93 How Bankruptcies Affect Our Fund – Carolina Capital Management
What happens when a borrower files BK? Chapters 7, 11 &13
If I wasn’t going to use it to you as a lender, who should I use?
Bill Fairman, Wendy Sweet, and Jonathan Davis discuss in detail these situations and how it can affect the different parties.
Tune in to learn right now.
Bill Fairman (00:07):
Hello, greetings. Welcome to Passive Income, Active Wealth
Wendy Sweet (00:14):
Well, you started out really excited then you slowed down.
Bill Fairman (00:17):
Well, I had to slow down cause I keep forgetting the name of our show. I am Bill Fairman
Wendy Sweet (00:23):
It’s Passive Income, Active Wealth? No Passive, Active, Income, Passive, Wealth, what is it?
Bill Fairman (00:30):
Passive Income, Active Wealth.
Wendy Sweet (00:33):
Okay, I like that.
Bill Fairman (00:34):
Yeah. Well, it’s been our name for a while, we just haven’t been saying it. So I’m Bill Fairman. This is Wendy’s Sweet and Jonathan Davis at the other end
Wendy Sweet (00:41):
And we’ve had these names for a while, too, right?
Bill Fairman (00:44):
That’s right. We are Carolina Capital Management, we are a lender and if you’d like more information on borrowing money, go to our website, CarolinaHardMoney.com. Click on the borrower tab if you’re an investor that is looking for passive wealth and active income click on the investor tab. Don’t forget to subscribe like and share. This is our ugly question portion of the show. If you have any questions that, they could be ugly,
Wendy Sweet (01:19):
Bill Fairman (01:19):
We have a comment box to the right or underneath, depending on the platform you’re on and put your question in there, we’re happy to answer it.
Wendy Sweet (01:27):
That’s right. But before we get started, I just want to say and I’m spewing personal stuff on the air but I think it’s really important that more
Jonathan Davis (01:37):
As long as it’s not coronavirus, no one cares.
Wendy Sweet (01:40):
Well, It is about the coronavirus. We have some very close relatives of virus, cousins and our uncle who’s 89 and our aunt who’s 87 and cousins. We have a cousin that’s not doing very well right now. So if you’ll lift them up in prayer, we would be very grateful for that. Their names are Joe and Clyde and Joan and we would be really, really grateful for that.
Bill Fairman (02:04):
Megan and Peggy.
Wendy Sweet (02:04):
Yeah. Megan and Peggy are sick too, but they’re on the mend, so to say.
Jonathan Davis (02:12):
Wendy Sweet (02:12):
You know, my husband had it, he started out with COVID feet. Have you ever heard of that? It’s a rash.
Bill Fairman (02:16):
Apparently I sell pictures.
Wendy Sweet (02:16):
Yeah. It’s a rash on your feet. It looked like he had bug bites. He was hollering at the kids for letting the cats in saying that we had fleas in the house nd then he realized that, wait a minute, these aren’t fleas and went to the doctor and had rash. I didn’t know that you could have a rash but you’re going to have COVID rash.
Jonathan Davis (02:35):
That’s just strange.
Wendy Sweet (02:35):
And I mean, it is COVID, but it shows up in a rash form that was kind of wild. So that you’ve learned something new.
Jonathan Davis (02:42):
Yeah, I definitely have, wow.
Wendy Sweet (02:45):
It’s all over the internet. Do you know if it’s on the internet, It’s real.
Jonathan Davis (02:47):
Well, it’s on your husband. I’m sure it is real.
Wendy Sweet (02:52):
That’s true. So after all that excitement,
Bill Fairman (02:58):
Of course your husband is someone who cauterizes his own wound.
Wendy Sweet (03:02):
Yes, he is his own family doctor. Scary man.
Bill Fairman (03:07):
So our first ugly question,
Wendy Sweet (03:10):
We’re going to ask one now, right?
Bill Fairman (03:11):
And I’m going to pause because we’re, again,
Wendy Sweet (03:20):
Bill Fairman (03:20):
The first ugly question is “What happens when a borrower files bankruptcy?” And we have Chapter seven, 11 and 13. So we’re going to talk about some of the differences and what some of your options are.
Wendy Sweet (03:33):
And the reason why we even came up with this question is because we’re actually going through it right now and it’s the second time in 20 years that I’ve been lending that we’ve ever had a borrower file for bankruptcy while they had along with us and it makes things a little trickier but the first one turned out beautiful. We ended up selling the house to the guy after we foreclosed and made, not only all our money, but much more off of it,
Jonathan Davis (04:09):
We got off interested and everything else out of it. Yeah.
Wendy Sweet (04:11):
Which was really, really sweet.
Bill Fairman (04:13):
And sometimes the bankruptcy is to lengthen or,
Wendy Sweet (04:18):
Give him some breathing room.
Bill Fairman (04:18):
Even some brief justice strategy to keep your house from being foreclosed and in some cases, you just get hit with a bankruptcy even though they were paying just fine.
Wendy Sweet (04:30):
Yeah, it wasn’t even late, right?
Jonathan Davis (04:32):
Yeah, I mean, I had a conversation with the gentleman this morning who came in our office, but, you know, there’s, it’s a tactical, a lot of, I’d say a lot, but that people use to give themselves, like you said, breathing room. I mean, once you file for bankruptcy, you have, depending on where you are between 60 and 120 days to prepare your plan to submit to the courts. So you have that time where you don’t have to really do anything, but foreclosure or whatever else is happening, everything’s frozen that no one can foreclose on you, take anything from you, you have that time to prepare your plan. So a lot of people use it, you know, they, I guess, call them like, sham bankruptcies. You file it to give yourself that breathing room and then you get dismissed from it.
Wendy Sweet (05:15):
Yeah. And, but even during that bankruptcy, we, as a lender are still able to charge interest for that loan not being paid. Is that correct?
Jonathan Davis (05:25):
Yeah. I mean, it accrues, I mean, if they don’t pay it, you know, we can’t just, wish we could force them to pay that, but no, it gets to, it’s still accruing. Yeah. I mean, yeah, the interest does not stop occurring just because you’re in bankruptcy.
Wendy Sweet (05:38):
Yeah. So it gives them some breathing room but they’re still on the hook for money that’s out. So that’s really what spawned this question and I thought it would be a great time for us to talk about bankruptcies, the, you know, 7, 11 and 13 and how they work and the good, bad and the ugly of it. So,
Bill Fairman (05:58):
We’ll just an overview, a seven is a total liquidation, so to speak. I only have this much money, these are my bills, these are the ones that are pretty much going to get paid
Jonathan Davis (06:12):
Well, and the court determined that. I mean, it’s secure. The secure debts get paid first and mortgages are given preference on the secured side above automobiles, or, you know, other things that might have secured collateral But the number one is any debts or things or money that you owe to the government is top of list is number one.
Wendy Sweet (06:36):
Yeah. Uncle Sam gets.
Bill Fairman (06:37):
Yeah. You can’t, bankruptcy doesn’t work on taxes. It’s exempt and as a person who is filing for bankruptcy, you can also exempt certain creditors if you want to, you can keep,
Wendy Sweet (06:52):
A car route.
Bill Fairman (06:52):
Your mortgage outside of the bankruptcy.
Wendy Sweet (06:56):
Or your vehicles.
Jonathan Davis (06:59):
Well, it’s things that you need to,
Wendy Sweet (07:01):
Jonathan Davis (07:01):
You know, to create an income for yourself. Yeah.
Bill Fairman (07:04):
And both the 11 and the 13 are reorganizations. You’re basically setting up payment plans, ones that you can’t afford.
Wendy Sweet (07:13):
And 11 is personal.
Jonathan Davis (07:15):
The limit is.
Wendy Sweet (07:15):
Or it’s 11 business and 13 personal.
Bill Fairman (07:17):
11 is the business and 13 is the personal but they’re basically just reorganized. You see that a lot.
Jonathan Davis (07:25):
Now, on the 13, you have 60 months of a reorganize, like reorganizing plan. Is the 11 different? Are you still giving 60 months? Or how does that?
Bill Fairman (07:32):
I’m not sure.
Jonathan Davis (07:32):
Wendy Sweet (07:32):
60 months or 60 days?
Jonathan Davis (07:34):
60 months. So on a 13, you have, it’s a five-year plan that put you back on track.
Bill Fairman (07:41):
I’m assuming that’s up to the trustee on the business side of it. You’re seeing a lot of, especially retail businesses are filing reorganization right now because, you know, essentially their businesses were all shut down and, you know, they already had certain debts and they’re basically trying to restructure those debts. The thing with the 11 and the 13, you’re not trying to keep from paying any of it, you’re just not paying it as originally agreed and you’re getting more time to pay those off .
Wendy Sweet (08:17):
Right. Now in this case, for the guy that’s that filed bankruptcy on this particular property that we have two houses that he has with us and actually a third lot, I think that he hasn’t started building on and those two houses are finished. They’re done, they’re staged, they’re on the market.
Jonathan Davis (08:39):
They look good.
Wendy Sweet (08:39):
Yeah. They’re on the market. So he’s filed bankruptcy. They’re going to be in the bankruptcy. We haven’t had the hearing yet to decide, you know, what their plan is but here they are in a bankruptcy so they’re on the market, somebody comes along, puts in an offer to buy it. So now what is he do to get it out of the bankruptcy? It has to go through a lot of hoops.
Bill Fairman (09:01):
It goes back to the trustee.
Jonathan Davis (09:02):
Trustee has to approve all sales inside the bankruptcy.
Wendy Sweet (09:05):
Bill Fairman (09:05):
And they’ll decide who gets the money first.
Wendy Sweet (09:09):
Yeah. Well, and the lender usually wins on that. I mean, let’s think about, you know, why would he do this? Could it be that there are vendors that he owes on this house too?
Jonathan Davis (09:23):
Wendy Sweet (09:23):
And, you know, it’s up to the trustee to decide, well, the lender gets this much and the vendors get this much of whatever is sold, right?
Jonathan Davis (09:33):
Could be, yeah. I mean, it comes down to, you know, the issue is like a bankruptcy, it’s an interesting thing. So if there’s vendors on the, if the vendors have taken out a M and M Lein, Materials and Mechanics Lien on the property, the only way to extinguish that is through foreclosure or if the trustee reorganizes that debt but if it’s secured to the property, we’d have to have probably an attorney weigh in on that to see whether a trustee could remove that or not. I’m not sure.
Bill Fairman (10:04):
Disclaimer: none of us are attorneys.
Wendy Sweet (10:08):
Yeah, we don’t even play one on TV
Jonathan Davis (10:11):
No, we defer to the professionals on that, but nonetheless, we have to deal with these issues so it’s worth talking about.
Wendy Sweet (10:17):
So the answer is it depends.
Jonathan Davis (10:19):
Bill Fairman (10:20):
And you need to have a bankruptcy attorney. I mean, you can talk to a real estate attorney and they may have some general understanding of the bankruptcy laws but they don’t really focus in on that so you’d have to specifically get with a bankruptcy attorney to figure it out, all the ins and outs.
Wendy Sweet (10:36):
That’s right and there’s a lot of good ones out there. We use Hutchins law firm and they are pretty much a foreclosure mill, is how I refer it to them. That’s what they do, that’s what they focus on. I think they’re based out of Fayetteville.
Jonathan Davis (10:47):
I think you’re right. Yeah.
Wendy Sweet (10:49):
I know they have offices in Charlotte too but I think they’re based out of Fayetteville but I mean, they know how to run it through that. They’re in North Carolina.
Bill Fairman (10:59):
Well, I think they’re in South Carolina too, right?
Wendy Sweet (11:00):
I don’t know, I don’t know if they are or not.
Bill Fairman (11:00):
I think they are licensed in both States.
Jonathan Davis (11:05):
But yeah, I mean, on the bankruptcy side, I mean, like we don’t see too many do that and the primary reason is we’re lending on investment properties to businesses so you don’t, we don’t see a lot of bankruptcies on the business side because a lot of these, whether by accident or by purpose, they are special purpose entities. They open this LLC to buy this property and when you have a special purpose entity, it’s a single asset special purpose entity. It becomes, what’s known as a bankruptcy remote entity where you can, it’s easier for the lender to get that asset removed from the bankruptcy because it’s the only asset in the LLC.
Bill Fairman (11:59):
So that’s another thing. If you’re doing private lending yourself and they’re doing it in the name of a business to get an idea, to do it, run a check on the business and see if there’s any other properties in the name of that particular business you’re lending to, because somebody could, if I’ll give you another example, you have a short term, excuse me, a commercial loan with a balloon note and you have more than one property in the LLC and you’re trying to, and you can’t get refinanced because were, you know, the bank is gonna come, is calling the note due and no one will refinance you on that particular property, how do you protect that property or give yourself more time to get it refinanced so you can get it out from under them. Well, you filed for bankruptcy in that LLC and guess what? All the properties in that LLC now are in bankruptcy, whether you were paying them on time or not and unfortunately, if you have more than one property in there as a lender, if there’s more than one property, somebody else filing foreclosure on one property or calling the note due on one probably could trigger the bankruptcy on your property. So you might want to consider only lending to people that would set up maybe a trust for each property or a single LLC that’s going to hold the property. That might be a good thing.
Wendy Sweet (13:30):
That’s how I buy property is in a trust.
Jonathan Davis (13:34):
And trust, I know land trusts are very common to buy property and a lot of people use those, especially in Florida. I see a lot of land trusts in Florida.
Wendy Sweet (13:43):
Yup. You know, what I think is kind of unusual too, is, you know, how much money do you need to have to protect before you file bankruptcy? I, you know, back in 2007, 2008, 2009, like the bankruptcy courts were slap full. Everybody was filing bankruptcy and I have had run across people who filed bankruptcy and they had like $20,000 in credit card debt or, you know, just minimal stuff that they were filing bankruptcy for, it didn’t make sense. So, what do you need to do? I mean, what, how much money should you really have to file bankruptcy? What kind of assets does it make sense to do that? Otherwise the attorney’s just getting, you know, a lot of money.
Jonathan Davis (14:40):
Well, maybe, yeah. I think it depends for everybody, you know, 10,000 to one person is nothing and to another person it’s everything so I don’t know that answer. I mean, I say if you’re running a business, you know, usually you’re filing bankruptcy because you don’t have any cash and you do have a lot of credit card debt and you have mortgage debt and you don’t have the liquidity to, you know, pay for it. So you want to slow things down and reorganize it if you can so I don’t know what’s too little or whatever, but, you know, that’s, I think everyone has their own situation
Wendy Sweet (15:17):
Threshold of what they think it is, but gosh, but what that did is this person that they didn’t put their house in it, they didn’t put their car in it, they just put their credit cards in it and what that did is it kept them from being able to buy a house for five to seven years because they filed bankruptcy on a $20,000 credit card payment.
Jonathan Davis (15:37):
I mean, my thought just, and I was like, if you had any equity in your home, just take out a HELOC or, you know, and pay off your credit cards that way.
Wendy Sweet (15:47):
You can borrow money from family and friends.
Jonathan Davis (15:49):
Yeah, $20,000 to me.
Wendy Sweet (15:51):
If you had to do that.
Jonathan Davis (15:52):
When you become jaded it as lenders, $20,000,
Wendy Sweet (15:55):
Jonathan Davis (15:56):
I can go find that tomorrow but I think for most people, 20,000 is a lot of money that is, especially when you’re paying 22% interest on it.
Wendy Sweet (16:05):
That is true. He was talking about a meeting we were in yesterday. I thought, Oh, I’m closing a loan on Friday. I need to find $58,000 and everybody looked at me like, it’s crazy. I’d do it.
Jonathan Davis (16:17):
My wife always, you know, she lashed because I, you know, say the same thing like, Oh yeah, I want to buy this property and I need to find X amount of money by, you know, next week. She’s like, what? She’s like, I just, I couldn’t sleep if I had to, you know, fund that. It’s like, Oh, don’t worry, we’ll find it.
Bill Fairman (16:34):
Let’s go back to the getting a HELOC pay off your credit cards, never knew that.
Wendy Sweet (16:40):
Bill Fairman (16:41):
Because now your credit cards have become a lien against your house.
Wendy Sweet (16:48):
Well, that’s not.
Bill Fairman (16:49):
Yes. So if you’re the type of person that can’t get a handle on their spending.
Wendy Sweet (16:54):
Well, you should put them on an ice block.
Bill Fairman (16:58):
You just added more debt to your home. If it’s an a credit card, really, for the most part, the only thing that credit card companies are going to do is say,
Wendy Sweet (17:07):
Bill Fairman (17:07):
Jonathan Davis (17:08):
Yeah. Your credit score will go down, you can’t buy things in the future.
Wendy Sweet (17:12):
Or get a HELOC.
Jonathan Davis (17:12):
Or another house.
Bill Fairman (17:12):
I mean, the, the advantages is your interest rate is going to be lower.
Bill Fairman (17:17):
A lot lower.
Bill Fairman (17:19):
You’re going to be able to deduct that interest off your tax returns but you continue to add that to your house. You’re limiting your exit strategy if you’re one of these people that again, can’t control their credit card spending. So it’s something to think about.
Jonathan Davis (17:35):
That’s a good point
Wendy Sweet (17:36):
And credit cards too. I mean, I want to get back to the chapter 11 stuff a little bit more about.
Bill Fairman (17:43):
Are you saying we’re drifting?
Wendy Sweet (17:43):
But I do have to mention this about credit cards that they are, you know, a credit card makes you a slave, there’s no doubt about it. And, you know, any loan makes you a slave to the lender. It’s in writing, it’s in the Bible, it’s in writing but and I’m not saying, but, or however, to the Bible, it’s real.
Jonathan Davis (18:06):
So the Bible is real?
Wendy Sweet (18:07):
There’s death so far. So the, the thing that I think is important for us to understand is that there’s positive debt and there’s negative debt and a positive debt is debt on something that’s going to bring you income back. That’s good.
Bill Fairman (18:21):
It’s not even debt, it’s now an asset.
Wendy Sweet (18:25):
And it’s an investment.
Bill Fairman (18:27):
Yeah, you’ve turned that debt to asset.
Wendy Sweet (18:27):
Negative debt is like your car, that’s not bringing you any kind of, you know, investment back. It gets you from point a to point B but gosh, you’ve even paid cash for a car to do it. Who cares what it looks like? Says the girl with over a hundred thousand miles on her car and we’ll drive it till there’s 300,000, you know, that’s bad debt.
Bill Fairman (18:49):
It could be a piece of junk but it could still look good.
Jonathan Davis (18:52):
Was it Dave Ramsey who says the cheapest car to drive is the one you already own?
Wendy Sweet (18:56):
Yeah, that’s for sure. Even when it breaks down, it’s still cheaper to do that. So, but credit card debt can really get you in deep, deep due to and especially if you’re falling for that system of what they called seed money where you’re getting the zero interest credit cards,
Jonathan Davis (19:14):
Wendy Sweet (19:14):
And you’re yeah, you’re stacking and you’re getting 10 on this one 10 on this one, 10 on this one and Oh, look at all this money I have to invest. Well, let me tell you that one year comes around real quick and then all of a sudden you owe, you know, 16, 18% on all these credit cards and now your credit is trashed because your limit is going to be maxed out so it it’s just a dangerous, dangerous place to be, be careful.
Jonathan Davis (19:42):
Yeah. Like financial wisdom that if we can impart any, I guess
Wendy Sweet (19:49):
Was that an oxymoron?
Jonathan Davis (19:50):
Financial wisdom, I hope not. So like Wendy said, you want to create an asset that’s income producing. We all want to buy things. We all, you know, we are a consumer driven market, like buying things as part of our society, part of our entire system here so that’s what happened. If you’re using credit cards to buy things, your TV, your shoes, all these things, that’s an issue because now you’re, you’re taking on high yielding around, high interest, paying debt to buy just things. If you,
Wendy Sweet (20:30):
Go down in value.
Jonathan Davis (20:31):
Yeah, they have no value after day one. You know, so, if you buy it, if you save up your money and buy an asset, like let’s say we, you buy, I don’t know, a house or a rental house and it’s producing net net cash flow to you 2 or $300 a month. You take that 2 or $300 and you can buy things with it that you want because now you have an asset that’s producing this and it’s no longer a liability, really. You know, you’re not creating a credit card liability.
Wendy Sweet (21:02):
Bill Fairman (21:03):
Now, keep in mind, especially with COVID people don’t want to deal with cash. You’re going to use that credit card a lot more than you used to, just have the discipline to pay the thing off at the end of the month.
Jonathan Davis (21:14):
Well, I’m saying don’t use credit. I have credit cards. I mean, we all have credit cards.
Wendy Sweet (21:19):
I mean, we went over our financials yesterday and, you know, we were going through a timeframe where we were just making minimum payments on the credit card. They’ve got huge lines on them but we were making minimum payments on it and then we realized how much we were really paying in interest. So we said, you know what? We’re just paying them off every month. That’s what we’re doing, paying them off every month. We compared what our interest savings was a year today, based on what it was last year,
Jonathan Davis (21:48):
We paid 60% less in interest this year as supposed to last year.
Wendy Sweet (21:52):
Yeah. That was a lot of money. It was a lot. I was really, really shocked. So, you know, interest is, we love interest, that’s how we make money. We don’t like to pay it, we like to receive it and that’s the way you should be thinking as well when you’re doing that so let’s get back to chapter 11 is the business one, right?
Jonathan Davis (22:13):
Wendy Sweet (22:13):
So one of the things that doesn’t scare us when we see somebody filed a chapter 11, we want to see how they’ve paid that out. We want to see their character through the chapter 11. It’s a whole lot easier to throw up your hands and walk away and you can do that.
Jonathan Davis (22:33):
That’s more of a seven.
Wendy Sweet (22:34):
Yeah. And your credit score will go back up pretty quickly when you do that too but when you’ve shown the character of doing what you can to work off who you owe and what you owe, that makes us feel a whole lot better because, you know, we don’t want to keep you down. We want to give you an opportunity to continue to grow and expand and be in business and look toward the future and showing us what your character is, makes a big difference to us.
Jonathan Davis (23:04):
Well, and one of the biggest things when we were talking about bankruptcy and I think would be, you know, a remiss, if we didn’t mention this would be communication. You know, if you are in communication, if the situation that Wendy was bringing up with the borrower, we had no communication on that.
Wendy Sweet (23:21):
Yeah. And we’ve reached out three or four times, still nothing. Crickets.
Jonathan Davis (23:26):
We’ve been in situations where, you know, a borrower calls us and says, Hey, here’s my situation, here’s what’s going on, here’s what I have to do to protect myself, my family, you know, whatever it is and we formulate a plan with them that protects their interests and also, you know, protects ours and we work together. There is absolutely ways in bankruptcy to work together with the lender. It’s not, you know, it doesn’t have to be a versus situation where you versus them, it can be together.
Wendy Sweet (23:59):
Yeah. And that’s the way it should be. What?
Bill Fairman (24:02):
Versus, I like that.
Wendy Sweet (24:05):
Bill Fairman (24:06):
That’s not a big word, like we usually have once a week.
Wendy Sweet (24:09):
But it’s used uniquely and I think there should be points given out for that.
Jonathan Davis (24:15):
So Sarah is making fun of me. I have a new word that I like to use and she doesn’t like it.
Wendy Sweet (24:21):
What’s it called?
Jonathan Davis (24:22):
Wendy Sweet (24:23):
Okay. I gotta have a definition on that one.
Jonathan Davis (24:26):
Basically just like moody subject to like, you know, like I would say that most of the contractors are very mercurial. They, you know, one day you get them and they’re all happy and then one day you get them, it’s like the sky is falling. You know, you never know what their mood is going to be.
Wendy Sweet (24:41):
That’s awesome. Okay. So Myron has a question for us. Do you all lend to people out of bankruptcy? Yes. Yes we do.
Bill Fairman (24:49):
Well, it depends.
Jonathan Davis (24:52):
We do. Usually we’re looking for several years removed from the bankruptcy.
Bill Fairman (24:58):
And that’s what it depends on since the bankruptcy.
Jonathan Davis (25:03):
Yeah. It’s, you know, if you just got discharged from bankruptcy, probably not because we don’t have a credit history from you getting out of that to look at and say, okay, he went, he or she went through this and now they’re on the right track. Now they’re doing what they’re supposed to be doing. All we see is, Hey, you’re out of this
Wendy Sweet (25:22):
Unless you’d had some of your stuff out of it and we’ve seen a track record on that.
Jonathan Davis (25:25):
Wendy Sweet (25:27):
It’s a situation
Bill Fairman (25:28):
Fair things happen to good people all the time. We look at things globally. If you’ve been out for a short period of time, you don’t really have that re-established track record. If you have a business partner that does have a good track record, we’re going to the good stuff offsets the not so good stuff and we look at it globally.
Jonathan Davis (25:47):
Typically you’ll see, like, I mean, not to stereotype but a lot of contractors, developers have to file bankruptcy, especially, you know, from 2007 to 2010. What they do to get back in it is they build a business relationship with somebody else who is a stronger financial partner and they have the experience so now you bring in both. You have experience on one side and finances on the other, you team up together, we do those deals all day long. I mean, we like both of those. We want experience and strong financials.
Wendy Sweet (26:21):
Yeah. Plus if you have a lot of money in the bank, that makes us happy.
Bill Fairman (26:26):
Well, if you had a lot of money in the bank, you probably didn’t need for brokers.
Wendy Sweet (26:30):
Well, this is after they’re out. Smarty pants,
Jonathan Davis (26:33):
But we also know that I can have a million dollars in the bank today and zero tomorrow.
Wendy Sweet (26:40):
That’s right. We’ve seen that too.
Jonathan Davis (26:41):
We’ve seen that happen, but yes, to answer your question, we do lend out of bankruptcy. There are a lot of nuances to it and if you have a situation, we would love to talk with you and see if it’s something that we can make work.
Bill Fairman (26:56):
Wendy Sweet (26:58):
I love it.
Bill Fairman (26:58):
Are we done with the bankruptcy?
Jonathan Davis (26:59):
I think so.
Bill Fairman (27:01):
And we’ve beaten that dead horse.
Wendy Sweet (27:04):
Well, I don’t think it’s a great topic.
Bill Fairman (27:04):
Wendy Sweet (27:08):
Are we ready for our next question?
Jonathan Davis (27:10):
When I first started in this industry, I guess, Oh, he’s already on it, man! He’s on it. I’m going to say when I first started here, I knew nothing, not here at Carolina, but in the real estate business, I obviously knew nothing about it and the first time I heard someone say, Oh yeah, you know, so-and-so BK. I was like, they’re going to burger King? What I don’t know is BK is what they shortened abbreviation for bankruptcy that people use. So if you hear BK, it’s not always Burger King.
Bill Fairman (27:38):
Okay. So before this question, we are Carolina Capital Management and we do make loans. So if you’d like to find out information on our lending, go to Carolina Capital, no. CarolinaHardMoney.com.
Wendy Sweet (27:52):
Bill Fairman (27:52):
Click on the borrower tab. If you’re an investor looking for passive returns, click on the investor tab. Don’t forget to subscribe, share and like.
Jonathan Davis (28:01):
Hit the bell.
Jonathan Davis (28:01):
And then if you have any questions, please hit the comment section.
Wendy Sweet (28:06):
Hit the bell. I like that, I wonder what the bell is.
Jonathan Davis (28:06):
I don’t know.
Bill Fairman (28:06):
What is the bell? Where did the bell come from?
Wendy Sweet (28:06):
Yeah, ding dong! Okay so, the question is, if I wasn’t a, this one that really makes me scared. “If I wasn’t going to use you as a lender, who should I use?”
Bill Fairman (28:20):
Jonathan Davis (28:22):
That’s a deep question.
Wendy Sweet (28:24):
It’s a very deep question.
Bill Fairman (28:25):
Only if your deems are.
Jonathan Davis (28:25):
Exactly. And where you are. You know, geography, what your needs are, all those things.
Wendy Sweet (28:32):
So we are an incredible lender, we’re good at it. We’re easy to work with and we’re trustworthy
Bill Fairman (28:41):
And there’s other good ones out there.
Jonathan Davis (28:43):
Wendy Sweet (28:43):
There are a lot of other people that are the same and that’s what I think is really important for people to know is, you should never just have one lender that you work with. You should have a multitude of people that you’ve built relationships with that you can go to for financing. Now, we’d like to be your only hard money lender but there’s other good hard money lenders that are out there and I mean, let’s, throw some out. I think Boomerang is a good company to work with.
Bill Fairman (29:19):
Yes, they are. And again, but they don’t lend nationwide, they’re only out of Arizona so they do a lot of Texas, California, Arizona, a few other States but they’re generally going to be in the Southwest and South.
Wendy Sweet (29:36):
Jonathan Davis (29:36):
Yep. I would say another Texas lender that I would go with would be Investor Alone Source. That’s Tom Berry’s.
Wendy Sweet (29:43):
Oh yeah, Tom Berry’s company is really good.
Jonathan Davis (29:44):
Yeah. Investor Loan Source. I think he might do some other States surrounding Texas.
Wendy Sweet (29:49):
Jonathan Davis (29:49):
And I think they’re trying to advance a little bit further out but definitely in that area, investor loan source would be a good one.
Wendy Sweet (29:55):
And then in our area here, Lima One. Lima One’s a good company. They’ve been around a long time.
Bill Fairman (30:01):
They lend in most state.
Jonathan Davis (30:04):
I think they’re nationwide.
Bill Fairman (30:04):
They are headquartered in Greenville, South Carolina.
Jonathan Davis (30:07):
And I would say if you’re in Georgia, like Atlanta area, Atlanta Private Lending is another good one. I know James Melton is the president of that company. I’ve been friends with him for, I don’t know how many years he’s a good guy and it’s a good company to work with.
Wendy Sweet (30:22):
That’s awesome. Let’s see, how about Lending One?
Jonathan Davis (30:26):
Bill Fairman (30:28):
Yep. I know they’re based out of Florida.
Jonathan Davis (30:30):
They do nationwide too, don’t they?
Wendy Sweet (30:32):
They do, they absolutely do.
Bill Fairman (30:34):
They have a really good long-term multifamily as well.
Jonathan Davis (30:40):
I think it’s who I’m working with.
Wendy Sweet (30:40):
That is who you’re working with, you’re using them, Jonathan.
Jonathan Davis (30:43):
I’m trying to, I’m refinancing some two properties with them.
Wendy Sweet (30:46):
They do a long-term program that we like and there’s not a whole lot of people out there doing that but they definitely do that. I think Lima One is doing a rental program. I think Lending Home is doing one as well.
Jonathan Davis (31:00):
Lending, I can’t remember if it is Lending Home,
Wendy Sweet (31:02):
Lending Home is the one that’s out in California.
Bill Fairman (31:06):
Yeah. But lending one or I’m sorry, what is it called? a home?
Wendy Sweet (31:13):
What are you talking about? I mean, like what’s what city, what state, it’s hard to be old.
Bill Fairman (31:18):
Nationally, I’m just trying to, oh never mind. Will get back to you in a minute.
Jonathan Davis (31:21):
Lending Home is who I’m using.
Wendy Sweet (31:24):
Yeah, Lending Home.
Bill Fairman (31:27):
So it’s a home. So Lending Home is, they have a really good web platform too. It’s like filling out in turbo tax,
Jonathan Davis (31:32):
But it was super easy. I went on there within five minutes, I had it all filled out. Really easy.
Bill Fairman (31:37):
Again, your national lenders, aren’t going to be able to do stuff out of the box, like a regional lender and keep in mind, most of your national lenders aren’t balance sheet lenders.
Wendy Sweet (31:52):
And what does balance sheet mean?
Bill Fairman (31:55):
Means they own their own money. Well, they don’t really own it but they control it. When you’re a balance sheet lender, it’s either your money or you have an investing pool that you’re controlling where,
Wendy Sweet (32:09):
Which is what we are.
Bill Fairman (32:09):
If you’re not a balance sheet lender, you’re selling it to investors on wall street.
Jonathan Davis (32:16):
And if you don’t know if the lender you’re working with is or not, just look at that time period during March to July where they lending, if they weren’t,
Wendy Sweet (32:27):
They don’t have their own money.
Jonathan Davis (32:28):
They don’t have their own money
Wendy Sweet (32:30):
That’s right. That’s exactly right. We had like no competitors for a long time.
Jonathan Davis (32:37):
For three to four months, It was no one out there. It was great.
Bill Fairman (32:39):
Well, You know, it’s difficult when you’re a national lender because you don’t have feet on the ground in every area.
Wendy Sweet (32:47):
But the benefit to that of being a national lender too, is their rates are really low but it’s low because they’re using that wall street money.
Bill Fairman (32:56):
You have to fit in the box. If you don’t fit in the box, you’re not getting a loan. So it’s no different than, you know, going to Ford and buying a car or you’re going to an assembly line and everything and you know, all the parts are the same and everything is the same so it does keep the cost down. When you’re dealing with a regional lender, everything stands on its own so there’s more eyes on each individual loan so there’s more work involved.
Wendy Sweet (33:21):
Right. So if you get a unique property or you’re flipping up a house in an area that that is not like a bigger city, like Charlotte, maybe you’re flipping a house in a smaller town like Rock Hill or let’s say a con over as opposed to Charlotte. Those smaller towns that are Mocksville, even we’ve ran into one in Mocksville, which is just outside of Winston. You know, even we were having trouble finding an appraiser in this area. So some of the national companies won’t lend there because they’re just not gonna tell you.
Jonathan Davis (34:02):
They look for, typically they look for 200,000 population inside that County. If there’s not 200,000 people in whatever County that property is, they usually won’t lend.
Wendy Sweet (34:12):
Right. Which is smart when you’re national.
Bill Fairman (34:14):
See, here’s something to think about going forward. There are going to be a lot more opportunities available outside of your major population centers because people, again, and we’ve been beating this for awhile with the way COVID is, it is allowing people to work outside of the office so people can move practically anywhere as long as they have a good internet connection. That said, you’re going to have a lot more people willing to move to the smaller towns and your national lenders are going to have trouble lending in those areas. So if you know, it’s not going to be in a major population center, I wouldn’t even bother. I’d go straight to someone that is lending in that area specifically and as you know, that’s basically their home. They don’t have any problems because they understand that market.
Jonathan Davis (35:01):
If I had to break it down, I would say, you know, every funding source has its pros and cons. If you want to acquire a property quickly, your best bet is hard money or private capital from, you know, a mom and pop or something like that, that’s going to be your best bet to acquire the property. If the property doesn’t move along as fast as you wanted it to on the repositioning, then I would go to a larger lender to do a bridge loan on it and then once you get it to,
Wendy Sweet (35:32):
Explain what a bridge loan is.
Jonathan Davis (35:32):
What a bridge line is a loan is, you know, they’re just bridging a gap so you’ve either. So like, multi-families is probably the easiest one to talk about. You acquire the property and you want to put some money into it to reposition it and make it, you turn it from a C level asset to a B level asset. So you’re going to increase rents by, you know, and, you know, to justify the rent increase, you’re doing X amount of work. Well, you get in there and you acquire the property with a hard money lender and they give you, I don’t know, a 12 month loan and you get in there and within like seven or eight months, you’re realizing you’re not going to be done and ready to go to long-term agency debt in 12 months, you know, inside 12 months. So the goal then is to get the occupancy to a certain level, typically you wanted above 60%. If you can get it there, you can get bridge debt, which is lower interest rates and higher leverage than hard money. Once you get it there, that gives you that time to finish out what you need and then move it to the agency debt so there’s many different types of capital and I think, you know, one of the things that we like to do here is educate people on that. We are not your long-term lender. We’re not who, we’re not a five, 10 year lender, we are short-term. What we specialize in is getting the property, acquiring it quickly. We know how to do that. That’s where you can utilize hard money is, you know, and that’s why you can pay more on the hard moneys because it lets you move quickly, which lets you negotiate the purchase price, which gives you, you know, lower buy-in cost to justify the higher interest rate and then once you get moved through that, you can, you know, move down the steps, you know, to get it to longterm and that’s what I would do. I would look at what is it I’m trying to accomplish and how do I get there and then utilize each money source accordingly. You know, I think a lot of people think, I just want to go in and get this property with the lowest cost possible, I want to pay 4% right now, that doesn’t happen. You know, it doesn’t. So you have to, you know, and if it does, it takes 90 to 120 days to get through that process. So, and then you’re, if you’re going to take that long, you have no negotiating power. You’re going to pay market value for it.
Wendy Sweet (38:02):
Well, you know, another thing that I think is an important question for investors to ask themselves and ask the lenders that they’re talking to is if this is a house, let’s say you’re going to fix and flip this house and we all know it’s a short term loan. Well, one of the things that I think rehabbers make, the biggest mistake that they make is that they’re looking for the lowest interest rate and that is not the best deal. Do you need to really be asking how much money am I bringing out of my pocket when I go to this closing table? That’s big. That should be really important to you. The interest rate, I mean, it doesn’t matter if you’re paying 15% or if you’re paying 7%, it doesn’t matter. You’re only making that payment for a few months. You should only be making them pay it for a few months.
Bill Fairman (38:52):
If you know, it’s going to take you more than a year, then you might want to consider it,
Wendy Sweet (38:57):
Then you care about the interest rate. But it’s really, how much money are you bringing out of your pocket to make it happen? And so points are an issue, you know, what are some other fees that are charged? You need to talk about that.
Bill Fairman (39:08):
Let me add this real quick. I know we’ve gone over this many times but I just want to say it.
Wendy Sweet (39:12):
He wants to beat the horse.
Bill Fairman (39:12):
We do interest only loans and they’re annualized so it’s based on 12 months. So if you had a 12% interest rate and you paid six payments, you’re only paying 6% interest. If you made three payments, you’re paying 3% interest is not the key driver here.
Jonathan Davis (39:33):
And those are the nine annualized numbers.
Jonathan Davis (39:36):
Yeah. That’s so true.
Jonathan Davis (39:38):
That’s real cash out of your pocket. So yes.
Wendy Sweet (39:40):
Yeah. The other thing, like a great example, I got a call from a gentleman who wanted to do a loan and he was talking to another company, company that we know and like, we know this company well and you know, we were charging, three points and 10.9%. And he got a deal of what he thought was going to be zero points and 8% interest. I said, well, you need to take that out. You are a fool. You know, I wouldn’t even question that, I’d jump all over that. Well, a couple days later, he calls back and says, well, it wasn’t what I thought it was because that the lender didn’t have all the information. It was a quad if I remember correctly and he was gonna go ahead and have to buy it cause he couldn’t close it in time. He couldn’t close the deal at time on.
Jonathan Davis (40:34):
And then they’re gonna have to refinance it.
Wendy Sweet (40:34):
And then he was going to refinance it with either our hard money loan or their hard, the 8% loan but what he wanted was to get some cash back out of that purchase because that was $120,000 purchase. So we were going to give him 50% of his purchase and then a hundred percent of his rehab so he would get some of that money back, the company that he was going with at the zero points and 8%, wasn’t going to give him any money out of his pocket so even though that interest rate would have worked and it would have been a great deal, he needed that cash back so that he could go on and do other things and, you know, continue to grow his business so it just really depends on what your situation is, you know, what you need the money for, what you’re doing elsewhere. You need to just quantify and qualify the other companies you’re working with because everybody will serve a purpose and, you know, we say this, we’ve said it a million times, we’ll say it a million more times. Our goal as a hard money lender is to get you to a point where you don’t need us anymore, which is kind of stupid but that’s really what we are. We serve a purpose for a certain type individual, for a certain period of time. There’s a season for using hard money lenders in your life. You want to get to a point where you’re not needing hard money all the time and you have private money that you can go to, which is going to be much cheaper going to somebody that’s a private lender or maybe you’ll get a bank that will give you a line of credit or even better, you’ll have your own cash and you’ll be able to self-fund your own stuff. You know, maybe that’s what you want to do.
Bill Fairman (42:23):
So when you read something that says rate starting at.
Jonathan Davis (42:30):
I love that.
Bill Fairman (42:30):
That is the least risky, the lowest LTV, no cash out refinance kind of stuff,
Jonathan Davis (42:36):
I thought it meant, rate starting at means you could never get this.
Bill Fairman (42:41):
It’s no different than when we sent out the advertising saying that did you want to see Bill and his bikini body? In our broadcast last week by the beach, it never said see Bill in a bikini
Wendy Sweet (42:59):
And it was covered up. Thank God.
Bill Fairman (43:02):
All right, folks, once again, we are Carolina Capital Management. Our website is CarolinaHardMoney.com. If you’re a borrower interested in borrowing money, click on the borrower tab. If you’re an investor looking for passive returns, click on the investor tab. Don’t forget to share, like, and subscribe and if you still have other questions, you can still put it in the comments. We won’t answer it but we have people that actually go back afterwards and scan the comment sections.
Jonathan Davis (43:34):
Bill likes people.
Bill Fairman (43:34):
And we’ll add those to our next questions. Yes. My people have people and they look at the comments.
Wendy Sweet (43:41):
I think probably an ugly question for next week is, and I’m going to hold to this is that we need to give out the questions that you should be asking when you’re talking to a lender, whether it’s a hard money lender or a private money lender.
Bill Fairman (43:57):
Oh, by the way, we’re going to put a list together of some lenders that we like in the space and we’ll have that posted and we’ll let you know when it’s out
Wendy Sweet (44:05):
Yeah, we can absolutely do that because there’s a lot of people that are really good, they do what they say they’re gonna do, they’re trustworthy, they care about you as a borrower, they care about their reputation. They’re people that we know like and trust.
Jonathan Davis (44:27):
And typically those people who care about their reputation are balance sheet lenders who have their own money. They care about the reputation. Most of the people who perhaps don’t care as much are those originators who are just originating for larger shops. When you have your own money and it’s your own reputation, it’s your livelihood, you really care about your reputation.
Wendy Sweet (44:49):
Yeah. You know, another thing we could do is, you know, the top 10 other funds we would recommend would be another good one.
Bill Fairman (44:57):
Or why is Bill so tan? It’s cause he was at the beach next week. All right, guys, it’s a pleasure. Thank you for being on the show, which the name of the show is Passive Income Active Wealth.
Jonathan Davis (45:10):
A lot of the passive something,
Bill Fairman (45:18):
Passive doesn’t necessarily mean slow, just feels.
Wendy Sweet (45:20):
Yeah, passive means you don’t have to work for it.
Jonathan Davis (45:23):
You just talk slow.
Bill Fairman (45:28):
Passive Income, Active Wealth! You guys have a great week.
Wendy Sweet (45:29):
Bill Fairman (45:30):