Is your Title Company overcharging?

I’ve noticed a trend that I consider annoying or even disturbing. Several title companies include additional fees for endorsements that I didn’t request, and the borrower didn’t ask for.

I see a lot of closing statements, aka HUDs, from a lot of different Title Companies. I’ve noticed a trend that I consider annoying or even disturbing. Several title companies include additional fees for endorsements that I didn’t request, and the borrower didn’t ask for.

When I’m lending money to a real estate investor, I send the Title Company very detailed and specific lender requirements. Basically, I require a Lender’s Title Insurance policy from a well rated company and in most cases, no additional Insurance endorsements. If the borrower is getting an Owner’s Title Insurance policy, it’s only an extra $100 (Ohio pricing) for the Lender’s insurance.

Today, this is the one of three similar ones I received with “extras”.

Initial total cost to Borrower $1,135.

  • Services Borrower Did Shop For $1,135.00
  • Binder Fee to Unnamed Title & Escrow Services, LLC $50.00
  • Closing Protection Fee to Anonymous National Title Insurance $40.00
  • Closing/Settlement Fee to Unnamed Title & Escrow Services, LLC $295.00
  • Courier/Shipping & Handling to Unnamed Title & Escrow Services, $25.00
  • Lender’s Title Insurance (REISSUE RATE) to Unnamed Title & Escrow $125.00
  • OH ALTA Endorsement (Survey) to Unnamed Title & Escrow Services $100.00
  • OH ALTA Endorsement (Environmental Protection Lien) to Unnamed $50.00
  • OH ALTA Endorsement (Restrictions, Mineral) to Unnamed Title $150.00
  • OH-112: Delete Exception for Mechanics’ Lien to Unnamed Title $150.00
  • Search & Exam to Unnamed Title & Escrow Services, LLC $100.00
  • Wire Fee to Unnamed Title & Escrow Services, LLC $50.00

I sent back corrections, (three times for one company to get it right, geesh)

Final total cost to Borrower $645.

That’s five items with $490 in additional fees that were included but weren’t requested by the borrower or lender. I’m sure those Endorsements are good to have at the right time. Some lenders DO require them, so the charges MAY be valid. Check with your lender. But why are some Title Companies automatically charging for them when nobody asked for them? Imagine this. “Hi, thanks for coming in for the $12 carwash. We also waxed it for you. Your total bill is $20.” Who would put up with that?

I’ve asked several Title Companies, why the extra endorsements and the associated fees show up on the closing statement when they aren’t requested. The universal response is “Our template puts them in there automatically”. Well, guess what, YOUR company built the template, and you chose to use that template, despite the instructions being different.

I have all these questions running through my head:

  • How many people don’t catch this?
  • Is the borrower assuming the lender requires it?
  • Does the lender notice?
  • If the lender notices, do they care enough to have it changed?
  • Or does the lender not bother, because the borrower is paying for it?
  • Is this “stuffing” the bill to create additional profit for the Title Company?
  • Does the Title Company assume the borrower won’t ask the lender?
  • Does the Title Company assume the Lender won’t ask the borrower?
  • How much additional profit does this practice get the Title Company?
  • Am I just overly sensitive to unnecessary fees?

Ok, the last one is true. But since I’m also an investor, I’m always watching all sides of the transaction.

When I see these charges, I have them removed every time. Today, I saved three borrowers almost $1500 in unnecessary fees for services that were not requested. The borrowers will probably never know. But as I type this, I’m starting to think, maybe I should tell them. Not to pat myself on the back, but to let them know the Title Company they chose has a business practice of padding the bill.

  • What do you think?
  • Have you noticed this?
  • Do I tell the borrowers or not?

Personally, I refuse to use any title company that has this practice. If you want to offer me an additional coverage, that’s great. Tell me about it, let me choose. BUT you need to ask my permission first. Don’t just put it on there and I hope I don’t catch it.

Real Estate Impacts from CoronaVirus

We’ve been talking about the eventual downturn for a few years now, saying “It’s Coming”. We didn’t know when, and CoronaVirus, or any pandemic, was certainly was not in any of our speculation about what might happen.

We’ve been talking about the eventual downturn for a few years now, saying “It’s Coming”. We didn’t know when, and CoronaVirus, or any pandemic, was certainly was not in any of our speculation about what might happen. There’s a lot of wild speculation going on about what might happen over the next few days/weeks/months. Nobody really knows yet. Don’t believe the Internet rumors. Always go back to reliable sources for accurate information.

I don’t see this as a housing bubble like there was in 2007. There’s not a slew of “Stupid Loans” that have been done in the past few years. So I don’t expect a crash, however, prices may decline or stop increasing.

It has happened, very unexpectedly, and very rapidly. Now that’s happened, if you weren’t prepared, you need to Get in front of this Now!

There are Four critical things you need to do immediately.

  1. Analyze your Cash Reserves
  2. Analyze your Cashflow
  3. Communicate with your entire team
  4. Build contingency plans and options

Reserves just got real.

As a lender, borrowers constantly want to know why I require them to have cash leftover after closing. This is why. Stuff happens that you can’t control.

CoronaVirus is impacting real estate in various unexpected ways. Some sales are being cancelled, contractors aren’t all working, ongoing evictions are at a standstill, and good people/investors/tenants have lost their income.

Investors have always known they should have reserves, however, too many investors have put it off for “later”, when there was more cashflow. The temptation to invest every last dollar for a return is a greater siren call than setting some aside for vacancies, repairs, and other income interruptions. When I started out, I had EXACTLY that mindset. Everything will be fine, it’ll go just like I’ve projected, and if something happens, I’ll figure it out. That mindset bit me a few times before I finally got the message and set aside my reserves.  Now, some of you are about to get bit just like I did.

It’s time to take a hard look at where you are financially, and what can happen in the upcoming months. Then you NEED to make a PLAN and take ACTION.

If you are short reserves, it may be time to sell an asset before any fire sale prices begin. I don’t know if they will go fire sale, but it is one possible scenario.

Having six months of personal reserves + six months of all property costs as reserves may not be unreasonable all of a sudden. I’d make sure I had at least three or four months of each.

      What to do:

  1. If you don’t have at least three month’s personal and business cash reserves, consider selling an asset to get the cash reserves.

Cashflow will be interrupted.

Depending on your sources of income, you may not see a change, or you may go straight to zero. Most of us will be somewhere in between.

Despite the media outcry, many people will continue to work and have employment. Some will have a short-term job interruption, then will go back to work. Some will need to find new jobs, because the business they worked for won’t survive. Many small business owners will struggle financially for an extended period of time.

It may be harder to predict income, but you CAN control expenses. Look at your business and personal spending. Get rid of expenses/subscriptions, etc. that you don’t use, or don’t really need. Take a good look at all your income and expenses. It’s a good time to be lean.

      What to do:

  1. Reduce unneeded expenses, even if it’s only for the short term
  2. If you can’t survive at least 90 days with zero real estate income, consider selling an asset to get cash reserves.

Landlords – Tenants

Many of your mid to higher end rentals will be less affected. Many of those people will telecommute or take appropriate precautions at work. At least at this stage. It may change down the road.

It’s the low to low-middle income rentals that will be most impacted. Obviously, people in the restaurant and bar industry, and then the trickle down from those shutdowns are already impacted. Unemployment Insurance in Ohio is only about 50% of normal income, and I promise many are paycheck to paycheck.

Landlords, especially newer ones, who depend on that rent check to make their mortgage payment each month are at high risk. They need to start figuring it out NOW, not after the first of the month.

Section 8 payments will go on as normal for the gov’t side. But the tenant side may be impacted.

For tenants who are impacted, currently, we can send people to the usual agencies that help when tenants can’t make a rent payment, but I expect those agencies to be overwhelmed soon. Locally, the phone number is “211”, but I don’t know if it’s the same number everywhere.

I’ve already had impacted tenants that have called me (Restaurant workers) and let me know they’ve been impacted. They’ve asked if some help will be available if they need it. I’ve put together this plan using some of my reserves to help cover the short-term impacts.

What I did

  1. Tenant requests help
  2. Is currently in good standing
  3. Shows they are impacted involuntarily
  4. Accept 50% of rent (Unemployment in Ohio is 50% of wages)
  5. Waive late fee
  6. Defer 50% of rent until re-employed
    • Setup payment plan for the deferred rent
    • Maybe 10% of the normal monthly rent each month until caught up.

Your situation or your tenant’s situation may be different. You’ll have to use your judgment.

The Internet is now flooded with rumors of rent moratoriums, calls for rent strikes, and more. Like everything else, some people will believe them, and they may be YOUR tenants. If your screening process is weak or non-existent, or you’re more likely to be impacted.

Many courts have shut down hearings for 30-60 days, so evictions will be delayed. However, most are still accepting filings, so if you need to do an eviction, get in line early. When the courts open again, there will be backlogs and everything will take longer.

We haven’t heard anything on gov’t bailouts for the “rich” landlords who are being forced to house non-paying tenants while evictions aren’t happening. And I wouldn’t count on any help coming.

      What to do:

  1. Work with your tenants who are impacted, where you can
  2. Work with your lenders if you are going to be short cashflow
  3. File eviction now if you should have already. Monitor.

Flippers – Sales

People will still buy houses. Most people will not be impacted, or they will be minimally impacted. Rates are low, so there is still going to be demand. It’s possible prices may stall, or even decline a bit, but I don’t think they will crash. You should make sure your margin is adequate. If you’ve been counting on rising pricing to make your profit, you may be in trouble.

We use construction materials manufactured from all over the world (especially China). Supply chain interruptions are likely.

In the short term, more good contractors are becoming available, as homeowners will be doing less remodeling. Take advantage of it and add a couple more to the team.

If your exit strategy First Time Home Buyers, you are the most likely to be impacted. A lot of these buyers don’t have established reserves to absorb an income hiccup. You may encounter:

  1. Your buyer just got laid off and doesn’t qualify right now.
  2. Your buyer used their down payment money to make ends meet.
  3. Your buyer no longer qualifies due to the short-term job/income interruption
  4. Down the road: Your buyer no longer qualifies due to a late payment during this period or shortly after.

Potential future assistance: Fannie/Freddie/FHA/Lenders may allow an exception for borrowers who were laid off or had an income interruption due to COVID-19, and otherwise qualify.

You may have to get creative on the sale side. Land Contracts and Lease Options may need to be considered.

      What to do:

  1. Get new good contractors working for you
  2. Sell houses; Have multiple exit strategies if you can’t
  3. Work with your lenders if you are going to be short cashflow
  4. Plan for a price decline

Wholesalers

Properties will always be bought and sold. There are going to be good deals to be had, and there will be buyers.

Your marketing may get a hiccup if you can’t get supplies for mailings, or your list or mailing services slow down or shut down. Find alternative sources and use different avenues for marketing, etc.

Crisis changes motivations and answers. I’d be following up on “dead” leads from the past few months.

Check with your buyers. See where they are in this and what they will be doing. Touch base with your buyers that stopped buying a couple years ago as deals got harder to find. Remember, cash is still king, and Private Lenders and Hard Money Lenders will still be funding deals, although requirements will remain fluid.

As this goes on look to ramping up some serious marketing for the near future.

      What to do:

  1. Work recent “dead” leads
  2. Touch base with existing buyers
  3. Plan a marketing blitz for the near future

Borrowers

You know should have cash reserves, if you’ve done that you’re probably good to go, at least for a few months.

If you don’t have reserves, it’s time for some hard conversations with yourself, your team and most importantly, your lender. Remember, your lender is not in this mess, YOU are. YOU promised to pay them back as scheduled. You need to do everything you can to first meet your obligations. If there is even a chance you’re going to run into trouble within the next two-three months, make that hard call NOW.

In the last recession, I was the borrower making those hard calls. It sucks. It’s embarrassing and it’s painful. However, every private lender appreciated the calls, and they worked with me to get through it. I’m happy to say that every private lender was paid in full even though it was later than planned. The banks weren’t so helpful and didn’t get fully paid back.

Now that I’m a lender, I expect my borrowers to act just as professionally as I did. Call me, even if it’s just to say “Hi” and let me know all is well. If you have concerns, or just want to bounce ideas, let’s talk about them. If you’re really in a bad spot let’s see what we can work out. I really don’t want your property; I only take them when there is no other alternative. Whatever you do, don’t be that person who puts their head in the sand, ignores the problem and keeps dragging it out. It doesn’t get easier.

If you can’t meet your full obligations with cash, then you need to consider alternatives. Many, Private Lenders would prefer to be creative instead of taking your property. Here are some options to explore with them.

  1. Deferred Payments
  2. Temporarily lower Payments
  3. Equity Kickers
  4. Change to a JV agreement
  5. Preferred rate of return
  6. Sell to a landlord
  7. Sell to your lender
  8. Wholesale the property to another investor
  9. Land Contract instead of sell.
  10. Rent instead of sell
  11. When all else fails — Deed-in-lieu

From a lender’s perspective, if you put your head in the sand, or force me to go through foreclosure, you’ll become a permanent entry on the “Do Not Lend” list. If you act like a pro, even if we have to work out an alternate plan, or you give the property up, you’ll still be eligible for future loans.

      What to do:

  1. Analyze your cash reserves
  2. Look at your cashflow under various circumstances
  3. Touch base with your Private Lenders and local Hard Money Lenders
  4. Build contingency plans and discuss options as required

Lenders to Landlords and Flippers.

As a lender, if you did your part right, your borrower should have cash reserves and equity in the property. They will weather a short storm.

For the Private Lenders who did 100% financing and/or gave borrowers the rehab money before the rehab was done, you were already at high risk, now it’s REALLY high. The temptation to “temporarily” use rehab funds if other income is interrupted will be high.

If this goes long, or develops into a full recession, which is certainly possible, maybe likely, even good borrowers could start having problems.

If your borrowers haven’t contacted you over the next week or so, reach out to them. See how they are doing, and how they are positioned.

If you are depending on the Note Income to pay your monthly bills, you need to take a hard look at your reserves and cashflow too.

      What to do:

  1. Analyze your cash reserves
  2. Look at your cashflow, under various “what if” scenarios
  3. Touch base with your Borrowers
  4. Discuss options as required

Lending Going Forward

Lending certainly won’t stop, but uncertainty makes people cautious. Expect lending to change and adapt. It will likely change multiple times as we move through this and see where it is going.

Expect closer scrutiny on your deals and you as a borrower. LTVs will get lower. Some of the really high LTVs will disappear altogether. The loose qualifications for low credit scores will become more limited and/or more expensive. Even Hard Money Lenders will start looking at your cashflow.

Cashflow and Cash Reserves are suddenly far more important than they have been. They will be heavily looked at.

We fund all our loans internally. However, we do sell the Notes to other Investors who want to collect the interest. Right now, there are no significant impacts to those programs. As long as we can, we’ll still be Lending.

The institutional buyers we use for the Lower Priced Hard Money Loans, BRRRR Rental Loans, and other Rental Loans have been put their Note Buying on “Pause”. So there are none of those at the moment. We do expect them to start up again, but I’m not going to try to predict when.

Real Estate Looking Forward

Every crisis creates opportunity. A slowdown is an opportunity to focus on making your business better and stronger. Document processes, plan ahead. Do all those things you’ve been wanting to do to make your business better.

The Deals and Opportunities will change and there will be more available. Be ready to snap up distressed properties. They’ll be showing up in the coming months. Depending on how long this lasts there could be massive opportunities for those who survive.

Cash matters. If you can’t survive 90 days with zero RE income, or your other income is impacted, consider selling an asset to get the cash. In the last downturn, many investors were equity rich and cash poor. You can’t buy groceries with Equity.

What to do:

  1. Take some time to work on systems and processes to make your business better
  2. Look at your cashflow, under various “what if” scenarios
  3. Touch base with your Team Members
  4. Take a day or three off. Too many of us are working 7 days a week.

Communicate, Communicate, Communicate.

This is a must

Just to reiterate, there are Four critical things you need to do immediately.

  1. Analyze your Cash Reserves
  2. Analyze your Cashflow
  3. Communicate with your entire team
  4. Build contingency plans and options

Hope this helps.

Darrin Carey

Dayton Capital Partners LLC

www.DaytonCapitalPartners.com

WHOLESALING via Assignments and the Ohio Division of Real Estate

I’ve discussed wholesaling via assignments in person with the director of the Ohio Division of Real Estate and their attorney twice. I’ve also had multiple discussions with their lead investigator (now former), and been questioned by them about a deal I was offering. (It turned out I was ok, but there’s a lesson there for another post.)

Ohio law plainly states that you may only advertise a property for sale under two conditions:

  1. You are the property owner
  2. You are a licensed agent with a listing agreement with the property owner, and acting within license law.

Other than that, it is ILLEGAL to market a property for sale.

This is why people who are wholesaling by assigning contracts market their signed contract, not properties. As in “contract for the property at 123 Main St”. Keep in mind context can matter. (For the rest of this post, I’m going to refer to the property, not the contract. The contract is implied)

Here are the key takeaways on wholesaling according to the Division of Real Estate. Keep in mind, for the ones that are not directly law, the Division could change their stance at any time.

  • If you have the deed, market away. No licensing limitations.
  • If you are wholesaling via assignments, the Division may view you as acting like an agent. One probably not, but context matters. 10 probably yes.
  • If you consistently let contracts expire or you cancel them when you can’t assign them, you’re toast.
  • If you put a lot of properties under contract, Assign a few, and let the rest expire, and never take title to any, you don’t have a prayer. They really emphasized this one. (This is what caused all the additional scrutiny on wholesaling. YOU are the problem.)
  • If you assign most/all of your deals, but rarely/never buy one, you look like an unlicensed agent; you’re toast.
  • If you put properties under contract without the means to purchase/close on them, you’re probably acting as an agent, and thus, toast. This was also important to them. And according to attorneys, there are legal issues under contract law with this.
  • If you market a property you have under contract, but your marketing does not distinguish you from owning the property, you have a problem.
  • If you market a property you do not have under contract, you are burnt toast and don’t have a prayer.
  • Verbal JV marketing agreements are worth the paper they are written on.
  • Written JV marketing agreements likely won’t survive scrutiny. They’re an agreement to market a property for a fee upon sale; it goes back to 3rd and 4th paragraphs above. However, I have not discussed this with the Division directly.

Interestingly enough, when you have a contract, the Division reluctantly said advertising the address was ok, but were more hesitant about pictures. They would not directly say whether pictures were ok or not ok. I got the impression they didn’t already have a stance on that and were reluctant to have one on the spot. It’ll be a question for next time.

The Division doesn’t have a problem with assigning the contract, it’s perfectly legal. Their concerns:

  • Are you misleading consumers, sellers and/or buyers?
  • Are you really just acting as an unlicensed agent?
  • Are you leaving a wake of destruction behind you?

The Division is really focused on the consumer protection and the consumer confusion caused by wholesalers. Remember, their job is to protect the consumer. They really hammered on certain things.

  • Sellers who were under the impression their property under contract was sold, and the wholesalers who couldn’t or wouldn’t perform on the contract.
  • Wholesalers marketing deals to the general public, but then couldn’t perform.
  • They weren’t very concerned about marketing to investors. I expect they could become more concerned, most likely because of a bad wholesaler.

They were especially pissed about the wholesalers who had greatly misled consumers and left sellers/buyers in a world of hurt, both financially and life planning wise.

People had quit jobs, moved families, contracted to buy a new home, lost earnest money, moved grandma and more based on wholesalers’ representations that the deal was as good as done.

Someone reading this will have the seemingly brilliant insight that they’ll simply tell the seller they intend to Assign the contract, and if they don’t, they won’t be closing. Congratulations, you’ve just admitted to the Division you are acting as an unlicensed real estate agent.

When wholesalers ghost people, don’t show up to closing, say, “I couldn’t assign it so I’m not closing”, put 50 properties under contract, assign a couple, and let the rest expire, those are the kinds of problems that cause scrutiny on wholesaling from the Division.

Think they won’t find you? Guess again.

  • A complaint by seller, buyer, or agent, to the Real Estate Division is probably the number 1 way to get their attention
  • Their lead investigator signed up for my Buyers list via my website
  • The lead investigator came to our local meetup in Dayton
  • They have also attended various guru pitches and seminars including some of the full weekend events

When you put a property under contract, you have a legal and moral obligation to perform on the contract. Yes, there are legitimate escape clauses, which I’ll distinguish from weasel clauses. Don’t be a weasel.

Investing in Turnkey Rental Properties

Turnkey Rental Properties

turnkey rental property
If only it was this easy

Turnkey rental properties are good investments, especially if you are short on time. However, there are some pitfalls too. A turnkey rental property may come from a provider, the MLS or any other source. A turnkey property could be fully renovated, ready to rent or currently rented.

I’m here on the ground in the Midwest in glorious Dayton, Ohio. I’ve bought and sold turnkey rental properties, and seen what many people offer as a Turnkey rental. I’ve also bought “turnkey” rental properties in areas thousands of miles from where I lived.

Here is what I have seen and experienced, and how to avoid some of the big problems that come up.

First, you MUST have a good team where you are investing, even if it’s local. Your number one local person is your property manager. They are overseeing the long-term performance of your investment, and are the most important team member to get right. I’ve been ripped off by bad property managers, anything from non-performance, to them actually stealing the rents and security deposits.

Are they licensed in their profession (if required)? Ohio law requires Property Managers be a licensed real estate agent. Are they? I get a surprising number of calls from people with bad managers who aren’t even licensed. Interview several while you visit the area. Personalities differ. Prices vary. Most PMs in our area charge about 10% of collected rent. That gives them a good incentive to keep your property maintained and rented. Your Property Manager also becomes a source for rent amounts, values, and other team members.

Taking even basic steps will save a lot of grief. Check the BBB and Angie’s list. If someone has a ‘D’ rating do you really want to hire them?

Contractors seem to have a whole different ethic when someone is not overseeing them. A good local property manager will keep this in check. I bought a “finished” house from a lady in Florida, who had fantastic pictures showing it the house done. Unfortunately, the “contractors” only painted two walls, then set a small piece of new carpet in the corner for the photo. Several of the bath and kitchen pictures were from a different house. They set some fixtures in place, but didn’t install them. The owner paid them based on the pictures they sent, but nobody local walked through the property. She was not happy with the pictures I sent her. Of course, once the truth was known, nobody could find the “contractor”.

Look for recommendations from other investors and landlords.

Second, you MUST visit where you are investing. There is nothing like getting you boots on the ground and walking the neighborhood. I am continually amazed by the number of people who will spend $30,000, $50,000, or more, on a rental house, but won’t spend $500 on a plane ticket.

Third, pay for a property inspection ($500-$600). You’re about to spend thousands of dollars on a property. Get an independent assessment of the property condition. I tell all my potential buyers to do this too. It’s good business for me and protects them. The last property I sold, as a result of the inspection, I paid $906 to have a roof repair done. I didn’t know about it before the inspection, and I do not begrudge it to the buyer. I told him the roof was already repaired. (It was, but not correctly). If you’re working with a formal Turnkey company, did they do all the repairs correctly and fully? An independent property inspection will tell you.

Fourth, run all the numbers. I see a lot of properties advertised with a claimed ROI, but they fail to account for ALL the expenses: Taxes, Insurance, Management, Maintenance and Repairs, Reserves, Vacancy. Then, independently verify if the numbers given are close to being correct. A small overstatement in the projected rent, and a couple missing or understated expenses can make what looked like a great deal into a real alligator that you’re endlessly feeding.

Determining market value is frequently a challenge, especially in hard hit areas. An appraisal will give you a formal written opinion. An agent can give you their opinion. Using third-party sources like Zillow, gives you data, but will mislead you. You can see the price, but what was the condition? Were the nearby sales all finished properties? Or do they need substantial work? Are these even comps at all? Is it the same school district? All are factors in determining property value.

What do you do in an area where people are buying cheap properties, putting substantial dollars into renovations, but not selling them? All the sales are low, but the values are obviously more. Ultimately, a property is worth what a willing buyer and seller agree it is worth.

In summary, if you are considering a turnkey rental or ANY rental property you need to:

  • Visit the location and property
  • Check the numbers
  • Interview and build a good local team
  • Stay involved
  • Trust, but verify

Darrin Carey
Dayton Capital Partners, LLC

Refinancing and Seasoning

Seasoning your Real Estate

Time goes by slowly for seasoning.
Seasoning calendar.

Seasoning has nothing to do with salt and pepper, in real estate, seasoning is the lenders term for how long you have owned your property.

When you want to refinance a property, the lender considers seasoning to decide which value to use for your property. There are 3 numbers that matter:

  1. Purchase Price
  2. Rehab cost
  3. Current value or ARV

Seasoning no longer matters when you have owned the property for one year. You always use the current value for those fully seasoned properties.

If you have owned it less than one year, the lender may decide the purchase price represents the current value, and base a loan on what you paid for the house. (Or the current value, if that number is lower.) Some of the more investor friendly lenders will add the rehab cost to the purchase price and use that total instead. Obviously, that’s better for you as the borrower.

It’s gets more fun, because there is an exception to every rule. When you have finished the property and rented it, we can request an exception to rule. Since we only work with investor friendly lenders, here’s a general guide.

Seasoning Guideline

Owned 12 months+: use current value.

Owned less than 6 months: use purchase price plus rehab (your personal labor doesn’t count). It’s rare, but it is sometimes possible to use current value. Just don’t count on it.

Owned over 6 months, but less than 12 months. The closer you get to the 12 month mark, the more likely we will succeed in getting an exception to use the current value. The property cash flow, borrower strength, and investor experience  will greatly impact whether the lender will approve an exception. For good borrowers and good cash flowing real estate, we often get them approved around the 8 month point.

I know the waiting is killing you. As investors, we’re an impatient bunch. However, consider the lender’s perspective. They want to make good loans that will perform well. They will be cautious refinancing any real estate with under one year seasoning for more than what you paid. You have to show that you have truly increased the property value since your purchase.

Refinance your property here.

Contact Us here to discuss your options.

Hard Money Loan Terms

HARD MONEY LOAN TERMS

Hard Money works like this...
Do you get me?

The number one Hard Money question we get asked, is “How much do you charge?”

As with all good questions, the answer is “It depends.” There are multiple items we consider for every loan. Every deal, every property, and every person is different. Even though we have a “typical” loan, exceptions are frequently made when and where they make sense.

LOAN TO VALUE and DOWN PAYMENT

A typical Hard Money Loan funds 80% of the purchase, and 100% of the rehab, with you putting in a down payment of 20% of the purchase, plus closing costs. If you get a great deal, we may require less down.

Your property must meet the 70% Loan-to-Value (LTV) requirement twice.

  1. First, when you buy the property, before rehab;
  2. Second, based on the After Repaired Value (ARV) after rehab.

BOTH numbers must be 70% LTV or less.

INTEREST RATE

I don’t know you or your deal, so assume the rate will be 12%. If the LTV is lower, or you have a lot of rehab experience, it could less. In some circumstances, it could more. It really depends you as a borrower and your deal.

POINTS

Assume 4 Points on every loan. Repeat borrowers will see that number go down gradually. Officially, there is a $4,000 minimum, but we frequently reduce it on loans under $100,000.

FEES

We include as much as we can in the points above. However, plan on $400-$995 in other fees that will go with getting the loan done. This varies primarily with the source of funds. We always use the lowest cost source that will do your deal.
You will always pay for the Appraisal and title company closing costs.

LENGTH

A typical loan is 12 months.

EXCEPTIONS

Call and ask. We’re real estate investors too. We will consider a lot of deals that don’t necessarily fit what’s typical. They do have to make sense though.

APPLY FOR A HARD MONEY LOAN

100% Hard Money Loans

100% Hard Money Financing

I got your money, right here…..

I know, all over the Internet it says you can get 100% hard money loans for your deals. And you can, IF you have a true private lender or friend financing you. You may even find a reputable person to partner on a deal with you, and bring in funds.

Beware of websites promising 100% Hard Money Loans. Most of them exist to take your “membership fee” or other large upfront fees totaling thousands of dollars. DON’T do it.

They make most their money from charging up front fees, NOT lending money. Although a few of them may actually do a loan for a slam dunk killer deal, if they do, they’ll end with most of the potential profit too.

Real Hard Money Financing

In my world, we require you to have some money invested in the deal. In short, if you’re not willing to put your money in the deal, why should I?

For budgeting purposes, plan on 20% of the purchase and rehab funds from your own money, plus closing costs. Most loans we do end up at 15% from you, but you should plan appropriately. On the low side, you may need as little as 10% of the purchase price, and get all the rehab funded for you. It really depends on the specifics of the deal, and your experience.

Upfront fees? Not normally. Every now and then for an unusual deal, there will be an upfront fee. Even where there is, you only pay it AFTER we approve you AND we approve your deal. We don’t have a fee to join some “special club” to get access to overpriced financing.

When we ask for one it’s to cover some of our up front expenses and to weed out people who aren’t really serious. If for some reason, we can’t do your deal after we’ve approved it we will refund it to you. (Assuming you provided good information.)

Investor Lending Market Update 4/10/2016

dcp logo headerI thought you may like an inside look at what’s happening in the investor lending market. Investor lending is currently in a state of flux. That makes everyone nervous, and frankly, it’s driving us a little nuts.

Unfortunately, we’re only getting bits and pieces of information. Everyone is reluctant to tell us where their funding is going or what the new requirements will be.

Here are some specific examples we’ve seen recently.

HARD MONEY

  1. Houses with demo finished down to  bare studs are suddenly a problem, whereas a few months ago it was not. But, it may not be a problem going forward.
  2. An appraisal on a high valued property over ½ completed took 5 months to get. The loan was rejected the by lender when it was finally received. I think if the appraisal had come in quickly, it would not have been a problem, see #1.
  3. Several BPOs have come in much lower than expected. We’ve seen two causes for this
    • the agent specifically choosing the lowest priced sales instead of truly comparable sales
    • the agent chose comps from a lower priced neighborhoods nearby, and even properties with fewer bedrooms.
  4. Getting status reports and timelines is a challenge. Some of the lenders seem to be adopting a “black hole” mentality, whereas the only information we get is “we’re working on it.” This is especially true on the rental side.

RENTALS

Rental loans are taking a much longer time to process than before.

  1. Low priced rentals (Loans under $125,000) are taking even longer. Yes, I know $125,000 is high for rental in the Midwest.
    • Loans under 75,000 are going to be harder to get approved.
  2. Timelines have been changed from “30 days” to “30 business days”. One word, but that adds two weeks to the process.
  3. One lender simply shut down their rental program.
  4. Others are increasing their minimum loan amounts
  5. One major buyer of mortgages just raised the minimum amount for loans they buy to $75,000
  6. Two lenders increased their refi seasoning to 12 months. That still leaves a couple lenders at 3 and 6 months to do a cash out refi.

GOING FORWARD

Hard Money

  • Overall we’re still getting reasonable rates and terms for hard money loans. 4pts & 12% average, less for those with lots of experience.
  • Expect more scrutiny on the rehab side of the deal.
  • “As is” value at the time of purchase is now a factor with most lenders
  • 20% is still the norm for your down payment. The right deals can be done with only 10% down on the purchase.

Rentals

  • Plan on 6 weeks for a loan. If/When that changes, I will let you know.
  • Property value must be at least $50,000.
  • There are only a couple lenders available that will do rental loans for under $75,000.
  • Loans under $75,000 have minimum fees which will make the costs look higher compared to the loan amount.

Summary

Investor lending requirements will continuously change. We’ll keep you updated.

 

FINE! YOU’VE DEMANDED IT, I’LL BUILD A REAL ESTATE FINANCING WEBSITE

Ok, Ok, I hear you. You want a website with answers to your hard money questions, forms, and more.

You want one source for all your financing needs.

I give up. I’ll do it.

No, I’m still not getting an office. No need for the overhead. I’d just have to charge you more to pay for it. Neither of us wants that.

I only need a small loan of $25,000, why is it so hard to get?

Small Loan Scenario

Have you wondered why it’s so hard to get a small loan for real estate?

Honestly, a small loan for real estate just isn’t very profitable. Just as you are borrowing money to make a profit, the lender wants to make a profit too. The interest received on a small loan isn’t very profitable. The risk of losing money is much greater with a small loan than large one. I know, it doesn’t seem to make sense at first, but read on.

First, the lender has to cover the overhead of setting up and approving the loan. Some lenders will charge points and fees to cover some or all of this cost. They still have to pay the overhead for every loan that gets rejected too. Compare this: A lender charges $2,500 up front for a $25,000 small loan. Does that seem steep? The same lender charges $2,500 for a $150,000 not so small loan. It doesn’t seem as bad now does it? The fee didn’t change, but our perception of it did. It’s the ratio that changes.

Once a lender makes a loan, every month the lender has the expense of servicing the loan. That includes: sending statements, processing payments, tracking balances, end of year reporting, sending a 1098, government compliance, etc all those costs have to be covered, and they cost the same to the lender whether it’s a small loan or a large loan.

If a small loan goes unpaid, just like the expenses of setting up the loan, proportionally there is a large cost with the attempt to collect on the debt. So, even if you find a lender that will do a small loan, they typically want better credit to reduce the chance of the loan going bad.

Cheap houses purchased with a small loan are typically in areas that have more foreclosures, and more damage to the property when it is foreclosed. This increases the chance of loss to the lender even after they foreclose on a property.

Is it any wonder lenders are reluctant to do a small loan? It’s easier to get a loan completed for $100,000 than $25,000. Admittedly, we do get some small ones done, but with the challenges listed above, it’s not nearly as often as we’d like.