Private Money Lending for Fix and Flip

It’s actually a pretty exciting time for San Jose real estate investors. If you are looking to buy and hold, rates are still very low, and there are some really good deals out there to be had. Distressed and undervalued properties can be found in many areas of San Jose (and surrounding cities) which can be
purchased for long-term investing, or for short-term fix and flip.

Successful short-term real estate investors depend on a quick turn-around of their fix and flip properties so they can get started on the next project. They want to get in and out in the least amount of time with the least amount of hassles. The faster they can fix and flip, the more profit they can turn in a unit of time.

Conventional long-term loans are mainly structured for the buyer who is going to own his home for several years. The bank wants the buyer to hold onto the property long term so that the bank can collect interest for many years. That is how the lender makes his money.

Conventional loans look cheaper, but they require excessive paperwork and take longer to close (in part due to new regulations) thus costing the investor time and money. And, not only does the borrower have to qualify for the loan, so does the property. If both don’t qualify, there goes the deal. Bottom line is that buying a distressed property, a foreclosed property or a short sale property using a conventional loan could take months, if the deal is approved at all. Conventional loans are just not “fix and flip friendly.”

However, private money loans are easier to qualify for, are much faster to close, and don’t usually come with a prepayment penalty. Additionally, private money investors can be more flexible when it comes to structuring the loan. Conventional lenders might not let you take out a loan against existing property you own to fund your new purchase, whereas this is done all day long by private money investors.

In the current San Jose real estate market where you find distressed homeowners who are in a hurry to sell, or you find undervalued property that could turn a nice profit easily and quickly, you DON’T want to be waiting for weeks for loan approval.

I have been obtaining conventional loans and private money loans for my clients for years, and I have built up a pool of private investors who have money to lend. We may be able to structure a private money loan that fits your financial needs.

Call me to discuss your project. I would like to help you with your purchase and your financing.

Geoffrey Gault 408-202-2089 direct
Investor Relations Manager
Automated Mortgage Investment 408-573-0711
San Jose, CA CA DRE # 01129916 NMLS# 346758

What the heck is a Short Sale?

I am sure you have heard the term short sale recently. But do you know what it means?

A real estate short sale is when the lender has agreed to accept a payoff of less than what the total mortgage balance is on the property. There are many properties currently on the market in the South Bay that are listed as short sales and their number is increasing monthly.

A short sale can be a better alternative than foreclosure. In a foreclosure the bank takes over the property and basically kicks the owners out. Not good for your credit or morale, among other things.

One of the reasons there are fewer foreclosures on the market and more short sales is because of the HAFA Program. (Home Affordable Foreclosure Alternatives) This is a government subsidized program which is optional for mortgage lenders, and which has over 110 lenders signed up to participate in this program.

This program has benefits for the seller/owner which are not found in regular short sales.

If the lender is signed up with the HAFA Program, the lender has rules they HAVE to abide by such as responding to the potential seller within 30 days of his request to short sale the property, and allowing the seller 4 months to sell his property (possible extensions up to one year). Then, once the offer is received by the lender, the lender has 10 days to approve it or not and must allow 45 days to close the sale.

Here are some additional benefits of short selling your home through the HAFA program.

1) You avoid foreclosure and the uncertainties that go with it.
2) The terms of the short sale agreement are "pre-approved" with the lender.
3) The seller gets $3000 to help with moving costs.
4) If you are mid foreclosure, the lender cannot complete the foreclosure if the seller/borrower is performing his duties under the short sale agreement.
5) This program is possible with some 2nd mortgages as well.

We have the list of over 110 lenders who are signed up to participate in the HAFA program.

If you are heading towards foreclosure and want to see if you qualify for this program, please contact me and let me see if I can help you.


Geoffrey Gault
202-408-2089
CA DRE # 01129916 NMLS # 346758

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

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

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

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