We’ve all heard the news about mortgage lending over the last year or so about record low rates and favorable terms. It’s almost like it’s free money, right? Well, it’s not so simple, and while it may be a better time to take on debt than spend hard-earned cash, there are certainly some caveats. But one thing that certainly works in a borrower’s favor is that lenders are all competing for deals and a steady pipeline of new business.

And competition is the name of the game at the current moment. To stand out, lenders have to leverage every advantage possible, including tapping into networks and then, of course, working out a rate and package that will lure borrowers from the competition. But it’s a little more involved than just simply setting the rate and signing a loan, says Bart Johnson, Executive Vice President with Wintrust Commercial Banking.

“Competition can be, in general, price or structure. Competition can be lower credit spreads or lower fees,” Johnson says about the theme. “Other competition could be less equity upfront, longer interest-only time periods, lower or no covenants, or a covenant-light transaction.”

Johnson suggests that the current lending environment is more-or-less similar to that of the pre-pandemic lending environment, except one of the biggest differences in the performance of asset classes and how lenders are reassessing what real estate product they’re working in. Meanwhile, other lenders are looking ahead and working on deals that could turn into a bigger pipeline.

“Some of the traditional lenders or debt providers have gone into other classes, such as life companies,” Johnson explains. “Life companies lend money similar to banks, but traditionally they’ll lend on stabilized assets. Now, some life companies are saying, ‘Wow, we’ll do the construction loan as well.’”

Essentially what is happening is that debt servicers and lenders who traditionally stayed in one lane are now merging into others, Johnson says. And this is largely to stay ahead of deals in an already fiercely competitive market. But it’s not just the lenders who are looking at different asset classes with more scrutiny, it’s also the borrowers themselves.

“Not only are hospitality, office and retail difficult asset classes for banks to lend against, they’re difficult asset classes for investors,” Johnson says. “So you’ve got investors who are saying, ‘Hey, I’m traditionally an office building investor and I’ve heard a lot about industrial — I need to put all of my money in a logistics fund.’”

And now that everyone is back at the table, we’re seeing major shifts in the commercial real estate industry that may have longer-term impacts on which borrowers or asset classes sink or swim. But it wasn’t like this a year ago or so, Johnson explains, as the uncertainty of the pandemic, and fears of a dramatic economic downturn caused a lot of players to hit the pause button.

“During 2020, Wintrust Commercial Real Estate had the best year in the history of our company, largely because a lot of our peers were on the sidelines and not lending,” Johnson says. “Today, everyone is back and competition is very high.”

One space that has performed well throughout the pandemic and remains competitive is the multi-family space. While there certainly was an abrupt jolt to the apartment market and landlords with a large portfolio of units, the recurring story has been about how larger scale rental landlords were able to weather the storm by working with tenants and through the use of the numerous aid opportunities offered at local and federal levels.

And it’s a space that lenders want to keep getting in on, particularly as multi-family has not suffered as much as other asset classes such as retail or the downtown office market.

“People misread the tea leaves about how bad the pandemic was going to affect the apartment market,” says Patrick Tuohy, Senoir Vice President at Marquette Bank, who focuses on apartment lending. “Out of over a billion dollars worth of assets in multifamily, we don’t have a late pay. And operators thought that they were going to be able to pick off some easy assets, which did not occur and prices did not fall.”

As for retail? Tuohy predicts that it will recover over time, but it will still have to compete against the convenience that e-commerce offers. And like many others have said, retail will continue to focus on a service-based model. Going forward, retail will have to be very focused and dialed in on the local market — and providing the community a service or product that the internet can’t — in order to survive.

But what about inflation and the trillions of dollars that have been pumped into the economy over the last year? Will this have some sort of negative impact or consequences on commercial lending and the broader commercial real estate world? And what happens if interest rates continue to remain as low as they have? Is it overcooking the real estate market and leading to overly-inflated asking and sale prices? Or what happens if rates are then suddenly raised?

These are all issues and themes to keep an eye on, but not necessarily major concerns, both Tuohy and Johnson suggest.

“Here’s the conundrum; if they raise rates too early, the wheels will come off and things will slow down quicker than they want,” Tuohy says about interest rates. “But you know, $4 trillion is like a sugar high for the economy and it is inflationary, but the Fed is going to be hamstrung for the time being about raising interest rates.”

Another thing that both Tuohy and Johnson hit on is the overall resilience of the real estate industry as a whole and just how much money is still circulating out there, waiting to be invested.

“Going into COVID, there was a heightened concern that the market was going to react very much as it did 2008 and 2009, but going through the pandemic, we had a very limited amount of distressed properties,” Johnson says about the perception versus the reality of the pandemic. “And coming out of COVID, a lot of people have come out of it in a strong position, so hopefully 12 months from now, we’re back to a very stabilized world.”

The post Commercial Real Estate Lenders Are Diversifying More Than Ever appeared first on MoneyThumb.

The article starts out with the question, "Who should I approach to raise the equity capital?" There are three circles of people you can reach out to fund your deals:

The Primary Circle

This circle is made up of family, friends, and acquaintances. It could be a parent, aunt, coworker, the goalie from your rec soccer team—any individual you personally know. Many investors find their first funding from this circle. Why? Because there’s a low barrier of entry. Also, they are inclined to say yes because they know you and hopefully would want to partner with you.

There are, however, negative aspects of raising money from friends and family. They may not be knowledgeable enough to know the difference between a good and bad deal. Be very clear about the risks. Make sure your lender truly has enough money for the deal and could afford to lose the investment if it goes south. Otherwise, the deal may sour the relationship.

This circle can provide that essential initial source of funds—like earnest deposit money. Using money from primary circle lenders gives you time to create value by locating and locking up deals so that you can raise additional money.

The Secondary Circle

The secondary circle of investors is the friends and colleagues of your primary circle. The bigger your primary circle, the bigger your secondary—so get out there and make more friends. Your secondary circle is, appropriately, the second-best source for raising capital. They’ll generally be receptive to listening to your proposal, given that your primary circle’s mutual contact gave the nod of approval.

But take the good with the bad: It will likely take more time to raise money since this group is less positively inclined to say yes. You’ll need to prove your worth by preparing an investment presentation and meeting investors face-to-face.

The Third-Party Circle

This circle consists of people you don’t know personally, like investors removed from your network. This circle is the biggest capital pool that you can access, but it takes the longest to convert them into capital partners since they don’t know you personally or professionally.

How to Find Private Lenders

Start with lenders you know and their contacts—or the primary circle and secondary circle.

Spread the word

Chronicle your investment activities through social media as a credibility boost among those you already know. It consistently reminds people that you’re a real investor and a professional at what you do.

Additionally, call or email people that you already work with like agents, title company reps, your CPA, and closing attorneys—and everyone in between. Chances are you already have a relationship with someone who knows someone who can help you. This method can dig up a handful of small lenders with $10,000 to $50,000 they’re looking to invest.

The hard sell

Sit down with the potential lender and present your business plan. Have a proper, professional presentation and a pro forma package for them to review. Staying businesslike ensures you’re taken seriously by any contacts who run a bit more formal. Show them why they should invest with you: What deals have you completed? What return can you provide? Show them deals you are looking at right now, too.

By showcasing your success through social media and other outlets, more individuals will come to you, asking how they can also benefit from your success. With enough experience and success, it won’t be long before you stop seeking out private money lenders—and instead, they seek out you.

Seeking Out Lenders You Don’t Know—Yet

Eventually, you might get to the point where you have two to three awesome lenders helping you complete deals left and right. But what happens if you happen to lose one—or even all three? It’s never a bad thing to forge relationships with lenders. Before connecting with these individuals or companies, you’ll need to go out and find them. But how?

Network, network, network

Attend every local meetup you can. Also, go to the local chamber of commerce meetings and any conferences you can find. Put yourself out there and make sure those who previously didn’t know you get to—and want to work with you.

Public record search

If networking isn’t taking off and you don’t know anyone with money, try searching public records. Each time a loan is made, the related documents are publicly recorded at the local county government, found online or in the building itself. From these documents, you can find out who the lenders are on properties.

Specifically, you are looking for the “grantee” (mortgage provider) line. You want to find grantee lines that have either a person’s name or a corporate entity name, not the name of a bank. These are potential lenders for your next deal.

Online direct mail lists

Rather than looking up every property to find the lender, try one of these data broker sites:

• ListSource.com—"private party loan" is the key here
• DirectMail.com
• Melissa.com
• Click2Mail.com

Cold call

After creating your list of potential lenders, find their phone numbers, and give them a call. This is a relationship game. You could build rapport by talking about projects they are working on, other investors they work with, their kids, the local sports team, or one of a dozen different things. Show them how you bring value and don’t just pitch. Lenders will be able to see through phony enthusiasm.

Direct mail marketing

If you don’t want to call, you can send letters. You want to provoke an initial reaction, get them to call you, and start building rapport. Mention the property they lent on so they know what you’re talking about—and (of course) bring it back to your current deal and that you are currently looking for new private money lenders.

Make sure to include your call to action, asking them to contact you to discuss this further. But use the contact information you find only to build a relationship. Soliciting others at random for money can be both illegal (for you) and annoying (for them).

The post How To Find Hard Money Lenders Who Will Fund Your Deals 100% appeared first on MoneyThumb.

The philosophy of a hard money lender includes taking greater risks than other types of lenders. They take more chances. However, there are certain types of loans that even a hard money lender won't touch. We have listed the 5 types of loans that hard money lenders won't fund below:

1. Loans Against Soft Assets

Hard money lenders make loans against hard assets. The word “hard” in the term “hard money” implies that a lender makes a loan using a hard asset as collateral. By definition, a hard asset is a tangible, physical asset such as real estate. In contrast, a soft asset is an intangible asset such as a stock or a patent. A hard money lender just won’t fund a loan against a soft asset.

Hard money lenders don’t do private equity, startup financing, or seed capital. A request for private equity or seed capital is the most common loan request a hard money lender declines. The collateral is stock, which is a non-physical asset. Hard money lenders issue debt, not equity.

2. Loans with No Exit Strategy

A loan with no viable exit strategy is another good candidate for an immediate decline. A hard money loan is short-term in nature and comes with a higher interest rate, so the exit strategy is very important to the lender. How will you get paid back if a borrower has no real plan for paying you back?

When a hard money lender asks a borrower, “What’s your plan for paying this loan back?” and the borrower has no viable exit strategy, the lender will certainly decline the loan.

3. 100% LTV Loans

Although some government-backed loans require no money down, most lenders won’t lend at 100% loan to value. There is a well-circulated myth out there that hard money lenders lend at 100% loan to value. The truth is, hard money lenders generally value properties more conservatively than traditional lenders. And often, hard money lenders require larger down payments as compared with the down payment requirements of traditional lenders.

This generalization certainly excludes lenders on fix and flips, because fix-and-flip lenders lend on improved value or future value. But even fix-and-flip lenders only lend at a certain percentage of the improved value, not 100%.

These loans are just too risky for a hard money lender who makes lending decisions based primarily on the asset itself. Unlike a bank, which takes tax returns from a borrower to prove an ability to repay, a hard money lender can only rely on the asset to repay the loan in the event of a borrower default.

4. Dreams

No hard money lender will lend on just a dream alone. Unfortunately, this is all that many borrowers have to bring to the table—nothing more than a dream. Although a borrower’s dream may be inspiring, a dream on its own won’t get a borrower a loan.

Hard money lenders often look at three primary criteria for loan approval, sometimes called “the three Cs”: collateral, cash, and character. Although “collateral” seems obvious, “cash” refers to how much cash a borrower can bring into a purchase of a property, or how much cash a borrower already has into a property owned. Cash can also refer to how much cash a borrower has on hand, or the borrower’s liquidity.

The third, “character,” generally refers to the borrower’s track record or a borrower’s specific experience with the particular property type being used as collateral for the loan. For example, a borrower may not have much cash but could have good collateral and good character in the form of previous experience with the lender or experience with that specific property type. In this example, the borrower’s good collateral and character could offset the lack of cash and still gain loan approval from a hard money lender.

Or, a borrower may have good collateral but no cash or experience. Although less common, if the hard money lender is an asset-based lender, the good collateral could result in a loan approval despite the borrower’s lack of cash and experience.

5. Consumer Loans

A consumer loan generally implies consumer purpose or “household use.” A residential property that is occupied by the borrower falls under the category of consumer. New consumer mortgage lending laws are cumbersome to comply with due to complex disclosures and other requirements. For this reason, even the big banks have turned their focus away from mortgages and have been funding other types of consumer debt instead.

With tighter lending laws in place post-Great Recession, borrowers who can’t qualify are seeking other options for home loans. These borrowers quickly discover that there are very few options available to them from hard money lenders. This is because most hard money lenders simply will not make consumer loans. After all, the regulatory compliance and licensing requirements of consumer loans are just too overwhelming for private lenders who have limited resources.

The post 5 Types of Loans Hard Money Lenders Won't Fund appeared first on MoneyThumb.

Private lenders tend to have faster approval times than banks or credit unions, thanks to streamlined or informal application processes. Many private lenders the PDF financial file converters from MoneyThumb to help speed up the loan approval process. Private lenders may also be more willing to work with people who have bad credit. Many online private lenders have minimum credit score requirements in the bad credit range. And individuals who are private lenders are often not too much concerned with credit scores.

How Private Lenders Work

Loans from private lenders work just like loans from banks or credit unions. You receive funding to buy a property, make a purchase, consolidate debt, make home improvements or any number of other expenses. Then, you pay the amount you borrowed back in installments, with interest. That’s how the lender makes money.

Private Lending Companies

The first major type of private lender is a private lending company. Just like banks, these companies look to profit off of the interest you pay them. When it comes to personal loans, companies referred to as “online lenders” are private lenders that conduct all of their business over the internet.

Some notable private lenders include:

• LightStream
• Best Egg
• LendingPoint
• FreedomPlus
• Avant
• LendingClub
• Payoff
• Prosper

Individual Private Lenders

The second big type of private lender is an individual. Individual private lenders can be investors who are looking to earn money through the interest borrowers pay on loans. This may get them a better return than leaving their money in the bank would. Individual private lenders can also just be people the borrower knows who is willing to help out with funding and may not be as keen to make a profit.

Are Private Lenders Legal?

It’s perfectly legal for organizations other than banks and credit unions to lend money. However, private lenders still have to comply with the usury laws and banking laws of the states in which they operate. In other words, the rates that they’re able to charge are regulated. Plus, depending on the state, a private lender might only be able to lend a certain amount without having a banking license.

What is the Difference Between Private Lenders and Hard Money Lenders?

“Private money” generally refers to funding provided by a family member, friend, business partner, or other acquaintance. In short, a private money loan comes from a source that isn’t typically in the business of providing loans. Given the relationship between the lender and the borrower, a private money loan may mean more flexible terms and a lower interest rate than an equivalent hard money loan.

Meanwhile, “hard money” – whose name refers to the “hard” assets underlying the loan, such as real estate – generally refers to funding provided by non-institutional lending companies with, usually, set and defined lending criteria. Hard money lenders are in the business of lending money and in far greater supply for the typical real estate borrower.

In essence, a hard money lender is a private investor who offers rapid loans with property used as collateral. In other words, a hard money lender does not finance loans with money from deposits, as banks and other financial institutions do.

Instead, a hard money lender is an individual or group that uses private money to quickly finance loans. Because hard money lenders use private funds, you can bypass much of the regulatory hurdles that are part of the conventional loan application process.

To give you an idea of the structure of hard money loans, typical terms might include a 5 percent origination fee and a 13 percent interest rate on a loan. These interest rates have more to do with the local loan market than they do with your specific credit score and financial history.

Because a lender has access to such a valuable asset as collateral, it can insulate itself from a lot of risk in the event that you default on your payments.

On average, you will receive the funds from your hard money loan within just a couple of weeks of your initial application. It’s this quick funding process and the bypass of strenuous loan applications that make hard money so appealing to so many different people.

The post Understanding Private Lenders and How They Work appeared first on MoneyThumb.

Below is a portion of the article for your reading convenience, but we highly suggest you read the full article, where Anson Young discusses first approaching investors you know, getting the word out, the soft pass, the hard sell, and methods for approaching investors you don't know.

"Private money lenders typically care more about the deal than they care about your credit score. They want to know you have a solid track record of flipping in order to feel good about handing you a six-figure check. They want to be protected by having a first deed of trust (mortgage) on the property, so their money is secured by a hard asset. Did I say track record? Because I’ve found that it’s the most important thing these savvy individuals look for in an investor.

Where does this leave the new investor with little to no track record? Well, sometimes you have to start with some hard money loans before you can graduate to a better deal on your lending  But that isn’t always the case, especially when working with people who know you and believe in you (who you know section below).

Unlike a loan officer at some big national bank, private money lenders rely much more on personal relationships. They are literally hitching their money to your success. As a relational business, it may take a few "dates" before they are ready to get married to you long-term, to see if you are compatible, how you work, and if you actually put the dishes away like you promised."

If you are a hard money lender, we'd love to hear your feedback and personal experiences as they relate to this article from Bigger Pockets. We'd also like to suggest you use the best PDF financial file converters on the market to vet your prospective borrowers. The MoneyThumb tools we offer lenders are specifically designed for your needs and will make your lending decisions go much easier and faster by offering you the ability to convert borrowers financial statements with just a few clicks.

The post How to Find Private Money Lenders to 100% Fund Your Deals appeared first on MoneyThumb.

Loans are commonly referred to as “hard-money” loans because lenders use a “hard asset”--traditionally, real estate--to secure the loans. Many hard-money lenders focus their investments on single-family homes and commercial properties. Because private lenders often are focusing heavily on a hard asset with a low loan-to-value ratio, many lenders are able to look past some credit issues. In other words, hard-money lenders rely on a borrower’s equity in a property to act as their security.

Hard-money lenders are privately funded and not regulated like traditional banks. This raises the question of how to successfully close a hard money loan with a reputable lender. Consider the following five tips when obtaining hard-money loans for your clients:

1. Be cautious when it comes to unreasonable upfront fees. A lender may require a third-party appraisal, but mortgage brokers and originators should know that many private lenders who ask a borrower to submit large sums of money for “due diligence” are typically not real lenders. Often, these deals never close at all, leaving your borrower short of thousands of dollars. Be wary if a lender asks for more than 0.5 percent of the total loan amount in this respect.
2. Watch for brokers masquerading as lenders. Some people who claim they’re direct hard-money lenders may in fact be brokering the deal to another party — without disclosing this to you, of course. Considering that, it’s vital to have a clear understanding of who the decisionmakers are in the lending process, and it’s equally as important to obtain verification that your “lender” actually funds its own loans.
3. Provide full disclosure of all material items. Simply put, it’s crucial for brokers to disclose any information that could materially impact a transaction. This information might include tax liens, title issues, and certain time-sensitive issues. Mortgage professionals can be virtually certain that a lender will discover problematic information eventually, so it’s always a good idea to disclose this information right away, and in doing so, help all parties take the necessary steps to resolve the issues at hand.
4. Be wary of possible bait-and-switch deals. Some hard-money lenders avoid detailing certain aspects of the loan process such as document requirements, site inspections, title issues, environmental considerations, etc. With that in mind, you need to understand the steps and time required for each part of the loan’s overall process and keep an eye out for any red flags.
5. Watch for terms that are out-of-line with market realities. Finally, brokers should know that there are some hard money lenders who prey on individuals with less-than-perfect credit claiming that they can close deals no other lender can. The fact of the matter is that if a deal sounds too good to be true, it very well may not be true. In these cases, trust your instincts and do not proceed with the transaction.

Although hard-money lending differs in many respects from conventional lending, mortgage brokers and originators shouldn't shy away from considering this alternative source of financing for their clients. In the right circumstances, hard-money loans may offer the solution to your client’s financing needs — and a new source of revenue for your lending business.

The post 5 Tips For Being a Successful Hard Money Lending Broker appeared first on MoneyThumb.