Archive for the ‘Real Estate Investing’ Category

Spring 2012: Time to for investors to flip that rehab!

Thursday, April 5th, 2012

Over the last month or so I’ve seen the market increase dramatically in all areas of Massachusetts. From the South Shore to Western Massachusetts, young first time home buyers are looking to buy while prices and interest rates are still at all time lows.  In the downtown Boston area bidding wars for some luxury condominiums have actually started again and local Realtors are shocked at the amount of interest and traffic they’ve seen so far in this early season.

What does this mean for us?  It means this is the ideal time for real estate investors in the market of “flipping” properties to buy a rundown house or multi-family located in an up and coming mid-level town that is attractive to young couples looking to buy their first home.  Rehab the property over the next 30-60 days with economical and efficient finishes, lower your profit margins ever so slightly and list the house at a competitive price for a quick sale.  There is no reason an investor experienced in flipping homes should not be able to sell 2-3 homes over the next 4 months if they are cognizant of the market, aware of who their target buyer is and make renovations to rehab properties that are simple, clean and cost-efficient.

Remember, buyers are smart these days and know the market well.  From what I have heard they have been making extreme low initial offers so it is essential any investor knows his bottom line and his margins when deciding to invest in a rehab project.  The days of lavish rehab projects are past and don’t make sense in this market due to Buyer’s wanting a “good deal” over a “dream home”.  So make smart decisions, identify that perfect “flip” property and come to MassPrivateLending.Com to secure quick financing for your project.  As always no prepayment penalties, so you can “turn and burn”, increase your profit margins and move on to the next project.  Good Luck!

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Posted in Bridge Loans, Construction loans, flipping real estate, Hard Money Lending, Private Lending, Real Estate Investing | No Comments »

Hard Money & Rehab Loans

Thursday, October 20th, 2011

Hard money or private financing is an excellent tool for real estate investors looking to “flip” a property for a quick return on investment.  In today’s lending world it is more and more difficult, onerous & time consuming to obtain a conventional loan to finance the acquisition and rehabilitation of investment real estate.  Even when the project seems like a “no-brainer” to you, a conventional lender can take up to 90 days to fund and close a loan…if they do at all.  The fact is, in today’s real estate world, hard money or private financing is the best tool available for real estate investors looking to make a quick profit by (1) purchasing a property in need of renovations for short money, (2) making the necessary renovations and (3) then listing the property for sale at a competitive “quick sale” price.

A smart, savvy and aggressive real estate investor will see the benefit in paying the higher interest rates and fees associated with hard money financing and will know that by using private financing as an investment tool and strategy there is more money to be made in the long run than waiting for traditional financing to come through.

The most important thing for real estate investors looking to utilize hard money as a tool to rehab and flip properties is to accurately price all construction costs and then build in the proper “buffer” money in the event the project goes over budget.  The next most important thing is to know the market; more specifically, know what the property will be worth when the renovations have been completed.  This will allow investors to aggressively price their properties to sell quickly.  All too often I see borrowers get into trouble because greed gets in the way and either the property is not priced to sell or the construction budget falls far short of the actual cost to properly rehab the property for a fast resale.

Today’s private lending environment is full of lenders with money to lend and if a borrower/investor does his due diligence, accurately prices the cost of renovations and lists the property at 10% under market value to ensure a quick sale there are profits to be had.

As a rule of thumb, you should be prepared to put down 25-30% of the purchase price and should then be able to find a hard money lender willing to lend 100% of construction costs so long as the total loan amount does not exceed 70% of the as-completed value of the property.

As always, I am more than willing to answer any specific questions you may have, just email me at loans@massprivatelending.com.

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Posted in Bridge Loans, Construction loans, Hard Money Lending, Private Lending, Real Estate Investing | No Comments »

Hard Money Lending Changing in Massachusetts

Tuesday, September 20th, 2011

Over the last six months an interesting shift has taken place within the Massachusetts hard money and private lending world.  Six months ago I would have laughed at any borrower who said they had a private lender willing to lend anymore than 75% of acquisition and would have accused any borrower saying they had a lender willing to lend 100% of acquisition*(in these instances it is presumed rehab will be done and the as-completed property will increase value) of lying!   Now though, it seems the private lending world is changing and there are a lot of individual private lenders or small syndicates venturing into the hard money world and offering terms and conditions I didn’t think would be seen for years to come.

I still stand by my previous posts when I advise to proceed with caution with these “new and improved” lenders.  My concern is that these private loans are oftentimes traps and are basically “loan to own” loans whereby the lender knows the borrower will likely default and they will foreclose and own the property for short money.  HOWEVER, I am not just a “hater” because my investors do not lend under these terms.  I think the market has changed and I expect even the more embedded and established private money lenders in Massachusetts will become more lenient on the amount a borrower has to put down of their own funds and will be more willing to roll points on to the end of the loan to lessen closing costs.

My personal lending principles are admittedly more conservative than some new lenders in the game.  The reason is, I’ve seen the damage and losses incurred by hard money lenders who got too greedy and too “loosey goosey” with who they lent to and how they underwrote their loans.  I think it is important for a borrower to have “skin in the game”, otherwise what is to keep them from walking from the project, property and loan once the going gets tough?  That being said, I understand that concessions need to be made in order to stay in the game and when the deal is right myself and my lenders are willing to bend from the hard fast lending parameters of yesteryear in order to make a transaction work.

I applaud the new private lenders getting into the hard money game here in Massachusetts and I respect a lot of the way they are structuring their loans and  payments.  I think this is good for borrowers and promotes transactions.  I also know that some private lenders are working with borrowers and giving loans at 100% of the purchase price and are seeing repeated success and amazing profit margins on principal invested.    This is all good for the long term hard money lending environment here in Massachusetts.  As I see it either those lenders will get burned and weeded out OR they will be extremely successful and some of the more institutional private lenders here in Massachusetts will have no choice but to reassess their lending parameters or risk being put out to pasture.

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Posted in Hard Money Lending, Private Lending, Real Estate Investing | No Comments »

Private Lending In Massachusetts!

Wednesday, February 10th, 2010

Hello to all of you potential real estate borrowers and investors living in Massachusetts, Rhode Island or New Hampshire that are desperately looking for hard money financing to finance the purchase of investment real estate.  As you may or may not know I’ve recently launched the online private lending brokerage site MassPrivateLending.Com.  As a result of my previous five years of work experience in the real estate field, I’ve been lucky enough to meet a handful of private hard money lenders located locally in Massachusetts.  After some random online searches I realized there was a void in the online world for private borrowers looking to obtain hard money financing from local, reputable and legitimate hard money lenders and decided to launch an online, localized lending site.  From time to time I’ll be posting blogs on the site to address issues that I see as relevant to the borrowers I work with in obtaining loans.  I look forward to your responses and hope to be able to follow up on any questions or comments you may have on my posts!
100% Hard Money Financing No Longer Exists!
I’d say 6 out 10 queries I receive are from borrowers looking for 100% hard money financing on the acquisition of a REO property or other investment real estate.  My unfortunate response to these borrowers is…”I’m sorry I can’t be of assistance”. Prior to the real estate market collapse many real estate investors became accustomed to 100% LTV (LTV = loan to value) financing.  Unfortunately, many banks and lenders were extremely irresponsible in their previous lending practices and the resulting effect has a lot to do with the present state of the real estate market.  Today private lenders have become more stringent with their lending parameters as many of them lost a lot of their own real money on hard money loans that were unsecured when the real estate market crashed.  Many hard money lenders have gone bankrupt themselves!
What many people don’t understand is that today’s hard money lenders typically are MORE conservative when underwriting a loan than a conventional lender. Why you ask? The answer, private hard money lenders need to make sure that the collateral for a loan is “good” and that in the event they have to take a property back, they are secure and can sell the property in a timely manner and at a minimum get the principal amount lent out back at a foreclosure sale or sale to a third party. Most conventional banks use a property valuation that estimates a 6 month to 1 year market time for selling a property; however, a private hard money lender will want to foreclose or sell a property in 90 days or less and does not have the ability to hold the property until the value returns so they may sell.
How does all of this relate to 100% financing? Again, the answer is a simple one, 100% financing does not exist any longer (as far as I am aware) in the hard, private money lending world. While I don’t know of anyone who will provide 100% hard private money financing here are a couple of very important reasons why hard money lenders will not give 100% LTV loans any longer:
1. A private hard money lender wants to know you have a “vested” interest in making sure the loan does not go into default.  To prove you have a “vested” interest, you need to have a significant amount of your own equity going into the deal on a purchase/acquisition transaction. Why? Because, hard money lenders need to know that you are not going to just walk away from the deal if it turns out your vision of it being a “home run” ”I can’t lose” transaction don’t come to fruition and that the reality is you may have actually gotten in over your head.  Putting your own money into a transaction gives a hard money lender a certain amount of “perceived” security that you will be committed to paying them off in due course.  Most hard money lenders currently require 30% of a borrower’s own funds towards the acquisition of an investment property.
2. Read #1 again and again and again.  Put yourself in a private hard money lenders shoes.  If you default on the loan they will need to foreclose in order to protect their principal investment and will be at a loss until they sell the property at foreclosure sale or sell to a third party.
This may not be want you wanted to hear but these are the cold hard facts.  This is something that 70% of the people that contact me every day can’t seem to understand. Hard money lenders need to, have to, see that borrowers are willing to back up claims that they have the deal of the century by putting their own hard earned money into a transaction.  If you are able to put 30% down towards an acquisition a hard money lender will know you are serious and will be more than willing to lend you money to close on a deal regardless of any other mitigating factors.
As always, let me know your thoughts and don’t be afraid to ask any questions!
~ Erik T. Potter, President

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Posted in Hard Money Lending, Private Lending, Real Estate Investing | 11 Comments »