What You Missed April 2016 General Meeting
by Rob Earhart
Where to find the money
Presented by: A panel of experts
Chuck Collova, C & C Financial
Brad Lietz, Bridgewell Capital
Lorena Diaz, Lima One Capital
April 5, 2016
Chuck started by talking about different types of mortgages: FHA, VA, loaning people with low scores, some 550 FICO or better. These are for people who have had bankruptcies, foreclosures, etc.; all are federally insured. Chuck instructed that, “if you are in the fixup business, you need to know where your buyers can get their mortgages when ready to sell.”
On Jan 10, 2014, the Dodd Frank bill took effect, which determines how money will be available. “We do not specialize in flip markets,” explained Chuck, “but we still do them.” We make sure the investor has enough money up front so we don’t have to watch them so closely. We like to loan on a house with equity so the investor can buy another to flip. We are always looking for private investors and deal a lot with Advanta Clients. Chuck said, “the borrower pays all closing and carrying costs, including our fees, wire fees, etc.”
At some time while you are flipping houses, you will want to hold one in four for long-term wealth.
A question of length-of-term for closing on a normal loan came up. Chuck says, “GTAR instructed the realtors that they should allow 45 to 60 days for closing because of TRID and Dodd Frank laws.”
Brad added that the best loan is the home equity line of credit for investing as it’s the cheapest. If you have some money, you may want to consider hard money to buy and rehab houses. Maybe your credit is not perfect or you have had some problems. Brad continued, “ we look at the deal to make sure it qualifies after repair.” “Banks do not loan subject to repairs, so hard money works best in those cases.”
Sellers want cash but will take hard money, so we give them a loan-approval letter for the investor to include proof-of-funds in the offer to purchase the property. Brad warned, “you have to expect to put in a lot of offers to get one for hard money to work well.”
Brad explained, “we have an interest-only loan for short term, loaning 85% plus the repairs up to a maximum of 75% of the after-repaired value (ARV). Our objective is to make sure you make money because, if you do, you will use us again for the next project. Then you need to determine if you want to hold it or flip it so we can structure the loan to fit.
When we give you money for the repairs, we give you 20% of the repair amount and then go with draws for completion of each step of the project. We use a one-page rehab sheet showing where the money is going and compare it to what the inspector said is needed. Our process is two weeks start to finish, so things go quickly.
We will pull your credit once we are ready to fund, just to see where you are at. You will need a company to deal with; we only invest with companies. We normally require our investors to put 20% into the deal so they will have skin in the game. Our minimum loan is $60,000 and we want to make sure you have six months reserves plus the 20%. We don’t care where the money comes from, just that it’s there if you need it. There is a 15% down payment plus the closing fees, origination fee of 3.9%, taxes and insurance, which all add up to about 5% more.
If it’s a property you will hold, then we’ll loan at 10.99% for three years, so you can decide to keep it and refinance after one year, or refinance at a lower rate for five years on a 20-year loan. After the five years, it goes to yearly-adjustable rate. We don’t do any owner-occupied loans, just investors. We do that because of the Dodd-Frank act.
Lorena said she moved from Argentina to Georgia in 1995 and got interested in real estate. She added, “I’ve been with Lima since 1995.” We loan 85% of the purchase and 85% of the rehab. Our origination is 3.5% with no junk fees. We offer five tiers, 2% floor, with no processing or other fees. The interest fee is fixed at 1% per month for up to 13 months, but no prepayment fees.
Lorena said, “I can also loan on new builds and on land if you are going to build.” I have no minimum or maximum but the minimum loan origination fee is $3,500. Lorena added, “I do not finance owner-occupied purchases, just investors."
We also do buy-and-hold loans. It’s called rental 30. You can use it to buy or refinance. Also, we do not evaluate the debt ratios but only the rental income. The origination fee is 2% or $3,500, whichever is greater. The minimum interest rate is from 6.5% to 8.5% fixed rate.
“I cover the entire state of Florida and we lend in 35 states,” proclaimed Lorena.
We have you do the application once every 12 months, with as many loans as you like. We also finance 100% transactional funding for double closings, same day, and the fee is 1.75% with no minimum or maximum.
Once you are in the system we also offer you proof-of-funds for no cost for your offers.
Chuck added that “the last five loans we made were hard-money loans. One was a family that was self-employed and could not get a standard loan; we got them the money they needed to pay off their credit cards. The next one is a builder who lost $3 million in the real estate debacle with a 430 credit score and we loaned him on lots that he was buying from a wholesaler. He paid $50,000 but we loaned him $67,000 because they were worth $300,000,” exclaimed Chuck.
Chuck exclaimed, “our private investors get the full interest rate: if we lend his or her money out at 12% the investor gets 12%. We then get a broker fee if we perform. All we need to see is proof-of-funds, no matter where it comes from, though banks care where it is and where it comes from.”
The panel then stayed to answer any other questions that came up.
