130 What Is The Optimum Way To Borrow Hard Money And Not Incur Extra Fees?

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130 What Is The Optimum Way To Borrow Hard Money And Not Incur Extra Fees?

In today’s episode of Passive Wealth Show, Jonathan Davis, Wendy Sweet and Bill Fairman of Carolina Hard Money will answer the “ Ugly Question” of the day: What Is The Optimum Way To Borrow Hard Money And Not Incur Extra Fees?

Timestamp:
0:01​ – Teaser
0:15​ – Intro
0:43​ – Breaking News
2:30​ – Quest Con Event: CODE: CAROLINA30 BILL’s LINK: https://questcon.eventbrite.com/?aff=…
13:04​ – Ugly Question: What Is The Optimum Way To Borrow Hard Money And Not Incur Extra Fees?
23:51​ – Coming Up Show: Self Storage Underwriting with Fernando Angelucci
24:11​ – Carolina Capital Management: https://www.CarolinaHardMoney.com

We explained the best way of borrowing hard money loans and not incur any extra fees. Get it done quickly, look for properties you don’t have to put a lot of work on and be loyal to your lenders.
How to finish your project on time? Hire someone who can do it!

Learn more by watching the full 30 minute video.

Favorite Quote:
“Understand What Your Numbers Are, Investigate Them. Everything We Do Is Based Off Of That” – Wendy Sweet (14:36​)

Carolina Capital is a hard money lender serving the needs of the “Real Estate Investor” and the “Small Builder” borrower who is striving to build wealth and generate income for themselves and their families. We offer “hard money rehab loans” and “Ground-up Construction Loans” for investors only in NC, SC, GA, VA, and TN (some areas of FL, as well).

As part of our business practices, we also serve as consultants for investors guiding them to network with other investors and educating them in locating and structuring transactions. Rarely, if ever, will you find a hard money lender willing to invest in your success like Carolina Capital Management.

Bill Fairman:
Hello, everyone. We’re back again. So have you ever wondered how to minimize your expenses or your fees on a hard money loan? We’ll let you know right after this. My first answer is always own your own hard money company. That’s how you minimize your fees.

Wendy Sweet:
Well, what’s the question? What’s the true question?

Bill Fairman:
Well, we’re not going to ask that question right now because we have other things to talk about.

Wendy Sweet:
Oh, what are we gonna talk about, Bill?

New Speaker:
Well, I guess we’ll talk about,

Wendy Sweet:
Puppet show, puppet show.

Bill Fairman:
Breaking news. That would be. Typically we go into who we are and what we do and thanks, and all that stuff. And I went right through that. Right to the breaking news.

Wendy Sweet:
Well, you can do it now.

Jonathan Davis:
You were so excited about the news. I like that

Bill Fairman:
There’s a lot of news to talk about.

Jonathan Davis:
Yeah.

Bill Fairman:
So we are Carolina Capital Management. As you can see at the bottom of your screen, we make loans in the Southeast to real estate investors. If you’re a borrower interested in borrowing money, go to our website, CarolinaHardMoney.com and click on the apply now tab. If you’re an investor looking for a, what did we call it? Passive returns then click on the accredited investor tab. This is the Passive Wealth Show. Don’t forget to like share, subscribe, all that stuff. Sorry, Cherub. Every time I mentioned something and she throws the graphics up and I fool her and say something else. It’s not your fault, sweetie. It’s me. It’s not you, it’s me.

Jonathan Davis:
She’s telling you to make sure that you.

Wendy Sweet:
Ask the question.

Bill Fairman:
And this is a question part. We’re not asking the question right now or answering you.

Wendy Sweet:
But you can ask question in the chat box.

Bill Fairman:
Oh yeah, stop, stop it! I got it. Yeah. We do have a comment section on the right side of your screen or underneath, depending on what platform you’re with. And Oh, by the way, we’d love to have your questions. We may or may not answer them. There’s a link. We’re going to be, Wendy and I are going to be speaking at the Quest Con event.

Wendy Sweet:
In April, right?

Bill Fairman:
In April. It’s the 17th and 18th. And there’s a code here. You use the then you,

Wendy Sweet:
The code!

Bill Fairman:
You get half off ticket price.

Wendy Sweet:
Yeah.

Jonathan Davis:
Oh wow.

Bill Fairman:
Okay. So I guess we can talk about the news. So on Wednesday,

Wendy Sweet:
And it’s based on, by the way, Quest con is based on lending. The whole thing is talking about lending.

Jonathan Davis:
Lending from your self directed IRA.

Wendy Sweet:
Yeah.

Bill Fairman:
In previous events, they’ve had kind of an array of topics and they’ve decided to focus in on different aspects of real estate going forward with these and this one just happens to be lending. Everything having to do with lending, borrowing, being a lender. I’m sure notes will be involved in there.

Wendy Sweet:
That’s right. And borrowing money should not be a problem for anybody. We were just talking about that this morning, how,

Jonathan Davis:
She called me a liberal, by the way,

Wendy Sweet:
Just look like a liberal lender.

Jonathan Davis:
Liberal lender, come see me. Don’t see Wendy.

Wendy Sweet:
Cause I’m really conservative, but it’s very, it’s amazing how much money is out there and how cheap it is, right?

Jonathan Davis:
Oh, it is.

Bill Fairman:
Right. Part of the breaking news, it’s getting a little more expensive.

Wendy Sweet:
That breakaway.

Bill Fairman:
So, Wednesday they did housing starts for February and they were well below what was expected for housing starts. However, some of that can

Bill Fairman:
Cause nobody can afford the wood. Crazy

Bill Fairman:
Some of that is part of the weather, you know, we had the big ice box going on. So wasn’t a lot of housing starts.

Wendy Sweet:
During that week.

Bill Fairman:
However, building permits were also down that I think has a lot more to do with the cost of building than anything else because the cost of land is higher. The cost of materials is higher.

Jonathan Davis:
Yeah. Everything’s higher.

Bill Fairman:
I don’t think the cost of labor is going to be going up dramatically in that particular sector, because if they’re not building and they haven’t started houses, there’s going to be a lot of people that are going to be temporarily laid off. So they’re not going to be, there’s not going to be as much competition for labor.

Jonathan Davis:
I hope so. I hope you’re right.

Wendy Sweet:
It’s crazy.

Bill Fairman:
Yeah.

Wendy Sweet:
[Inaudible]

Bill Fairman:
That’s said, let’s go into the

Jonathan Davis:
I’ve got two projects and they ain’t finished. Send them my way,

Bill Fairman:
The unemployment numbers last weeks, initial claims and continuing claims were all revised upward. So they’re actually higher than they reported last week. And guess what? They’re off again higher this week as well. Now again, I think a lot of that had to do with people finally working through the system from the bad weather in February. We’ll see. There’s some States that are starting to open up a little bit more. So you would think that people were being hired back, but one of the things that we found

Jonathan Davis:
With the new stimulus, Bill. Have anything to do with hire?

Wendy Sweet:
That’s a good question.

Jonathan Davis:
I don’t know. Just a question. What do you think about that?

Bill Fairman:
Well, they’re supposed to be new, you know, that PPE money

Jonathan Davis:
And there’s marked money for unemployment. Right. But there’s more money going towards that. I was just curious what you thought.

Bill Fairman:
Well, I don’t know. It’ll all shake out and I have no idea. My thought is that one of the issues with employment is that we’ve learned how to do more with less. I’m sure every business out there has learned how to do more with less. At the same time there’s businesses that are trying to operate on 25 to 50% of their normal operating capacity

Jonathan Davis:
But not with their normal expenses. Right? They had to cut down.

Wendy Sweet:
Right

Bill Fairman:
Well. Yeah, but they still have the same rent in most cases. Yeah.

Jonathan Davis:
Rent wouldn’t really change unless you did send it for one home and you [Inaudible].

Wendy Sweet:
That’s right.

Bill Fairman:
If you’re a restaurant owner, you still have to have a full staff in the kitchen, even if you’re only serving 25 to 50% of the people so your expenses aren’t going down. So what I’m thinking is that some of these businesses finally said I’ve had enough. Maybe they’re closed some of them permanently or are, I don’t know, they’re just waiting for another time. It’s hard to say it’ll all work out

Wendy Sweet:
Thing on the radio, talking on the talk radio station. And they were talking about North Carolina and North Carolina had 127 new businesses start in this past year in 2020.

Jonathan Davis:
127?

Wendy Sweet:
127 thousand.

Jonathan Davis:
127 thousand. Okay.

Wendy Sweet:
Sorry. I should add that to it. 127,000. And that was like record breaking, like almost double what had happened.

Jonathan Davis:
What did they, what do they say?

Wendy Sweet:
They didn’t give any details as to what it was.

Jonathan Davis:
Is that like new LLCs formations or is that business licenses being purchased through municipalities?

Wendy Sweet:
That’s a good question. And I would imagine if they’re going through the state, if it’s coming out about the state that they would have had to gone through new LLCs or entities being formed. So it’s not a great measurement in my opinion, however,

Jonathan Davis:
I form LLC all the time I never used them.

Wendy Sweet:
However, I mean, that also says there’s a lot of people that have been laid off that are saying, Hey, I’m going to start my own business.

Jonathan Davis:
Yeah, that’s true.

Wendy Sweet:
And they’re all small, you know, work from home type businesses. So maybe that’s what it is. Maybe more, there’s more people out there that are doing contract employee kind of businesses out there. I don’t know. Just thought that was pretty interesting.

Jonathan Davis:
Yeah, it is. Brian Maddex put up a good point.

Wendy Sweet:
Okay. Boy, that’s a talking one.

Jonathan Davis:
Talking about the, you know, they’re only going to

Bill Fairman:
FHA is only going to purchase 7% of sold mortgages from any company that are second homes or investment properties. So, and this is really,

Wendy Sweet:
It’s already having a major impact on those that are willing to finance these. So recheck with your bank on your exit strategy for your hard money loans. Great advice, Brian, thank you very much.

Bill Fairman:
I can tell you this. There are plenty of non traditional lenders that will still take those. Not necessarily second homes and investment properties.

Wendy Sweet:
Yeah. That’s probably, what’s becoming more and more popular and I call them quasar hard money companies. Cause they claim to be hard money, but they’re not FHA backed buyers.

Jonathan Davis:
No. It’s all private security sites.

Wendy Sweet:
It’s really good. So, I think.

Jonathan Davis:
Lending in the low fours.

Wendy Sweet:
Yeah. I mean, yeah, most definitely. But yeah, Brian is an awesome mortgage broker with the mayor first, but he’s one of their top, top dudes over there. And uh, Brian Maddex does a great job.

Bill Fairman:
Yeah, we’ve had him on the show, a couple of gaps. So here’s the problem with exactly what you said is that you’ve got companies that have already made loans and they’re expected to sell them. And now they’re stuck with these because they’re not going to be able to sell them via FHA. So what does that mean? They’re going to have to sell them at a discount because you’re going to have all these people that are scrambling to get rid of these loans they weren’t prepared to hold on to

Wendy Sweet:
The rates will go up and we’ll start doing fewer lines.

Bill Fairman:
Well, yeah, but that’s going to, it’s going to lower cashflow on most of these rental properties because you’re not going to be able to get that good conventional financing. What really irritates me about this is that they’re not buying these because they think they’re riskier loans in my opinion.

Jonathan Davis:
So why are they buying?

Bill Fairman:
And they typically have a lower default rate than FHA first time home buyers and there yet they’re pushing, you know, those hard. Right?

Jonathan Davis:
Yeah.

Wendy Sweet:
Yeah. So why do you think of that?

Bill Fairman:
Well, because they don’t understand real estate investing.

Wendy Sweet:
They don’t like us. They’re not our friends anymore.

Bill Fairman:
They don’t understand are those being missed.

Wendy Sweet:
That’s true.

Bill Fairman:
Also, you know, rates are starting to go up. I don’t, I don’t see that affecting too many, owner occupied purchase money loans because obviously rates are really low and what it’s going to do, it’s going to perpetuate this with the housing starts and the building permits being lower and rates starting to go up. All this is going to do is perpetuate the increase in price, in my opinion of single family housing, because you’re not building as many.

Jonathan Davis:
Sure. It keeps the inventory low. Yeah.

Bill Fairman:
Rates are still relatively low. They’re still going to be affordable, but people are going to, they want homes. The supply is going down. You’re going to, I feel sorry for a lot of the mortgage originators who didn’t pay any attention to their real estate resources and only concentrated on refinances because they’re going to be struggling to get more loans.

Wendy Sweet:
I’d be interested in hearing from Brian, what his rates are running right now. So Brian, if you get an opportunity to type that in there, that’d be awesome.

Bill Fairman:
The other thing, as we were probably going to see is that those loan originators are going to start getting relationships with some of the non qualified mortgage companies that are doing these rental property loans that are the quasi hard money people, because they’re still going to need a place to put them.

Wendy Sweet:
That’s absolutely true.

Bill Fairman:
Right? But I don’t see it. We’re still gonna have refinances folks, but people are gonna use the refinances, the piggy bank versus lowering the rates because as values continue to go up, it’s a great way to pull that equity and still be relatively cheap. All right. So we only have 15 minutes left or less than that to answer our question. So I dragged this out as far as I could. So it is time now for the Ugly Question. And that would be, today’s only question by the way, not tomorrow or next week.

Bill Fairman:
It’s everyday it’s the little the question.

Wendy Sweet:
Yeah, you know what it is.

Bill Fairman:
So it is our question.

Wendy Sweet:
There we go.

Bill Fairman:
What is the optimum way to borrow hard money and not incur fee? Well, you already heard my first answer

Jonathan Davis:
And not incur.

Wendy Sweet:
Not incur extra extra fees.

Jonathan Davis:
I was gonna say any fees just don’t get hard money.

Wendy Sweet:
Yeah.

Bill Fairman:
You’re still going to incur fee,

Jonathan Davis:
Well, yeah, just not from hard money.

Bill Fairman:
That’s right. So let’s let the liberal underwriters answer this one.

Jonathan Davis:
I mean, step one would be, make sure your project finishes on time. You know, fees are incurred when you go past your original or your maturity date. Most hard money lenders charge an extension fee, some don’t and some just charge you default interest past the maturity date.

Wendy Sweet:
That’s right.

Jonathan Davis:
So, you know, either way, you’re going to be paying more. So finishing your project on time is huge. And how do you finish your project on time? Hire someone who can do that.

Wendy Sweet:
Right.

Jonathan Davis:
Don’t do it yourself.

Wendy Sweet:
That’s a big plus. That’s a big plus. I like to start at the beginning. When you come to any hard money lender for a loan, understand what your numbers are, know what they are, investigate them, know what your after repair value is going to be. Everything we do is based off of that. And if your after repaired value in lower, and you can’t afford to do the deal, you just spent money on an appraisal. That’s not doing you any good, right?

Jonathan Davis:
Yeah. You just, I mean, appraisals run 400 to 800 dollars.

Wendy Sweet:
That’s right. And make sure that you really understand the rehab amount. Don’t put, you know, if your cousin’s given you a good deal, he’s the one that’s going to do the contracting for you. He’s going to give you a good deal. Don’t put your cousin’s good deal on the rehab list. Put real numbers in there. Cause your cousin might get hit by a truck or decide he has a bigger name on the other lines that he can’t do the work for.

Bill Fairman:
But by the way, your lender, isn’t going to include your cousin’s numbers. Because if the lender has to take it back, your cousin’s not gonna work

Wendy Sweet:
They’re gonna finish the house. For sure. But you just want to make sure you include those numbers thoroughly because there’s nothing worse than fixing a house up and finding out that you don’t have really enough money in your budget. It’s not going to get another loan.

Jonathan Davis:
Yeah. And not having a contingency in your budget is, I mean, just to be, I guess, really upfront, it’s a stupid tax when you get, cause you’re going to get hit for things behind a wall that you didn’t know were there. And if you don’t have that money set aside, I mean, you can see, I counted as an extra fee. It’s a tax for not being prudent about your budget.

Wendy Sweet:
Right. That’s exactly right. Just stupid tasks.

Jonathan Davis:
So when, you know, when I look at a budget of like, where’s the contingency? I don’t need one because you know, I’m doing the work or whatever it is. It’s like, I don’t care if you’re doing the work or someone else is, you always need a contingency. And typically, you know, just three to 5% of the budget is really what you need because something’s gonna pop up.

Wendy Sweet:
That’s right. Every time something absolutely will pop up and make sure too that whoever you’re working with, isn’t asking for due diligence, money up front and application fee up front, any money that transfers hands, other than the appraisal, I understand charging for the appraisal up front. We do.

Jonathan Davis:
But that doesn’t even come to us. That goes to the appraiser.

Wendy Sweet:
To the appraiser themselves. But you know, if somebody is charging you a fee to look at your deal, basically is what they’re doing then they’re, they don’t really have any intention of closing your loan.

Jonathan Davis:
You know, there’s, I’ve seen it done quite a few ways, but you know, they’ll collect a $10,000 or 5,000 or $1,000 due diligence fee or whatever upfront and they’ll say, well, don’t worry because whatever we don’t spend, we’ll count it towards your closing. And that’s great if in their LOI or whatever document,

Wendy Sweet:
The letter of intent,

Jonathan Davis:
Letter of intent that they give you, it doesn’t state that that fee is fully earned once you pay it. Because if it does state that it’s fully earned, once you pay it, you can never get it back.

Wendy Sweet:
That’s right. That’s right.

Bill Fairman:
I was going to mention one other way to make sure is to finish early. And so how do you do that? I know inventory is tight as it is, but if you can find properties that need very little work, that’s the route to go, don’t try and do a complete overhaul, almost new construction, because those are going to take the longest, trying to find some that need very little fixing up and it could be even a place where you’re going to almost like a retail deal. You’re just cleaning it out, painting it, selling it pretty much as it is.

Wendy Sweet:
Yeah. You don’t have to fix them up. Like we once did

Bill Fairman:
There’s bidding Wars everywhere. I was in the grocery store the other day. And I heard these two guys talking ones that, Hey, I see you sold your house. Yes I did. Where are you going to? I don’t know. Every time I try and make an offer on a house there’s already three in front of me and they are bidding well over the asking price

Wendy Sweet:
Yeah. Yeah. We liked that. Brian answered.

Bill Fairman:
Yes, he did.

Wendy Sweet:
Primary homes are up to 3.375.

Jonathan Davis:
Two to three’s.

Bill Fairman:
We’re in the two’s.

Wendy Sweet:
Investment properties at 4.75 today with one point investors will invest. My house will vary greatly between the lenders now. Yeah, you’re right about that. Thank you for updating us on that. And I mean, I know I made fun of the 3.375, but it was in the twos.

Jonathan Davis:
It was in the twos.

Wendy Sweet:
It was free money.

Jonathan Davis:
And 4.75 at one point on investment property.

Wendy Sweet:
Still doesn’t suck.

Jonathan Davis:
That’s pretty good.

Bill Fairman:
Relatively speaking10 years from now, when inflation is way up that the payment on that is going to be,

Wendy Sweet:
Did you say 10 years from now?

Bill Fairman:
10 years from now,

Wendy Sweet:
I heard 10 months from now.

Bill Fairman:
When you’re still making those 30 year mortgage payments, you’re going to be happy at 475. And then one point. It’s a great hedge against inflation is a low fixed rate mortgage. And it’s nuts that they’re not going to follow through unless they’ve decided that these smaller individual investment property loans are all gonna get killed because they’re gonna make it harder and harder for the landlords to collect rents.

Jonathan Davis:
Collect the rents. Exactly, exactly.

Wendy Sweet:
That might be why they’re not buying investor lines. That might be what trip that trigger.

Jonathan Davis:
And it can’t be. Yeah. I mean, I don’t know what is up to now, but I mean, I just imagine it’s probably close to 2 billion dollars for the, in New York, the backload rents.

Wendy Sweet:
Yeah. I’d be interested in seeing how many non-owner occupied loans are late at this point. Mortgages are like,

Jonathan Davis:
It’d be interesting. We can find that data.

Wendy Sweet:
We can do that for next week.

Jonathan Davis:
Yeah

Wendy Sweet:
Sure. I’d like to know what that is. That’s very interesting

Bill Fairman:
And by the way, message, Brian, if you are interested in getting a loan, Brian does a great job,

Wendy Sweet:
Bian Maddex [Inaudible], Brian, you’re more than welcome to put your information in the chat box. We’d love to have it up there

Bill Fairman:
Because we got like two more minutes, three more minutes, for it could be there, but it will be there permanently.

Wendy Sweet:
That’s right. That’s living forever,

Jonathan Davis:
Living forever in Cyberspace

Bill Fairman:
Folks. Thanks for joining us. I don’t see that we have any other questions about our Ugly Question, but I hope that helped really. To sum it up. It’s get it done quickly. Look for properties. You don’t have to do a whole lot of work on or at least get it done by your maturity date because you were going to incur even higher fees when you go past that. The other thing too, is most companies that you do business with on a regular basis are going to charge you a little bit less than if you’re, the first time borrower with every single company, then my point is it doesn’t have to be with us, but try to be loyal to your lenders, as long as they’re doing a good job for you, don’t hop around, okay.

Wendy Sweet:
Don’t don’t discount private money. We look for people that have self-directed IRAs that are interested in lending money, a lot of money out there.

Jonathan Davis:
And one other way. I think this is just a, to me, it’s a fee, but maybe it’s not to other people. I see a lot of people coming to hard money. Like, Ooh, I don’t want to pay that. Right? I want to pay that point or those points. I’ll just get someone to go in the deal with me. And now you’re giving up equity. And what I can say to that is equity always cost you more than debt. Take the debt, pay the whatever rate it is. Cause it will be far less than whatever equity that you’re giving away. So that’s, you know, just if I can give people any advice, take debt, use leverage. Don’t give up equity.

Wendy Sweet:
Yeah. Good point.

Bill Fairman:
David, I’m not quite, Oh, do I need the LLC?

Wendy Sweet:
Yes.

Bill Fairman:
If you’re borrowing hard money, yes.

Wendy Sweet:
If you’re lending, no.

Bill Fairman:
If you’re borrowing conventional loans, no. You’re only going to be able to put it in your first name, but if you’re doing hard money, yes. They’re going to be considered a commercial loan. So you do have to have an legal entity. It doesn’t necessarily have to be an LLC, but it has to be a legal entity.

Jonathan Davis:
Yeah. It could be a proprietorship,

Wendy Sweet:
Trust.

Jonathan Davis:
It can be a trust. It can be a corporation.

Wendy Sweet:
Yeah. Good question.

Bill Fairman:
Yep. All right. And I did see that Brian his info in there. So thank you so much. This has been the Passive Wealth Show. Thank you very much for joining us. We have our show coming up. It’s going to feature our Fernando Angelucci.

Wendy Sweet:
Fernando!

Jonathan Davis:
I just like saying his name.

Bill Fairman:
A friend of ours.

Jonathan Davis:
Fernando Angelucci.

Bill Fairman:
He’s in the self storage space and this is one of two shows that we’re going to do with him going forward.

Wendy Sweet:
Does he know?

Bill Fairman:
I’m pretty sure he does. We are Carolina capital management. We are a lender for real estate investors in the Southeast. If you’re a borrower, go to CarolinaHardMoney.com and click on the borrower tab. I’m sorry. Click on the apply now tab. If you’re an investor looking for passive returns, click on the accredited investor tab. Don’t forget the like. Share. Subscribe, hit the bell, all that good stuff. Am I done?

Wendy Sweet:
Yes.

Jonathan Davis:
I think so. You did great, Bill.

Bill Fairman:
Okay. Oh, and don’t forget to use our.

Wendy Sweet:
Quest Con.

Bill Fairman:
Our code there for Quest Con coming up April 17th and 18th is all going to be about lending this time. They do a great job over there at quest. As a matter of fact, we’re going to have.

Wendy Sweet:
Haley

Bill Fairman:
Haley Gant quest on a upcoming show as well. All right. You guys have a great day. We’ll see you on the next show.

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