Monday, August 3, 2009

Equity Loans from Banks- Work With the Current Banking System

Clear Day Capital's client's have really struggled with traditional lending institutions over the last 18 months. Borrowers with great credit suddenly denied traditional financing simply because they do not have a W-2 income. They can document the income that they receive, but because it is not a W-2 wage, it is unacceptable for today's lending standards. Everyone is working hard to make adjustments.

One of Clear Day Capital's client's recently borrowed funds in mid-June, rehabbed a house for a couple of weeks, and paid us back in late July using funds from a credit union. About a 5 week turn-around on our loan and a payback a couple of weeks early!! This had not happened for over a year- a quick loan turn around using funds from a traditional financial institution.

Introducing: Equity Lines Based on Appraised Value
Here is how it worked (details might be a little off, but generally this is how he was able to make it happen.) Our client used a loan from Golden West Credit Union to pull out up to 65% of his appraised value. No property ownership seasoning, the application could go in the next day. The rate was prime + a low fixed percentage, but the rate will adjust over time based on prime. There is a (5 year?) balloon payment due. It took about 3 weeks to complete the loan.

We have heard of two other banks and credit unions doing this type of a loan- Zions and Weber Credit Union. They still will not lend you money to purchase an uninhabitable house, but that's where a lender like Clear Day Capital comes into the picture. Here's the scenario:

You find a property with a great LTV.
Borrow your purchase funds from Clear Day Capital.
If needed, borrow fix up funds from Clear Day Capital.
Do the rehab.
Get a loan based on appraised value and pay off Clear Day Capital.

Turn around time to go from expensive money to cheap money: 4-8 weeks.

Once you have cheap money, you can afford to hold in on the market for a higher price offer. You can rent it with great cash flow and wait for a better offer. Sell it on contract or with a lease option with a balloon payment or option time frame that coincides with your balloon payment. Imagine the possibilities again...

What's the next project that you can use a loan program like this for? Post a comment and share it with me!

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