Friday, March 7, 2014

Private Money Financing

The loan we love to hate:  Private financing.  What we used to think of as throwing our clients to the sharks has changed dramatically these last few years.  When banks were so tight they squeaked it was the private sector that came to the rescue more than once.  While rarely anyone’s first choice due to their higher interest rates and fees they offer some pretty enticing advantages over bank financing.  Need a loan closed in 72 hours to make your deal happen?  Forget the banks.  Call in the private cavalry to save the day.  Those higher interest rates look pretty good when the alternative is losing the deal.  Not all private money firms are created equal however.  Lucky for us there are some respectable firms right here in town…

It’s true.  Looking for private money can feel like swimming w/sharks.  But, we’re lucky to have several good private money firms in Eugene.  One of the oldest and possibly best known is Gallic Financial often touted for not having pre payment penalties.  After all, most of the time when you need this type of financing it’s a short term fix.  I’ve dipped my own ladle into the private money cauldron more than once and I’ve yet to be sorry.  We bought a duplex for a song at the bottom of the market and it would never (and I mean NEVER) have qualified for any kind of bank financing due to its condition.  Just as important the seller needed cash and needed it now.  Enter the private money financier.  The duplex has since been remodeled and refinanced and a grateful nation thanks the private money folks at Gallic for closing that particular investment emergency.     

What works for private money and what doesn’t?  Some folks think that bad credit = private money.  Not so fast.  Private money companies don’t want a bad credit risk any more than any bank.  Any bad credit better be well explained, in the past and unlikely to reoccur.  What private money lenders are looking for is the one that falls through the cracks at the bank.  An odd property.  A unique employment situation or funds to close coming from an unusual source.  Something that makes sense to everyone but a bank.  And lately there’s been no shortage of those kinds of deals. 

Private money folks have been busier than anyone else during the financial squeeze of the last few years.  And because of that they have become more selective in the types of deals they are interested in funding.  A limited supply of money means they can pick and choose a bit more than in yesteryear.  Don’t be shy about calling them on any deal.  I’ve always been told to call, or have my borrower call, if it even looks like there is a deal to be made.  The private money guys (and gals) tend to be creative and think outside the box.  Maybe they can cross collateralize more than one property.  Maybe they need a cosigner to feel comfortable.  Whatever it takes.  They are masters of creative financing.  Just make sure you have an exit plan.

Eric Lundberg - NMLS #261588
President, Chinook Mortgage Ltd - NMLS #261588

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