Love Austin Homes Investing Blog

Hi Y’all! I have an investor friend down in San Antonio that asked me
to find out if there were any private money lenders up here in the
Austin area that would consider lending money for a longer term; like 3-
5 years. If any of y’all know of someone that will or will do so
yourselves, please let let me know and I’ll give you his contact info
so you two can talk details.

Also, let me know what other types of $$ are available for investors?

Thanks in advance!
Dawn

ANSWER

Dawn,
Some considerations on Hard vs. Private $$$

Hard $$

Hard money (money lent based on property and not on borrower) is usually institutional – from a fund contributed to by several investors. For example, besides borrowing from hard money lenders, you can loan money to them. Usually, hard money lenders keep the points and fees from loans and pay their investors all or most of the high interest back along with a secured note. Because the money is brokered by a lender and it’s agents, there are more overhead costs (more people taking a cut), which are passed onto the borrower.

Hard money lenders and their agents have experience in evaluating deals quickly and lending money quickly, and, time rather than terms is often the driving factor in deals needing hard money. If you need $250K by Friday, it’s unlikely you’ll be able to find a private lender to make such a loan (unless you already are doing business with them).

Another consideration is that hard money lenders lend based on the deal and not on the borrower. In other words a borrower with bad credit and/or a history of making bad decisions can still get hard money if they find a property at 65-70% of fair market value (including any money the borrower puts in).

Finally, hard money lenders are more likely to have many fees for various inspections, draws, etc.

My own observations are that as hard money lenders get more established and experienced, they tend to look and act more like traditional lenders in that they require more due diligences, may pull credit checks, may order multiple appraisals, and may take longer than expected. All that being said, hard money is a great resource for many deals, and should be used as needed.

Private $$

Private money lenders are just individuals with extra cash looking for return. Many private money lenders are real estate professionals that have cashed out of various deals and want to still generate some income, but don’t want to do the work associated with finding and improving more properties themselves. In theory, private money lending is easier (more passive) than being a real estate investor, and we should all aspire to becoming private money lenders after achieving our net worth goals.

Other private money lenders are friends, family members, or individuals that have made their wealth wherever, and are again, looking for a good return. These people are less likely to have real estate experience, and thus more likely to rely on some level of relationship with the borrower in additional to whatever other (if any) due diligence they require. These are the best resources in our business, although the hardest to find.

Interestingly enough, most borrowers that have private money resources, will never share their names, because they want to make sure that someone else does not borrow the money they might need for a new project. This creates a fascinating phenomena where private money lenders are always looking for good people to lend to and good borrows are always looking for private money lenders, yet it’s pretty hard for the two to meet

My own observations are that this business requires a ton a loot to make a ton of loot. Most people that make it big, have private money resources behind them.

One last alternative… Partner $$

There are investors, such as myself, that are willing and ready to fund projects in exchange for dividing the profits. Partnering is what forums like this are all about.

Partner lenders, like private lenders, have money and are looking for a good return, but unlike private lenders, partner lenders are actively involved in applying their time and experience to make sure the project is as successful as possible. Some advantages to using a partner lender are: 1) The investor does not need to necessarily come up with any money (not even interest payments, fees, etc.), 2) The investor will learn a lot from working with an experienced partner, 3) The investor will have access to the partner’s experience, contractors, and other resources, and 4) The investor can probably make more $$ overall, because although they are splitting the profits on each deal, they are also splitting the time needed to manage the deal, thus allowing more deals to be possible…

Some projects make much more return than others, and no matter how much experience you have, unexpected thing will happen and you can’t know ahead of time, for sure, if your return will be 15% or 50%… Personally, I prefer to do 2x the projects and share the profits, because I find that it evens out the income stream, increase my experience and network, and mitigates overall risk. When your looking on how to fund your next project, consider a partner lender!

Regards,

Phill

I’m buying a 2004 house in rural Williamson Co. for about 62% of tax
value. I can’t pass it up as it will be a nice cash-flow rental.
It’s a simple 920 sf, 2 BR with wood floors throughout and has a block
wall exterior. Apparently there is little or no ventilation under the
house and a plumbing leak probably contributed to a rather significant
mold problem , primarily underneath the house.

I don’t have a tank of chlorine dioxide laying around to flood the
house with to resolve the issue. Before I knew the extent, I crawled
into the sub-floor space and attempted spraying everything I could
with a bleach solution. Then I left moistened pool chemicals in and
under the house hoping they’d bleed out some chlorine gas. Then I
tossed 6 Lysol can “bombs” under the floor and left the house. I know
they have approved uses and warning labels on all these for a reason,
but I’m looking for a simple cheap solution if I can find one.

Does anyone have experience with mold remediation that can recommend a
professional and might guess what it will cost? Again this is vacant
house in rural Williamson county with no nosey neighbors, except cows.

I haven’t closed on the house yet and won’t lose much earnest money
should I walk away, but I think it can work out somehow. I’ll contact
the seller to find out if it could be covered by his insurance before
I go any further. It will help to know how much it will cost to fix,
in case he might go lower on his price. I suspect he knows of the
problem (but didn’t disclose) since it was on the market a while and
he let it go so cheap. Feel free to email me outside the group.

Thanks,

Alan

ANSWER

Alan,

I admire your do-it-yourself attitude. We could go on all day about the hype and realities behind mold.

In general, I tend to avoid mold homes because of the stigma associated with them. If there is a certified mold report on this home, or if mold insurance claims have been made in the past, or if there is any other documentation that the home has mold, the home will forever be known as a ‘mold home’, and your only chance of ever reselling it, at other than fire sale prices, would be to have it professionally remediated (and certified as such). Needless to say, professionally mediation costs a fortune. The process includes removing any material that is within many inches of affected material – which can include mechanical systems and structural elements of the home. I’ve known of 3 average size homes where remediation costs ranged from $60,000 to $150,000. Was all of the remediation necessary – I doubt it. Was it required to get the home certified as mold free. Unfortunately, yes.

Now, what if you just keep it as a rental? It would seem to me that you would be setting yourself up for a potential lawsuit. The third time your tenant’s baby gets the sniffles, you end up in court facing off against Professor Fruitloops who is testifying in front of a jury full of moms about how your moldy house ruined this kid’s development and future. Ka-ching!

Of course, another way to look at this is if there is no documented proof that this home has mold, who’s to say that you don’t just have a mildew problem…

Phill

Austin Business Journal - 3:07 PM CST Wednesday, February 28, 2007

A bill recently filed in the Texas Legislature could essentially nullify an Austin city ordinance that restricts home sizes in certain neighborhoods.

Rep. Edmund Kuempel (R-Seguin) has filed House Bill 1736, which would require that cities only regulate home size on one of three criteria: impervious cover, footprint of the lot or floor-to-area ratio. An ordinance passed in 2006 by the Austin City Council limited home sizes on all three criteria–an effort to stem new construction not in keeping with the character of Austin’s more established neighborhoods.

Ned Munoz, director of regulatory affairs for the HYPERLINK “http://www.bizjournals.com/search/bin/search?q=%22Texas%20Association%20of%20Builders%22&t=austin”Texas Association of Builders, says the group has been lobbying for legislation that would ease restrictions on new home construction. TAB also supports another bill filed by Kuempel, House Bill 1732, which would require a municipality to give proper notice before changing housing regulations. Munoz emphasizes that both bills would apply to municipalities across the state that might try to place so much restriction on new construction that it takes away from property value.

“What has happened with this ordinance is that people who own land are very limited on what they can do with it,” Munoz says.

The ordinance is essentially a one-size-fits-­all law, says Munoz, putting the same restrictions on both small and large lots and penalizing the owners of smaller lots.

“This is impacting property values,” Munoz says. “People will not be able to get the same price for their land.”

Both bills are currently pending before the HYPERLINK “http://www.bizjournals.com/search/bin/search?q=%22Land%20%26%20Resource%20Management%20Committee%22&t=austin”Land & Resource Management Committee.

“The impact of the bill is to gut the ordinance,” says Austin Assistant City Manager Laura Huffman. “This won’t allow us to regulate in areas covered by the ordinance.”

Huffman says the city council put together a 16-member taskforce comprised of people representing development and neighborhood interests. “That strikes a balance of those who are interested in remodeling homes, constructing new homes and protecting the character of our urban neighborhoods.”

Huffman says the taskforce held meetings for five months before making its recommendations to council in June 2006. The ordinance’s implementation was delayed until October to give the city time to get the word out to stakeholders and ensure staff was prepared to process requests based on the changes.

Huffman says Kuempel has asked the city to participate in discussions on the bill, but she adds that the city is opposed to any legislation that would gut its own ordinance.

Kuempel could not be reached for comment.

ANSWER

The formulator makes some good points: 1) It’s not fair for the city to change building codes on existing land owners retro-actively, and 2) Such rules make land difficult to develop and/or less valuable

Phill