All Forum Posts by: Kyle Altenau

I am looking at buying a large commercial building in Minnesota for about $6 million. I am putting together a model for the purchase and wanted to be sure there aren't any costs I am leaving out. Is anyone familiar with and state fees that may be involved in the transaction? 

For instance, in PA there is a 4% transfer tax that is typically split between buyer and seller. In NY there's a mortgage filing tax. In NJ is the purchase is over $1 million you pay a 1% (IIRC) fee. Are there any fees like this I should be building into my model?

Many thanks!

Some lenders may require an expense deposit when offering a term sheet. This is typically a deposit that goes toward third party fees such as an appraisal or Phase I as well as legal. I haven't heard of a lender taking their origination fee up front. It's an "origination" fee. So that should be due at the actual origination. Was this fee mentioned in the in the term sheet or commitment? I'd want either a lawyer or title company to hold the funds in escrow if it isn't tied to an expense deposit that's listed in the term sheet or commitment. 

In the US it varies by state what kind of licensing you need to privately lend. In most states you do not need a license. I'm not sure about Canada or other counties. 

Typically people who borrower from hard money lenders use single purpose entities. That basically means if the property you are buying is 54 Oakwood Ave, you might make an LLC called 54 Oakwood LLC. For this reason, a hard money lender is underwriting you personally, not the LLC.

Some HMLs don't require tax returns, but why don't you have any? Do you not have any income? Have you just not filed? If you're looking to begin a REI career, having your financials as healthy as possible is a key component. Bridge lenders or banks are going to require your tax returns, so realistically, if you're going to look to hold anything or ever try and leverage yourself with cheaper money, you will need tax returns.

It may be a bit early to get pre approved with a HML. But it's not too early to start putting together a list of HML you'd like to explore working with. Reach out to local networking groups and see what lenders they use. As you get closer to your target start date, I'd inquire about what kind of pre approval programs they have. Most will want to run your credit for a pre approval, so you may want to have narrowed your search down to one HML if you want to get approved. You can always just wait until you have a live deal.

When presenting to a HML, appearances can matter. I'd put together a package to bring them. I'd have my LLC docs, information on the property, a construction budget, and a few comps for the ARV. You'll also want to have an accurate personal financial statement prepared as well. At that point, the lender should be able to give you a very accurate idea of what they want. A lot of applicants I had in the past were incredibly unorganized, so just doing this puts you a leg above the rest.

I think the one distinction a lot of people aren't mentioning is that you can cash out immediately after closing. It's just the lender's basis for that loan amount that will change depending on seasoning.

If you are buying a discounted property and adding some value through rehab and want to cash out after 1 month of ownership, a bank is going to base their underwriting on your cost. Most banks use 6 months of seasoning, so after 6 months their underwriting would be based more in the appraised value of the property. 

So the two articles about PeerStreet....aren't about Peerstreet. The first vaguely mentions them and the second doesn't at all. I'm not sure how that has anything to do with my comment or helps shed some light on your perspective. 

Your original comment mentioned that it is illegal to use third part servicing companies, which I state is incorrect. The suits against FCI that you sent aren't related to them being a third party servicing company, but them charging illegal/fees interest. 

The articles you posted are definitely the darker side of debt funds/private lending. They're things a lot of the forums here warn about and people try to educate to beware of. But they're also not related in any way to a lot of the outlandish claims you made in your original post. 

You're very welcome!

First thing to ask. "Are you a direct lender?" A lot of people say they are hard money lenders, but they're really just brokering your loan. 

I'd also ask how they are capitalized. This can vary greatly. Some are lending just their own money. This allows them the most freedom to make loan decisions, but they are also the most likely to run out of funds. Other lenders are backed by high net worth individuals or different funds. These lenders have more money than they are able to lend, but lose control and freedom over making lending decisions. 

You may want to ask about how their interest is calculated. Some charge interest on the entire loan amount, even amounts that you haven't drawn out yet for construction. Some charge only on the funds you've drawn out. On a bigger construction project that can make a huge difference. On a smaller budget, it won't make a huge difference. 

I'd also network with as many people locally as you can to see who they're borrowing from and what their experience has been. 

If the lender is asking for large upfront application fees or something, they are probably trying to scam you. 

 

They'll always include rents and determine whether you have the property rented at, above, or below market rents.

That being said, if it's a residential appraiser, which I'm assuming it is, they're just going to look at comps. Hopefully your area has some decent comps. Part of the difficulty in 2-4 family homes is that there usually aren't as many comps. Appraisers then have to expand the area they are looking at and/or make large adjustments off of other properties.

I had this issue somewhat recently with a 4 unit property I renovated. There were 4 unit dumps and recently renovated duplexes used in the appraisal so a lot of adjustments had to be made. Whenever that happens, you can count on an appraiser being overly conservative to cover themselves. I was very disappointed in the value I got, but post construction and stabilization, I am very happy with the property's performance. 

Sounds like you're in a good position. Good luck getting it wrapped up!

It sounds like they screwed up and were making up excuses as to why they couldn't fund the deal for you. 

As @Lola Omishore mentioned, you may have to look for bridge or hard money financing on this. I'd reach out to your local network first and see if there's any local options then expand your search.