Welcome to Lending Resources Group Inc. - Your Real Estate Financing Experts
Our client is a businessman and an investor who lives in Massachusetts. He wanted to buy an investment property rental in Florida. That seems reasonable enough…doesn’t it? OK, so he goes shopping with a realtor in Kissimmee, FL and finds a property he wants to buy with his IRA. Of course, he needs a non-recourse loan if he wants to leverage his money and not pay all cash. Once he found the property, Lending Resources sent a written profile of it to the bank for a pre-approval and got the ‘green light’ to move forward.
In his case, the investor had established an LLC to hold the IRA that would own the property. We obtained the necessary LLC paperwork along with numerous other papers required and pursued our course of action to obtain the loan. About 1 month into the process, we discovered that the name of the LLC, while approved by the state of Massachusetts, where the investor lived, was not valid in Florida, where the property existed. That LLC name was already being used by another entity in Florida. This created several issues and resulted in a time extension of at least an additional month.
The investor and his LLC Manager now had to scurry to change the name on his asset statement with his custodian, Equity Trust; had to change the name on his agreement with Equity Trust; had to open a new bank account at Bank of America which was the original holder of his IRA funds to show where the funds originated from under the correct LLC name; had to change the LLC name on the loan application with the lender; and had to change the name on the purchase contract and get all parties to re-sign. In addition, we had to obtain Certificates of Good Standing for the LLC from both Massachusetts and Florida. This was on top of all the usual requirements of getting the appraisal, title report, property survey (now being required by the bank), etc. Needless to say, this LLC name change plus obtaining the Certificates of Good Standing from both states set us back a good month or more.
Nevertheless, the investor and his LLC Manager didn’t lose their cool. They went about working closely with Lending Resources to meet all the loan requirements and we closed the loan successfully with the title company’s diligent assistance. The sellers were in Europe, the buyer was in Massachusetts, the LLC Manager was in New Hampshire, the subject property is in Florida (as stated), the custodian is in Ohio, and yet, the title company was able to coordinate all signatures and obtain all paperwork back to the bank within 3-4 business days in order for the loan to be funded and closed. Halleluyah!!
Here’s a challenge for you, the IRA investor - refinance the rental property you purchased for all cash through your IRA and withdraw enough funds to make a down payment for the purchase of another IRA investment property. The only issue is that the house you need to refinance in order to get the down payment for the purchase is rundown and not in rentable condition.
To his credit the investor set up an LLC with himself as the managing partner so he was able to sign all papers having to do with these two transactions including the purchase contract, loan application and loan documents. He didn’t have to depend on a 3rd party to do this except the usual signatory required by the trust custodial company. This saved a lot of time when it came to having to close these 2 transactions in 3 days.
The investor hired Lending Resources Group (LRG) to obtain these loans for his IRA investment properties. Fortunately, LRG has a long standing relationship with the lender that was considering these loans. They normally would not allow an IRA refinance to be completed until the renovation was finished and in satisfactory condition to be rented. In this case, LRG negotiated with the lender to allow the refinance to occur in order to enable the investor to obtain the funds in the ‘nick of time’ to meet the deadline for the purchase of the other house.
The investor tried to renovate his IRA owned property as best as possible to the lender’s satisfaction. However, he ran out of time to complete the renovation when it came to being able to comply with the terms of the purchase contract and satisfy the bank simultaneously. LRG empahsized the investor’s efforts and his completion of most of the work requested by the bank to be done. The bank was also very aware of the investor’s deadline for making the purchase. LRG suggested that the bank require the investor to escrow enough funds for completion of the renovation to satisfy them and allow the refinance to be consummated.
The net result was the investor met his deadline to perform on the purchase of the other property, because all the dominoes fell into place with no time to spare. The lender sent the loan documents to the title company in time to be signed, the escrow officer at the title company made this closing a priority above all other transactions and the lender agreed to minimize the amount to be escrowed until the renovations could be completed. LRG coordinated communicatons with the title company and the lender to make sure that this transaction was a top priority and funds were wired on time to fund both loans. The refinance and the purchase were completed on the very last day possible to meet the deadline required by the seller of the subject purchase. Lending Resources Group would like to thank the lender, the Cascade Title Company and the investor for helping make these transactions become a reality.
Lending Resources recently helped an IRA investor obtain non-recourse financing for the purchase of a bank owned single family residence. There were many delays in trying to close this transaction. Some of those delays were the result of the bank dragging its feet on completing the paperwork or following through on the required approvals. Other delays were due to the usual last minute details of obtaining insurance for example. However, when it came to signing the actual loan papers, some of the parties involved in this transaction thought that the title to the property was not written correctly.
Title to property bought with IRA funds is usually written in the name of the IRA custodian company for the benefit of (fbo) the IRA investor (their name). In this case, the custodian’s name was titled with the word ‘The’ and then their full name. The IRA holder didn’t sign the papers when he received them, because he was told by one of his advisors that the title was incorrect due to the word ‘The’ in the title. In addition, he thought his IRA’s designated number was supposed to be on the title which also caused him to question the validity of the paperwork.
Lending Resources sought to answer these questions once and for all. As it turned out the word ‘The’ was in the original corporate paperwork given to the lender’s legal department when that custodian originally filed its official name with that bank. Therefore, the bank would only use the name of the custodian on the loan papers as it was originally submitted to them. Further, to protect the IRA investor’s right to privacy, the bank never puts the IRA designated number in the title of the loan papers.
As a result of these questions regarding the way the title was written in the loan papers, there was a 2 day delay in getting these documents signed, returned to the title company and, ultimately, the bank for the loan to be funded. Nevertheless, it was a good lesson for all parties concerned and helped to confirm that the lender had written the loan papers correctly. The loan funded in time to satisfy the bank’s required timeline.
Lending Resources has been busy trying to find financing for the buyer of an Arco station in Suisun City, CA since September 2008. Most lenders that were in the business of financing gas station purchases in 2008 folded those loan programs by the time we began looking for this loan. That made this loan that much more difficult to find.
This particular purchase involved 2 difficult challenges to obtaining financing. The first challenge was that Arco does not provide the lender with a history of operating expenses. As a result, it’s hard for a lender to gauge whether or not the Arco station in question is making enough money to support the mortgage debt that’s being considered for the loan. They do provide the sales figures for the amount of gallons sold as well as the sales of the AM/PM convenience store on the premises, but that still does not tell the lender how profitable they are nor what the costs are to operate the station. The second difficulty is that this particular station is contaminated. Most lenders don’t want to even go near a contaminated station let alone finance one. How did we manage to get this loan approved?
The answer lies with a combination of sheer determination to find a lender as well as having a buyer with very good credit, enough liquidity to buy the business portion of the station and, in addition, to be able to put down 50% for the real estate portion of the purchase. In addition, Arco agreed to indemnify the buyer and lender of any damage due to the contamination.
As one can imagine, there were a lot of financial records that the bank required of the buyer’s businesses and tax related information before we could obtain final approval. Now, the only thing left is to obtain an appraisal and a phase 1 environmental report. Both of these will be done simultaneously to one another so that we can close escrow within the next 3 to 4 weeks. We expect the appraisal to be about 30% higher than the purchase price, because its sales over the past 5 years have been robust. We also don’t expect any surprises in the phase 1 report. Moreover, Arco has guaranteed the buyer and lender against any losses from the contamination. This loan approval has been very satisfying because of the challenges that both the borrower and Lending Resources faced. Lending Resources worked very closely with the borrower over the past 5 months to insure that we satisfied the lender’s demands.
If you’re wondering about obtaining financing for the purchase of a gas station or refinancing the one you already own, here’s some information on the current lending markeplace that might be helpful for you to know. First, many lenders that use to make these loans have stopped doing them altogether. I know that’s not good news but the fact is that it has become increasingly harder to find this financing. Lenders just don’t want the risk that comes along with this type of property. The fluctuation of gas station prices which affects the station’s revenue and the ever changing habits of the driving population are some issues not to mention contamination that is always possible.
Second, the SBA (Small Business Administration) no longer will make these loans unless the seller (usually a brand company) is willing to sign a guarantee to be responsible for any damages resulting from contamination that could occur. The brand companies are not willing to accept this responsibility. Certainly, independent sellers aren’t willing to do this either.
However, notwithstanding these facts, there are lenders that are willing and able to make loans to gas station buyers and owners. The guidelines for these loans tend to be be loan amounts of 60% to 70% of the purchase price or that same percentage of the value of the station in the case of refinancing gas stations already under ownership. Interest rates for these loans range between 8% and 9% at this time.
If a station is contaminated, most lenders won’t even consider undertaking a loan for that situation. However, Lending Resources Group does have access to lenders that will underwrite those types of stations.
Lending Resources is currently working with several gas station owners and purchasers to help them conclude their financing requirements for their purchases as well as their refinancing needs.
It was an REO. You know, the real estate is now owned by the bank?! My client found a property that sold for $375,000 in 2006 and wanted to by it with his IRA. Purchase price? $195,000. That’s right - a great buy! However, there were some stumbling blocks before we could make that happen. The main hurdle was the bank that grants the non-recourse loan is hesitant these days about California property that’s not already leased. How can you lease a property that you haven’t purchased yet, and needs some fixing up before you can show it for rent? Catch-22! The bank wanted 50% down if the property wasn’t leased prior to the purchase. Lending Resources negotiated on behalf of the buyer to put down 40% and 10% in an escrow account until the IRA owned property is leased at which time the 10% would go back to the IRA. This way the buyer would have time to spruce up the property and get it rented without committing an additional $19,500 towards the purchase price. The bank agreed, the buyer made the purchase and a non-recourse loan was put in place for $117,000. The buyer’s investment was secured with his IRA funds as the down payment.
