All Forum Posts by: Riaz Gillani

There's enough history there for an experienced / motivated lender to make both properties work. Especially with some compensating factors (720+ credit, 6+ mo of reserves aside from just the cash out proceeds, high DSCR).

A good rental is always a good flip. But, a good flip may not be a good rental. 

A Bridge Loan is a mortgage loan secured by the property wherein the proceeds are used for the purchase or refinance and the subsequent renovation of such property ... ideal for a Fix and Flip or Fix to Rent. They are short term in nature - think 12mo term and are Non-Amortizing (aka no principle pay down - Interest Only Payments). They effectively 'bridge' an investor from the entry stage (distressed property or need to close quickly) to the takeout (sale or refinance). 

What's normal for them: Like I said before, interest only payments. Also higher interest rates than you may be accustomed to when getting long term loans (9.00 to 12%+). Generally no prepayment penalty so you can effectively dispose of the loan at any time without incurring a fee. May or may not have a construction reserve held in escrow. They should close somewhat quickly (14 to 30 days on average). 

A lender qualifies or approves of them by using the values (AIV and ARV) of the property and maybe some metrics on the borrower (experience and / or credit score). Tax Returns, Income, DTI all non-factors.

Be careful who you trust in the space. A lot of money and time can be wasted if you jump in with the wrong lender. 

It's pretty unlikely to find 80% LTV on a Cash-Out for an STR. It's tough even for a long-term rental. But not impossible I'm sure. Is 75% LTV an option?

Also do the STR's have income history? Many lenders are requiring 12mo of uninterrupted history - aka no gaps in reservations that may suggest the house is being us a vacation or second home. For experienced borrowers (at least 2 actively listed STR's with 18 or so combined months of income history), the required history for the subject property may be reduced to as little as 6 months.

You are correct that the lending market has changed rapidly. It's narrowed its buy boxes by a good margin and unfortunately that means less loans that are a guaranteed go. STR, Ground-Up Construction, MF 5+ and even 1-4 in select states require a more deliberate processing / underwriting.

Awesome spirit and congrats on your success at such a young age - I'm sure you worked tremendously hard to earn it.

Do's and Don'ts of Private Money Lending ... 

Do: Learn about the different loan structures (Full vs Partial Vs No Amortization, Fixed Rate vs ARMs, Prepayment Penalties, RTL vs DSCR)

Do: Speak with many different lenders - rapport and synergy is often misrepresented when looking for a lender. Of the nation wide lenders, rates don't deviate more than 25-50 basis points and at any given time a different lender can have the lowest rate in the market. If you spend your time looking for that lender you'll never get the opportunity to earn cost savings for being a repeat client. 

Do: Use an entity! That's one of the biggest benefits to switching from conventional to private money - you can stop putting debt in your name (which is especially important for young people approaching their high earning years and may want to finance a new primary home). 

Don't: Put too much stock in any promoted feature (fast closing, ease of process, best in-class service). These are all marketing / click-bait tricks. Newly originated loans take at least 3-4 weeks to close. 75% of this time is due to third party ancillary services. Document collection is also very consistent throughout the industry. So, while some Account Reps / Executives are better at what they do - they can't move mountains. 

Don't: Be scared to ask questions to your lender. Starting out can be overwhelming. Or for some people it's such a simple process they assume they understand the phraseology and happenings around them. And then they find out the loan is fully-recourse!! (they are not always, just an example) Use your lender as a resource and indulge with them when you can - they are literally your corridor to capital markets. 

Don't: Take your foot off the gas! Most Private Money Lenders do not have a borrower concentration limit (whereas the GSEs cap an individual with 10 loans) so don't ever let money or capital be a reason your success begins to level. Growth doesn't always have to be hockey-stick like ... but it can be. 

Go be great! 

Tough question to answer without knowing your time horizon and your exposure to other vehicles of investment. 

Re: Time Horizon, for the average 30 YR Mortgage, 0 to 2 points are generally worth paying up front if you intend to stay in the loan for greater than 5-7 years. But this is without discounting or accounting for inflation. In today's economic environment, we have an inverted yield curve and inflation at 9% - so neither are none-factors by any means. 

Re: exposure to other vehicles of investment, think opportunity cost. If you don't buy down your rate - what else would you do with the money? Would keep it in a low-yield savings account? If so, buying down the rate is probably a good option. If you are someone who invests in stocks or bonds or other securities and have somewhat consistently generated returns, keep the cash today and go that route not only because of the higher return but also the added liquidity.

Best of luck :)
 

Private Lenders, either HML or DSCR, aren't interested in income / employment. Liquidity - yes. Asset - yes. Credit - yes. But no pay stubs or tax returns or DTI consideration ...

With that being said, it sounds like you're looking to BRRRR and you're at the beginning Buy / Renovate stage - so a Hard Money Loan (HML) sounds most fitting.

There's plenty out there - but, I'd suggest leaning on anyone you know in the space and ask who they use. Then vet them. 

Without experience, you can expect at least a 20% DP (80% LTV). 65-70% LTARV. After getting a few under your belt, you'll be surprised how quickly you'll become familiarized with the process and how many more options in terms of financing come available.

Good luck on your path to financial freedom! 

Agreed with all whom mentioned the buy-down scale is relative to lender. Some may be fixed (maybe a 2:1 - so every eighth off the par rate costs a quarter in points payable at closing) while others accelerated (maybe the first eighth off the par rate costs a quarter, the second costs a half, the third a full point...). 

Re: doable from 8 to 5 - no. Like someone mentioned, that would not be buyable on secondary markets - not even with an exorbitant amount of points paid at closing. There's too much uncertainty between foreign affairs, inflation, domestic affairs, commodities, oh and inflation. 

Ironic I came across this in the field bc I ask my colleagues this all the time :)

I've always thought the term was outdated. Reason being a HML got its name because it was thought of as something that is Hard to afford. Higher rates points on the front and sometimes back. The loans generally stay on the lender's balance sheet so there's less boxes that need to be checked. But, there's also a new breed of short term debt and that being bridge / residential transition loans. Interest rates in the 7 to 10's and generally no more than 2 points. 

I therefore strayed away from the term when I first started out. We offered the "Uncle Vito" kind of short term debt that I just mentioned, but I didn't want people to think of us as that lender. We try to give more of an affordable, deal friendly, and institutional impression.

BUT, some people prefer the higher points and rates because they're pros. They'll be out of the loan in 2-3 months. Would rather send pictures of the Reno being done than having a construction loan manager inspect the quality of work etc. 

So, I mention all of this to effectively answer saying yes: it is still a term we use. One I ALWAYS use when offering short term product. People need to hear it because they're told that's what they need when starting out with little capital. But, I differentiate between the institutional hard money and the true hard money. Both have their pros and cons. Depends on the appetite and makings of the borrower.

Cheers!

100% and 100% is HIGHLY unlikely (outside of investors who have built a strong relationship with a balance sheet lender or if the loan is cross-collateralized). 4% is a scam - plain as day. 

Echoing the same advice of my colleagues. Lean on friends in the space. Then vet and make a decision.