All Forum Posts by: Matthew Holtry

Hello BP Community!

I used to have an amazing general contractor who supported my rental properties in Carlisle (who actually found me via a BP forum!), but he has decided to move on to another line of work. He was super reliable, his rates were reasonable, he did quality work, and he had a "do it right the first time" mentality.

Do any of you have recommendations for a GC in the Carlisle / Mechanicsburg / Harrisburg area who fits these same criteria?

Thanks everyone!
Matt

@Alexander Love

Theoretically, the lender can lend you however much money s/he wants. Suppose you buy a property for $100k, you plan to put $50k of work into it, and you expect the ARV to be $200k. A lender could loan you the $150k for the project or even the full $200k ARV or even more than that (although it's hard to thing of a justification for loaning more than $200k...)

I personally do not loan 100% of ARV, but there are others that do and there is nothing wrong with one approach or the other. It's all about two parties coming together to make a deal happen. I prefer to stay closer to 70%-80% of ARV based on my personal assessment of the ARV (which may differ from the person I am lending to). If I plan to make a loan, I am going to pick at the numbers. If you think the ARV will be $200k, but I find a recent flip down the street that sold for $180k, I am most likely going to use $180k for my estimates. So in this example, I may only be willing to lend 70% of my estimated $180k ARV. That means I would have $126k at risk for a property that might be worth $200k. This means there is plenty of buffer in case mistakes happen and it also means the person borrowing the money has significant skin in the game as well.

@Alexander Love - In my case, the situation boils down to 1) Am I working with a person I know and trust based on our previous experience working together and 2) Does the deal make sense and would I be protected if things went south?

I am not a professional lender so having an established relationship is important. In my case, I knew all the parties involved and had done previous business with the person who was helping to pull the deal together. I am also incredibly conservative when I run the numbers to evaluate a deal. As Tim mentioned, LTV of 90% would be insane as an investor. For the deal mentioned above, I believe we ended up lending only about 60% of the ARV, and we divided it into payments based on construction progress. So, for example... If the property was being purchased for $50k with a $100k ARV, we would start with a loan of $30k available immediately and then, as construction was completed, additional calls for $10k would be released. The real estate attorney helped us draft all these terms.

@James Masotti - Just to offer some thoughts as a guy who is a new private money lender who just went through the process for the first time... 

Looking back, the #1 thing I wish I had (and, in my case, the borrower wish he had as well) is a step-by-step understanding of the whole process from start to finish. For example, a slightly more detailed version of the steps that @Account Closed provided in his post would have been incredibly helpful. Both the borrower and I kept finding ourselves going back to the real estate attorney asking "So what's the next step?" and in our situation, we still ran into a really confusing hand-off between the real estate attorney and the title company. Now that we have the step-by-step from this post (and some additional suggestions), I know our next transaction will be substantially easier. I am almost imagining a flow chart (yuck!) or a single piece of paper divided into 3 columns (one for "Lender's Responsibility", one for "Borrower's Responsibility", and one for "Attorney / Title Company Responsibility") with all the tasks that need to happen... possibly even divided into rows of Pre-Closing, At Closing, and Post-Closing. 

Providing standard agreements seems like a nice service as well, but I could see some new lenders being a bit suspicious of their borrower wanting to use "their" specific forms. Obviously, this is where the lender consulting a real estate attorney is critical. If there are people out there who say they want to be private money lenders but aren't willing to even try to find a real estate attorney (for whom the borrower will be paying the tab!) to support the deal, I would argue they don't actually want to do this type of lending and are likely wasting your time. You shouldn't have to drag a private money lender through the process... They should be a partner in it. 

@John M. Erdek - Thank you for the detail and advice your provided in your post. Just to clarify one important thing about our transaction: We did absolutely have a real estate attorney prepare the loan documents. They drafted both the note and the open-ended mortgage (at the expense of the borrower) which included specific details about the nuances you mentioned (e.g. explicitly defined as an open-ended mortgage, there is a section about "Assignment of Leases", etc.). 

In our case, the real estate attorney put together detailed documents, but it seems like things fell off the rails when it got to the title company. 

The attorney did provide some advice about closing protection letters and endorsements, but it seemed like the advice was largely answering individual questions that were asked instead of providing more of an end-to-end picture with advice for the best way to be protected. For example, instead of saying "You will want a closing protection letter and endorsements x, y, and z to protect against these legal situations...." the chain of events was:

1. Title company asked what endorsements should be included.
2. I reached out to the real estate attorney for advice.
3. I received a curt reply from the attorney with just the endorsement numbers that should be included without any additional detail. (I actually had to reach out to some friends who are more experienced than me and work in mortgage lending to ask for advice to supplement the information I was getting from the attorney.)
4. I provided the information to the title company.

Definitely some lessons learned here. At a minimum, for the next one, I think I will plan to meet with the real estate attorney in-person in his/her office instead of relying on email communications so I can get more detailed advice/dialogue, and it also sounds like we may need to find a new title company since the one we used was (at their admission) not experienced with private money lending details.

@Steve Babiak or anyone else - Any advice about good title companies in the Harrisburg, PA area?

@Shawn Ginder and @Account Closed - The step-by-step you provided is perfect! The way you described the process is exactly how I expected things would work (with me wiring the money to the title company and them acting as an escrow so funds can be provided to borrower at same time as mortgage is recorded). In our case, both the real estate attorney and the title company told us to handle the disbursement of funds directly (from me to borrower) with the title company rep even telling us to "not involve our office to keep things easier". It seems like they were saying this since the borrower already owned the property but it still created a lot of confusion on our end. This provides a lot of clarity and helps us see a shorter path to doing these deals in the future. 

BP Community,

I recently did my first private money deal (as a lender). The borrower is someone I know personally, and we intend to do additional deals together in the future. We stumbled through this first one together (relying heavily on a real estate attorney), but I wanted to reach out to the community to see if we could find a way to streamline the process and hopefully reduce transaction costs.

For this transaction, the borrower was purchasing a duplex in Pennsylvania that needed significant rehab, and he intends to do future deals in this neighborhood. For the sake of the discussion, let's say I was lending $25k and the borrower was paying $1k in origination fees (points).

Here is how the transaction went step-by-step:

1. We agreed to initial terms via email.
2. The borrower paid for a real estate attorney to draft up a note with our terms and prepare an open-ended mortgage to establish me in first lien position on the property.
3. Unfortunately, Step 2 took a long time, and the buyer had to go to settlement on the property (via an all cash transaction) before we could get the mortgage in place.
4. About 1 week after closing, the real estate attorney coordinated with the title company to get the mortgage in place. This led to a lot of additional questions from the title company (including confusion about how the funds would be distributed from me to the borrower) which created at least another 1 week delay.
5. After we got those issues resolved, the borrower had to go through settlement again (and pay a bunch of title fees, including Title Insurance) for the second time.
6. Within a few days after settlement, the mortgage was recorded, I received a check from the title company in the mail (for the points I charged), and I sent funding to the borrower.

It took about 5 weeks from the day the borrower contacted the real estate attorney to the day I sent funds to the borrower.

For those who have done this kind of transaction in the past, what does the "happy path" look like?

Here are a few specific questions:

1. Assuming we were able to process the note and mortgage at the first settlement, how and when are funds typically distributed? I had assumed the borrower would pay the $1k in origination fees (points) to the title company and I would provide the title company with a cashier's check for $25k, and then at settlement, the title company distributes the funds all at once. The real estate attorney told us the title company would collect the $1k for points but would not be involved in the $25k distribution. So how does this typically work to ensure the buyer has the funds he needs for the transaction with ensuring the lender's lien is properly recorded all at the same time?
2. For private money lenders, what title endorsements do you typically require in Pennsylvania? The attorney suggested a Closing Protection Letter and endorsements 100, 300, and 900.
3. Now that we have a note and mortgage format we like, do we still need to have the real estate attorney prepare these documents each time or can we use the existing format as a template for future transactions?

Thank you all for your insights and advice!

Matt

@Dan M. - It looks like Jason already sent you a note, but he is the guy I would recommend. He just wrapped up a roof repair for me, and I left a fairly detailed review on his facebook page: https://www.facebook.com/stutenrothassociates/

@Patrick Liska - Definitely right in the ballpark where you said it would be! Other than the "Appraisal Management Fee", "Final Inspection Fee", and "Secondary Final Inspection Fee", were there other items in there that you don't normally see?

Hey everyone! I just wanted to follow-up on this thread with the final numbers for those who were interested where things ended up.

In general, my real estate agent's numbers were scary accurate overall, and the total title-related expenses were less than $1,200 (and not as high as $2,750 as feared). 

A few noteworthy details:

• We had an issue during the appraisal that had to be resolved, so that is why there is a "Final Inspection Fee" and "Secondary Final Inspection". (It still isn't clear to me why there are two charges instead of just one for $100, but a $300 lender credit covered this so I didn't sweat it.)
• Our agent grouped insurance and owner/lender premiums into one category so that is why that line item looks so big compared to actuals. It is actually a few things added together there. Hard to represent in the spreadsheet. 
• As you can see, the national chain's numbers were more than 2x higher than actuals for title-related items. 

I hope this helps anyone who might have similar questions while working on a closing in PA. Let me know if you all have any questions!