56 Hard Money is Still Available If You Know Where to Look
Wendy Sweet (00:00):
Hi, this is Wendy Sweet and I’m here with Jonathan Davis. We’re with Carolina Hard Money. We are so glad to be in front of you today. And I think what we want to really talk about today is what’s going on with the hard money world, right?
Jonathan Davis (00:18):
Wendy Sweet (00:19):
It’s gone crazy as you can imagine. But it’s not so crazy that you can’t navigate it. There are still good companies out there that are lending. And there’s different products out there. Some people are tending to raise their rates, and their points.
New Speaker (00:38):
I mean, you see a lot of flood you out there. I mean, they were already lending probably more conservatively on the loan to call side, but now they’ve raised their rates. And then you see others who take us, for example, we haven’t raised our rates, we’ve just lowered our LTVs.
Wendy Sweet (00:56):
Right, right. The point in what’s going on right now is people really want to lower their risk factor out there. Their exposure that they’re exposed to in the market because we know even our crystal ball is broken, but we have a lot of really great brain trust members out there, right?
Jonathan Davis (01:14):
Wendy Sweet (01:16):
We know that the values of property are most likely going to drop across the country. We don’t know how much though. Over the next, I don’t know, 12 to maybe even 24 months. I think you’re going to see an adjustment, a correction which was needed.
Jonathan Davis (01:33):
Yeah. I mean, and not to scare anyone away. I mean, we’ve been talking about this. There was a housing shortage before this event. There is still a housing shortage. S,o it’s not like everything’s just going away or evaporating. It’ll just be, as you said, adjusted.
Wendy Sweet (01:54):
That’s right. And your market’s changing. And what’s going to sell quick? You know, we’ve been in the bread and butter business now for over a year, little over a year. And we’re glad that we did that because really, we believe that the market that’s going to get hit the worst is really your 500,000 plus range where you’re after repaired value is in that range and up. We think that that’s probably the market that’s going to correct the most.
Jonathan Davis (02:25):
And it was, we already saw it in, in certain markets around United States already happening before.
Wendy Sweet (02:30):
That’s right. That’s right. So, we’re just, our intention is to get as much information in front of you as possible because you need to know the right questions. If you’re looking for a loan, you need to know the right questions to ask. If you’re looking for properties, you need to make sure that you understand what’s really available to you now. Cause it’s a whole new game.
Jonathan Davis (02:54):
Yeah. I mean, and what I think you might want to wrap your mind around and start to realize is it’s going to be the new normal, you know. That’s a phrase that’s being thrown around a lot now. Is, loan to values are going to be lower. And they’re going to be lower probably for some time. Like we said, there’s still people out there lending but there’s, there’s a lot, a lot, fewer of them. And there’s going to be a lot fewer of them as time progresses. Right? So then competition isn’t as, I guess it’s not as competitive in the market. So there is no incentive for very little incentive for lenders to up LTVs or to up any risk adjustments.
Wendy Sweet (03:40):
Jonathan Davis (03:40):
So 65%, 60%, 55%. Lenders are conservative by nature.
Wendy Sweet (03:48):
Cause they like to keep their money.
Jonathan Davis (03:51):
They like to get it back. So as long as you can get away with lending at a conservative loan to value ratio or whatever risk adjusted factors that you’re going to factor in, you’re going to do it as long as you can stay relevant in your market.
Wendy Sweet (04:03):
Jonathan Davis (04:04):
So I just want people to realize like, things will change, but they will be slow and to embrace where we are right now because it’s probably, it’s not going to change next month or the month after.
Wendy Sweet (04:16):
And as a borrower, you beat that or work with it by getting a better deal. And there’s better deals out there. Even today. We’re saying, more seller financing going on, which you absolutely should take advantage of.
Jonathan Davis (04:31):
Yeah. I mean, the buying pulls of properties on seller financing. I see a lot of people doing that right now.
Wendy Sweet (04:38):
Jonathan Davis (04:39):
And it’s a great way. It’s a great deal for you and the seller gets a cash flow without any liability on the property.
Wendy Sweet (04:47):
That’s exactly right. There’s a lot of landlords out there that haven’t been getting paid. That will most likely continue. And if they can sell or finance it and be guaranteed a payment from you or they get their house back, how can they lose on that? So, that’s going to be a better option. We’ve really want to, you know, we are not here to put fear in anybody’s heart or mind. We want to give you a sense of excitement. Cause this is a great time.
Jonathan Davis (05:16):
This is a great time to find great deals. To really negotiate. I mean, what, over the last three years it was harder and harder for people to find deals. I mean, we saw people wondering where the wholesalers were. You know, where are the deals, where are the deals? And it’s like, because the margins were getting thinner and thinner and thinner on everything that was going. Well, ongratulations on real estate right now. The margin just opened back up.
Wendy Sweet (05:42):
Yeah. In a huge way. And you know, a lot of people will say, well, if that’s happening then what do we think is going to happen to the rents? How our rents? Where do you see rents going? Are they going up? Are they going down?
New Speaker (05:56):
I, you know, from what I’ve seen right now, they’re just staying the same. Like I haven’t seen anything go down. I mean, I would say from a personal side, all of my tenants have paid. Now, I know that’s different for everyone, different ports of portfolio sizes and different areas. I think on the lending side, I mean, I think we’re at, what, 99 point something percent collection rate.
Wendy Sweet (06:23):
Jonathan Davis (06:24):
So I’m like, we’re not seeing too much right now. Now, we’re about to enter into the May and June, so things could change. But as we see it right now, I mean, I expect it to go down a little bit, but not significantly.
Wendy Sweet (06:41):
Right. You know, I had a really interesting call just yesterday from someone who was trying to, wanted to get a loan for a house. I think he was buying in Atlanta. The ARV on it would have been around 400,000, and he was really buying it to kind of help his son buy a property. He’s just graduating from, getting his master’s degree in college. He’s trying to give him a leg up and he found a house he really loves. And you know, wanted to do a hard money loan on that. Now it’s not a loan that we would have done anyway. Because it’s not really an investor situation. However, my advice to him was your son would be way better off renting property right now because that $400,000 house may be worth 350 in a year or two.
Jonathan Davis (07:30):
Very well could. Yeah.
Wendy Sweet (07:32):
And we know, you know, we’ve been in this business long enough to know that good deals come along every day. It’s, I’ve seen it happen for 20 years and I’m sure it’s going to happen for another 20 years. Good deals come along every day. And so you can’t buy from emotion. But this guy was getting ready to buy out of emotion. His son loved the house. He wanted to help his son, but he really wasn’t helping himself or his son because he would have really paid too much for a house.
Jonathan Davis (07:58):
Yeah. Well, he was buying off emotion but also off of the collective intelligence of the last 10 years of a bullish market where it didn’t almost matter what you bought it for. It was appreciating. Well we’re, we’re not doing that right now.
Wendy Sweet (08:17):
Jonathan Davis (08:18):
You know, it’s actually doing a little bit the opposite. And it’s, you know, every market’s different. I mean, some markets probably won’t feel anything, but some might feel a 20% 25% adjustment.
Wendy Sweet (08:27):
Jonathan Davis (08:27):
So, just know that right now you can buy, but you need to be finding really good deals like you said. Because if you don’t, here’s the, you can find good deals, but if you don’t get a good deal, you can lose your shirt.
Wendy Sweet (08:43):
That’s right. And equity is what? Paper. It’s not real. Equity is not real. It’s, you can’t, and especially in this market, count your equity has been cash in your hand. Cause, it’s not. And we’ve preached for years that when you’re buying property, you need to make sure that you are not buying it for the cherry on top. For the possible appreciation. For the possible equity. It needs to be a deal that stands on its own just as it is.
Jonathan Davis (09:12):
It’s cash flow. Cash flow.
Wendy Sweet (09:15):
Exactly. There’s no question on that. It is what it is, right?
Jonathan Davis (09:18):
Don’t buy it for you. Like, use it for the equity to cheer us up. Cash flow. Right now it’s cash flows. Say that one more time. Cash flow.
Wendy Sweet (09:26):
And if you buy it for that reason, then anything else that happens outside of that is gravy. Or if it’s a detriment, it won’t hurt you because you bought it off the cash flow to begin with. Exactly. So, so you’ve got it, you know, try to keep that in mind. One of the things that we’re doing is we did lower our loan to values.
Jonathan Davis (09:47):
Wendy Sweet (09:48):
We are. You were saying just this morning. We’ve done how many loans so far this month? It’s a lot lower than what we’re used to. But talk a little bit about the numbers that we talked about earlier.
Jonathan Davis (09:59):
Our average size on single family this month, my loan size is $98,000.
Wendy Sweet (10:07):
Yeah. We liked that! We do! We love that. That’s a safe place.
Jonathan Davis (10:11):
I mean the previous month it was I think like 120 some thousand. The month before that it was 140 some thousand. So we have, you know, we were already conservative and we’ve, we’ve lowered it even more so. And why have we lowered it to those levels? We’re not lending on, you know, slums or anything like that. What are we doing? We’re lending to people who understand cash flow. Who understand that if they can’t sell this product, this property, if they’re going to flip it or whatever, they can rent it out. They can Airbnb it short term, longterm run it, whatever it is. And they can cash flow it at the rates that we have lent to them on. And there’s just fine.
Wendy Sweet (10:53):
That’s right. That’s right. The thing that’s really important to understand is too. Is that we’re lending less money on what we would normally lend. That we were doing at 70%. Now we’re down at 65. If it’s a multiunit like, you know, two to four units, it’s down to 60%.
Jonathan Davis (11:13):
And then 90, you know, 90% loan to cost on the purchase price. So you have to bring 10% down.
Wendy Sweet (11:19):
Plus the interest. We’re having them bring interest to the table.
Jonathan Davis (11:22):
Three to six months of interest reserves are payable at closing. And you know, I think we’re still doing 12 month terms on everything.
Wendy Sweet (11:30):
Right. So what does that do? It thins the herd. It, the people who are, who are borrowing money now have money. And they’re willing to put that up as serious collateral to do the deal. They’re the smart ones. They understand that cash is King. And that they’re going to have to put a little more skin in the game. How are they getting refinanced out of this? Because that’s really kind of what’s hurting in this market right now. The secondary market that did cash out refinance and right in term refinance for investors and company names and things like that. That’s what’s pretty much dried up.
Jonathan Davis (12:10):
Well, I mean, yeah, you, on the investor longterm rental loans that people were seeing. They were, I think starting out at 5%. Some of them were, some were even 4% and you know, up to 6%, 7%, 8%. Yeah. And the companies who were doing this weren’t holding onto that paper. They were selling it and they were selling it at a premium with a securitization. Which that means they aggregate all these loans together, sell them at, you know, 2% or 3% above their value. And whoever bought them is collecting the interest payments. And after so much time, you know, usually it’s like six or seven years, they get all their money back. And then from there on out, it’s, you know, cash flow for them. Well you don’t see that anymore. No one, they’re not doing that. It’s frozen. So that whole product line is now at a Holt and no one’s doing that. I mean, I think the furthest I’ve seen anyone lend right now is five years.
Wendy Sweet (13:04):
Yeah. Right. So, what we’re telling everybody, and I’m actually doing it myself as well, is you need to contact a small local bank and credit union in your area that will do a commercial loan for you on these properties. Don’t expect to run away, run away with cash in your pocket on that.
Jonathan Davis (13:26):
No, no, no, no, no. They’re definitely upping the DSCR requirements.
Wendy Sweet (13:34):
Explain what that is.
Jonathan Davis (13:34):
Debt Service Coverage Ratio. So, you know, does your, how much can your property support on the debt service with so much they can see and so much management fees and other things that get taken out from that.
Wendy Sweet (13:49):
Right. And they’re going to require that you have some sort of experience. They’re probably not going to do that for a brand new buy and hold investor.
Jonathan Davis (13:57):
I had to, I’m getting a couple of my refinance with a local credit union. I had to give them a resume of my experience and why I’m a good candidate to refinance.
Wendy Sweet (14:08):
You’ve got a little experience.
Jonathan Davis (14:09):
Yes, a little bit! But I mean, I was just like, man, you want a resume? Okay.
Wendy Sweet (14:13):
Yeah. I mean they’re serious. They want to lower their exposure too. But they’re the people that are willing to lend it in your company name. Set it up as a commercial loan. Which means it will most likely be renewable every five years. That’s usually what a commercial loan is. They can change the rate on you at that time as well. And if you’re not making money at the end of that five years on something else, you better be prepared to show where you are making money cause they can call those loans due, they’re a little more dangerous if you’re…
Jonathan Davis (14:44):
They can be if you’re, if you’re on thin margins for sure.
Wendy Sweet (14:47):
Right, right. But they want to invest in their community. They want to build relationships with small business people. So that’s really, really, really important. It says, I got a, we have a question that says, Wendy, are you back lending? Yes, yes, yes, yes, yes, yes, yes. We are lending. We started lending again on fix and flips last week. So I’ll tell you a little bit about what we’re doing right now. Ashley. We are a lending up to 65% of the after repaired value. We’re lending 90% of the purchase, a hundred percent of the rehab. And we’re collecting three months worth of interest at the closing table. So before where you were coming with very little money to the table, that’s not available anymore. Not with us, or pretty much not with anybody else. The rates are still the same. We’re at three and a half points on a new loan with a 10.99% interest rate. It’s a 12 month term. So yes, we are lending again. And we have more money to lend now. So we’re really excited about doing that. But again, we are being very conservative on the loans that we’re dealing. And who we’re lending to.
Jonathan Davis (16:02):
Yeah. I mean, we were lending to experienced flippers, experienced, you know, experienced real estate investors. If this is your first loan, we’ll talk to you, we’ll help you through it, but there’s, you know, it’s less likely that we’ll do the deal.
Wendy Sweet (16:17):
Yeah. We, we’re very concerned about, you know, making sure that, that you’re, you’ve got a partner that’s experienced. Or you’ve been in the business in some way, shape or form that’s involved in rehabbing, fixing, flipping and yeah.
Jonathan Davis (16:34):
And just from like our respect of why are LTVs going down, why are these things happening? Well, you know, most people who originate, typically don’t hold their paper. And by their paper means the note that you signed. They sell it. Well, right now, selling isn’t happening. Like it’s, well, very little selling. If you’re able to sell loans, you’re one of the few lucky ones. So people are having to, lenders are having to hold their paper on their books, which means if you have to hold on your books, you need a lower risk profile to hold on your books. Especially right now where things are a little up in the air. So it’s not, you know, it’s not punitive. It’s not, you know, we’re not trying to take advantage of any situation. We’re just like everyone else. Just trying to make sure we’re doing the right thing for ourselves, our employees, our borrowers, our investors, everyone.
Wendy Sweet (17:24):
And truly with the conservation that we have put into place, it not only helps our lenders, but it also helps the borrower. You need to protect yourself because you don’t know what’s coming down the pike. There’s no way to read the tea leaves on this. It’s, you know, this is a black Swan event. It’s something that nobody could have foreseen. And only the strong people who had a contingency plan in place to begin with, you know, expecting some sort of event to happen, which we all should be doing in our businesses anyway. Those people, the ones that are still stepping up to the plate, being able to lend and do that and stay in business as an investor. So, and let’s talk a little bit about investor lenders because right now if you have money to lend, and your self directed IRA. Or cash in the bank that you want to earn some money on, it’s a great time to do it. Right?
Jonathan Davis (18:26):
You’ll get the most risk adjusted returns that you’ve gotten in a long time.
Wendy Sweet (18:32):
That’s exactly right!
Jonathan Davis (18:32):
Wendy Sweet (18:32):
That’s, the risk factor is so much lower at this point because the borrowers are so much stronger.
Jonathan Davis (18:38):
Yeah, I mean, you know, and this isn’t a, you know, an event like 2007, 2008. It’s totally different. But in 2007, 2008, you know, it took a while for those properties to hit their bottom. And when they did hit their bottom, what was it? Probably like 2009 is when they hit their bottom.
Wendy Sweet (18:57):
Was actually 21 months after at first…
Jonathan Davis (19:00):
21 so it could have been 2010 right. Right in there. So they were in, most were probably 20 some severe. We’re in the 30% lower values. Well, if you’re lending at 65 or lower percent, that event, which was real estate related. Where you saw up to 30% reduction. Well, I mean we don’t anticipate that much now if you’re lending below 65%, that’s, you know, you’re at least going to get your money back.
Wendy Sweet (19:33):
Jonathan Davis (19:35):
Principal preservation is, is high.
Wendy Sweet (19:40):
The key to any lender out there. And it should be key to a borrower. You know, you’ve got to preserve your capital as well so that you can continue to do, do more loans. And be able to just, just take advantage, not take advantage of people, but take advantage of the situation that we’re in and be able to pick up deals because they are abundant now. They’re going to become more and more abundant.
Jonathan Davis (20:09):
I mean, you’re going to see in May, June and even July. I mean, lenders are going to be able to defer payments for so long. Because if they don’t have investors, well, they all have investors. So they have to pay, they have to pay them at some point. So then, you know, you’re going to see them either calling those payments, calling the loan due, you’re going to see probably short sales going through. Hopefully not foreclosures. Hopefully you know that they can be smart and avoid that and, and work something out. But you’re going to see a lot of properties coming on in the next few months at better and better prices.
Wendy Sweet (20:47):
You know, our economy has been so good for so long. And there were people and our people who were truly living paycheck to paycheck, even in a fabulous economy. And because of all of this, even with the government help and the money that’s being sent out. Business owners and employees are all going to suffer if they were not set up with some sort of a savings plan. With some kind of contingency plan. If they were in a situation where they’re paycheck to paycheck or rent to rent to be able to pay their mortgage, these people are not going to survive. And they have no choice but to put their house on the market. They may go through foreclosures. They may go through some sort of a take back event where they have to sign their property back over there. They’re going to have. There’s going to be deals out there. And the other thing I want to make sure that everybody kind of keeps in mind is yes, there’s going to be deals out there. Yes, there’s going to be foreclosures. Thank you Don. Yes, there’s going to be all kinds of things going on. There’s a lot of people that are getting ready to go through hardship. Keep that in mind when you’re dealing with folks like that. Understand that your goal is not to make money off the backs of the people who had things that were unfortunate that happened to them. That’s not your point. Your purpose should be to help them out of their situation and it would in turn help you in your situation. So your whole goal should be a win, win, win. Win for your buyer. Win for you. Win for the person you’ve sold the property to. It has to be a win win for everybody involved.
Jonathan Davis (22:44):
Yeah, no, you’re right. I think we’ve said before like, you know, not to, you know, lose your humanity in these times. And, you know, one of my favorite quotes is to, you know, we rise by lifting others.
Wendy Sweet (22:57):
That’s exactly right.
Jonathan Davis (22:58):
You got to keep doing that. We have to help each other. Now, does that mean that you can’t make money? No. That’s not what it means. It means exactly what you said. Where, you know, we’re gonna help people through this and in return for doing the right thing, we hope to make a profit.
Wendy Sweet (23:15):
That’s right. And the other thing too, is in order for you to be able to help other people, you have to stay afloat as well. So make sure you don’t give away too much and understand that, you know, even when the airplane is going down, they tell you to put the face mask on yourself first and then help the person next to you, right? You can’t help anybody if you’re going down too. So, just understand that there’s a happy medium or a good balance in there with what you’re doing. So please remember to like us. To share us. To subscribe. To tell all your friends. Just absolutely take advantage of the information that we’re putting out. We try to, we try to inform everybody we love to teach, right? And we want to be able to share what we know with you. We’ve had incredible people share things with us and just so tell all your friends about us. Also, if you’re interested in learning anything about borrowing money, if you’re interested in borrowing some money, you can go to CarolinaHardMoney.com. Fill out an application. You go right online to the application. Fill that out. We’d love to help you out. There’s an ask the expert questionnaire area there too. Where you can just ask the question. And if you are interested in earning at least 10.99% on your money, you need to talk to us because we would love to be able to lend your money out for you. And again, you can go right to CarolinaHardMoney.com and click on the lender tab.
Jonathan Davis (24:49):
And if you’re lending your own money at a higher rate and you don’t know endorsements on title policies or insurance that you should be having on the property. You know, you’re at a higher risk. So you might want to talk to us about how to mitigate those risks with the correct title insurance, hazard, builder’s risk insurance, whatever it might be. There are definite ways to mitigate your risk as a lender.
Wendy Sweet (25:16):
Absolutely. We’d love to share that information with you because we want everybody to be successful and happy. That’s a great world, right?
Jonathan Davis (25:25):
Yeah, that’s right.
Wendy Sweet (25:26):
Awesome. Thank you so much for spending your time with us today. And we look forward to meeting you again soon.