Podcast #12: Hard Money Lending
For this podcast about hard money loans I sat down with Kay Battle of Common Sense Capital Solutions. During the podcast we discussed investing in real estate, hard money lending, and how hard money loans can help investors. If you want to learn more about hard money loans and how hard money lenders operate this is a great pdocast for you.
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You can connect with Kay on LinkedIn. You can reach out to Kay for more information on their lending products by emailing her at firstname.lastname@example.org and check out the company website Common Sense Capital Solutions.
About the author: The above article “Podcast #12: Hard Money Lending” was provided by Luxury Real Estate Specialist Paul Sian. Paul can be reached at paul@CinciNKYRealEstate.com or by phone at 513-560-8002. If you’re thinking of selling or buying your investment or commercial business property I would love to share my marketing knowledge and expertise to help you. Contact me today!
I work in the following Greater Cincinnati, OH and Northern KY areas: Alexandria, Amberly, Amelia, Anderson Township, Cincinnati, Batavia, Blue Ash, Covington, Edgewood, Florence, Fort Mitchell, Fort Thomas, Hebron, Hyde Park, Indian Hill, Kenwood, Madeira, Mariemont, Milford, Montgomery, Mt. Washington, Newport, Newtown, Norwood, Taylor Mill, Terrace Park, Union Township, and Villa Hills.
Paul: Hello everybody, this is Paul Sian real estate agent with United real estate home connections licensed in the state of Ohio and Kentucky and with me today I have Kay battle, she's an investor herself and she also works for a hard money lending company and is part owner.
So, we're going talk about a about her background and hard money lending, so Kay, thank you for being on, how are you today?
Kay: I am doing great, thank you for having me call
Paul: Thank you. So, you tell us a little bit about yourself, your background, how did you get started, I guess how did you get started investing first off?
Kay: Yes, I actually mentioned I am a real estate investor, I actually started in 2008 which was right after the market crash and so I we all know there were tons of deeply discounted and foreclosed properties on the market and so I just saw an opportunity to kind of jump in low risk not, much to lose so I tried it and it worked out great and so ever since then I've been actively investing
Paul: Very nice, yeah that was a great time to invest, I wish I had, we had actually sold a property at that time that just wasn't performing well and it was distance-wise us it was too far for me, you tell us how many units do you have currently?
Kay: So currently we have 35 units, they range from single families all the way up to nine units of types of properties total of 35 doors.
Paul: Okay, are they all in these Cincinnati, Cincinnati area?
Kay: Yes, we are all in Cincinnati
Paul: You are still acquiring properties, what are your strategies or goals now?
Kay: Yes, I'm currently acquiring properties and actually have a property under contract at the moment, mostly what I'm focused on now is rehab, so flips just to build up my cash reserve and then I'll probably purchase something for holding next year.
Paul: Okay and how are you identifying your flips are you finding all in market deals off-market deals?
Kay: Well, so I use on market and wholesalers to look for off-market deals as well, so it's a combination
Paul: Okay, yeah, this market it's a lot on market deals are highly competitive don't make sense
Kay: Yes very, very different from 2008
Paul: Why don't you tell us about your company the company that you work for that's a hard money lender what's the name and how long have you been with them?
Kay: Yes, so as you mentioned I'm part owner of common sense capital solutions, we provide alternative funding for real estate investors and also small businesses and we've been in business for about a year and a half, now so I'll start it at the beginning of 2018 and we just help people find solutions basically
Paul: Okay, so primarily you're doing mostly hard money loans, you don't do anything conventional?
Kay: Well, actually we do both, so I couldn't do anything from you know months all the way up to 30-year times depending on the situation
Paul: The primary focus of this podcast is more than hard money loans not everybody's familiar with that anybody most people are familiar with a 30-year mortgage 50-year mortgage, so tell us about a hard money loan, I mean what exactly is a hard money loan?
Kay: Yeah, the hard money loans are typically used by real estate investors who either can't obtain conventional financing or conventional financing doesn't make sense for the situation, so maybe they have a property that the only one I hold for a short period of time and they don't want to be tied down to a 15-year or 30-year mortgage that might have a prepayment penalty. So, generally speaking hard many miles are short-term either they are use of bridges and to more permanent onions and or for a situation where you're only going to hold the property for a short period.
Generally the interest rates are higher because the risk is higher or the property is going to be the loan is only going to be held for a short period of time and also in most situations the loans are interest always so you're only paying in terms of paying a monthly interest payment, which means the principal balance isn't decreasing, over time and so as you go to either refinance or sell the property you will still owe the full balance of whatever your loan is.
Paul: Okay, and you mentioned short term what are the I guess what's the shortest term and we'll see the longest terms?
Kay: Generally, you know you can go from anywhere three to three months all the way up to three years, so usually beyond three years you won't likely see a hard money loan
Paul: Okay, presume you take into account the property itself, it's floors can you tell us a little bit about that?
Kay: Yeah, so in general terms hard money loans are what is goods that are in accident they flown so a lot of emphasis is put on the property in the deal itself, however a lot of lenders are still going to want to get a little bit of information about the farmer so usually the credit requirements are fairly low but credit will be still taking into consideration also the person's experience, so it can have you know a hit to your credit score heart many wells are definitely an option because there is still a lot of emphasis on the packet in the deal itself, so as long as the numbers make sense and they deal usually something can be worked out
Paul: Okay, what kind of down payment are you looking for most properties?
Kay: Down payment can range anywhere from ten to twenty-five percent, depending on the type of property in a situation, there are certain situations where a down payment may not be required, I have seen those situations as well but it's kind of rare so it leaves plant for its investment
Paul: Somebody were to apply with your company how fast does it take you do a similar process like a pre-approval so how long would that take?
Kay: Yes, in most situations we won't need to do like a pre-approval we'll just go straight into underwriting, so simple for Hard money loans it doesn't take very long to actually close, I mean it's run situations we can close in a few days and it can go two or three weeks
Paul: Okay, so in terms of pre-approval, you're still like we're looking at credit somebody needs to you know they need a letter of intent from you or so that's they could get that?
Kay: Yes, so usually we can do that whole process in a few days
Paul: Okay, all right you mentioned the example of you know having a zero down payment loan that's pretty interesting, can you elaborate on that, what sort of examples have you seen of that?
Kay: Yeah, generally I've seen those and the loan amount is fairly high, so we're looking at plus a million but usually in those situations we're taking into account what the after repair value is going to be, so if someone is doing a large rehab project or have a construction project where they're adding a great level of value and equity into a situation, in those types of conditions the down payment you require because we're going to take actually count the equity that is being filled into the deal
Paul: So, that's even equity that the person let's say they are they're doing sweat equity or they've got contractors who are going to that's even that equity to you're not considering already existing equity where it's a great deal already it's you know 50% LTV loan the value and then you also look at what they're putting into the into the deal
Kay: Yeah, so that's a great example so if someone has seen after repair value that's going to be four million and they want to land fifty percent loan to value can be two million and so that's kind of how we look at the situation
Paul: Okay, you're also taking a primary lien position?
Kay: Correct. Yes
Paul: Okay and you mentioned we talking about two million four million or do you have any upper limits, minimum loan amounts, upper low amount?
Kay: Usually, for residential properties we're looking at a 50k minimum, for commercial we're looking at 100K minimum, and really the upper limit is pretty high looking at the several millions of dollars
Paul: Okay and then we you know it's a good segue into the you're talking about commercial residential and the in a conventional space, I mean you've got your commercial loans they're quite different than your residential loans so than residential two to four units, you know do you have that distinction or it's the same type of loan product upfront applies regardless of commercial and residential?
Kay: Generally speaking all of the month that you are still considered commercial even if you're doing you know working with residential properties because we require that they are in an entity, and so they're going to be loan in a business, the terms and everything are going to be very similar, the only difference is that because many I'm wrong about
Paul: Okay so you mentioned in an entity you mean like an LLC S corporations in a corporation, so that's even another helpful thing for investors to I mean a lot of with your conventional loans, generally the conventional lenders don't want LLC, they want you to individually on the deed but this case that's an extra advantage for that.
Kay: Yes, exactly.
Paul: You had mentioned repayment terms we talked about interest only, I guess it's optional on the buyer to they want to pay more if they want to pay down the principal as well, I mean are you able to you calculate that upfront or you just as they you know they get to do that however they want to do that?
Kay: It's a case-by-case situation, we can't look into that if there someone is interested in doing that generally most people like the interest-only payments because it helps keep the payment low while you're in this transition phase and so you're not having to pay additional money if you're plenty the cells of property or if you're playing so you're in finance it into something that's more than conventional most investors like to keep they're paying it as well as possible during that time period
Paul: Okay let's say someone does start off with the intent of you know I'm looking alone when I'm looking for a fix and flip, but then they look at the property later and you know based on the value add and they think they can get better rents are you able to refinance them into a conventional loan that you no longer term 15-year, 20-year or 30-year or how does that work with your company?
Kay: Yeah definitely, so we can do finances, we can even cash out refinance and so if someone has built equity into the property and they were planning on selling it but then they change their strategy and once they hold it, we can refinance it and let them cash that equity out and then we of course maybe purchases as well.
Paul: So, the cashing out those include 20-year loan, 30-year loan?
Kay: Yes, even up to 30-years, yes.
Paul: Okay, do you hold all the loans on your books or do you already also broker some of these loans?
Kay: So, most of your loans are going to be held by the actual lender so we broker those out an they work with the paper
Paul: How many lenders do you work with private lenders?
Kay: So, we do real estate loans and also small business loan, so total we have about 15-lender that we work with on a real estate track, I would say it's about 15/20
Paul: Okay, very nice you mentioned small business loans here to share some information about that?
Kay: Yes, on a small business side we have a wide range of moms as well, we can do asset based loans where a company can use their invoices as collateral also inventory and equipment we can do equipment finance, we have some unsecured lines of credit for businesses and a few other things with over some general loan that we are offering.
Paul: So, talking about the loans, you mentioned interest rates are higher earlier in terms of your short term your hard money loans welcoming interest rates are we looking at there?
Kay: Generally speaking, they start in the high single digits so maybe seven and eight percent and it can go well into the teens, so twelve fourteen percent
Paul: What's the reason for you know a low interest rate and the high interest rate, is there you know it's based on the properties are based on the borrower?
Kay: Yeah, generally speaking it's going to be based on leverage, so long to value also borrower experience plays a role and sometimes FICO score, not all, not in all situations but those are the key elements of determining what that interest rate is going to be.
Paul: So, you can get a loan to like it you know if I wanted to go I found a property that's an ideal fixing flip and I can get the money to buy the property, are you also lending so I can you know pay contractors hire contractors to do repairs and if so then how is that done, how does that handle over time, do you think about all that money up front, do you draws?
Kay: Yeah, so we can find the purchase and the rehab in that situation and generally we go up to ninety percent, so we'll do ninety percent of the total project cost which is the purchase list or we have. The purchase clients are dispersed for the seller at closing and then whatever you have to set aside for your construction or rehab will go into an escrow account and you work on a draw system, so as the worth of being included you can request a draw and get that money for that particular piece of the work
Paul: Okay, for each draw you acquiring invoices, are you requiring some sort of milestones or just?
Kay: No invoices, we just we have an inspector come out just to make sure the work is completed and don't require that in the use you know specific contract, there's anything like that you can do it work yourself you just want to know that the work has actually been completed and then you can have the draw
Paul: Great when it comes to the actual loan approval process, you mentioned underwriting before is there a committee, are you part of that committee or how does that work in your company?
Kay: No, I'm not part of the committee I do like a pre-assessment, so I'll collect all of the documentation and kind of look over the deal, make sure that numbers and everything makes sense and then I submit it to the underwriting team and they actually do a full assessment, so they'll pull the credit they'll run the numbers and make sure that everything's okay. In most situations we do require an appraisal so that will be ordered and generally I was saying it usually takes a couple to close everything
Paul: Okay, you mentioned appraisals and who pays for the appraisals and I guess out of their other upfront costs that the buyers should need to expect?
Kay: So, the only upfront cost generally is the appraisal and the flyer is responsible for that in most situations, there are some situations where the lender will pay for the appraisal so that's the only thing that would need to be paid paint privates are closing. At closing for hard money loans usually they're going to have to pay fees which are loan origination fees a point for the hard money loan, I mean those can rent anywhere from one to, I have seen it at five. So…
Paul: Five points?
Kay: Yeah, it a percentage point of whatever the loan amount is.
Paul: Okay, and the reason for the variance and the loan points do that based on risk as well too?
Kay: Well, it's based on race it's also based on lender and situation depending on the long sides major advantage, you are at a lower loan amount, your points are likely going to be higher versus this to add you know a million plus or like your higher loan I'm not you okay a lower percentage point but of course if you've going to be higher in general because the loan amount is higher.
Paul: Okay, you handle all your loans and closings or deal with the title company?
Kay: We allow the borrower to choose their title company, so they can choose whatever they want to work with
Paul: Do you service all 50-states as their in limits where you do not service?
Kay: Yes, so in most we can definitely learn in most states, there are certain situations that are a little bit more difficult one of those on the top of the head is like North Dakota, so some you know random states you have some restrictions and for the most part you can you can live in any of the states
Paul: Okay great, and how can buyers get in touch with you if they will be interested in chatting with you and finding out more about your loan products and company?
Kay: Yeah, so you can reach me at email@example.com you can visit the website which is www.cscapitalsolutions.com
Paul: Great and if you are listening to this podcaston my website, i'll definitely provide your contact information there and leave a couple of your social media profiles too.
Again, thank you for being on our podcast and enjoy the rest to day.
Kay: Yea, thanks for having me
Paul: Thank you