Welcome to Lending Resources Group Inc. - Your Real Estate Financing Experts
It seemed like a ‘no-brainer’ at first! A fully occupied mixed-use building conveniently located in Fairfax, CA - steady tenants, easy parking, back yards for each of the 3 apartments, a newly re-done coffee shop and a hair salon that’s been there forever. Furthermore, the buyer was highly qualified. She was very creditworthy and had good liquidity. So what could be wrong with this picture? In the first place, the bank that owned the mortgage would allow a borrower to assume it only if they put down a minimum of 30%. Moreover, the current rents weren’t supporting a debt ratio that was acceptable to the bank based upon the assumable loan amount and the remaining down payment.
Lending Resources Group (LRG) was asked by the borrower’s experienced agent to structure the loan so that it worked for the borrower and was still acceptable to the seller. We still had to find a lender that was willing to permit the seller to carry back a portion of the required down payment, because the borrower did not want to put down more than 20%. Most lenders wanted a 30% down payment from the buyer. After several inquiries, LRG decided that Bank of Marin suited its client’s needs and requirements. It went like this: the borrower would put down 20% of the purchase price which was established at $680,000. That amounted to $136,000. The seller would carry back 10% or $68,000 which this bank permitted. Bank of Marin would supply the remainder of $476,000 which gives us a total of $680,000. OK, so far so good. Now all we needed was a supportive appraisal. The appraisal was ordered by the bank after the buyer approved the inspection report.
The bank received the appraisal report about 2 weeks after ordering it. The report was very comprehensive and the value of the building was established at $690,000. Sounds good, right? The value was $10,000 higher than the purchase price. You would think we were good to go with the loan? NOT SO FAST! The appraiser chose to reduce the rents of the 3 residential units by a total of $550.00 claiming they were not supported by the rental market in Fairfax. Lending Resources called the appraiser to speak with him about this. He said he would raise the rents if we could provide additional comps supporting the rents they were paying. The seller’s agent and LRG had a conference call with him also and he repeated the same thing, “find me other comps to support the current rents and I’ll raise them back up.” The only trouble was 2-fold, he had found all the comps available in Fairfax for his appraisal and he wouldn’t accept comps even 4 blocks away in the next town of San Anselmo - he only wanted comps in Fairfax. This was despite the fact that the seller’s agent had worked with this property over the past 7 years, knew the tenants very well and knew they preferred living there instead of other locations in Fairfax that might be larger or have higher ceilings. The lowering of rents had never been done with any prior appraisals on this property.
One of the key elements that the appraiser used for reducing the rents was the lower ceilings in 2 of the 3 units. The seller’s agent said in all the years she had seen appraisals done on this property, no one ever made that an issue. Murphy’s Law seemed to be at work here - once again something was interferring with getting this loan approved. You ask WHY? The reason is simple. If the rents are lowered by the appraiser, the debt ratio is not going to work according to the bank’s requirement of at least 1.2:1.0. They’re either going to refuse to do the loan or lower the loan amount. In this case, they chose to lower the loan amount by $40,000, so instead of lending $476,000, they were only willing to lend $436,000.
Who was going to make up this shortfall? I can tell you it wasn’t going to be the seller, because he felt he had lowered his asking price enough. Nor, did the buyer want to put in any additional funds. The deal looked like it was falling apart. What were the seller and buyer willing to do? After much haggling with the appraiser and a strong effort by both LRG and the bank’s business development officer with the underwriting manager, Bank of Marin agreed to increase the loan amount to $456,000. That only left a shortfall of $20,000. The seller agreed to add another $10,000 to his carry back to make that $78,000 and he also agreed to allow the buyer to sign a separate promissory note for $10,000.
This was a team effort no doubt by everyone involved. The seller’s agent did an excellent job of dealing with the difficult appraisal and a somewhat disgruntled seller. The buyer’s agent did an excellent job of negotiating on behalf of his buyer and helping her stay cool since this was the first real estate investment transaction for her besides her house. Bank of Marin was cooperative in the long run despite a difficult appraisal. Lending Resources kept the wheels turning by informing all parties what was needed to make this transaction work. Everyone knew what had to take place and everyone pulled together to make this deal successful. It’s a very difficult lending environment even when all the ingredients for a successful transaction are present. Kudos to all involved!
My clients were a team of a very savvy realtor, Joe Velasco, and a Pensco Trust client, Peter Sanchez. Their concept was simple enough: refinance an IRA property that had recently been purchased with all cash; then use that cash along with Mr. Sanchez’s other IRA funds to purchase a second rental home for his IRA. One issue we had to deal with was the renovation work being done on the home that had just been purchased. This had to be completed before we could get it appraised. However, it had to be appraised before they could go forward with the other purchase. After some delays the appraisal was done so the refinance loan could be finished. Then the purchase was ready to be made. So far, so good – we were on schedule to close the purchase on time according to the contract.
Guess what? The fun of overcoming another adversity to be able to close on time was just beginning. The problem was with the title report that was filed on the property that had already been purchased which we needed to refinance. This property was an REO (a bank owned property). As such, it was necessary to have the name of the state on the grant deed where the bank that owned the property originated. In addition, the title company handling this transaction also required the signed power of attorney to be recorded, but it wasn’t. To make this more interesting, the title company that handled this original transaction of Mr. Sanchez’s first IRA purchase was a division of the same title company (in a different city) that was handling the refinance of the same property. So this was an internal problem that the Chicago Title Company was dealing with. The escrow officer in the office where the title insurance was issued when the first purchase was made insisted that the grant deed didn’t need to name the state in which the lender (from whom the property was purchased) was located. Nor, did they require the power of attorney to be recorded. The Senior Title Officer for Chicago Title insisted the state was required to be named on the grant deed and the power of attorney had to be recorded. In the end he was correct; however, we lost more than a week due to this mistake and internal issue at the title company. The title officer handling this escrow said she had never seen this occur in her 20 years in the business.
The lender would not wire the funds to Mr. Sanchez’s Pensco Trust account for the refinance until this issue was settled. The title company handled their internal discrepancies and re-did the title insurance policy for the first purchase correctly so the lender could wire the funds to Mr. Sanchez’s Pensco account providing enough funds to fund the purchase of the second home. All in all, Mr. Joe Velasco, the ‘savvy’ realtor kept it all together and obtained the necessary extension from the sellers to make it work. The purchase was concluded successfully only 2 days later than the contract date. The transactions were done within days of each other and Mr. Sanchez now owns 2 properties in his IRA.
Well here’s another one for the books. The ingredients are these:
1. Take one hard working man with excellent credit who has suffered through numerous financial setbacks over the past 30 years.
2. Mix in a business that has been in both Mill Valley and Tiburon for 46 years which he has been running for the past 10 years.
3. Throw in the finest soft frozen yogurt ice cream this side of the Mississippi.
4. Complete this recipe with a consistent net profit each year for the past 4 plus years.
5. And, WHAT DO YOU GET?
I’ll tell you what you get, a successful cash flowing business that cannot get one bank to provide this hard working Marinite a line of credit for $35,000. Every bank we turned to - some major name banks, some community banks - all said, “we’re not comfortable with the amount of his debt.” However, he has proven consistent record of paying all of his bills early or on time, he has paid down principal portions of his debt throughout the year, he has maintained 700 credit scores throughout the year, yet no bank would lend him any money. He simply needed a small line of credit to get him through the 3 leanest months of the year for his business - the winter months - November, December and January.
Let’s not forget that he has been running this business for 10 years, lost $200,000 when the town of Tiburon forced his business to close after driving traffic away from Main Street where he had set up shop. All the while Woody’s has been serving the community with not only his phenomenal, sweet tasting, soft yogurt ice cream but supporting local schools by volunteering his time and his business name to their money raising campaigns. Yet, no bank would step up to the plate and provide WOODY’S YOGURT PLACE with a small business loan.
This all points to a bigger issue - the TARP money. Where did all the money that the federal government gave to the banks go and what did it get used for? Wasn’t it supposed to be used to infuse the economy by helping the small business person? If the banks got bailed out, shouldn’t they help ‘bail out’ the small businessman who desperately needs financial assistance to get him through some tight times? Well, my experience as a commercial loan broker proves otherwise. That money hasn’t been provided to the local economy the way it was designed. The banks have kept those funds, fattened up their balance sheets, bought other failing banks and, in general, horded that money.
To be fair, perhaps some of the banks that turned Woody’s loan request down didn’t get TARP money, or if they did, maybe they have helped some business people with their financial needs. However, we do know that the big banks we approached definitely did get TARP money. Matter of fact, Woody’s owner has accounts at both of those banks, yet they wouldn’t lend him the much needed $35,000. We’re talking about a business that grosses $650,000 to $700,000 per year. Moreover, Woody’s owner is not the only businessman that I have seen this happen to. There’s some second thoughts about continuing to do business with these banks.
Lending Resources Group was not to be deterred. We continued to seek out a lender that would hear Mike Woodson’s (Woody’s) story and understand his predicament. One local bank which refused the loan was still good enough to refer us to a community center serving a local foreign community in San Francisco which makes some of its money by arranging small business loans through the SBA! Can you believe that? A foreign community service center who is granting small business loans to hard working, steady Eddy’s like Mike Woodson who need some cushion to get them through a few tough months of their cyclical business year. What a concept? A foreign community service center that is helping a local American obtain a loan that he couldn’t get from the banks in his own back yard including the bank that he uses for his payroll and credit card services.
That’s exactly how we ended up getting the $35,000 that Mike needed - through the foreign community center. They were very polite, very knowledgeable and very cordial to Mr. Woodson. They visited his place of business, interviewed him and were sufficiently impressed as Lending Resources Group has been all along. Mike Woodson is a standup businessman who has persevered and succeeded in the face of great adversity over the past decade while making Woody’s Yogurt Place a household name for soft frozen yogurt ice cream in Marin County!
Lending Resources Group doesn’t get the easiest deals to work on. One client recently referred to us by their attorney is a company that has been installing granite and marble for residential and commercial properties since the early 1990’s. As a result of the dramatic downturn in the economy in general and the real estate industry specifically, this granite business has suffered severely. They have gone into default on their building. In addition, one of the 2 banks that have mortgages on their building also have liens on their residence and business inventory. Despite this difficult financial scenario, Lending Resources Group found a private lending source based in New York that was willing to provide this borrower with a Letter of Interest (LOI) to help them obtain up to $3 million in financing to pay off their bank loans and pay the fees involved. At this point the borrowers are still considering this LOI. They’re not sure if the banks will reduce the principal enough to coincide with the reduction in value of their building to enable them to get a large enough loan to satisfy the mortgage debts and cover the lending points and fees.
Most lenders that were sought out for this loan turned it down without blinking. It’s hard enough these days to refinance a commercial property where the borrowers have good credit let alone a property where the borrowers are in bankruptcy court. The lending source stated very clearly that they believed they could get a loan commitment for this situation. The main question is still what will their building appraise for in the current real estate devaluation marketplace in order to arrive at a loan commitment amount. Then the question will be whether that loan amount will be enough to cover the mortgages and loan fees. This will depend on whether or not they’re willing to pay a $5,000 retainer for the lender to perform the proper due diligence to make that determination. One thing is for certain, if they don’t pay the retainer they’ll never know what loan amount they could obtain. Only time will tell!
A recent real estate purchase with an IRA secured by a non-recourse loan was finally completed by a determined client of Lending Resources. The client, a ‘mild mannered insurance agent’, had originally located a bank owned property (in foreclosure) and made an offer subject to a physical inspection. All the proper paper preparations for obtaining a non-recourse loan were done while awaiting the inspection results. After more than a month of gyrations, the inspection indicated more repairs were needed to the subject property than were anticipated. The client decided to reject the transaction and keep searching.
He found a newly renovated single family home in Vallejo, California. It was clear this property would not need any further work and was ready to be rented, one of the key requirements by the lender. For whatever reason, these transactions always seem to have their own twists and turns. This one came down to the wire per the seller’s deadline. It was another month of dealing with appraisal delays, the seller’s agent, the client’s agent, the title company and the lender. A non-recourse loan for 50% of the purchase price for this IRA investment was completed by Lending Resources Group with the cooperation of many parties and no time to spare. Special recognition should go to the Miller Real Estate Team and Fidelity National Title company who helped in every way they could to get all parties to work together for a satisfactory closing. Thank you Gang!
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.
