Avatar's Blog

The New Orleans reconstruction and rehabilitation has already begun in earnest. With the flood waters receding, housing requirements for displaced residents is the first concern. Erstwhile hotels are preparing to house as many residents as they can as quickly as possible. Government subsidies and private donations, as well as conventional ledners will be active in the process.

However, because hard money loans can be completed quickly and efficiently, some are already submitting loan requests for the repair and conversion process. Look for rapidly increasing financial activity from the greater New Orleans area and the entire affected southern gulf coast.

Over the coming months, there will be billions of dollars invested in the repair and rebuilding of the City of New Orleans. Investors across the nation are turning their eyes to New Orleans and the surround area, such as Bayou La Batre, to see when and where the monies will be allocated and to learn what opportunities will become available.

Initially, housing replacement will be of primary concern. Expect apartment complexes and SFDs to be razed and rebuilt, as well as renovated throughout the area. Low income housing projects will change the face of the city and house larger groups of displaced than SFDs. The city has an opportunity to improve some its poorest neighborhoods. Expert urban design can promote community and reduce criminal behavior - what is selected is yet to be seen.

As a small investor, research thoroughly before making a decision about whether to invest your funds in the area. There will be TIC investment offerings, construction and renovation projects to choose from. But the neighborhoods will be in flux. What was once a booming part of town, may be abandoned or less active. Areas that were traditionally unpopular may become the lifeblood of the area. Be sure you know the new layout of the city before deciding on your investments.

When determining the value of any commercial real estate property, hard money lenders will want to see a relatively recent written appraisal on the property. Other factors may alter the appraisal amount, however. For example, if your appraisal comes in at $20 million dollars as is, but you have one or more serious offers from valid buyers to purchase your property at $25 million, your property may be worth more than the stated amount on the appraisal.

Before accepting the appraisal value of your property as gospel truth, look at comparable properties in your area to see what they are selling for. While your appraisal may contain comparable property values, even a few weeks or months can make a difference in the selling price of commercial properties in some areas. Obviously, natural disasters, such as the storm and floods in the New Orleans area, will dramatically affect the value of properties in the area. But even in areas which have not experienced such events can see significant increases and decreases in value in a short period of time. A decision to build a major project, such as an airport, sports complex, arts center or other civic amenity next to your property will increase its value signigicantly overnight. Keep abreast of current affairs to keep abreast of the value and potential of your real estate investments.

Avatar Financial Group looks for answers to three questions when determing whether to fund a loan.

1. Does the subject property have sufficient value to serve as collateral for the loan?
2. Can the borrower afford the monthly payments?
3. Does the borrower have a workable exit strategy?

In answering the second question, Avatar looks at P&Ls (profit and loss statements) from the entity that will support the monthly loan payments. You should be able to prove that you can bring in at least 1.2 times your monthly expenses - in other words, show on paper that you will have a few dollars left to put in your pocket at the end of the month after all bills are paid, including the Avatar loan. This demonstrates that you can afford the loan. If you should run into an unexpected expense, you will still be able to manage the loan and thrive in business. Avatar makes loans that make sense for the borrower as well as the lender.

A property owner orderd an appraisal on his property with an eye to establishing value in order to obtain a hard money loan. The appraiser provided a number based on income and use potential and provided 'comps'. Citing a dearth of local comps, the appraiser listed comparable properties from a major city about twenty miles from the small town in which the subject property was located. The city was over a state border, meaning the comps were in another state. The loan was denied based on the comparable property location problem - lenders felt that the property probably didn't have comparable value to the big-city properties to which it was compared.

The owner, however, understood his situaton better. He understood that his town was a suburb of the city, that his business served residents in and around that city, and that his property would hold value against those comps. He waited a few months and then ordered up fresh comps to amend his appraisal. Sure enough, there were several new sales in own town that supported the value. The owner re-submitted the loan request.

Tip: Take charge of your loan request and the elements that support it. Hiring a professional to develop your appraisal or assist you with your financial loan package is important. But only your tenacity will make sure your loan request gets that supporting evidence you need to get the loan.

Blanketing a loan over existing properties in order to buy a new property can be very advantageous. Consider the following scenario:

You want to buy a $1,000,000 office building. You already own an apartment complex which you purchased for $1,500,000 five years ago. Today, the quick sale value of the apartment comlex is $1,600,000. You owe $500,000 on that apartment complex.

Avatar can blanket a loan over the office building and the apartment complex to generate a 65% LTV loan of $1,690,000. Avatar must lend in the first lien position, so you pay off the existing mortgage of $500,000 on the apartment complex at closing. You can buy the new property for $1,000,000 and cover closing costs, etc. with the remaining balance. You'll probably have something left over to get you off on the right foot to making the office building a hard-working property for your portfolio. Ask Avatar about blanketing loans to purchase properties without having to lay out cash at closing.

If you already own commercial real estate, it may be possible for you to collateralize more than one piece of property under a single hard money loan to generate the capital you need. Whether you are buying property or looking for working capital, a blanket loan may be the answer for you. Here is something to consider:

Note that Avatar must lend in the first lien position. Any existing liens on your properties must be paid off or subordinated to the Avatar loan. In general this means that first liens get paid off and subsequent liens, such as second mortgages are either paid off or subordinated to the new loan. If you have a first lien loan at a very low rate, consider what this will add to your monthly payments. If your second lien is subordinated to a low LTV first lien loan and you want to keep that second lien, rather than pay it off with the proceeds, ask the second lien holder now whether s/he will subordinate to the new loan. If the new loan is significantly higher LTV, you may run into a snag. Find out now

Hard money lenders make loans based on the quick-sale value of real estate properties. They look at the most recent sale of the property, including when it was sold, how much it was sold for, extenuatign circumstances that may have altered the price, etc. If you bought commercial property a few months ago and claim a value significantly higher than the price you paid for it, be prepared to account for the dramatic increase in value. Reasons why your property may have increased in value in a short time include:

• renovation of the property is now complete or nearly complete
• the property was fallow and is now occupied
• the property is now generating income where it was not before
• the income on the property has increased significantly
• the property has permits, zoning or other entitlements it did not have when you bought it

If your property has increased in value, show the lender how and why. This will support your valuation and help you get funded.

When the stock market was rising, nay-sayers warned of doom and gloom. "The market cannot sustain these numbers!" "The crash is coming!" When the market bubble burst, it was more of an air leak. Stocks did not tumble in a day, they adjusted in value to a more realistic measure over a reasonably short period of time, but not in hours or days. Wise investors saw the signs and moved out. Others ignored the signs and paid the price. Nevertheless, the broad brush market numbers are back where they were at the peak, with the DOW over 10,000 and the NASDAQ over 2,000 - numbers that doomsayers swore would never be seen again.

By the same token, the warnings of softening real estate prices abound in the news today. Take heed, but do it with a grain of salt. If you are considering a real estate purchase, look at the long term and consider whether you are comfortable holding the property until prices increase, even if there is a softening of the market in the short term. If you have flexiblity in your investment timing, consider waiting a few weeks to see what comes. If the property you are looking at is a 'too good to be true' property, now is the time to buy it. If you wait, it will be gone and a short term adjustment of a few percent is not going to negate the excellence of the deal.

In other words, be pragmatic. Read everything. Believe only that which you can corroborate with statistics you can obtian independently of the article you are reading. The web helps you with research into markets, pricing trends, business and residential trends and more. Make buying and selling deicisions based on solid personal research, not heresay and doomsayers. In many markets, a softening of the market might mean and annual increase of only 5-8% instead of double digit increases. The wise investor relies on personal research. Take the time to do it right and your portfolio will flourish.

Avatar is a commercial hard money lender. We are institutionally funded. Other hard money lenders are investor funded. In general, the advantages of an investor funded lender includes some of the lowest rates in hard money, fewer points, and the speed of lending. Institutionally funded lenders are already funded. They have made arrangement with institutions, such as banks, retirement funds, etc. to fund loans. The money is in the bank, as it were. Investor funded lenders have to develop a prospectus and float it to investors to collect/raise the money needed to fund a loan. This can take anywhere from a few minutes to several weeks. So institutionally funded lenders may be able to fund more quickly in some cases.

On the flip side, institutionally funded lenders might be described as 'near bank deal' lenders. At Avatar, we say, "If the bank almost said yes, we're your lender." Investor funded lenders may be more expensive and may take more time, but one can generally find an investor for almost any kind of risk, provided the return on investment is sufficient to make the risk worthwhile.

If you are looking for a hard money loan, try institutional funding for speed and rates. At Avatar, we can let you know within a couple of hours of receiving your loan package whether your loan is a good match for Avatar.