Archives for November 2014

There have been many instances over the last year that I have encountered that exemplify confused investors looking for lending.  There are many types of hard money lenders out there with vastly differing criteria to be sure, but one thing they all have in common is they want to make a good return and mitigate their risk profile, after all they would not have the money to lend on your deal if they were gamblers! I have seen many new investors looking for lenders to fund their projects when they have never done real estate before, and in most cases they request that the “lender” put in both their credit and money into the deal…not let me be very clear to those investors: you are not looking for a hard money lender at this point you are looking for a Joint Venture Partner! There are absolutely experienced investors out there that would be more than happy to put up their credit/money or both into the deal if in fact you have a great deal that will give said investor a high return on their investment.  The other common mistake new investors make, is thinking that they do not need to put any money in the deal.  I do not know any investor that I can think of in my network (and the networks of other investors) that would do a JV or lend money to someone who has no personal “skin in the game” or capital of their own at risk no matter how good the deal is.  Now, that said you would be in a great position to wholesale/assign that deal to the investor interested.  The one thing that I firmly believe is that a good deal speaks for itself, and if you have a great deal and no money of your own – just pass that along to an investor that can execute and get out of their way OR take a very small percentage and let them run the project.  The concept of splitting a deal 50/50 just because you are bringing the deal to the table sounds great on paper but does not happen very often in the real world.  If you have a real deal on your desk right now, get it out to someone you know can close it and do 10 of those in a 3 month span rather than trying to take 50% of a deal that will never happen!

Tim
“If you want to change your results, first take a hard look at your habits”

I have been investing in real estate for over four years now and I have learned more things along the way than I could have every imagined.  Most of this surprise came after taking a real estate course which made it seem like I had all the answers and strategies to get started, and then seeing how far from the truth that view really was! I have spoken to a few investors recently that not unlike myself freshly out of a real estate course thought that I had all the information I needed to get out then and run the strategies that they learned.  The main thing that I see as the issue with the way these strategies are presented is that they only cover the ideal circumstances in which something would happen, and do not give the harsh truth about how rare that is in real estate investing.  For example the courses tell you to try and use other people’s money or “OPM” to do your deal and have less money out of your pocket to do the deal such as a reno and flip project.  There are many people that will lend you money out there but a lot of them may not be real estate investors and really may not want anything to do with a real estate project.  The common scenario that I get asked is if someone would lend them the money to renovate a property based on the equity in the project property itself – this creates a number of risks for the lender that would be considered higher than normal such as:

-in the event of a default the would be foreclosing on a distressed property

-in the event of a death of the lender the distressed property would be sold at a discount putting their capital at risk of not being recouped

-Renovations can be fraught with issues as illustrated by countless shows on reality TV incurring higher costs that originally anticipated which could cause the investor to sell at a discount which also puts the investors interest and capital at risk of being repaid

The courses would tell you that someone lending in this dynamic would be easy to find, and I can tell you from experience this is most certainly not the case, if you would like to know more about hard money lending in Calgary please drop contact us anytime.

Tim