Monday, April 19, 2010

Private Money Lending 101 ( Hard Money)




Let’s start with a definition of “Private Lending.”

This is pretty simple. It means that a Private Party (person) is lending money. Private, meaning, not a company, bank, institution, group or any other type of entity that is in the business of lending money. So, it’s an individual who is lending money. In this case, lending money that is secured by real estate or a “Note, secured by a Deed of Trust.” This is generically known as a “mortgage.” We also call a Private Lender an “Investor.”

How does Private Lending work?

Well, generally a Loan Broker has a Borrower who needs “private” financing because they do not qualify for “conventional” financing for some reason. The most common reason is, they have had some sort of credit problem in the past and cannot get conventional financing. There are a multitude of reasons as to why they have had credit problems but that is another story.

We happen to see a fair amount of loans where the borrower is an heir to an estate. The borrower is receiving a piece of real estate as an inheritance and needs to pay off other heirs. They have had disagreements with the other heirs on the estate who then file suit against the borrower. At that point that borrower cannot get a conventional loan to pay them off and they need private financing.

This particular type of loan was typically done by a “sub prime” lender, in the past. Today, these Lenders are out of business and so we find a huge gap in the market for these types of loans. We will continue to see a lot of private money lending occurring in the future as well, until this gap is filled.

The actual mechanics of Private Lending are the same as with conventional lending. You have a person with extra cash, or a person who is using their retirement funds, lending money on real estate instead of a Mortgage Banker lending that money.

What kind of return on Investment is there for a Private Lender/Investor?

The big difference between private and conventional lending is the rate being charged. It is substantially higher for Private Lending, so the return on investment to the Private Lender is higher; sometimes as high as 14% annual return. This is due to the borrower’s credit problems as mentioned earlier. Most of the time we see the rate around 11%. Just like any other mortgage, the lender is paid monthly, as well.

Additionally, these private loans are secured with a lot of equity (low loan-to-value), these values being based on today’s market. Many times this is 50% LTV or lower, which makes these loans highly secure.

The loans are done through an escrow company with title insurance for the lender. Again, this is done just like any conventional loan.

Well, there’s your lesson for today. I hope it helped.

We originate private money loans so if you need a loan like this (or any other real estate loan) or you are an Investor looking for a good, safe, return on your investment, feel free to contact me.


Geoffrey Gault
, Broker
The William Jefferies Co.
Automated Mortgage Investment
http://www.geoffreygaultrealestate.com
1630 Oakland Rd. A109
San Jose CA. 95132
cell 408 202-2089
Office 408 573-0711
CA DRE # 01129916 NMLS # 346758

Friday, March 26, 2010

Current Real Estate Market Conditions

Here is your Real Estate Market update for the San Francisco Bay area. This article will speak mainly of the South Bay, North Bay and Southern Alameda Counties which are the counties that are making the most notable recoveries in housing prices.

Inventory is down almost 50% over this time last year. Believe it or not we are actually in a Seller's Market at this time. Hard to believe, huh?

With so much bad press about the housing market for the last two years it is hard to believe that things have changed so much so let me explain what is driving or pushing this. First, most of the press we see on the "housing problem" is based on national figures and the rest of California is included in that. However in the Bay Area we have a different situation. We have a lot of areas that are "landlocked" due to the proximity of mountains and the San Fransisco Bay "locking" areas in from any further housing growth. We also have certain demographic cultural ideologies that cause those demographics to buy and rarely sell. For example for at least 7 years the city of San Jose has not had an ethnic majority. In other words no one ethnic group comprises 50% or more of the population in the City of San Jose. Interesting, huh?

So when you have certain ethnic cultures in an area and they buy and rarely sell, then that substantially stablizes that housing market and causes values to go up.

Geoffrey Gault,
Real Estate Market Watch
www.geoffreygaultrealestate.com

Market Update-26 march-10

25 March 2010

Here's today's market update. Yesterday in tandem with the Fed, the Treasury announced the cutback in purchasing mortgage backed securities. This immediately caused Mortgage Interest rates to spike up. To the tune of about one half a percent in costs. What that means is: for every $100,000 borrowed it will cost the consumer $500 more in one time costs (points we say in this business) to do the loan.

Their actions were justified by stating that the economy is showing signs of recovery and "we want to get back to normalization regarding this area of capitol infusion." "It is time the market gets the message that they will not be here to continuously prop up the mortgage markets."

The Fed however reiterated their position of not raising the Fed rate until there are clearer signs that the economy is in a full recovery and they see no interest rate increases in the foreseeable future.

Well it looks like the baby is being weened off the bottle. As long as they do not starve the baby that's a good thing. I think its funny that basically the Fed and international bankers created this current financial problem by easing lending standards to the point that anyone could borrow money to buy a house and now we, the tax payers are paying for it.

Geoffrey Gault, Mortgage Market Watch
www.geoffreygaultrealestate.com

Wednesday, March 17, 2010

Home Buyers Tax Credit for California

Well everyone, we have great news for those of you who own, or are looking at owning, real estate in California.

Governor Schwarzenegger is on a tour right now through California to promote his new Home Buyer Tax Credit proposal.

According to the Governor on Monday, he was promoting to our legislature to not only extend the current $10,000 state tax credit (which applies to the purchase of new homes only) but to include anyone who buys a home, not just a new home or first-time home buyer.

In essence the Governor is saying, "We want to encourage everyone, including the move-up buyer, to purchase a home in California. And the State of California will give you a $10,000 tax credit to do that."

Hasta la vista baby!


Geoffrey Gault
, Broker
The William Jefferies Co.
Automated Mortgage Investment
http://www.geoffreygaultrealestate.com
1630 Oakland Rd. A109
San Jose CA. 95132
cell 408 202-2089
Office 408 573-0811

Monday, February 22, 2010

What is happening today?

Your asking me what is happening today in Real Estate and loans? I don't know. Just kidding. I really do know, actually. Ya that's what everybody says. Everyone has an opinion. That's good unless it is based on someone's agenda and not facts. So, here's the facts.

Last week the Fed raised their discount rate by 25 basis points (.25%) from .25% to .50%, not the overnight lending rate amongst it's member Banks.

Why is that important? Well first of all, this mostly effects Banks, not the general public with equity lines of credit or Business lines of credit, etc. The Prime Lending Rate (Prime) is not effected.

The upshot of the Fed's move was a message to it's members that we are coming out of this financial problem and we are encouraging you (with the existing cheaper rate. now) to borrow from your fellow member banks (because it is cheaper) instead of borrowing from us (the Federal Reserve).

It also sends a message that rates are going to go up in the future across the board. In tandem with the Fed's move, Mortgage Interest Rates went up, mainly on the anticipation that we are at the end of this long cycle of historically low interest rates.

How is this going to effect the Real Estate market? Yipes, are you kidding me. Why in the heck did the Fed raise interest rates when it appears we are just starting to come out of this mess...

Well, look at it this way. They are loosening the nut on one of the training wheels for the economy. That's a good analogy. So we know they haven't taken the training wheels off yet but they are starting to and someday they will be gone.

Back to the question. We'll, at least in the South San Francisco Bay we have been in a Seller's market for about 6 months. Very low inventory and lots of multiple offers. Don't believe me?

Look on MLS Listings.com and pull up the # of Active Listings compared to Pending Sales and you will see that there are more Pendings than Actives. Pull up the current # of Active Listings including Condos/PUDs and you will see that the county wide inventory is below 3,000 total (2915 as of Feb 19, 2010). It was 5700 total Active listings a year ago. So inventory is about half of what it was a year ago. When I sold foreclosures (REOs) in the early 90s, inventory of Active listings averaged about 15,000 for several years in Santa Clara County. You can see where we are at today, comparatively.

Raising rates or threatening to, is only going to increase the urgency to buy, while prices are still fairly off and rates are very low.

So it's time to sell, if you need to. Time to sell and move up if you want to move up. You may not get as much on the sale of your property as you would have a few years ago but you will also not pay as much as a few years ago. However, you will definitely have a much lower interest rate than a few years ago.

So the moral of the story is: It's generally a good time to sell, it will get better for some months. It is most assuredly a great time to buy because it will only get more expensive and interest rates higher.

Signing off for now. PS: If you haven't refinanced yet and you can. Rates are still low, whatcha waiting for? Another Fed move? Fence sitters, please get off the fence, for your own sake.

All the best,

Geoffrey Gault
, Broker
The William Jefferies Co.
Automated Mortgage Investment
http://www.geoffreygaultrealestate.com
1630 Oakland Rd. A109
San Jose CA. 95132
cell 408 202-2089
Office 408 573-0811
DRE 01129916