Avatar's Blog

Every hard money loan, business loan, proposition, etc. has an idea, a background scenario on which it plays, and a plan to make it happen. An executive summary is a 1-4 paragraph explanation of what's on your mind, what you are going to do, what you need others to do and/or what market conditions have to occur to make the whole idea a success.

Here's what to write in your executive summary for a hard money real estate loan:

Describe the real estate you own and its current value. If you are buying, describe what you will buy, what it's worth and state what you will pay for it. Tell how the value has been established.

Tell how much you need to borrow from the lender and where the balance of the cost to close will come from. Avatar and most other hard money lenders will lend up to 65% of the purchase price of commercial real estate. You will be required to put up a minimum of 20% cash or other equity in your project. The balance can come from another loan, such as a seller carry back loan.

Describe what you will do with the property, how you will make money by owning it, and how you will make the monthly payments on the loan you are requesting.

Describe your exit strategy. A hard money commercial loan is a bridge loan. You will have 1-3 years to refinance it with a conventional (aka take-out) loan.

Hard money lenders, like conventional bank lenders, require specific items in a loan package before reviewing the loan from a borrower or broker. Some lenders are known to ask for 20 photos of a property, including so many of the outside, the inside, the neighborhood, etc. If only 18 photos accompany the loan request, the package is tossed in the waste basket.

Avatar Financial Group believes in a more client-accomodating loan process. However, complete loan packages are always more welcome than those with glaring deficiencies. A complete loan package includes photos of the property, inside, out and the neighborhood, a completed 1003 (commercial loan application - get it on the 'forms' page of our website) and P&Ls on the subject property or borrower, depending on whether the property is income producing.

Purchasing a medical office, clinic, or hospital can take months through convtional means. The due diligence process can stall a closing more than a year in some cases. If you need to complete the purchase of a medical facility quickly, consider a hard money commercial bridge loan from Avatar Financial Group.

As one of the lowest cost bridge lenders in hard money, Avatar can fund 65% of the purchase price of a medical facility in about two weeks. Reasonable due diligence process includes an appraisal, inspection, site visit by Avatar representative, financial document review, legal, document preparation and escrow costs. Depending on the dollar volume involved, the costs of due diligence, which are due at the signing of a Term Sheet and Letter of Intent before closing, are approximately $5,000. Rates vary, starting at prime +7% and 4pts. Terms run from 1-3 years, providing ample time to refinance with conventional banks or commercial mortgage firms.

A no-doc loan is a loan that requires no documentation from the borrower to prove statements made on the loan application. While there are lenders who specialize in this kind of lending, it tends to be extremely expensive as the risks involved in giving a loan - commercial or otherwise - to a borrower who cannot prove that they make the income they claim to make or own the properties and collateral they claim to own is very great.

Avatar requires minimal amounts of paperwork to fund a loan. But we do require that borrowers be prepared to show at least two years' tax returns and at least two year's P&Ls on the subject property or purchasing entity as well as a 1003 loan application. Avatar will pull the credit report of the guarantors, although funding is not based on FICO scores.

Avatar Financial Group can fund residential real estate in states other than Washington and California in some instances. If the property is used for business purposes, such as a rental property, Avatar can fund SFD's, condos, apartments, apartment complexes, etc. If the property is owned by an LLC or other corporate entity and is occupied by the owner of that same corporate entity, Avatar can still fund a loan using that residence as collateral if the proceeds are used for business purposes.

If you are buying a primary residence to be held in a corporate entity, contact Avatar to see if your property will qualify for a hard money commercial bridge loan.

By far, the most frequent request for hard money loans is for owner occupied residential properties. Avatar Financial Group funds owner occupied real estate in the states of Washington and California if the property is purchased for more than $770,000. Oour minimum loan is $500,000 based on 65% LTV. LTV means loan to value.

For purchases of residential property, "value" is defined as today's purchase price - aka today's street value. For refinancing of properties owned for more than a year, "value" is defined as Avatar's opinion of the appraised value of the property.

Avatar, like all hard money lenders, will send their own appraiser to the property to review previous appraisals and make an opinion about the current 'quick sale' value of the property. In the event of default, the lender must sell the property quickly. The value of the property will be set at the sum that it will fetch on the open market in a short period of time.

Avatar Financial Group indicates that it funds "improved commercial and investment residential real estate nationwide." Here is what it means and what properties qualify:

"improved" - real estate properties with a structure (or more than one) on it. This does not include land that has been prepared for construction with roads, utilities, plans, etc. That is still defined as unimproved properties. Once a building is completely constructed on the property - or at least 85% - 90% complete, then the property is defined as "improved real estate property."

"commerical" - any real estate property that is generating income. Avatar has funded an RV / camp resort. The "improvement'? Club house, picnic and bbq structures, storage units, marina and more. This was not just a series of parking spaces with water spigots standing by.

"invewstment residential" - residential properties, including single family dwellings that are not owner occupied. They are rented or otherwise used to generate income. If owner occupied, the residence must be held in a corporate entity such as an LLC, and the funds must be used for business purposes.

Let's take a look at the lending criteria listed yesterday:

• Loan Size: $500,000
• Maximum Loan to Value (LTV): 65%

You can extract from the information above that your property purchase price (or appraised value if you are refinancing a property) must be a minimum of $770,000 to meet the minimum loan size of $500,000 at a maximum LTV of 65%. 65% * $770,000 = $500,000.

• Property Type: Improved Commercial and Investment Residential Reals Estate

Improved real estate properties means properties with buildings already on them. This lender does not fund land or construction loans, even if the roads and utilities are already in there. Improved means there is a building - remember your Monopoly game from childhood. When you bought improvements or were assessed on improved properties, it meant the little green and red houses and hotels.

• Proeprty Location: US, including AK, and HI

Pretty clear here - anywhere in the US, not protectorates or other nations

• Serving: individuals, corporations, foreign nationals

Here's an unusual piece. Many lenders do not serve foreign nationals buying property in the US. If you (or your client) fall into this category, Avatar can helpyou obtain properties within the US.

Lenders, including hard money and non-conforming employ something called lending crtieria to determine who they will lend to and for what rates and terms (more on the rates and terms of private lenders later).

Lending criteria for Avatar Financial Group looks like this:

• Loan Size: $500,000
• Maximum Loan to Value (LTV): 65%
• Property Type: Improved Commercial and Investment Residential Reals Estate
• Proeprty Location: US, including AK, and HI
• Serving: individuals, corporations, foreign nationals

Behind the scenese, additinal criteria that is not so easily put into a single line in a bullet list is employed. For example, Avatar likes to see that the borrower has an income to expense ratio of reasonably more than 1:1. This ration, which is developed from the borrower's P&Ls indicates that the borrower brings in enough money each month to cover expenses, including the Avatar loan, and still have some money to put in their pockets at the end of the day. In other words - the loan makes sense for Avatar and it makes sense for the borrower. That last sentence sums up the entire lending criteria process.

Hard money lenders come in many 'flavors', meaning they lend on different kinds of properties. Hard money lenders is a catchall phrase that refers to lenders who are not conventional (bank) lenders and base their lending criteria on something other than the borrower's FICO score.

Different types of hard money lenders include:

• commerical bridge lenders
• private residential lenders (aka non-conforming mortgage lenders)
• rehab lenders

What binds all hard money lenders is that fact that they are not banks. Just about everything else will differentiate them. Tomorrow I will disucss the different kinds of lendng criteria hard money lenders may use.