Q: What is a private money loan, and how does it differ from a conventional loan?
A: Wikipedia defines a private money loan as, “lending money to a company or individual by a private individual or organization.”1 Essentially, private money loans are loans made by individuals or groups of individuals to a borrower.
Private money loans differ from conventional loans because there is an elevated risk for the investor. Typically, borrowers use private money when a conventional loan is unobtainable or conventional lenders are moving too slowly. Because of the increased risk and the need for quick funding, the rate of return for the investor, and, consequently, the interest rate for the borrower are somewhat higher than conventional loans.
Q: Why do borrowers use private money?
A: There are a number of reasons why borrowers use private money. Typically, it comes down to one of two (or both) factors:
- The borrower cannot obtain a conventional loan
- Have loans on other properties
- Below average or no credit
- Recent short sale (4 year waiting period for conventional loan)
- Recent bankruptcy (7 year waiting period for conventional loan)
- Recent foreclosure (4 year waiting period for conventional loan
- The borrower needs funds quickly
- Institutional lender is taking too long to underwrite: fear of losing the deal/property
- Need cash to move on a foreclosure or short sale
- Limited window or short escrow; not enough time to deal with conventional lender timelines
Q: Why should an investor lend hard money (invest in trust deeds)?
A: Can you drive by a stock? Do you have collateral if a stock stops providing a return on investment? The answer is no, and the key word is protection.
Trust deeds provide an 8% or more return on investment paid out monthly, with a balloon payment of the initial investment due on the date specified by the note. They provide a steady stream of income with the asset as collateral to protect your initial investment. In addition, a performing trust deed can be sold with relative ease, providing liquidity if necessary.
Q: What kinds of property does Presidio Mortgage lend on?
A: If it is real property, then we likely lend on it. We lend on raw land, commercial property, residential properties for investment, residential properties that are owner occupied, construction loans, and more.
Q: How little or how much can Presidio Mortgage lend?
A: Our loan size is typically in the range of $50K to $5M.
Q: What is the term of the loan?
A: Loan terms range in duration from one to five years.
Q: Why should I go to Presidio Mortgage for private money loans / investments?
A: As a borrower, your loan will be evaluated quickly (usually within a matter of hours). We have no upfront fees, can close in as little as 3 days (our strong investor core allows us to be quick and decisive), require minimal documentation, have no prepayment penalties on owner occupied properties, offer flexible and creative loan structures (i.e., using other real property as collateral to bring your loan-‐to value ratio in line), do not require income verification, and can work with a variety of legal entities (individuals, trusts, corporations, partnerships, foreign entities, etc.).
As an investor, your security and a steady stream of income are our top priority. We are extremely proud of our strong core of investors. We value properties on the conservative side, and always ask the question, “Would I put my grandmother in this loan?” We believe in the product, and are each heavily invested in trust deeds.
Q: What is typical interest rate / rate of return on a private money loan through Presidio Mortgage?
A: There are a variety of variables (loan-to-value ratio, credit of the borrower, location of the property, etc.) that play a role in determining the interest rate an investor will require to fund a private money loan. Typically, we see interest rates in the neighborhood of 8%.
Q: Are there points associated with the loan?
A: Yes. These are paid by the borrower at the time of closing, and typically range between 2 and 4 points.
If the LTV ratio is strong (typically 67% or better), the borrower may have the option to finance points by rolling them into the loan, resulting in 0 upfront points.
Q: What does my loan-‐to-‐value ratio (LTV) need to be in order to secure a loan through Presidio Mortgage? Why is LTV so important?
A: We usually require a LTV of at least 70%.
LTV is the single most important factor in determining whether we can or cannot fund a loan. The lower the LTV, the more the borrower has invested. The more “skin in the game” the borrower has, the more comfortable the investor feels that his or her investment is secure.
LTV can push a deal one way or the other. For example, let’s say you have two properties – one that is an extremely desirable area, and one that is in an area that is not as desirable. Your LTV on the “desirable” property is 80%, and your LTV on the “not as desirable” property is 50%. A private money lender would be much more likely to lend on the “not as desirable” property because the protection is greater.
Q: Do I need an appraisal on the subject property?
A: No. An appraisal is typically not necessary. We use comparable properties in the area, pictures and a drive by to determine value.
Q: You have not answered my question. Is there someone I can talk to?
A: Of course! We would love the opportunity to answer any questions you may have and to discuss our products with you. Please reach out to the Presidio Mortgage team via email or phone using the information provided below: