Learn To Be A Fix & Flip Investor

Tuesday, March 7, 2017

Commercial Lending Basics

When it comes to commercial lending you may think you only have a few vital avenues to take. But, the truth is there are several different avenues or sources for commercial lending you just need to know where to look.

The wonderful world of commercial lending is comprised of more than just hard money, private money, and banks. If you have been in the business for a while, you may already know you lending choices are far greater than just the above-mentioned three. Nevertheless, it almost goes without saying that with more options ultimately comes more research as well as more time spent evaluating, which option is the right one for you.

Therefore, if you are not afraid of a little extra research you will quickly find that you can also turn to government agency lenders, insurances companies, portfolio lenders, CMBS lenders, SBA loans—just to name a few. Let us start with government agency lenders, these lenders are basically Fannie Mae and Freddie Mac. Typically, with government-backed financing, you see separate loans being pooled together in order to sell to investors. On the other hand, if you do a quick search of insurance companies that offer commercial financing programs, you will find that there are only a select few that offer such programs. However, the good news is that insurance companies that do offer commercial financing are not held to the same regulatory standard as many of the other lending avenues; thus, you are able to customize your loan packages with greater ease.

When you are dealing with portfolio lenders, you are working with semi-traditional avenues such as local banks, corporations, and credit unions. Here, the real difference is that portfolio lenders do not pool their loans together to sell right away like government agency lenders rather they wait until maturity. Furthermore, portfolio lenders are held to your standard regulations just like traditional lending institutions, which means a reduction in flexibility. Thus, that leaves CMBS lenders and SBA loans.

The Real Deal on CMBS Lenders and SBA Loans

CMBS lenders are lenders that provide a variety of commercial financing. When dealing with these specific lenders, your loan will be transferred to their trust and then issued in several different methods in order to sell to investors. If this particular setup works for you then, you will find that there is a multitude of CMBS lenders to work with in your area. However, if you prefer financing that understands the inner workings (construction, purchasing of equipment, etc.) of small businesses then you should definitely look for a lender that offers SBA loans.

How to evaluate them all

Of course, if none of these additional avenues seems right for your particular commercial venture, it is perfectly okay to go with what you know. In other words, if hard money or private money is what you need to make this project happen then so be it. Ultimately, the takeaway here is that you need to do your research to understand your lending options. Moreover, you need to make sure that you working with a lender who’s goals align with yours.

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

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Required Commercial Lending Documentation

Clearly, commercial lending is a bit different from your standard residential lending, which means you will more than likely have to provide slightly different documentation than you may be used to providing. Of course, that is not to say you need a completely new set of financials, but rather that there are some additional requirements for the commercial lending process.

The truth is that the commercial lending process can be a little overwhelming, especially when it comes to the required documentation. However, there is good news—you figure out what is going to be required of so you can be properly prepared for all your lender requirements and standard commercial real estate regulations. With that being said, if you are working on a more complexed commercial deal, you will definitely need to consult a real estate attorney in order to put together the attorney-prepared agreements.

Moreover, you need will a promissory note. If you are not new to the business, then you know that a promissory note is a document the borrower must sign in order to undertake any and all obligations such as meeting the terms of your loan. In addition to a promissory note, you will need to have a loan agreement with your commercial lender. Your loan agreement will generally have the standard information included such as representations and warranties, conditions precedents, negative covenants, affirmative covenants and language regarding what happens in the event of default.

Besides these two vital pieces of documentation, you will more than likely need to supply your lender with your corporate resolution, disclosure and authorization forms, mortgage of deed-of-trust, and Guaranty. You will also need to produce a variety of other agreements (subordination, inter-creditor, assignment, pledge, security, deposit account control, error and omission, etc.). Ultimately, these above-mentioned documents and agreements are, in a way, just the tip of the iceberg. But, nevertheless, this overview can still help you be prepared for your future lending process if not get the ball rolling in the right direction.

Final Things to Consider

In addition to being well-informed in regards to the necessary documentation, it also helps to have a better understanding of several key loan concepts. In other words, this means brushing up on the difference between secured and unsecured loans as well as determining if a negative pledge or letter of credit is necessary for your particular loan. Moreover, it means assessing if a term, demand, bullet, amortizing or revolving loan is best for your financial situation. Of course, if you are not sure which of these particular loan types will work best for your commercial venture, then now is the perfect time to do some additional research or reach out to an experienced broker. It is also helpful to really take the time to go over your loan agreement in detail and ask questions about any terms or provisions you do not fully understand.

Help that’s right for you

In end, you want to make sure that there are no surprises. Remember, the better informed you are, the easier it will be to negotiate your loan terms and go over any issues that arise with your lender.

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Commercial Lending and Stated Income

Commercial lending is a great opportunity for anyone that wants to start a business or expand his or her current small business. However, if you fall into the category of self-employed, you may be asking yourself, what the world of commercial lending has to offer you?

Commercial lending, much like standard lending, requires above average credit as well as proof of income and employment. Typically, proof income and employment are established by providing one’s taxes, W2’s or pay stubs, financial statements, bank records and so on. Yet, when you are self-employed and you can produce these above-mentioned documents, it sometimes not enough if you do not have a third party who can verify your employment or set income.

In fact, most lenders look at small business owners or self-employed individuals as high-risk for this very reason. Besides being labeled high-risk, most of these borrowers are deemed ineligible for commercial financing. Of course, you might think this where hard money and private money lenders can come to the recuse. But, often times, without a clear verification of employment, these lenders are also a little wary of taking that risk. So, at this point, you are probably wondering what you can do?

Well, thankfully, there are specific stated-income programs for commercial financing. These particular loans are often referred to as “No Doc” loans. With “No Doc” loans, small business owners and individuals who are self-employed have the opportunity to provide an alternative proof of income. Alternative proof of income and employment is not really so much you, the borrower, providing more information per se; instead, your lender will use different information to determine if you are in a good position to secure commercial financing. For example, if you are a small business owner, you will more than likely be required to provide multiple years’ worth of profit and loss statements for your business.

Determining Eligibility

In addition to providing detailed tax information and/or several years’ worth of financial statements, you absolutely need exceptional credit if you are self-employed. By having exceptional or excellent credit, lenders that offer specific income-stated programs for commercial financing will be more inclined to believe you are capable of repaying your loan (establishing your creditworthiness). If all goes well, you should be able to secure that loan but you should keep in mind that eligibility is a two-way street. In other words, you need to make sure your lender and broker are reputable, especially when dealing with income-stated programs, as many brokers have been guilty of unscrupulous uses of these particular loans.

Risk Less

Ultimately, these “No Doc” loans are risky business for everyone involved; thus, you should not be too surprised to that these particular loans tend to come with more fees and costs than traditional commercial financing. If you are not interested in covering additional costs, then you should definitely take the time to consider the pros and the cons of securing this particular financing. In the end, only you know if a “NO Doc” loan will help your business or not.

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Monday, March 6, 2017

Private Money Lenders—California Q & A

Nine times out of ten, looking for financing for your next venture or your next home involves researching private money lenders. California based lenders of private money tend to be everywhere you turn; thus, you may not know what questions to ask before moving forward so let us change that for everyone involved.

By now, you are probably past the cursory stage of researching and narrowing down your choice private money lenders. California, moreover, has some of the most reputable lenders of private money, so you more than likely have settled on a few from that particular state. If by chance, you choose a local lender instead that is perfectly fine too. What matter most now is that you find a lender that meets your qualifications and vice versa.

As a borrower, your questions will definitely differ from those of an investor looking to work with private money lenders. California based lenders, much like other lenders, understand that they must be able to cater to both groups. Thus, let us go over what you need to ask as a borrower first and then go over what you need as a potential investor.

For starters, as a borrower, you need to ask yourself, what is your number one must-have when choosing a lender? The answer should be simple—rate and reputation. The rate and reputation of your lender are really the foundations of any working lending relationships. Thus, you need to find a lender that offers a fair rate that works for your particular project and you need a lender you can trust to be on your side. This means looking for transparency and flexibility. Your next question, as borrower, should be, is time truly of the essence here? If the answer is yes then you need to find a lender that can work at the speed your situation requires. Lastly, before moving forward with any particular lender, you should ask yourself, if your lender is truly reliable. Hopefully, the answer is that they are reliable so you can proceed with your venture confidently.

Things to Consider as an Investor

Your number one question, as an investor, should always be, are you getting your money back? Hopefully, you can trust they people that you are working with to honor the terms of the loan agreement. If you do feel you are working with trustworthy individuals, your next question should be, what exactly is in it for you? Sure, this may sound a little cold and to the point, but remember this is a business transaction at the end of the day regardless of who an investor is in relation to the borrower. As an investor, you should also ensure that your investment is secure and that you know all your risks upfront. Your third and final question should be, how realistic is your plan? The answer from your potential borrower should not only involve a detailed plan, it should also help you to see the vision with fail safes.

Advice

Ultimately, both a borrower and investor need to feel confident in their business transaction. Thus, you should never be afraid to ask these questions.

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Private Money Lenders—California Investors

Often when it comes to financing, you hear about how to be a qualified borrower or how to meet the requirements of private money lenders. California investors and how to become one rarely are discussed, so let us cover who these investors can be.

If you are like many individuals in the real estate business, you may have noticed how lucrative the business is for private money lenders. California investors, in fact, are some of the most well-paid private money lenders. California investors, therefore, are clearly on to something. So, what is it exactly? Well, it is their cunning ability to know which commercial and non-commercial ventures to move on or rather to finance.

With that being said, you may want to throw your hat into the private money race. But, you probably do not know just how to start the process of becoming a private investor or money lender. The good news is that the overall process of becoming an investor is not overly complicated. In fact, the process has more to do with your available cash flow and the particular niche you would like to start investing in.

This means that you need to, first and foremost, research the process of lending. Of course, this may take some time, but it is important to know the ins and outs of your industry. After you feel fully apprised on the lending process, your next step is to start evaluating your available capital. Ultimately, you want to ensure that you can lend a substantial amount of funds without any negative effects on your overall budget. In other words, you should only lend funds that you can do without if push comes to shove. You should also make it a point to go over your goals when it comes to lending. If this particular avenue seems like too large of a step for you personally or financially, you may want to also consider micro-lending.

The Real Deal on Micro-lending

In essence, micro-lending is just another name for peer-to-peer lending. Peer-to-peer lending is when small lenders help each other find prospective borrowers. Moreover, you will typically come across borrowers who are trying to pay off a reasonable amount of debt (student, loans, credit cards, wedding cost, car repairs, etc.) and individuals who are looking to start up a small business or finance a creative project. Micro-lending also allows you to determine the rate of interest based on the level of risk that is associated with lending to a specific borrower. This means borrowers that you determine are high risk can be charged at a higher rate of interest. Thus, you can get your feet wet with micro-lending before moving onto commercial and non-commercial ventures.

Advice on Lending Sites

Another viable option is to consider join a lending site or a lending club. These particular sites will allow you to invest a smaller amount of money to a large group of borrowers. If you are interested in becoming a private money investor without a lot of heavy lifting, this may very well be your best option.

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Private Money Lenders—California Values

Deciding to be a part of the business of lending is a big step for anyone, especially private money lenders. California based lenders, in particular, have to deal with a variety of competitors while still learning the ropes, thus it can be helpful to know what values or disciplines will help you stand out as a lender.

Whether you are just getting into the business or looking to work with reputable lenders, a few key components need to present. For starters, if you are California based, then you need to work with locally based private money lenders. California investors and borrowers, actually, benefit more from loans that are within 100 miles of their office or potential property. Thus, in short, this means everyone needs to stay local.

Of course, the thought-process behind staying local is not revolutionary rather it is based on the assumptions that people tend to trust what they know. In addition to working with your neighbors, you need to carve out your niche. Again, this is a two-way street—if you are a soon-to-be lender, you need to find the area of this industry you can invest in while still seeing a sizable return. On the other hand, if you are a borrower, your vision needs to be understood by your potential private money lenders. California lenders, in fact, are some of the more diverse lenders you will come across, thus if you are looking to break into that particular market you will also need to stay focused in your approach.

The best way to stay focused here is to know your strengths as a lender and as a borrower. There is no need to make promises you cannot live up to period. Therefore, stick to your niche, spread the word about your niche and be as transparent as possible while you do it.

Tips for Staying Successful as a Lender

Besides the above-mentioned California values, as a lender, you should always remember two key tips. The first tip for success is to remember to refer instead of brokering. It is important to refer when you come across a borrower or potential loan outside of your focus or niche. By choosing to refer, you will save both yourself and your borrower a lot of time. Moreover, if you get in the business of referring you will like see other lenders returning the favor. The second tip for success is to invest in yourself, which should include everything from mentoring, consulting, coaching, seminars and more. Remember, you as well as your business can only grow if you make time to invest in yourself and your goals.

A Win-Win Solution

Ultimately, these values can apply to any and all lenders. The point, here is that becoming an investor, growing and creating a successful private money practice will not happen overnight or by sheer luck. Moreover, working with the right borrowers will take skill as well as drive, which can only happen when you have clear set values that streamline the lending process and create a reputation that demonstrates you mean business.

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Learn To Be A Fix & Flip Investor

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The Big Show is Coming to Town.

Tuesday, March 7, 2017

Commercial Lending Basics

Required Commercial Lending Documentation

Commercial Lending and Stated Income

Monday, March 6, 2017

Private Money Lenders—California Q & A

Private Money Lenders—California Investors

Private Money Lenders—California Values

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