.

Apraised values are not market value, but they are important when preparing for a hard money loan. Avatar Financial Group sends as expert to review existing appraisals of the property and provide an expert opinion of the appraised value for purposes of the loan. If the opinion indicates that the value is at or more than the purchase price, the loan can proceed.

When purchasing office buildings, conventional lenders require inspections, appraisals, financial document reviews and more that can take months or even more than a year to complete. If you are purchasing an office building and need to close the deal in less time than it take conventional lenders to comlete their due diligence, contact Avatar Financial Group. As a hard money lender, we are able to close loans such as this in as little as two weeks.

Simple documentation confirming your ability to make the monthly payments on the loan as well as a clear workable plan to take the loan out (refi, sell, etc.) withint 1-3 years are the major requirements for obtaining a hard money loan. Additional documentation concerning the use and occupancy, the corporate structure of the entity that will sign for the loan and appraisals will also be required. However, you can be prepared by contacting Avatar early and requesting a list of required closing documents.

When purchasing commercial real estate property, hard money lenders, such as Avatar Financial Group, can generally lend with the following parameters:

• 65% Avatar Loan
• 20% Borrower Equity
• 15% Additional Equity or 2nd lien loan, such as a seller carryback

Borrower's equity is a crucial part of this equation. It is importnat that each party to the purchase have a stake in the project - especially the buyer. Hard money lenders want buyers to have at least 20% equity so that, in the event of a 'bump in the road', the buyer is encouraged to work things out. If a buyer has no equity in the project, the tendancy to drop off the keys is significantly higher. While the balance of equity from lenders can vary, the 20% borrower equiity is a standard.

Borrower equity can come in the form of cash, additional collateralized real estate, or stock in publicly traded companies, etc. For further information, contact Avatar at 888-886-0097.

Within reason, hard money lenders such as Avatar Financial Group can fund loans that are collateralized by several pieces of property. This is called a blanket loan. Blanket loans can be used to collateralize real estate properties within a reasonable distance of each other. In general, there will be a subject property and additional properties that generate the capital needed to purchase that subject property.

Blanket loans do not generally save a great deal of due diligence costs, as all properties will require an appraisal, document preparation, legal work, etc. However, some savings can be realized.in the site visit, escrow, etc.

Commercial bridge loans are specifically designed to provide 'instant' capital for the purchase or refinancing of commercial or investment residential properties. If you are purchasing such a property and need to close the deal fast, contact Avatar for a quote. You will need to have photos of the property, P&Ls for the property or occupying business, personal financial statements for the guarantors and if available, a recent written appraisal or comps to establish the value.

Conventional lenders sometimes have difficulty funding mixed use properties in which the owber occupies a portion of the propety and the balance is used for business purposes. Avatar Financial Group is able to fund properties such as this, or other mixed use properties, such as residential, retail, and office use properties.

When submitting a mixed use property loan, detail the different uses and indicate any income generated by the property, either through rental or lease income or supply a P&L indicating the income from any business use of the property.

If the mixed use property includes rented retail spaces, indicate the name and types of retail businesses occupying the property. Indicate the length left to go on those leases as well as the lease amounts.

'Stated income loan' is a term used in the lending industry to describe a loan requested by a borrower who cannot prove their income to the lender. By its very nature, this is a very high risk loan for the lender. In general, the more kinds of proof a borrower can offer to back up his/her claim of income, the lower the interest rates and points the loan they will be offered, and the more likely it is that they will  offered a loan at all.

Develop a P&L for your business and a personal net worth (1003) form. Gather contracts, receipts, etc. to prove your income and assets. In the absence of tax returns, you will need to rely on these documents to prove that you are able to pay the loan you are requesting in a timely manner - and that is the key concern of the lender. Hard money lenders do not want to end up with a non-performing loan. At Avatar, we lend when the loan makes sense for Avatar and the loan makes sense for the borrower.

Commercial hard money lenders want to see some proof ability to pay the loan according to the terms of the contract. In general, you will be asked to present 2 years' tax returns and 2 years' P&Ls (profit and loss sheets), and a financial statement for the business and all guarantors.

A financial statement is merely a statement of assets and liabilities. Standard forms for entry of this data (also known as a 1003) are available as part of the commercial loan application.

Assets such as personal belongings, furnishings, vehicles, etc., while entered onto the form, hold less weight than assets such as real estate, stocks, bonds, life insurance policies and other investments.

Avatar Financial Group field more than 20 - 30 inquiries for hard money loans each day, not including inquiries submitted in error (inquiries for loans that are not really hard money loans).

Here are a few tips about which loans get funded and which don't:

First and foremost, the loans that are submitted with a complete loan package waiting to be sent are already in the lead, right out of the gate. Many people submit loan requests without having a loan package at the ready. This means that when we send an email reply indicating we are interested in seeing the loan package, they have no idea what we need or how to gather the documents. Have 2 yrs tax returns, 2 yrs financials for you and/or your business at the ready.

Have 20 photos, inside, outside, and the neighborhood ready to email at a moment's notice. Loan apps submitted with photos get funded at a rate of better than 2:1. Want better odds? Get some photos - then head for the web forms.

In general, Avatar Financial Group and other hard money lenders can lend up to 65% LTV on income producing commercial properties

For raw land, expect the LTV maximums to hover around 50% LTV.

If you are putting down a substantial percentage of the cost of the real estate, such as 30% in cash, you may find that some hard money lenders, Avatar included, may have a little wiggle room on that 65% max LTV.

Bear in mind that LTV, while it stands for loan-to-value and refers to the mathematical equation describing the relationship between the loan amount requested and the value of the property, is actually a mis-nomer in some ways. If you are purchasing property, 'value' is not equal to the appraised value, but to the actual purchase price, also known as 'today's street value.'