What’s up Investor Nation? When you’re looking at a deal, you need answers – now!
So, here’s i Fund Cities’ co-founders, Ryan Herting and Chris Tereo, two of the planet’s non-suckiest lenders, to answer your most common questions in record time!
QUESTION #1: What are Your Rates?
Ryan: “It depends. Asset-based lenders look at three things: credit score, the asset itself, and real estate experience. Your guiding rates will be around 8% to 10%. If you’re a seasoned investor, you’re going below that. If you’re a non-seasoned investor, you’re going higher.
How do you get the best loan rate? Find a good deal, build yourself a good team, come in with a good story, know your market, and know your project.
QUESTION #2: What is Your Maximum Leverage?
Chris: We look at three thresholds. The first one is loan to cost (LTC). We max out at 85% LTC.
Next, we’ll look at your loan to after repair value (ARV), which is going to be anywhere from 65% to 70%, and sometimes above 70% if we have a super-experienced investor.
Next is your loan to value (LTV), which is your day one initial loan amount to the value of the property. That is going to max out at 80%.
So, to recap: 85% loan to cost, 70% loan to ARV, 80% loan to value.
QUESTION #2.5: Do You Do 90% Loan to Cost and 100% Financing?
Chris: No. [laughs]
Chris: Because if we are doing that, that means there’s not enough juice in the project, and you probably should not be doing it anyway.
QUESTION #3: Can You Cross-Collateralize Your Property to Reduce Payment?
Ryan: Yes, absolutely! If you have a debt-free portfolio, you have done your due diligence, and you have built a massive real estate empire (or even if you have one property and it is debt-free), we can use that equity in that project to fund your next project.
QUESTION #4: What Loan Programs Do You Offer?
Chris: We have two main products: bridge construction and a 30-year rental loan. The 30-year rental loan is for one to four-unit residential. The bridge construction loan can be anything from a single-family flip, up to multifamily new construction, and everything in between.
QUESTION #5: Do You Do Credit and Background Checks?
Ryan: Absolutely. In today’s age, you’ve got to know who you’re doing business with. We do both a credit and background check. If there are issues, that does not mean you should not come to us. We have done lots of loans for people who have made mistakes. We are big believers in second chances. If you want a second chance, come see us. We will walk through the project with you, and we’ll get you going.
QUESTION #6: Do You Require an Appraisal?
Chris: Yes. At the end of the day, it is only going to help you to get a third-party unbiased person come in and say, “Hey, this is the value of the property.”
Ryan: As investors, we are fully aware that sometimes appraisals can be a check-the-box exercise. But, in order to provide the best rates, the securitization laws require appraisals. That is why we do them.
It is also one of the reasons we can provide working capital at the rates that we do for you.
QUESTION #7: How Do Draws Work?
Ryan: You submit them to firstname.lastname@example.org with our spreadsheet. We look at the construction budget, line them up, order your inspection, and then release those monies to you.
QUESTION #8: Do You Use a National Appraisal Company?
Chris: No. We use local appraisers who know the market that they are operating in. That is another benefit to our customers. Instead of picking out of a hat, we go to guys who know that market and know that investor’s project.
QUESTION #9: How Do We Get Our Rates Down?
Ryan: You get your rates down by bringing great projects. You want a minimum of return on investment of 10%.
A good project is one that you’re going to add functional value to: take a 3/1 and make it a 3/2. I preach this all the time: make a fundamental change in the value of the project.
Have a good credit rating.
Then, build a quality team.
That is how you get your rates down – and this works with any lender, not just us, but banks, hard money, and alternative lenders (like us)!
QUESTION #10: How Long Does It Take to Get a Draw?
Chris: From the time you submit a draw inspection, it is on you to contact the inspector. You set up a time that works for both of you, then that inspector sends us a report that we then review, and we fund you.
That entire process, soup to nuts, usually takes about two to four business days—sometimes more, sometimes less, depending on how quickly you and the inspector get out to the property.
QUESTION #11: What Happens if My Project Goes Over My Planned Timeline?
Ryan: We are not hard money. We are into portfolio performance, which means we are not trying to beat you up on interest.
So, one of two things happens. We will give you an extension on the term sheet. If we do not think the extension is ample time, we can do a refinance to give you a longer duration to make sure you can complete a project without paying a ton of fees or a higher interest rate.
QUESTION #12: Can I Do a 30-Year Mortgage Purchase?
Chris: Yes. Hopefully, it is rented, but if it is not rented, we can still do the 30-year mortgage purchase—it just has to be 100% rent-ready. What that means is that there are no repairs needed; no painting, no touch-ups, and a tenant can move in the next day. All we’ll do is have a 90-day lease-up period.
QUESTION #13: What is Your Seasoning Requirement for Cash-Out Refi’s?
Ryan: Six months is the minimum. What we do not do is, say you bought the project for $100K and you think it is worth $150K the next day, and you want to get all that value out of the project. That does not work.
What does work is that, you bought it for $100K, and you did some repairs to it, and it is now worth $200K, and now you want to get your cash out. That works all day long. We are going to help you get that equity out because you created value in a project.
QUESTION #13: Do You Fund Soft Costs?
Chris: Yes. They have to be value-add soft costs. What does that mean? Architects’ fees, engineering, zoning, legal fees, demo costs, etc. We can finance anything that is value-add, that is going to improve the overall value of either the land or the building.
QUESTION #14: Can You Finance Commercial Retail?
Ryan: No. But, we can finance commercial if it has a 50% residential component: 5 units up to 15 units, or up to $5 million in value. Our sweet spot is really that $3 million multifamily.
That’s it – thanks guys!
Ryan: Peace Investor Nation!
Chris: See you guys!