All Forum Posts by: Reese Newell

Thanks alot guys.  In addition to moving to 2nd position, my partner w/ a net worth of roughly $1.5MM also signed some personal guarantees as well.  I know this does not fully protect myself.

I have convinced them to leave all of the money as working debt and not converted it yet to equity in the property.

25% equity in the deal as a silent partner*

I have financed the acquisition of a property that was to be converted in to a retirement home.  The term of the investment went a little longer than expected, and I was just paid out my interest for the initial debt of ~1.1MM that went for about 8 months at a 10% rate and 0 points.  The structure to our deal was that my debt would be fully paid back sans a downpayment left in the property upon refinancing (~$360k) and I would then retain 25% equity in the deal as a preferred partner.  At the conclusion of each year, I would get a preferred payback of $36k until I had been paid back $180k of the $360k over a 5 year window.  This payback each year would drop my equity 1% each year until I hit 20%, at which point the preferred payback would end and the rest of the money would stay in.

At this point, we needed to take out loan of ~$670k to finish renovations.  The banks wanted my lien to be moved to a 2nd position.
In turn, we negotiated my rate of 12% on my money now until the completion of the renovation and refinancing from the bank.  My partners believe that the $180k that I am leaving in long term for equity should convert now from debt to equity.  I argued that it should remain debt since the house is not operational yet.  What would be your opinions on this portion of the debt and if it should convert now?

Briana,

I have done hard money loans on roughly 10 properties and am segueing to doing the investing myself now. As far as on the hard money side of things and not regarding the other issues that you have, I am always willing to hear all options for a deal. I have gotten creative w/ past clients that do not have liquid assets by also taking some equity in the deals as well. I play around w/ a lot of Internal Rate of Returns (IRR) and assess my risk levels with statistics.

Any good investor will be flexible and open to ideas, so I would see if there is enough equity that you could offer them potentially to sweeten the pot to where you have to bring less or no earnest money if the margins allow for it.  Best of luck!

 Thanks @Jared Rine

I will reach out to you within the coming day or two if I can use your help with the deal.

Thank  you so much for your detailed response.  It clears up some confusion I had regarding the loan.  It is for less than 10% of my net worth, and I would be okay if I got wiped out on the loan (but have zero intention to).  Some great posters here have reached out to me to lend help and I really appreciate it.  Again Jeff, thanks so much for taking the time to write that all out for me.

@Jared Rine

Yes Jared,

I've only done first lien notes in New Jersey and am new to the Californian market. I really would like to work with the team I've established a relationship, but it is for a second lien. I have avoided them and know that at the LTV of the original note that the second lien is more or less worthless. Due to this, I want to make sure that the personal guarantee is strong enough.

In addition, from the information I’ve been able to gather from my own research over the last 2 months on Californian lending laws (it is very difficult to sift though and find relevant information on the topic), above 10% violates the usury laws unless I have a CFL or a broker facilitate the note. It seems that if they are a certain level of established that it can be bypassed. However, I know it is in my best interest to take all precautions, especially on my first note with them. I would like use a broker to draft up the note and personal guarantee, as well as helping with the escrow. A lot of the other steps have been taken care of with the first note such as the deed of trust, title insurance, property insurance. Due to that part, I will review those and be added as the second beneficiary on them.

The main issue is that it has been so difficult to find a broker that is experienced in hard money lending. I have tried cold calling and researching online, but I have been shooting in the dark and all the responses have been that they are not experienced with it. Thanks for all the help you are providing me.

First off, I am a long time lurker of the forums and have finally began to segue over in to real estate investing in the last year.  I have so much respect for those on this forum that help out and am so thankful from the knowledge I've gained from browsing over the years.

As to my question, I am looking to secure a second lien position with a personal guarantee on a hard money loan in Pasadena, CA.  The usury laws from what I have been able to learn about in California are very ambiguous as to what is legal and what is not.  The 10%+ loans appear to need either a qualifying CFL or a Broker to write the note.  The other work around seems to be if they are a seasoned investor with over a certain amount in loans.  While they fit the latter part, I am nervous to violate any laws.  While searching the internet for weeks and contacting a lot of brokers, I have had a very hard time finding any broker versed on this niche and able to help.  Would anyone be able to help with this by pointing me in the right direction, or a broker themself willing to provide assistance.

Thanks so much!!

Reese

Dale, try to be alot more specific with your questions so people can provide guidance.  This question is very basic, so you are best off using the search functions to sift through the forums as this topic is covered countless times.  Best of luck on the journey!