WHAT IS A HARD MONEY LOAN AND HOW DOES IT WORK

WHAT IS A HARD MONEY LOAN

A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by the value of a parcel of real estate. Hard money loans are typically issued by private investors or companies. Interest rates are typically higher than conventional commercial or residential property loans because of the higher risk taken by the lender.

Most hard money loans are used for projects lasting from a few months to a few years. Hard money is similar to a bridge loan, which usually has similar criteria for lending as well as cost to the borrowers.

The primary difference is that a bridge loan often refers to a commercial property or investment property that may be in transition and does not yet qualify for traditional financing, whereas hard money often refers to not only an asset-based loan with a high interest rate, but possibly a distressed financial situation, such as arrears on the existing mortgage, or where bankruptcy and foreclosure proceedings are occurring.

The qualifying criteria for a hard money loan varies widely by lender and loan purpose. Credit scores, income and other conventional lending criteria may be analyzed. However, most hard money lenders primarily qualify a loan amount based on the value of the real estate being collateralized.

Typically, the biggest loan one can expect would be between 65% and 75% of the property value. That is, if the property is worth $100,000, the lender would advance $65,000 – $70,000 against it. This low LTV (loan to value) provides added security for the lender, in case the borrower does not pay and they have to foreclose on the property.

Structuring Real Estate Bridge Loans

Bridge Loans

The term Bridge Loan is used to describe the type of funding a company receives when it needs to “bridge” the period of time needed to obtain a larger amount of funding. Usually the larger follow-on funding comes from another investor, not usually the same investor that provided the bridge funding. Also, the terms for each funding are structured differently. The bridge loan is frequently structured as a short term promissory note with a high interest rate. The investor or lender, also typically receives a small number of shares of stock or warrants in the companies as an equity kicker. The loan is then paid off in full once the larger funding transaction closes.

Some investors that provide a bridge loan to a company as one of their funding structures will usually help a company in need of bridge loan funding if the company meets their due diligence requirements. These types of funding transactions have become very popular over the years with, assuming that there is a solid subsequent funding source in place. The financing can be used for any number of reasons, such as acquisition funding, purchasing equipment accounts receivable financing and more.

Some investors specialize in providing bridge funding. They can even introduce a company to a larger investor or brokerage firm that they partner with who can help the company structure and line-up the larger subsequent financing, whether it is debt, equity or an asset based loan.

A bridge loan can be structured in a number of different ways. It can be structured as debt, equity or a combination of debt and equity. Every company and every situation usually presents itself with a different set of circumstances. The needs and requirements of the company should be understood by the investor, otherwise it can be a recipe for disaster.

There are some bridge loan investors that are just interested in doing the investment and getting out, ie., selling the shares as soon as possible. This can put too much downward pressure on the share price. It is best to make sure everyone understands what is going to happen after the funds have been provided to the company and the investor receives the shares.

Make sure your management team is thinking ahead and has the subsequent financing round in place otherwise you will not be able to attract a bridge loan funding-source. Although there are no guarantees that the subsequent funding round will close on time, try to limit the guess work. The two funding sources you are negotiating with (the bridge investor and subsequent round funder) are likely going to talk with each other to make sure both are board with the structure of the funding each will be providing. They are going to want to know the terms of their respective funding transactions. Also, equally as important, they will want to know the timing of those funding transactions. The bridge funder wants to limit his risk as much as possible, he wants to make sure the subsequent funding round is in place and will close quickly so that he limits his risk. The less contingencies to the subsequent funding closing on time or at all the better.

Always look for a bridge loan funder that can help you with subsequent financing rounds because this way both funding sources will be comfortable with each others investment positions. It is always best to find a good financing partner that is well-experienced when it comes to corporate funding transactions. Private investors tend not to be that knowledgeable with these types of transactions. Look for an investor that can either provide you with funding for subsequent rounds or can get you that second and third round of funding through relationships it has with partners or affiliates, otherwise your management team may have the unfortunate task of having to start the process all over again.

National Housing Markets Improving Slowly By Winston Rowe and Associates

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Markets in 56 of the approximately 350 metro areas nationwide returned to or exceeded their last normal levels of economic and housing activity, according to the National Association of Home Builders/First American Leading Markets Index (LMI), released this week. This represents a year-over-year net gain of seven markets.

 

The index’s nationwide score moved up slightly to .89, meaning that based on current permit, price and employment data, the nationwide average is running at 89 percent of normal economic and housing activity. Meanwhile, 78 percent of markets have shown an improvement year-over-year.

 

“Things are gradually improving,” said NAHB Chairman Kevin Kelly, a home builder and developer from Wilmington, Del. “As the job market grows, we expect to see a steady release of pent up demand of home buyers.”

 

Baton Rouge, La., continues to top the list of major metros on the LMI, with a score of 1.39 – or 39 percent better than its last normal market level. Other major metros leading the list include Honolulu; Oklahoma City; Houston and Austin, Texas. Rounding out the top 10 are Los Angeles; San Jose, Calif.; Salt Lake City; Des Moines; and New Orleans.

 

“With the national tally only reaching 43 percent of normal, single-family housing permits continue to be the lagging component of the index,” said NAHB Chief Economist David Crowe. “The big bright spot is employment, where the number of metro areas having reached or exceeded their norms grew from 26 to 46 in a year.”

 

“In the 22 metros where permits are at or above normal, the overall index indicates that these markets have fully recovered,” said Kurt Pfotenhauer, vice chairman of First American Title Insurance Co., which co-sponsors the LMI report. “This finding shows the impact that an uptick in permits can have on the overall health of markets.”

 

Looking at smaller metros, both Odessa and Midland, Texas, boast LMI scores of 2.0 or better, meaning their markets are now at double their strength prior to the recession. Also leading the list of smaller metros are Bismarck, N.D.; Grand Forks, N.D; and Casper, Wyo., respectively.

 

The LMI shifts the focus from identifying markets that have recently begun to recover, which was the aim of a previous gauge known as the Improving Markets Index, to identifying those areas that are now approaching and exceeding their previous normal levels of economic and housing activity. More than 350 metro areas are scored by taking their average permit, price and employment levels for the past 12 months and dividing each by their annual average over the last period of normal growth. For single-family permits and home prices, 2000-2003 is used as the last normal period, and for employment, 2007 is the base comparison. The three components are then averaged to provide an overall score for each market; a national score is calculated based on national measures of the three metrics. An index value above one indicates that a market has advanced beyond its previous normal level of economic activity.

 

In calculating the LMI, NAHB utilizes employment data from the Bureau of Labor Statistics, house price appreciation data from Freddie Mac and single-family housing permits from the U.S. Census Bureau. The LMI is published quarterly on the fourth working day of the month, unless that day falls on a Friday — in which case, it is released on the following Monday.

5 Myths of Real Estate Auctions Winston Rowe and Associates

AUCTION FINANCING FROM WINSTON ROWE AND ASSOCIATES

 

5 Myths of Real Estate Auctions

Whether it’s purchasing art, classic cars or real estate, auctions have become an attractive platform for investors. However, there are several reasons why some investors have avoided buying both distressed and non-distressed real estate through auctions. Some of these reasons are more mythological than warranted which is why Auction.com is finally dispelling the five common myths about the auction industry.

Myth #1: An auction is the avenue of last resort and only for distressed properties

Like art, jewelry and other high end items, auctions work for stabilized and opportunistic properties in the most desirable markets. True, the platform’s success late in the default cycle is certainly unique and highly valuable to banks and lenders. However, Auction.com is having success in the Class A market, which is realizing that using auctions as a first resort can be very effective.

Myth #2: Buying at auction means buying “sight-unseen”

Just like a conventional process, Auction.com offers full due diligence and physical inspections in the form of a fully secure, online data vault that provides comprehensive information, as well as managed property tours.

Myth #3: There are hidden fees and non-refundable deposits

Let’s be clear, there is never a cost to participate on Auction.com. The only fees are paid at the time of closing. The required deposit is immediately refundable for any participant that doesn’t win the auction. The deposit serves to protect the process and 100 percent legitimizes the bidder pool.

Myth #4: It’s rigged. I’m bidding against the house

This myth typically refers to how auction companies support bidding to ensure the price hits the reserve, which is the minimum price the seller will accept. At Auction.com, the house never places a bid that will cause the asset to hit reserve and never bids after hitting reserve. The bidding is 100 percent in the bidders’ hands at that point.

Myth #5: I need to be tech savvy to bid in an online auction

If you have a computer and can click a mouse, you can bid in an online auction. Auction.com experts are available to guide you through the process and prevent any technical issues you may encounter. After all, it’s in the company’s best interest to make the online auction platform easy to use and universally accessible.

Debtor In Possession Financing

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Debtor-in-Possession (commonly referred to as “DIP”) Financing is essentially financing provided to companies who have filed for bankruptcy protection and reorganization under Chapter 11 of the United States Code. DIP Financing is provided on a post-petition basis — after the filing date of the company’s bankruptcy.

Winston Rowe & Associates, a national no upfront fee commercial real estate finance firm is one of only a few funding sources in America actively pursuing these arrangements.

There are many benefits to using Winston Rowe & Associates for Debtor-in-Possession financing:

Experience and Expertise

Winston Rowe & Associates has a long track record and lengthy history of success in providing DIP Financing. In conjunction with your attorney, we’ll help navigate you through the process rapidly and efficiently.

Flexibility

DIP Financing structures are extremely flexible and can accommodate needs as small as $100,000 and as large as $5,000,000.

Quicker Turnaround

All Debtor-in-Possession financing requests must be approved by the Bankruptcy Court. As a result, DIP Financing is notorious for the slow approval process. Winston Rowe and Associates will work directly with your legal counsel to help you navigate through the process, helping you avoid common obstacles and reducing document-preparation delays.

Winston Rowe & Associates can be reached at 248-246-2243 or visit them on line at http://www.winstonrowe.com

 

Turned Down For A Hard Money Loan Winston Rowe and Associates Can Help

Hard Money Commercial Mortgage

Winston Rowe & Associates funding sources provide equity based private and hard money loans for commercial properties nationwide for sub-prime money borrowers who do not meet the stringent requirements of conventional bank underwriting guidelines.

Their excellent reputation as a private and hard money funding source has been built on its ability to provide fast financing solutions for borrowers who have come across challenging times and are in need of fast, creative financing solutions without regard to their FICO credit score.

Why Commercial Real Estate Investors Have Been Turning To Winston Rowe & Associates:

Hard Money Financing from $200,000 to $100,000,000

No Upfront or Advance Fees

Purchase, Refinance & Cash Out

No Recourse Available

Interest Only Option

Loan Amortizations Up to 30 Years

If you would like to learn more about hard money financing options for your business from Winston Rowe & Associates they can be reached at 248-246-2243 or you can check them out online at http://winstonrowe.com