Why Owner’s are Refinancing into Private Money?
Private money loans make up about a third of the closings I do. The reasons people do higher interest rate private money loans are too numerous to mention. It can be because they need to close quickly or, because their credit got dinged up or because they are getting a discount from their current lender to get the loan off their books. We closed one of those just last week. The client was a small hotel in Upstate NY that had gotten hit by new hotels opening up and could no longer afford their $1.3 million dollar loan. The bank was foreclosing but, offered them a discount if they could get the loan off their books. Not having made a payment in a year, normal loans were out of the question. Enter in our private money financing. We did a $565,000 loan and, the lender wrote down the debt $750,000! Yes, they got a 13% rate but, they just had ¾ of a million dollars of debt disappear!
Give me a Call Today to Get Your FNMA Type Apartment Loan Closed at 512-650-8630.
Most of these loans are done with 1-3 years in the terms meaning that the private money lender wants the loan paid off within a short time frame. Oftentimes, they are able to do that with a refinance or a sale of the property. Sometimes, after a year or two, the situation has not improved and they are unable to refinance conventionally or to sell. In the past, this would have meant doing another high cost private money refinance. A BETTER OPTION IS BECOMING MORE AND MORE AVAILABLE… the “just miss” or what I call the “ALT-A” loan. These are loans at rates between 7-9% and fixed for 5 years! They often have longer, 30 year amortizations making the payment very affordable and, they often have NO BALLOON so you don’t risk sitting there in 5 years being forced out of your property because the note was coming due.
We did a private money loan two (2) years ago to buy a dilapidated apartment complex. It was mostly vacant and, horribly mismanaged and they got it for only $650,000, (we gave them an 80% private money loan), and they then poured about $300,000 into it over the 2 years completely renovating it and leasing it up. It now appraised at $1.7 Million and they were ready to refinance. The problem, they had not filed taxes for the entity the prior two years and the one borrower still had dinged up credit. Conventional financing was out. We did a $1,050,000 cash out loan at 8% on a 5 year fixed with a 30 year amortization that paid off the private money loan, got them all the cash they put into it back out, and they were still at a good loan leverage. The payment because of the 30 year am still left them with a profit every month of over $10,000 a month. So, they now have NO money in that project and, they make a cool $10K every month. Not bad!
Give me a Call Today to Get Your Blanket Loan Closed at 512-650-8630.
If you or anyone you know has a private money loan and, can not refinance into a conventional type loan, check out our Alt-A solutions before doing another private money loan. It just may be the better option. If you are acquiring a commercial property and, for some reason, just can’t get conventional financing GIVE US A CALL! I can underwrite the loan for free and, usually within 48 hours have you a full approval on these Alt-A loans. Give me a call today at 512-354-5949. Talk to you soon!
Wishing you the best,
Give me a call today to discuss your deal at 512-650-8630