Transaction 17 of 52 in 2011: I "Broker" a Loan

More transactions! More deals! More fun!

I help Shawn Watkins of Investors Workshops find some short-term money when a buyer was delayed coming in with funds. So I called a financial friend who had never lent money short-term and asked him if he was interested.

His first reaction was "no," not interested at all.

Second reaction was, "maybe depending on the numbers, please send them to me."

Third reaction was, "this sounds good. I'll probably do it after I review the numbers."

The numbers looked good. $20,000 short-term that would come from an equity line at a low-interest cost to the lender secured by a second dead of trust against the subject property.

The money came in two days later. Shawn closed the transaction. Funds paid back as promised. Our financial friend is ready to do the next one.

Real Estate Projects with Clear Day Capital

Clear Day Capital has always said that we create opportunities for real estate investors. Yet until a week ago we acted only as a hard money lender. Borrow money? OK, but make sure it's paid back in time because there are big penalties if you don't

Along Come the Projects

A week ago we did our first "project" with an experienced investors who purchases, fixes and resells single family homes in northern Utah. He gets:

• ALL OF THE CAPITAL he needs to purchase and repair the house- no money out of pocket
• LOWER INTEREST RATE to cover our cost of money
• MORE TIME to complete the project
• NO EXTENSION FEES if the project runs long
• FREE CONSULTING on the project- he especially needs curb appeal help

What's in it for Clear Day Capital? We get a piece of the project. Instead of points, we split the profit from the project. Why do we do it? We believe in the project and we believe that we will make more money. We take the time risk with the origination fee.

Since the First Project

Since last week we closed another three projects, similar to the first. One is a rehab, one is a refinance of a completed project, and the last is our first commercial project.

Do You Have a Project that Needs Financing?

If you do, call us at 801.747.7267 and we can talk about a traditional loan or about doing a project together. Either way, we enjoy creating opportunities for real estate investors.

Welcome to Clear Day Capital

Clear Day Capital provides bridge-loan financing (hard money loans) for professional real estate investors with projects in northern Utah. We listen to our clients, understand their projects, and help them make the project a reality.

New Clients

We work with a limited number of repeat clients that usually have multiple loans outstanding. We carefully screen new clients for experience, capital resources, credit worthiness, and their business plan. If you are interested in becoming a Clear Day Capital client, here is the process:

1. Call David Safeer at 801.747.6343 and set-up a time to meet
2. Meet with David for about 1-2 hours for a new client orientation. Please be prepared to discuss who you are, your experience, at what you are trying to accomplish. If you have partners, they should attend the meeting as well.
3. David will clearly explain Clear Day Capital's underwriting standards, loan documentation, past-due loan policies, origination fees and interest rates, and how to make a formal application to become a client
4. If there is a mutual agreement that we want to work together, you will make a formal application to become a client by submitting a 1003 (uniform residential loan application) and a current credit report. Click here to get the 1003 form.
5. Plan that the first project will take 1-2 weeks to underwrite and fund. Subsequent projects should take about 3-5 business days to underwrite and fund.

We want to make the process as easy as possible and at the same time set the foundation for a long-term working relationship.

Contact Information

Clear Day Capital can be contacted at:

801.747.6343 Phone

801.401.7267 Fax

dsafeer@cleardaycap.com

Utah Credit Union Equity Lines for Investment Real Estate

Investment Real Estate Financing Alert!

Utah real estate investors have been searching for over a year for how to get fast, effective financing in place for their investment properties. I won't go into the obstacles in detail, but they have included:

• Property seasoning of 1+ years
• Unreasonabley high standard for credit scores and W-2 income
• Bad appraisales
• Unknowledgable loan officers
• Very high interest rates
• etc, etc, etc

There is now a great opportunity for the right properties and the right borrowers. Some Utah credit unions have developed a loan product with the following general guidelines:

• Home equity line of credit
• Up to 65% LTV of appraised value for investment properties
• In-house appraiser who will talk with owner and understand the property
• NO SEASONING- apply the day after you purchase the property
• Interest rate at prime+1.5% (currently at 4.5%)
• Property must be in live-in condition (no pre-rehab junkers)
• Borrow must have W-2 income and 700+ credit score
• Borrower must be a member of the credit union (generally $25 in a savings account)
• Origination fee about 1%

Clear Day Capital had two borrowers use this program at Golden West Credit Untion, working with Nate Cox at 801.786.8452. The first purchased a rehab, did the fix-up and paid us back using his equity line from Golden West in about 5 weeks.

The second was completed in under 3 weeks, the property was already in live-in condition.

I understand that other Utah Credit unions offer similar programs. When I get confirmation of which ones I'll let you know. Can you confirm similar programs? Does anyone have any other good investment financing to share?

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!

Isn't it All Creative Real Estate?

Two days ago a Twitter follower asked asked, "Have you done any creative real estate deals lately?" As far as I'm concerned, Clear Day Capital ONLY does creative deals, but I responded with a deal that we are working on that will close on today (July 29, 2009.)

A borrower is purchasing a property to rehab and is concerned about a personal guarantee. At the some time, the officers of Clear Day Capital have a goal to control our own destiny more in case a loan goes bad (refusal to repay or cooperate) or gets "stuck" (unable to sell or refinance, but cooperating and wanting to do the right thing.)

We have come up with this model:

1. A company controlled by Clear Day Capital's owners purchases the property through an assignment of the purchase contract and acts as a holding company.

2. The holding company sells an option to the client to purchase the property by a future date at a pre-determined price equal equal to the holding company's loan payoff amount.

3. Option extensions can be purchased if needed.

Fairly simple and provides these benefits:

To the Client: They don't personally guarantee the loan, but still get to complete their project.

To Clear Day Capital: We control the property and do not have to forclose if the clients don't perform.

Some interesting notes:

1. The solution was inspired by our client, who was making a general suggestion about how Clear Day Capital can secure itself better, not realizing that he would be the beneficiary of the suggestion.

2. The deal was dead two weeks ago, but we had done successful deals before, we wanted to do more together, and we made a mutual commitment to figure out how to do more. We just needed to get more creative.

What do you think? What was your last created real estate deal?

They Are ALL Creative Real Estate Deals

Two days ago a Twitter follower asked me (@cleardaydavid), "Have you done any creative real estate deals lately?" As far as I'm concerned, Clear Day Capital ONLY does creative deals, but I responded with a deal that we are working on that will close on today (July 29, 2009.)

A borrower is purchasing a property to rehab and is concerned about a personal guarantee. At the some time, the officers of Clear Day Capital have a goal to control our own destiny more in case a loan goes bad (refusal to repay or cooperate) or gets "stuck" (unable to sell or refinance, but cooperating and wanting to do the right thing.)

We have come up with this model:

1. A company controlled by Clear Day Capital's owners purchases the property through an assignment of the purchase contract and acts as a holding company.

2. The holding company sells an option to the client to purchase the property by a future date at a pre-determined price equal equal to the holding company's loan payoff amount.

3. Option extensions can be purchased if needed.

Fairly simple and provides these benefits:

To the Client: They don't personally guarantee the loan, but still get to complete their project.

To Clear Day Capital: We control the property and do not have to forclose if the clients don't perform.

Some interesting notes:

1. The solution was inspired by our client, who was making a general suggestion about how Clear Day Capital can secure itself better, not realizing that he would be the beneficiary of the suggestion.

2. The deal was dead two weeks ago, but we had done successful deals before, we wanted to do more together, and we made a mutual commitment to figure out how to do more. We just needed to get more creative.

What do you think? What was your last created real estate deal?

5 More Questions to Ask Before Investing With a Hard Money Lender

Last month I wrote about five questions that should be asked before investing with a hard money lender. (June 2009.) This month we look at five more questions with more depth. They should be asked after the first five questions are answered adequately.

1. What happens if a loan goes “bad?”

Most people think that business will always be smooth. Experience tells us that at some point a loan will go bad. When this happens, who is responsible for collecting interest, loan extension fees, or foreclose on the property owner? Is this your responsibility, or will the hard money lender take care of this?

What about the cost of collecting? Who pays for legal fees, registered mail, court filings, etc. if a loan goes into foreclosure? Will the lender who arranged the loan pay in full, in part, or not at all? Will the lender take the time and energy, and make the effort necessary, to go after the capital, interest, and penalties or do you need to do that yourself? Do they have a process in place, including a lawyer who can foreclose at a reasonable cost?

There is a huge difference between collecting a loan on your own and having a responsive, knowledgeable company do it for you.

2. Can I call references before I invest?

A reputable company takes pride in its professional reference list. For a hard money lender this list could include accountants, bankers, escrow agents, real estate agents, and lawyers.

If the lender does not have a list, ask "Why not?” The answer should be, “Because we haven’t put one together yet. Give us a day and you'll have it.” If not, then ask yourself if someone without professional references is someone you want to do business with.

When you have the list, call the references and ask more questions to make sure the lender is a professional & trustworthy organization.

3. How does a loan close and does the property have a proper lien?

Does the loan close with a title and escrow company (or with an attorney, depending on local laws?) Is title insurance purchased so if title problems occur the title company pays to have them fixed? Was a title search done and all other title issues identified and paid off, or resolved during the closing process?

Once the loan closes the lien needs to be recorded to ensure that the loan is in first position, ahead of any other liens to ensure that it is paid off first in the event of a foreclosure.

4. How does the hard money lender make money?

Is the hard money lender a broker, making money regardless of the quality of the loan and a successful outcome of you being paid back? Or does the hard money lender act as a principle in the transaction, making money with a successful outcome and potentially losing money if there is a problem with the loan. Does the lender give you a fixed of return regardless of the loan outcome?

How the hard money lender makes money will have a tremendous influence on the manner they conduct business: loan quality, borrower quality, risk, recovery systems in place, and who they borrow from. What is your risk vs. their risk in the loan?

5. Does the lender have a private placement that discloses your company’s financial statements and business plan, and what are the licensing requirements for the business?

It is possible that not all hard money lenders will be required by state or federal governments to have a private placement to raise or broker capital. However, if they have a private placement it should explain their business and disclose risks. It means that they take their business seriously enough to put together a plan and pay to register with the proper government regulatory agencies.

The licensing requirements discussion should disclose if they are even aware that requirements exist or not. If they don’t know, it means that they don’t take their business seriously enough to make inquiries. If they do know and they need to be licensed, they should be able to provide documentation to confirm their license.

Bonus Question

10.5 What is your reputation with your clients?

Their reputation should be good, with clients coming back for repeat business. They should offer clients as references, including clients whose loans did not go smoothly, and a workout had to be arranged. How was it worked out, is the relationship in tact, and would they do business with the hard money lender again?

A lender’s relationship with its clients says a lot about the lender.

Tell Me What You Think about investing your money with hard money lenders. I know that there are HORROR STORIES out there!! Sthare the best one you know.

10 Questions to Ask Before Investing with a Hard Money Lender

There are at least ten questions that you should consider before investing with a hard money lender. Any investment should be made carefully. Passive real estate investments can become a non-passive investment, depending on how you invest. We'll answer five questions this month and five advanced questions next month.

1. “Are you going to broker or borrow my money?”
When your money is brokered on a loan, you invest in a single property. The loan broker is paid a percentage of the deal by the borrower, and then you have the responsibility for the loan and a direct relationship with the borrow.

In most cases if the loan goes bad, you will have to pressure the borrower, go through the foreclosure process with an attorney, and liquidate the property. Even if the loan broker is willing and able to help, your money is tied up in that single property and you have the ultimate responsibility for collecting. You will not earn any interest while you are recovering your capital.

When you loan your money to a reputable company, they will pool it with other investors. If a single loan goes bad, they will recover the pooled capital while you continue to receive interest for your investment. Since they have a portfolio, your money is spread throughout the portfolio and good loans will continue to be made. In this case you will continue to receive interest regardless of the performance of an individual loan.

2. “What types of properties to you lend on?”
Why is this important? It will help you understand the level of risk, the relative liquidity of the investment, the size of the market, and how much real equity is in a property and how that equity is determined. Types include: Single family homes, raw ground, commercial properties, multi-family residential, etc.

There is not enough space to explain all of the implications in investing in each type of property, but here are follow-up questions:
A. Is there “fundamental” demand for this type of real estate i.e. a mansion vs. a 3 BR / 2 BA house in a blue collar neighborhood?
B. What income will the property produce if it needs to be rented? Raw land may not produce any, other properties will depend on location, demand, proper management, etc.

3. “How well do you know the market(s) that you lend in?”
If a hard money lender is an expert in a specific area they will understand property values better, have contacts in the area to help them evaluate an opportunity, know the “rules of the road” (local laws covering everything from foreclosure to building ordinances), and know the trends in the local market.

Do you want to lend money in Chicago when you live in California? What about Knob Lick, Kentucky? Distance creates time and expense for any type of recovery process.

4. “Do you have the proper licensing for the types of loans that you do?”
Commercial loans have no licensing requirements in many states. Residential loans that place a lien against a residential real estate (single family home, condo, townhome up to a four-plex) are considered mortgages. Mortgage lenders in most states require a mortgage broker’s license for their company and a personal license for the employees who originate mortgages. Federal licensing goes into effect in late 2009.

Many hard money lenders casually state, “It’s just a hard money loan, it’s not a mortgage so I don’t need a license.” Wrong. Why does this matter to you, if you invest with an unlicensed hard money lender? Simple answer: Your money is connected to an individual or company that is wide open to lawsuit from the borrowers, and to investigation and prosecution by the state Division of Real Estate. How will a company that shows a disregard for the law ,regard you and your investment?

5. “What position do you lend in?"
The first position lien holder gets paid first, then the second, third, etc. If everything goes well, it doesn’t matter and everyone gets paid. If there is a problem with the loan and the first position lien holder takes it to foreclosure, the first position lien holder gets paid their capital, legal fees, interest, penalties and everything that is owed them before other lien holders receive any money.

Unless there is a tremendous amount of equity, this often means that only the first position lien holder gets paid. So, do you want your money lent in second position?

Coming Soon: 5 Advanced Questions

Welcome to Clear Day Capital

Clear Day Capital is dedicated to providing bridge loan financing to professional real estate investors in Northern Utah. To accomplish this we work with accredited investors and give them an outstanding investment opportunity.

This bog will be dedicated to educating real estate investors and creating a comunity resource for real estate investors in North Utah.

Any questions? Call me at 801.747.6343 and we can chat. Better yet, post to the blog!