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Address:

10811 Washington Blvd, Suite 370
Culver City, CA 90232

Phone:

(310) 280-9173

Email:

Chris@CoastalCapital.com
Scott@CoastalCapital.com

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Buying and Flipping Foreclosed Homes

With the looming expiration of moratoriums, it’s good to have a team lined up and ready when opportunities arise so you can make a solid real estate offer.

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REFINANCING OUT OF A HARD MONEY LOAN

Many people secure a hard money loan for real estate with the intent of buying an off-market deal, flipping a home, cashing out for quick business needs, or paying off a note that is coming due. However, sometimes circumstances make it difficult to refinance the loan, leaving borrowers feeling stuck between a rock and a hard place.
If you’re looking to refinance out of a private loan, there are a few important steps you might need to take before you’re able to get a traditional loan.

Renovate The Property

Traditional banks have certain requirements for the condition of a property in order to get a loan. If you bought a fixer-upper, you’ll have to do some of the fixing up before you can refinance. In order to qualify for a conventional loan, the property must be “safe, sound, and structurally secure,” so prioritize your improvements based on these factors. You must also have a certificate of occupancy and no code violations, so be prepared to tie up any necessary loose ends.

Make Tenant Improvements

If you own a commercial property, make the types of tenant improvements that will make it easier to rent to the types of tenants you are seeking. Some examples of tenant improvements include painting; installing lighting, flooring, and drop ceilings; and adding walled offices, a break room and kitchen, additional bathrooms, and conference rooms.

Most conventional lenders won’t provide loans for commercial properties that aren’t occupied. Ideally, rent out the space to make it more viable for a conventional loan. This might require you to make certain improvements after the space is occupied so you can get a rental agreement in place before refinancing.

Improve Your Credit

The minimum credit score requirement for a conventional loan is 620. If your score doesn’t meet the criteria, work on improving it so you can refinance. Some strategies you can use include:

 

  • Get a free copy of your credit report to see where you need to improve.
  • Build a history of on-time bill payments.
  • Keep credit card balances at 30 percent or below your credit limit, ideally as low as 10 percent.
  • Ask for a credit limit increase to get your balance percentage down.
  • Avoiding applying for new credit because inquiries from new creditors can temporarily lower your credit score.
  • Setup a prepaid credit card if you don’t qualify for a regular card
  • Keep old credit cards open, even if you don’t use them.
  • Consider debt consolidation.
  • Monitor your credit score so you know how you’re doing.
  • Avoid large purchases (vehicles, boats, timeshares, etc.) before applying that add debt to your report.

 

Consider working with a credit repair company to help you knock off items that have the largest impact on your credit. Getting guidance from a professional can help you prioritize your efforts to refinance out of a hard money loan so you can qualify for a traditional loan more quickly.

File Your Taxes

Conventional lenders base decisions on your tax returns, so if you need to get caught up on filing, now is the time. Gather the tax documents you have to see what’s missing. You might need to request missing documentation from an employer or the IRS to fill in the gaps. Work with a professional tax preparer to ensure accuracy and completeness. Be prepared to pay penalties and interest charges for any late payments or filings. If the cost of amending your taxes to correct your underreported income is minimal, that might be enough to get you above the debt-to-income hump, so it’s worth the effort if you’re trying to refinance out of a hard money loan.

Don’t forget to inquire all fees ahead of time before signing your loan docs including prepayment penalties.  If you would like to learn more about hard money loans and how you can use them for flipping homes and a broad range of other real estate investments, leave us a message here give us a call.

Open the Door to Modern Real Estate Investment

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How To Become A Bank With Your IRA & Earn Consistent Stable Returns

The concept of banking is quite simple: The bank pays interest to customers who deposit money and charges a higher interest to those who borrow (that is secured by low-risk real estate.) This same strategy is available to all investors through trust deed investing who can consistently earn 12% annually with little risk. Earning consistent stable returns month after month.
The concept is foreign to many, but it’s actually already in practice and isn’t as complicated as you might assume. The strategy is known as “trust-deeds investing,” through which many investors have become one-person banks using self-managed retirement funds.

What Is a Trust-Deed Investment?

Quite plainly, a trust deed investment is when an individual lends money to a borrower for a real estate purchase. When you invest in trust deeds, you act as a lender and offer financing to a property owner. The loan is secured with a property, and in the event of default its title transfers to you, the lender, through foreclosure.
To complete the lending process, the borrower will sign two documents: a deed of trust and a promissory note. The deed of trust is signed by the borrower and recorded a normal escrow process, so you are secured. This is a public record of the debt which makes sure that the lender will be repaid if the property is sold. The promissory note is kept by the investor or lender and contains the loan information, including the terms, interest rates, and payment schedule.

The Benefits of Trust Deed Investment

The benefits of this investment option are numerous. First, it allows investors to earn a steady income. The interest is predetermined when you issue the loan — in contrast with other forms of investments — so your income is predictable and secured.
Another advantage of investing in trust deeds is the passive nature of this strategy. Even though it is a type of real-estate investment, you have no landlord responsibility. You are simply a lender, which means no dealing with tenants or property maintenance and repairs. You collect interest even when the rental property is vacant.
The fact that you are somewhat removed from the property — by virtue of being only a lender and not a property owner — also makes trust deeds a great choice for retirement accounts, which require account owners to keep all investments at arm’s length.

Trust Deed Investments with a Self-Directed IRA

Trust deeds often come with interest rates of up to 10 to 14%, which is comparable to the 10% historical average annual return of the S&P500. Plus, the risk is lower with the loan secured by a property. Adding trust deeds to a retirement plan could be a great way to diversify and improve the overall rate of return for investors.

Traditional retirement plans, however, do not allow the additions of alternative assets like trust deeds. The solution is to use a self-directed IRA or Solo 401k and other similar retirement accounts, which give account owners virtually unlimited investment choices. Unlike conventional retirement accounts that tend to limit investment options to stocks, self-directed ones can invest in nontraditional assets such as commercial and residential real estate, precious metals, trust deeds and much more. Here at Coastal Capital, we partner with The Entrust Group one of the largest and most trusted self-directed IRA management companies. If you need assistance in transferring funds from your current IRA we can help facilitate. 

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Self-Directed IRA Investments Can Truly Diversify Your Portfolio

Looking for a way to get more bang for your investment in your retirement savings? A self-directed IRA (SDIRA) could be the answer to diversify your investments.

What is a Self-Directed IRA?

Self-Directed IRA (SDIRA) is quite simply, an IRA. All IRAs abide by the same laws and possess the same capabilities. Unlike other IRAs held at banks, brokerage firms and other institutions, with a SDIRA, you’re not limited to stocks, bonds, or mutual funds. This means you can invest in virtually any asset including private funds, trustee notes and even crypto.

What are the benefits?

A Self-Directed IRA gives you the opportunity to build a more diversified and resilient portfolio. It allows you to take advantage of alternative investments such as real estate, precious metals, private equity, notes, and more. A custodian/administrator is required to do the record keeping for the assets in your account, but nothing moves in or out of it without your direction. You decide how much, when, and most of all, what to invest in, giving you the freedom to invest in what you know best.

Investing in Real Estate With a Self-Directed IRA

Real Estate is a popular investment among SDIRA holders because it is a tangible asset that people know and trust. With a SDIRA, you can invest in a wide range of real estate assets: residential or commercial properties, developed or undeveloped land, condos, hotels, mortgage notes, and more. Depending on what type of account you choose, earnings can continue to be either tax-free or tax-deferred.

How does investing a SDIRA in real estate work? Imagine you purchased a single-family property through your SDIRA. If you chose to sell it, your profits would go directly to your IRA. Alternatively, were you to rent out that same house, your income would go back into your IRA and any related expenses would be paid from your IRA. For more information about how to use your SDIRA to purchase a rental property, go here.

The level of control and flexibility associated with a SDIRA does come with its own set of responsibilities. For example, investments made with your SDIRA are owned by your SDIRA, not by you personally, making self-dealing prohibited. Click here for more information on SDIRA rules.

Getting Started With Investing In A Self-Directed IRA

The first step is to decide what type of account you want to open. Then, establish how you’ll fund it, and decide what your investment strategy will be. Speaking with a legal and/or tax advisor before you begin can help you to answer these questions.If a SDIRA sounds like it could be the answer to your retirement questions, get your copy of The Entrust Group’s Self-Directed IRAs Basics Guide today.

Many of our investors at Coastal Capital utilize this Self-Directed IRA Investments option with The Entrust Group to build safe, above average returns for their nest egg. To learn more about the fund please visit us here.

February 1, 2021 by Scott Griest 0 Comments

Pros & Cons of Owning Multi-Family Real Estate

The Pros of Multi-Unit Dwellings As An Investment

Economies of scale is one of the big advantages of owning multi-family real estate. Time identifying a property, crunching the numbers and performing due diligence is leveraged with multiple units. Each renter generates a separate cash flow providing diversity in the income stream. In a similar fashion, repairs costs are leveraged by spreading costs over a larger asset base. While the cost of a new roof or other major repair is greater for an apartment building, it is less than the costs associated with replacing the roofs of multiple single-family homes.

Another advantage of multi-unit dwellings is the simplicity of dealing with multiple tenants at one location. Versus lots of tenants spread across multiple properties. Landlords also gain better negotiating power with property managers and other service providers when multiple units are at the same site. More efficiency means a higher return on investment.

More Income Equals A Better Investment

More reliable monthly income is another benefit of multi-unit dwellings. Instead of one rent payment there will be multiple rent payments coming in to offset monthly expenses. Risk is generally lower with multi-unit dwellings since odds are good that some apartments will be generating rent even if other units are vacant or under construction. It’s rare for a multi-unit building to ever be entirely empty.

More income per square foot is often possible with multi-unit buildings.  A single-family home in a desirable LA neighborhood may fetch rents of $3,000 a month or higher, but a multi-unit building at the same location could easily command rents of $2,000 or more per unit. In this scenario, a six-unit apartment building could generate north of $12,000 in monthly rent.

Investment Appreciation Is Higher With Multi-Family Real Estate

Appreciation potential is usually greater for multi-unit dwellings. Regardless of upgrades that have been made, the value of most single-family homes is closely tied to surrounding properties. Different methods are used to value multi-unit dwellings and building owners also have more options for maximizing the value of the property. For example, a landlord could increase the value of an apartment building by making upgrades that support higher rents or adding revenue generators such as on-site dry cleaning or day care.

The Cons of Multi-Family Real Estate As An Investment

Tenant turnover is one of the biggest hassles of owning a multi-unit building. Tenants leave for all kinds of reasons and even properties that are well-managed and maintained experience turnover. There is also risk from tenants who stop paying and must be evicted. Some risk can be mitigated by good tenant screening, but landlords must plan for some tenant turnover in the building budget.

Acquisition prices are often higher for multi-unit buildings and purchaser usually must come up with a larger down payment, sometimes as much as 25% of property value.  Lenders often demand more cash upfront from landlords who don’t plan to live at the property. Renovation and maintenance costs also run higher as well, requiring landlords to maintain significant cash reserves. On the other hand, it is sometimes easier to secure financing on multi-unit apartment building since lenders usually attach more weight to the property’s cash flows and are less interested in the borrower’s credit history.

Multi-Family Real Estate Investing Takes A Larger Investment

Larger investments carry greater risks. Delays in completing renovations or difficulties in securing tenants can result in massive losses for apartment landlords. Cash burn rates may also be higher due to more spending on debt servicing and maintenance. Experience in owning multi-unit buildings greatly helps mitigate these risks. Hence the popularity we are seeing from our clients who graduate up from single family home rental properties to multi-family.

Here at Coastal Capital we understand the challenges facing buy & hold real estate investors. Most of our clients are repeat because they value time and how fast we close on multi-family buildings so they can maximize their investment. To learn more about us please visit our Borrower Page.

Tenants Not Paying Rent Due to COVID-19? Look to Hard-Money Loans

A hard money loan can provide quick relief

Real estate is interconnected with so many other industries, it’s not surprising that the real estate market is going through some ups and downs during COVID-19. Some landlords are finding themselves in tight spots when renters can’t keep up with their monthly payments. If you find yourself in such a situation, you might be able to negotiate with your mortgage lender, but many property owners are finding this to be a dead end after following a long rabbit hole. Fortunately, hard-money loans offer a viable alternative.

Especially in California landlords are facing challenges

Due to zealous restrictions, approximately 3 million California residents are unemployed, and about 1 million of those are renters. This naturally impacts their ability to pay their rent on time and in full. With about one in seven households struggling to pay their rent, many landlords are seeing the impact. Even though the unemployment rate is improving, it’s still in the double digits. Many tenants are still struggling to keep up.

For landlords with commercial tenants, it depends on the types of properties you own. For example, many bars, restaurants, and salons are suffering right now. They simply are not bring in the same revenue as before. However, if your properties are home to essential businesses that are thriving during this time, collecting rent payments might not be an issue.

Tenant protections in California

The recent tenant and landlord protection legislation prevents landlords from evicting tenants through Feb. 21, 2021. The law says that missed rent payments due to COVID-19 but how can you verify? Between Sept. 1, 2020, and Jan. 31, 2021, tenants must pay at least 25 percent of their rent to qualify for this protection. For most property owners, that’s not enough. It’s true that tenants aren’t completely off the hook—landlords can start recovering debt in March. But what are landlords to do about the months in between?

In addition any landlords are lowering rents for a period of time for existing tenants and offering discounts in order to entice new tenants to rent vacant spaces. Incentives include free rent for one month, free parking, and more. Such offers might get new tenants in the door or keep existing renters in the building. However these types of concessions put a dent in landlords’ wallets.

How a hard money loan can help during the COVID-19 pandemic

Hard money loans are based on your equity in the property, not on your personal financial history or credit score. This means that if you have enough equity, you can get a hard-money loan to cover the gap. Even if you can’t secure a traditional bank loan with enough equity you can get cash in a week.

These trust deeds are designed to provide short-term capital to help you cover the mortgage and related expenses until you’re able to generate more rental revenue. Most importantly hard money loans enable property owners to keep current on their mortgages, avoiding expensive late fees and expensive default interest charges. Often the costs with obtaining a small hard money loan far outweigh the costs of going into default on a property.

Coastal Capital Group is here for you

If you have tenants who aren’t able to keep up with their rent, Coastal Capital allows you to use your equity to secure cash. Hard money loans close fast—think days, not weeks—so you can keep up with your monthly payments even if your renters can’t. For more information and to learn more please Apply today.

2021: The Year Ahead For California’s Real Estate Market

Will the California real estate market continue to soar?

Throughout the Golden State every real estate market saw incredible price appreciation in 2020. The state’s bird, the California condor, needs the power of wind to soar and reach new heights. This past year the wind powering residential real estate has been record-low interest rates and the COVID pandemic. This combination created incredible demand for new housing and those seeking to work from home in more comfortable spaces.

If we remember back to our Economics 101 class with heightened demand, comes greater supply. Problem with housing is that you can’t just flip a switch and create more homes. Development takes time, so California’s housing supply remains consistent. More demand and same supply means more buyers bidding up prices for California residential real estate!

Mortgage rate forecast

Ninety-five percent of home buyers have to be able to afford the monthly payment to purchase their home. The remaining 5% are those lucky enough to pay for their real estate in all cash. So mortgage rates play a huge part on the demand-side of the real estate market.

The Mortgage Reports recently provided its forecast of residential mortgage rates for the first-quarter of 2021. Specifically the forecast calls for record low rates to drop even more in January & February. Then creeping up a bit in March (but still well below 3% for a 30-year fixed mortgage.) We expect that rates will hoover in this territory for the remainder of 2021.

Mortgage rates primary driver is the Federal Reserve with its monetary policies. The continuation of the Fed’s commitment to easy money will keep pushing assets prices higher. Recently the Federal Reserve commented that this strategy of “loose money” will continue for at least 2 years! It is transforming from inflation-fearing to recession-fearing.

Pandemic demand continuation?

The COVID pandemic has forever changed the work environment landscape. Many workers report enjoying all the benefits that come with WFH. No commuting, more time with family, connivence of doing the work on their terms. Even with the vaccine on the horizon, many expect a fundamental shift to continue in all real estate markets in the US.

Post-vaccine we expect to see many companies switching to a hybrid-WFH business model. Many businesses are reporting much higher employee productivity with the elimination of commutes. Plus, a remote worker does not need the footprint in an office allowing for much smaller work spaces. Downsizing office and work space means more savings right to the bottom line!

Employees who enjoy the WFH will gravitate to employers that allow for them to continue with flexible schedules. Talent that is in scarce supply will walk now that they see the possibilities. Slowly workers will return to office and working spaces but not on a full time basis.

Prediction for 2021 California real estate market

Overall the real estate party will continue to roll in 2021 for residential markets. Commercial office space we expect more stagnation as new demand will be slow. So existing business will continue to reduce foot print sizes. For investors in residential real estate and trust deeds we expect strong returns to continue with minimal risk.

Here at Coastal Capital Group we won’t be changing our conservative and fundamental approach to underwriting. We will keep deploying capital into solid deals meeting our proven fundamentals. If you are sitting in cash, it’s pretty clear that you want to get out of it to avoid inflation erosion.

With the Fed’s commitment to fighting the recession, inflation will increase. Not surprising if the US sees inflation at 4% or more. We strongly suggest getting out of cash and investing in assets or strong cashflow. Start earning returns now either in purchasing residential real estate or investing with us! To learn more about Coastal Capital please visit our Investor Page.

November 8, 2020 by Scott Griest 0 Comments

Advantages of Investing In Trust Deeds

Why Trust Deeds?

Learn why savvy investors love investing in Trust Deeds for the consistent returns. First off a Trust Deed, also known as a Deed of Trust, transfers legal title in a property to a trustee, which hold it a security for a debt. This is very similar to a mortgage, but the main difference is the number of parties involved. With a Trust Deed there are three: Trustee, Borrower and Lender. With a Mortgage just two parties are involved: Borrower and Lender. This is the single most popular question we get. For more detail please check out Wikipedia‘s page on Deed of Trust

Recording Security For Debt

Trust Deeds are recorded in the county where the property is located as evidence of the security for the loan, just like a mortgage is. Hence the closing process is nearly identical to that of a conventional mortgage. When the debt is fully paid the lender must promptly direct the trustee to transfer the proper back and release release the security for the debt. So investors in Trust Deeds have the same security in a piece of real estate that a bank does when making a loan.

Consistent Cash Flow Every Month

Each time a borrower makes a monthly interest payment that puts money in investors pockets. In addition the return on Trust Deeds will range from 8% to 14%, creating significant cash flow with low risk. Now, if you invest in just one or a few Trust Deeds and one stops paying this can significantly decease the monthly revenue. At Coastal Capital we pool investors monies together and invest in 60 or more Trust Deeds to diversify. If a one or a few borrowers stop paying then cash flow is only minimally effected. There is definitely safety in numbers when it comes to investing in trust deeds!

Faster Foreclosure With Trust Deeds

Foreclosure is often much faster and less expensive with Trust Deeds than Mortgages. When a borrowers fails to pay a quick foreclosure process often motivates the debtor to make their payments! No one likes to foreclose on a property but when its required a quick and inexpensive process is appreciative. For investors this means that their cash is not sitting idle in a long, drawn out process and is earning interest in a performing loan. In addition, investors have to outlay on a minimal amount of legal expenses to complete the foreclosure process.

Ready To Start Investing In Trust Deeds?

If you’re ready to start enjoying way above average returns on your investments that are all backed by real property pease reach out to us. We always enjoy educating our investors on our specific investing strategies. Or for more detail on Coastal Capital check out or Investor page.

November 1, 2020 by Scott Griest 0 Comments

Want A Safe Investment With Stable Returns?

Consider These Low Risk Options For Investing

Between FDIC-insured deposit accounts and a few conservative investments, you’ve got options.

When the markets turn volatile, safe investments providing stable returns get their moment in the sun, and for good reason. FDIC-insured deposit accounts and other low-risk investments help investors grow their wealth. At the same time erring towards caution to keep their savings secure. Remember, though: Low risk generally means low return. Which means most make sense when you’re investing for the short term.

If you’re investing for the long term (think more than a year) low-cost equity investments in some index funds and alternative investments such as Coastal Capital’s trust deed (mortgage) fund are often a better choice.

Lowest-risk ways to grow money

The investments below all come with insurance. Which makes their risks practically nonexistent. But their yields are also very low compared with the long-term returns you can get elsewhere. So while they offer stable returns, the returns are just a penny or less on the dollar currently.

  • Money Market Accounts – Currently pay 1% or less but come with FDIC insurance guaranteeing the first $250,000
  • Online High-Yield Savings Accounts – Currently pay 0.75% or less and are also insured by the Federal Deposit Insurance Corporation
  • Certificate of Deposits (CDs)/Treasure Notes, Bills & Bonds – Basically depositing money with a Federally insured account or with the government. These are locked up for a certain period of 6 months or more that pays less than 0.5% currently.

While all the above are insured they pay returns that do not even keep up with the pace of inflation. Which means when you need to spend funds you invested they will actually buy less goods than when you first invested!

Low Risk Ways To Grow Money

Traditionally, low risk investments are backed by hard assets that tend to slightly appreciated over time. Generally they are not subject to wild valuation fluctuations. The time tested asset that the wealthy prefer to invest in is good, old fashioned real estate. It provides the stable returns everyone is seeking. At Coastal Capital this is our preferred vehicle for creating wealth as well, thanks to its consistent returns that are produced month after month will virtually zero risk.

Don’t think that you have to buy rental properties and then deal with tenants and trying to collect rents. There are quite a few ways to invest in real estate directly and indirectly to enjoy above average returns. All without being large swings in value.

  • Buy & Hold Rental Property – Rental income provides two great benefits of monthly rents and depreciation for tax purposes. If purchased correctly one should enjoy returns of 10% or more. And then also get the added tax savings which can be significant according to Investopedia. The only issue is a large down payment is needed to start investing
  • Real Estate Investment Trusts – These are traded funds that pool investors monies and invest in all types of real estate. The fund charges a fee to manage everything, so it’s almost like buying a stock. Therefore the value of the fund can change quickly depending on the fund’s results. 10.5% annual return can be expected for low risk options. Great option for those with a few thousand dollars to invest
  • Trust Deed Investment Funds – Such as Coastal Capital, loan mortgages to property owners and then collect the rents and other profits and distribute to investors monthly or quarterly. To limit risk we suggest sticking with funds that have zero or low leverage and do not lend to borrowers at higher than a 75% loan-to-value ratio. In general returns will be between 12 to 15% annually. Generally need $25,000 or more to start investing.

The stock market has been generating amazing returns for the last few years, however that will not always be the case moving forward. If you’re seeking consistent & reliable returns check out one of the low risk suggestions above.

Coastal Capital delivers these consistent returns for over a decade at 14% or more historically. We welcome the opportunity to partner with you start growing your wealth! Give us a call at 310-280-7223 or click here to learn more.

September 21, 2020 by Scott Griest 0 Comments

Why A Hard Money Loan Can Be Worth The Cost

Part 2 Of Coastal Capital’s Blog Series: Introduction To Private Mortgages

Why are real estate borrowers willing to pay higher rates to borrow private money also known as a hard money loan? With hard money loan interest rates around 12% plus points added in, the borrower is paying a premium. It’s obvious why this is a great deal for the private mortgage investor/lender and the broker. Why are real estate investors be willing to pay these high rates when conventional mortgage money costs 6-8%? There reasons are many, but generally all tie to four advantages:

Speed of Closing the Transaction

Mortgage money from banking or institutional sources usually takes between 45 and 90 days to fund. Institutional lenders need to not only obtain appraisal of the value of the property. Then, require a detailed examination of the borrower’s credit history and current financial status. Finally, financial statements and tax returns for the property securing the loan are needed. And lastly all other properties, business interests owned by the borrower are examined. 

Coastal Capital and other hard money loan lenders can usually complete a transaction within 5 to 15 days. The property value itself is the main criteria used in determining loan eligibility. Less information on the borrower and the borrower’s other properties is required, resulting in a fast approval process. Coastal Capital is protected by lending at a much lower loan to value ratio, 65% is typical vs. 80% – 90% for an institutional lender. Further, private mortgage lenders can make a decision within 24 hours of receiving an application. Institutional mortgage money must receive the approval of a loan committee that may meet twice a month.

Real estate investors often need immediate financing to take advantage of an opportunity to purchase a property below market price. In many cases a motivated seller being forced to sell and the borrower has to act fast and a hard money loan is a good choice. Sometimes its possible for an investor with quick financing to purchase the property at 70-75% of market value. Especially when it’s a foreclosure opportunity. Conventional or institutional financing takes too long (according to Zillow the average is 30 to 45 days https://www.zillow.com/home-buying-guide/how-long-does-it-take-to-close-on-a-house/?106724136213dsa-588695699669459688491291 ).

Real estate investors wanting to take advantage of an opportunity either needs cash liquid or utilize the services of Coastal Capital. With so much profit potential, paying a premium is a small price to pay for completing the transaction. If the real estate investor keeps the property, he can start refinance with conventional money right after closing. If the investor in the above example seasons his property, (owning it for 6 months to 12 months), it often appraises much higher than the purchase price. Then the entire purchase amount can be financed with a conventional mortgage. The end result is the investor owns a cash flowing property with no net money out of his or her pocket.

Sometimes, real estate owners are in temporary financial trouble, and need a loan to avoid losing a foreclosure. At just such a time conventional lenders back away. Coastal Capital can provide refinancing, providing a lifeline to the property owner to avoid foreclosure. This gives time to regroup and reestablish credit then refinance at a later date with conventional financing. So when time is of the essence a hard money loan is often used for:

  • Closing on an opportunity when a quick close to purchase a property well below market value; then immediately refinance it through a bank
  • To quickly secure a property and remedy cash flow issues in the mid-term to secure a higher appraisal and cash out in six to 12 months
  • Save a property from foreclosure and expensive tax liens giving the borrower breathing room

Borrowers May Not Want or be Able to Provide Personal Financial Information

Unfortunately, many borrowers fail to keep good financial records. This is especially true for small business owners. They often manage the businesses financial success based upon the business’s checking accounts balance.  Often people are tardy on filing tax returns or accountants are behind in preparing financial statements.

Institutional lenders demand detailed accounting of the real estate investor’s personal and financial life. This is all important and required to the institutional lender. It’s making a loan based upon the credit of the borrower and the value of the property. Not being able to provide complete and detailed personal financial information causes major issues. Often it negates or at least severely delays getting an institutional mortgage. It has no effect on the borrower’s ability to obtain a private mortgage loan. 

Many borrowers simply do not want the hassle of filling out applications. Then providing financial documentation, producing profit and loss statements which can be painful. Finally going through credit checks, explaining minor credit issues, and providing tax returns. Many of our hard money loan borrowers buy multiple properties each year. Unless they plan to hold a property for the long term they either use bank pre-approved credit lines or private mortgage financing. This saves time and hassle and provides assurance to the seller that a transaction can be completed on time.

Sometimes life situations dictate the willingness of a borrower to provide details of their financial life. Some of our clients have perfect credit and could have easily secured a much lower cost via conventional financing. However they might be going through a divorce or involved in a lawsuit. Keeping their financial matters private is sometimes the upmost concern.  So when financial information or disclosures cause an issue many use a private mortgage. Examples include:

  • Borrower cannot produce proper financial documents or is behind in preparing statements and tax returns
  • Risk of improper financial documentation delays closing with bank so the borrower chooses private money to ensure closing
  • A borrower is unwilling to disclose financial documents due to a myriad of reasons

The Borrower and/or the Property Does Not Qualify for a Conventional Mortgage Loan

This can be anything from low credit scores, already having too many mortgages or the property does not produce a sufficient enough income. Further, the property itself may not support the type of loan the borrower wants. If major repairs or rehabilitation is necessary, institutional investors will not be interested (especially if it’s a small project) and the borrower has an extensive track record. In these cases, a private mortgage may be the only resource to the borrower. At Coastal Capital the borrower’s credit is not an issue.

Professional real estate investors, entrepreneurial individuals who buy, lease, manage, build and sell real estate full time, often reach a point in their career where conventional financing is hard to come by. Somewhere between ownership of four small residential units where qualification is based on personal credit, and ownership of large office buildings where qualification is based on the property’s cash flow, all real estate investors run into a financing problem. They have too many properties to qualify as a small investors but the property’s cash flow won’t qualify on its own strength.

Further, the professional investor will not have a steady income from a job or other verifiable income. It is at this point that the investor must make a decision; take on partners or pay the high interest and fees for private mortgage. Ask any successful entrepreneur and all will saw that borrowing is always less expensive than paying a partner equity (plus all the potential headaches that come along with managing a partnership.) To summarize the reasons why a borrower or a property can’t qualify for conventional financing and borrowers choose a hard money loan:

  • Borrower has credit issues or like many entrepreneurs and small business owners cannot provide verifiable income in the form of payroll
  • Successful real estate investors often acquire too many properties to quickly and banks are uncomfortable lending to one individual with over five mortgages in their name
  • Many investors gladly trade a higher interest rate from a private lender versus taking on a partner and giving up equity in a property
  • The property itself may need repairs or upgrades prior to qualifying for conventional mortgage financing

We specialize in private mortgages (hard money lending) over the past 12 years. Coastal Capital’s experience has seen countless iterations of the reasons above in lending situations.  We are constantly financing properties just like the borrowers and are comfortable with the scenario. In addition, Coastal Capital is a direct lender and NOT a syndicate. Syndicates issue an approval and then send out the loan to a network of investors hoping to raise the money for the deal.  Instead, we are a private fund, where investors pool their capital. Then invest in hundreds of mortgages to diversify across borrowers and properties.  We usually close a transaction in a week. So we can’t issue an approval without having the cash to fund the loan.

Coastal Capital built its stellar reputation since 2007 with borrowers and brokers by following through and closing on time.  You can count on Coastal to put a smile on your borrower’s face. Please visit us at CoastalCapital.com to learn more.

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