June 2022 – State of the Commercial Lender Market

Where We Are and Where Are We Going!

Welcome to our re-cap of our presentation and learn our insights about borrowing money, what you need to know as a private lender, or things to be aware of before borrowing from a commercial lender in 2022.

We need to have an understanding of both the prime and treasury historic rates to gain a perspective for 2022.

When looking at the past 22 years, we are actually not at the highest interest rate. Treasury rates are used to indicate various aspects of our economy.  Over the past 22 years the 10yr and 20yr Treasury Bond rates have fluctuated with small gains or reductions over short periods of time.  The last time the Treasury rates increased anywhere near as much as they have in the past few months was between mid-2011 to early 2013.  Today’s increase is similar but has been brought on by the Federal Reserve Bank reigning the economy in, attempting to keep inflation in check.

Low Unemployment has complicated this movement by the Fed.  Unemployment and high inflation were last in the early 50’s almost 70 years ago.  The concern is while the job market is extremely tight that higher wages will be a result of this tightened market thereby fueling inflation at the consumer level even more.  Remember, the Fed is trying to tighten the money supply by raising interest rates.  By doing so, historically, the economy shrinks and unemployment rises.

Former U.S. Treasury Secretary Lawrence Summers has noted that every time inflation has exceeded 4% while unemployment was below 5% over the past 75 years—which has happened in 70 months—the U.S. has fallen into a recession within two years.

The most recent of these events is from May to June of 2006, which was followed by the financial crisis starting in December of 2007.

Fed Chair Jerome Powell said in an interview with Marketplace that he couldn’t promise a so-called soft landing for the economy where inflation gets back to the 2% range and the labor market remains strong. “It’s quite challenging to accomplish that right now,” he said. (source, Barron’s, 5/25/2022)

Bond Yield Curves – Direction of Economy can be forecast through the observation of the US Treasury Yield Curves.  In this graph, the curves from the bottom, represent the yield curves by the months for 2022.  The economy has gone from being reasonably robust for the first quarter of the year to pointing toward a future recession.  The indicator of the recession is how the curve flattens in April (Gold line) to this past Friday (dark blue line).  Economists state that when the yield of the shorter term instruments, in this case the 2-year rate, is nearing the same rate as the 10yr rate, then the economy is headed towards a recession.

Sample Institutional Lender Rates – This is one of many lenders working in the 30yr Fixed Mortgage market.  They are somewhat tied to the 10yr Treasury Bill.  As can be seen the long term rates are rising much as the consumer mortgage rates are.  What is of interest is how they perceived and mitigated their risk in this market over the past 2 years.

During the pandemic the average spread between the 10yr Bill and their mortgage was hovering around 2.9%.

As the effects of the pandemic were dropping, along with all of the government rent and mortgage freeze programs, they lowered their spread to approximately 1.9%, a full 100 basis points from the 2020 spread.

As inflation worries started showing up in their data analysis in early 2022 risk abatement was once again put in place with a hefty increase of 140 basis points to the current 3.4% spread, we see today.

In the Multifamily lending space, we are seeing an increase in the spread between the T-Bill rate and the final interest rate to the borrower.  The delta between the 5yr spread and the 10yr spread has remained pretty much the same throughout the year.  What has happened to mitigate the risk involved is the actual spread for each of these loans between the T-Bill and final rate has increased by 15+/- basis points.  This increase along with the increase in the T-Bill rates has pushed the final interest rates for a 10yr Tier 2 loan to about 5.68%.

The Secured Overnight Financing RATE, SOFR, has held steady at 0.05% up till March 16 of this year.  This coincides with the first FED rate increase.  The SOFR is an index of what banks charge during the overnight transfer of money among various institutions.  It has increase 6,800% over a year ago.

Some lenders have switched their use from the LIBOR rate to the SOFR rate.  The spreads used are similar to either index but as with any loan the spread is what makes or breaks the deal.  One lender that was interviewed has stated their bridge loan products have a spread between 350 to 450 basis points.  At the high end for this lender their bridge products now range between 4.20% to 5.20% based on the SOFR of June 15, 2022.  These are for loans originating at the level of $15M and above.

Commercial lenders are pushing the limits of controlling their risk thru a number of methods.

            Qualifying FICO Scores have increased from an average of 640 to 660.  In order to obtain the best rates the FICO scores have increased from 740 to 780.

            Lenders are discounting professional appraisals.  Most recently I have experienced from 2 different lenders discounts of 20%-25% of the appraiser opinion of value.  Requesting data to support their claims apparently is futile.

            If the project has a Value Add component upwards of $100,000 or more then the borrower should be prepared to either prepare and or have a Feasibility Study performed by a third party construction management organization in order to satisfy the lender’s risk concerns.

            Guarantors – This has had minor changes but the members of an entity that have a 20% or greater ownership share should be ready to have their finances reviewed, even if they are on the sidelines with the strongest person as the guarantor.

            Tax Returns for the guarantor(s).  Depending on the structure of the ownership, other members/owners may need to share their tax returns as well.

Property requirements are tightening to some degree.  Regardless of the type of loan, Purchase or Refinance, the following items should always be made available to the lender:

  • P&L Statement from Previous Owner (if a purchase)
    • Balance Sheet from Previous Owner (if a purchase)
    • Rent Roll showing rents for the past 12 months
    • Lease Agreement(s)
    • Business Tax Returns
    • Environmental Report may be Required More Often than Not
    • Property Tax Statements
    • Insurance Coverage
    • Exit Strategy Statement
  • Based on the Yield Curves we have a reasonably good probability of a recession in the next 12-24 months.
  • This conclusion is bolstered by the combination of inflation being higher than un-employment.  Historically, when these two indicators are inverted there has been a recession with in 2years.
  • The question is:  How long will a recession last.  A recent Reuters article quotes James Gorman, CEO of Morgan Stanley, stating, “There is a 50% chance the U.S. economy will enter a recession though any downturn is unlikely to be severe.”
  • During these tough financial times and in to the foreseeable future, putting together and pushing a commercial loan thru to close will involve having lower LTV to meet the requirements of the DSCR for any given loan.  As the interest rates increase the only factor that can be adjusted to meet the DSCR requirements will be an increase in the borrower’s equity position, hence lower LTV.
  • Putting together and pushing a commercial loan thru to close will take more time, effort, documentation and patience.

Some of our lenders will work with the following background issues:

  • Litigation with another Lender
  • Bankruptcy (10yr lookback)
  • Foreclosures (since 2012)
  • Delinquency with suppliers
  • Outstanding RE Liens
  • RE Loan Delinquency

Our lenders are ready to work with contractors and investors.  Now is a good time to buy a distressed property but be aware of the risks and understand what you’re getting into.  Distressed homes offer a unique buying opportunity for real estate investors, but the average home buyer should probably look elsewhere.

If you need funding, apply now. I am working online with the rest of you.  

This image has an empty alt attribute; its file name is apply-now-button.gif

http://www.reicapital.cash/

Patrick St. Cin

W – 512-213-2271

Small Balance Commercial Loans Now Available from REI Capital Resources and Current Offerings

As a direct lender and financial intermediary, we have the opportunity to place the most competitive financing options in the market.  We look forward to winning your business and creating a long-term relationship.  In addition to our core offerings of Ground-Up New Construction ($200K to $45M – Loan Amount), Fix/Flip Projects, Long-term Rental Property Acquisitions and Refinances, Airbnb or vacation rental acquisition and refinancing, and Commercial Property Lending including Apartments, we now have the ability to place loans with multiple small-balance commercial lenders.  The small-balance commercial loan amount falls between $100,000 to $10.M.

Types of properties that can be funded: 

  • Multifamily 
  • Commercial Condo 
  • Multi-Use – Primarily Residential 
  • Multi-Use – Primarily Commercial 
  • Office 
  • Retail/Wholesale/Strip Center 
  • Warehouse 
  • Light Industrial 
  • Self Storage 
  • Mobile Home Park 
  • Automotive 
  • Day Care – Free Standing/non-residential 
  • Restaurant/Bar 

Loan Programs Available: 

  • No Doc (min FICO 700)  –  $100,000 to $2.5M 
  • Full Doc (Min FICO 600) –  $500,000 to $10.0M 
  • Lite doc (Min FICO 650)  –  $100,000 to $2.5M 
  • Bank Statement (Min FICO 650) – $100,000 to $2.5M 

Loan Terms: 

  • Amortization – 15, 25, 30 yr 
  • Term – 5, 7, 10yr 
  • Rates – from 5.5% 

Here are more details of our core lending products of Ground-Up New Construction ($200K to $45M – Loan Amount), Fix/Flip Projects, Long-term Rental Property Acquisitions and Refinances, Airbnb or vacation rental acquisition and refinancing, and Commercial Property Lending including Apartments.

  • 1. Fix and Flip Loans – up to 90% Of Purchase with 100% of Rehab, experienced, or first-timer investors
  • 2. BRRRR – Buy, Rehab, Rent, Refinance and Repeat loans are available.  Loan programs include 5/1 ARM, 7/1 ARM, 30 Year Fixed Rates.
  • 3. Rental Property Loans – Purchase – Refi – Cash Out.  SFR 1-4 units and AirBnB properties.  Loan programs include 5/1 ARM, 7/1 ARM, 30 Year Fixed Rates.
  • 4. Ground Up Construction Loans
  • 5. Portfolio Loans for SFR – 2-4 units and Multi-Family
  • 6. Bridge Loans – Loans to Pay off current Lender – 1-2 Year Loans.
  • 7. Multi-Family Loans from 5 doors to 300+ doors.  Value-Add Purchase, Turn-Key Purchase, Bridge, New Construction, Agency and non-Agency loans
  • 8. Commercial and Mixed-Use Properties
  • 9. Haz. Ins. Co you can use. https://affiliate.nreig.com/RichardTurner­

Do you need funding for your BRRRR investment?  Basically, the loans look like this:

  • LTV – up to 88% of Cost / 68% LT Market Value
  • DSCR – 1.20 based on Market Rents (1.30 if less than 3yrs rental experience)
  • Experience – Min 5 flips or rental / 5yr look back
  • Loan Terms  – 7 yr  (5yr Fixed+2yr Floating)
  • Interest – Intro Rate 4.9% (increases with credit below 740, max 5.8%), First-year – no interest payments (rolled into loan principal)
  • Loan Terms – 12yr (10yr Fixed + 2 yr Floating)
  • Interest- Intro Rate 5.2% (increases with credit below 740, max 6.1%), First-year – no interest payments (rolled into loan principal)
  • Origination Points – 3% (2 to lender + 1 to us)  need to get a Broker/Client Agreement at 1%
  • Prepayment – Step Down 3-2-1  (No PPP if Origination Points Increased by 1%)

Some of our lenders will work with the following background issues:

  • Litigation with another Lender
  • Bankruptcy (10yr lookback)
  • Foreclosures (since 2012)
  • Delinquency with suppliers
  • Outstanding RE Liens
  • RE Loan Delinquency

Our lenders are ready to work with contractors and investors.  Now is a good time to buy a distressed property but be aware of the risks and understand what you’re getting into.  Distressed homes offer a unique buying opportunity for real estate investors, but the average home buyer should probably look elsewhere.

If you need funding, apply now. I am working online with the rest of you.  

This image has an empty alt attribute; its file name is apply-now-button.gif

http://www.reicapital.cash/

Patrick St. Cin

W – 512-213-2271

Beware of Identity Theft When Getting Quotes as a Real Estate Investor! Verify your Lender!!!

About 3 years ago, there were a number of posts on Facebook that stated the lender had money at 4% available to anyone.  As a loan broker, I’m always looking for inexpensive money for my clients.  When I made contact with one of the supposed lenders their requirements were rather interesting.  The key to telling me they were scam artists were two things: The need for a utility bill from the borrower and a copy of the borrower’s driver’s license. 

Photo by Tima Miroshnichenko on Pexels.com

Fast forward to today…  these same scam artists are at it again.  They are a bit more sophisticated now but they are easy to spot.  These lenders pose as private money lenders on LinkedIn.  They ask for a general summary of the project and even an executive summary of the project the borrower wishes to fund.  They even have websites that make you think you’re dealing with a real lender.  One that I began to research even had testimonials.  Fantastic, I was getting somewhere, the lender had people saying they were legit! 

Fake websites often look like legitimate and trustworthy sites to make people more apt to provide their personal information. Scammers may seed the website with malware that infects the victim’s device and harvests personal or financial information.

It fell apart when I started calling some of the people that I knew, a small world of loan brokers, that were listed in the testimonials.  The specific testimonial listed a former member of my contact’s company as having written the testimonial.  They listed another person in the testimonial but my contact had no idea who the lender was. I researched further to find the person mentioned in the testimonial.  Fortunately, he was still in the industry and was able to be located.  He and I had a few pleasant email exchanges which led to the fact that the testimonial was lifted from a legitimate lender, another one I work with, and edited to change the name of the lender. 

For cyber thieves, your personal information is a goldmine. For example, your (user) name, last name, email addresses, phone numbers, passwords, banking information, credit card details, Social Security number, medical records – and so forth.  Your personally identifying information could include your full name, home address, email address, online login and passwords, Social Security number, driver’s license number, passport number, or bank number. 

Then came the email from the questionable lender.  Please have your client fill out our application. 

  • Name 
  • Address 
  • Sex 
  • Utility Bill 
  • Driver License 

It was the same group from 3 years ago remade into a somewhat real lender. 

Scammers often use phishing emails to trick victims into providing personal or financial information. Phishing emails can be deceiving in that they may appear to come from a known or trusted company, such as a bank or an online retailer, and use various tactics to get the victim to click a link or open an attachment.  They are trying to steal your identity!  Identity theft occurs when someone uses your personal identifying information and pretends to be you in order to commit fraud or to gain other financial benefits.

With enough identifying information about an individual, a criminal can take over that individual’s identity to conduct a wide range of crimes. For example:

  • False applications for loans and credit cards,
  • Fraudulent withdrawals from bank accounts,
  • Fraudulent use of telephone calling cards or online accounts, or
  • Obtaining other goods or privileges which the criminal might be denied if he were to use his real name
     

Please be wary of any lender that wants the type of information requested above and is offering interest rates that are substantially below market rates. 

Call us today to find out more about all our options. If you need funding, apply now.   

This image has an empty alt attribute; its file name is apply-now-button.gif

http://www.reicapital.cash/

Patrick St. Cin

W – 512-213-2271

Don’t Self-Sabotage as a Real Estate Investor, Rates are RISING!

Rates are heading up rapidly! Since 9/1/2021 when the best 30yr fully amortized loan interest rate was 3.625%, there has been a steady increase.  Within the past 7 days, the same institutional lender has increased its rates to 5.750%, the lowest possible rate available.  This is a 2.125% increase in approximately 6 months.  Interest rates will remain volatile during this period of inflation.  As the Fed works to rein in inflation by adjusting the rate upward, we will continue to see these increases.

What can be done to mitigate these increases?

Photo by Samson Katt on Pexels.com

When your Loan Officer requests Documents please be expeditious in sending them.  We are seeing investors delay signatures, sending documents, and poor response times which have led to as much as a 1.00% to 1.25% increase in the interest rates.  Investors want to see the mailbox money flow in with a minimum of effort, that is understandable.  But when it comes time to purchase or refinance a property, please make sure that your entity documents are in order.  This means signatures are where they should be (the biggest issue we see today), That a clear chain of ownership of the entity is evident.  Lawyers like to hide the ownership trail to minimize exposure to risks.  Lending institutions want to know exactly who they are lending to, minimal smoke and mirrors make the organizations with the money happy.

Some lenders offer a rate buy-down.  The basic way this works is that by paying an increase in the origination points to the lender the interest rate can be lowered.  Generally, this is a ratio of points to interest buy-down.  An example could be:

The ratio is 0.333% per Point.  The maximum buydown is 2 points or 2 times the buy-down points offered.

Interest7.00%7.00%7.00%
Origination Pts0%1%2%
Buy Down0.000%0.333%0.667%
New Interest Rate7.000%6.667%6.334%

There are other lenders that offer a similar buy down at a rate of 0.5% maximum for an increase in the lender’s origination points of 1.5%.  This buy down can be bought in 0.125% increments if that works for your program.

BUT WAIT THERE IS MORE!

We do have better news if you are doing a BRR strategy and not just a regular refinance and are open to a 5 or 7 year ARM. Call us today to find out more about all our options.

If you need funding, apply now.   

This image has an empty alt attribute; its file name is apply-now-button.gif

http://www.reicapital.cash/

Patrick St. Cin

W – 512-213-2271

Updates to our Loan Offerings – More for you as a Real Estate Investor

We are a direct lender and financial intermediary, which gives us the opportunity to place the most competitive financing options in the market.  Below is what we specialize in.  We look forward to winning your business and creating a long-term relationship: Ground-Up New Construction ($200K to $45M – Loan Amount), Fix/Flip Projects, Long-term Rental Property Acquisitions and Refinances, Airbnb or vacation rental acquisition and refinancing, and Commercial Property Lending including Apartments. Here are more details of our core lending products.

1. Fix and Flip Loans – up to 90% Of Purchase with 100% of Rehab, experienced, or first-timer investors

2. BRRRR – Buy, Rehab, Rent, Refinance and Repeat loans are available.  Loan programs include 5/1 ARM, 7/1 ARM, 30 Year Fixed Rates.

3. Rental Property Loans – Purchase – Refi – Cash Out.  SFR 1-4 units and AirBnB properties.  Loan programs include 5/1 ARM, 7/1 ARM, 30 Year Fixed Rates.

4. Ground Up Construction Loans

5. Portfolio Loans for SFR – 2-4 units and Multi-Family

6. Bridge Loans – Loans to Pay off current Lender – 1-2 Year Loans.

7. Multi-Family Loans from 5 doors to 300+ doors.  Value-Add Purchase, Turn-Key Purchase, Bridge, New Construction, Agency and non-Agency loans

8. Commercial and Mixed-Use Properties

9. Haz. Ins. Co you can use. https://affiliate.nreig.com/RichardTurner­

We are also very excited to be working with a new lender that will provide funding for the BRRRR investment concept.  Basically, the loans look like this:

  • LTV – up to 88% of Cost / 68% LT Market Value
  • DSCR – 1.20 based on Market Rents (1.30 if less than 3yrs rental experience)
  • Experience – Min 5 flips or rental / 5yr look back
  • Loan Terms  – 7 yr  (5yr Fixed+2yr Floating)
  • Interest – Intro Rate 4.9% (increases with credit below 740, max 5.8%), First-year – no interest payments (rolled into loan principal)
  • Loan Terms – 12yr (10yr Fixed + 2 yr Floating)
  • Interest- Intro Rate 5.2% (increases with credit below 740, max 6.1%), First-year – no interest payments (rolled into loan principal)
  • Origination Points – 3% (2 to lender + 1 to us)  need to get a Broker/Client Agreement at 1%
  • Prepayment – Step Down 3-2-1  (No PPP if Origination Points Increased by 1%)

The lender will work with the following background issues:

  • Litigation with another Lender
  • Bankruptcy (10yr lookback)
  • Foreclosures (since 2012)
  • Delinquency with suppliers
  • Outstanding RE Liens
  • RE Loan Delinquency

This lender is geared up to work with contractors and investors.  They understand the issues they come into and have a system that helps to prevent further erosion of the borrower’s track record or credit.

One of their claims is that 95% of applications pass thru the system to get a loan.

If you’re planning to buy a distressed property, now may be a good time to buy. Just make sure you’re aware of the risks and understand what you’re getting into.  Distressed homes offer a unique buying opportunity for real investors, but the average home buyer should probably look elsewhere. 

If you need funding, apply now. I am working online with the rest of you.  

This image has an empty alt attribute; its file name is apply-now-button.gif

http://www.reicapital.cash/

Patrick St. Cin

W – 512-213-2271

Photo by Andrea Piacquadio on Pexels.com

Need Rental Acquisition Funds? How to get INSTITUTIONAL FINANCING!

This sounds rather ominous – INSTITUTIONAL FUNDING OF A RENTAL PURCHASE.  There is no creativity in this type of transaction.  It is a clean method of purchasing a property without the worry of what the underlying bank may do if the truth gets out. This post will cover:

  • So how do you get one of these loans?
  • How much money is needed?
  • Does my credit need to be pulled?
  • Does it have to be in an entity?
  • Do I have to put my first-born child up as collateral?

Get Your Affairs in Order

Having your documents ready to go at a day or two notice should be paramount to running a good solid business.  Knowing what the business is, how it was formed, documents are signed, financials are essential! 

Entity

  • First of all – if there is a signature line in your entity formation documents, make sure all principals have signed the document.  About 60%-80% of entity documents are left unsigned.
  • Secondly, the entity must be filed with the Secretary of State, in the State of Organization.  If the entity is working in another State then a DBA should be filed with the appropriate State.
  • Operating Agreement (OA)
  • Articles of Organization or Incorporation (Articles)
  • Resolution – A resolution that emphatically states who has the authority to sign financial documents is a must.  If this activity is either not in the OA or is poorly worded, then a separate resolution should be written, signed and filed with the appropriate Secretary of State’s office.

Assets

  • Financial Institution’s statements.  These are basically the bank statement for the entity, banks statements, investment account statement, retirement account statements of each principal.  Yes, the funding institution wants to know there are funds available to continually make payments especially when the property is vacant or has been damaged and in being repaired.
  • The cash value of a whole life or universal live insurance policy is also considered an asset.  Please remember that the face value of the $1.0M policy means nothing to the underwriter, only the amount of cash that the insurance company states is available to be surrendered, if and when requested.

Experience

  • Starting out is understood in the lending business.  Regardless of this being the first property or the 100th property the lender needs to know your level of experience.
  • Assuming the only property type you have investing in is rentals then your rent rolls, the last 12 months of rents, a balance sheet and a P&L statement should be close by.
  • Management experience is also key.  Regardless of the properties being managed by a 3rd party or yourself, this is something the lender needs to understand.
  • If the previous investments were fix and flips, then please provide a list of those properties, with the purchase cost, rehab costs, selling price and gross profit.
  • If you have partnered with other investors via an entity then these count towards experience.
    • To be considered as experience, the principal in question must have had significant ownership of the previous /partnered entity, approximately 25% or more.
    • JV partners are discounted but can be provided to show similar activity.
  • As a general rule the more rental experience the higher the Loan to Value of the loan.

Principals

  • Copy of your Drivers License or other government picture ID.
  • Either an application or a Personal Financial Statement are required
  • Authorization to pull your credit.
    • Credit drives the interest rate.
    • The higher the score the lower the rate.
    • Min Score is 660 for most lenders.
    • Some will go much lower to 500 but a higher interest rate will reflect this score.
  • The institutions are truly not interested in using your first born as collateral!

Property

  • Will need an appraisal
  • Depending on the experience of the principals the maximum LTV could be as high as 80%
  • The purchase contract is required
    • Any Amendments, Addendums or Assignments will be required
  • Lease documents
    • If there is a lease in place that will be sufficient
    • If a new lease has been signed then make sure that all attachments, Lead Based Paint forms, and As Is Condition forms are included.
  • All pages of the lease need to be sent in.
  • What is the target closing date?

Title Company

  • What is the name of the title company?
  • Who is the person(s) in this office that will handle the closing?
  • What is their Address?
  • What is their phone number?
  • What is their email?

Insurance Agency

  • Who is the insurance agent?
  • What is their Address?
  • What is their phone number?
  • What is their email?
  • Minimum Coverages (as of January 2022)
    • Greater of Building Replacement Costs or the Value of the Loan
    • Min Liability is $500,000
    • Fire and Hazard Coverage
    • Min 6 months Rental Loss Coverage

So, what does this same purchase look like in an institutional loan?

“Subject To”Institutional
ARV$200,000$200,000
Purchase Price$25,000$175,000
Credit Score740
LTV80%
Down Payment$35,000
Loan$165,000$140,000
Interest Rate4.00%4.25%
Term30 years with only 25 yrs remaining30 years
Payment$788.00$689.00

The upsides to this transaction are many:

  • Arears are covered making this a clean deal, cleared off the books of the previous bank
  • Lower monthly payments
  • Possible immediate tenant
  • Lender has no reason to call the loan
  • Refinancing to pull equity at your desired timing not an underlying bank

The downsides, to name a few, are:

  • $10,000 more in down payment
  • May take more time to close

If you’re planning to buy a distressed property, now may be a good time to buy. Just make sure you’re aware of the risks and understand what you’re getting into.  Distressed homes offer a unique buying opportunity for real investors, but the average home buyer should probably look elsewhere. 

If you need funding, apply now. I am working online with the rest of you.  

This image has an empty alt attribute; its file name is apply-now-button.gif

http://www.reicapital.cash/

Patrick St. Cin

W – 512-213-2271

Photo by Kindel Media on Pexels.com