Loan against a Half-Finished Duplex and house:
An amateur spec builder with excellent credit had started building a house and duplex “on spec” in a second class Colorado mountain town with his own funds. After having completed 65.00% of the project, he ran out of money. Three banks turned him down to complete the project because they could not get “mechanic’s lien protection” from the title co. to assure them their loan would be in first position. ( Sub contractors acquire senior lien positions if not paid unless the mortgage is recorded before commencement of construction work) I conducted an extensive investigation into the builder’s finances to ensure most sub contractors were paid, and I made the loan without the title company’s assurance that I was in fact in first position.
My loan was for $162,500 which was about 50.00% of the as-is value of the house and duplex. My loan fee came to 5.00% or $8,125.00 plus 14.00% interest for 6 months. The 6 payments were withheld at closing because the borrower also could not prove income.
Fast vacant land loan:
A self employed borrower without the ability to prove income, but with good credit, owned a building site in an upscale development free and clear. He called me needing $50,000 now! My appraiser went out on 3 hours notice and appraised the property at $100,000 . We closed within 48 hours at the title co.
For this service I charged a $3,500 fee plus 12.00% interest. The loan contained a 24 month balloon and was payable in interest only payments.
Virtual Vacant motel purchase with no money down.
The borrower was an “outsourced” middle rank corporate type. He and his wife wanted to go back to the small town they grew up in. They found a motel with great potential but badly in need of on-site hands on management. The owners wanted to sell badly. The borrowers had some cash but all of it needed to be kept on hand to make repairs and for living expenses.
The borrower paid $485,000 for the property with the help of a 3 year loan from me for $175.000 at 12.00%. The seller carried the balance on favorible terms. The borrower has been in touch with the SBA and received assurances that he could get a nice low interest loan in a couple years so he could pay me off. My fee, in addition to the interest, was 10.00% plus the cost of an airplane ticket to go see the property.
Example # 4
Development land bought with no money down.
A developer with more ambition than ready cash, but with an excellent reputation, found a site for $500,000 on which he could build 48 townhome units. The seller who apparently needed to sell badly agreed to carry a $300,000 second note behind my first $200,000 loan. The developer expects to have all his approvals in place and intends to pay me off with the proceeds of a new construction loan. The holder of the Second agreed to subordinate to the new construction loan and expects to be paid off when the units sell.
My rate was 15.00% with 5.00% points and all payments escrowed up front.
loan against rental house.
A borrower who owned 10 rental houses had an opportunity to buy another one at a bargain price. His banker turned him down, not because he had poor credit and not because he didn’t like the deal but because the bank’s policy was that “10 was the limit”. Because the borrower truly had made a steal, I loaned him 85% of the purchase price at 12.00% for 5 years with only a 1.00% origination fee. There was no prepayment penalty so as soon as possible the borrower could get rid of me by refinancing at a better rate.