The Dirty Truth about Gap Funding!


What is Gap Funding?

It’s a term that’s used very loosely.

To some, it may mean that they are looking for additional capital to “gap” a loan. However because this is such a rare occasion, most have no idea what this means.

First of all, when people seek gap funding, they don’t realize that they are alerting the lending community that they are not liquid enough to do their deal. This is already a red-flag!

Who gets Gap funding?

Gap funding, when used in the sense that I referenced above is reserved for operators and investors with prior experience flipping properties. This means that lenders want to see that you were on the HUD or Settlement statement, not just participated on the deal.. this means you have to prove your exits.

Also this experience has to have taken place within the past 1-3 years. They want you to have current knowledge of the challenges of fix and flipping before they trust you with a no-money-down transaction.

They also want to see that you have “reserves”.

This means that once they make the 100% loan to you, which includes their expensive gap capital contribution, they want to see you how you will make those payments!

If you expect them to cover all of the rehab, construction, holding costs and selling costs, the deal has to have lots of REAL potential after remodel value, prove this by having supporting comparables.

The subject will have to be in the best areas, and you need to know your rehab budget, and get it confirmed by a contractor and his proposed team. Get each trade’s bid verified if you must. This will allow you to prove the feasibility of the project. The lenders actually want to know what materials, how much labor, hours needed to complete the deal, etc.,

Gap Funding behind another Lender?

This is the usual request, a prospective client goes and gets a 1st loan quote with a “gap” that they need to find somewhere.. anywhere ! Many times the down payment is not sourced and doesn’t need to be seasoned.

The general answer is NO.

  • No because the lenders don’t know each other.
  • No because the lenders don’t know you.
  • No because I don’t know you.

Real estate is a relationship business, and a joint venture (which is what you’re proposing) is akin to a marriage, and it takes a bit of dating, and lots of trust to create that environment.

In a short answer, forget about it.

Do you have recent experience? And you need gap funding? Why?

Lenders wonder if you have a problem managing money, managing your team, managing the rehab process, or who knows right?

They ask themselves if you have recent experience why would you need gap funding.

You should be prepared with answer and Letter of Explanation to calm these concerns.

A.R.V Lending

ARV = After Repaired Value

In cases when you find an awesome opportunity, some lenders will use a formula – they add acquisition cost, plus the rehab cost, plus the closing costs, and then divide that number by the expected retail price, it gives a number, that percentage is your % of ARV, generally they max this out t 75%.

Example = $650,000 purchase price + $100,000 rehab, 8-9% closing costs = $117,000 = $867,000. Divide that by the expected retail price of $1,300,000 = 66% of ARV.

If you landed that deal above, an ARV, asset-based lender may be interested in working with you, provided you have experience with this level of flip.

That brings me to another point. If you have history of flipping $100,000 homes, but suddenly want to flip a $1,000,000 home, you may meet some resistance. Not only does the expectations grow larger, but the LTV’s get smaller, which means that down payments go up, you may then have to bring in 10%.

Alternative Funding to Gap your deals

My advice is that you consider the following alternative funding methods we’ve used to help investors get deals done.

In order to get funding, you have to be coming from a position of strength. This means you should have good credit, in this case I mean 700 fico scores. If you have a business with revenue even better, having assets that can be leveraged and possibly earning income sweetens the deal!

Unsecured Personal Funding

This can come in the form of credit cards, credit lines, from a variety of sources. These have different terms including 0% interest for an intro rate to induce you to use the credit, or 8,10, or 18%+ right off the bat. You can stack this funding up and settle around $250k, which is probably 6-7 different tradelines, with major banks like B of A, Chase, PNC, Barclays, Navy Fed, Penn Fed, Discover, PayPal, and many others. Of course, every tradeline will suffer you an inquiry, of course, this fall off or can be removed for a fee.

Business Term Loans

The business term loans are also for 700+ fico scores across the board, you will need to claim $50,000 in personal taxes, if you qualify – the rates are around 6%-9% depending on your credit profile. The term is 5-7 years. We can raise up to $500,000.

Cross Collateralization

If you have existing assets in your portfolio, these can be residential or commercial, they should have some equity, perfect if they are long-term holds. You can add extra leverage to your purchase by allowing the lender to place a lien on additional assets. This compels the lender to move forward with the loan because you’ve reduced the risk and shown good faith.

Revenue Loans

If you have a business and you earn income, you may be able to leverage that and get a lump sum that you can use for gap funding your deal.

Friends, Family and OPM

This is the hardest source of capital to get, but it would likely be a better choice than shopping for a 2nd lien, often they won’t require so much paperwork, and probably won’t require a 50/50 split, saving you a bunch on the back-end.

Creative Financing

Today we need to be fully educated and aware of the many alternative funding options available, or know someone that is!

Sometimes funding a 1st or 50th transaction requires someone with the resources and experience with structuring multiple funding rounds to achieve a goal.

I will be ready to hold your hand to get you through your first flip or purchase of a rental property, or refinancing of a portfolio or project that is about to balloon, or you just want to explore new terms, it’s no risk! I never charge consultation fees to quickly go over a loan scenario or help a borrower through the process.

If you have an interest in real estate investing, flipping, or in the market for a loan, please contact me.

Wholesaling and Flipping

Many people start off wholesaling properties – this is another term that is often used freely and could mean many things, but for this article, I’m referring to finding sellers and properties listed with agents and matching them with your investor and buyer lists to earn marketing fees for facilitating the transaction.

Investors AKA check-writers need “boots on the ground” in order to drive leads for analysis. This builds their funnel, you keep a flow of target properties coming their way, they’ll reward you with fees of $1000-$10,000+ depending on the deal and the principals.

Using my old-school approach and combining this with technology and tools, you’ll learn to structure deals from on-the-job training, but I’ll be here to answer your questions and hold your hand.

Private Lending Consultant Flight School

I offer mentoring – in these formats: Live, and on your schedule, we’ll have phone calls and Zoom screen-shares, you’ll get lots of resources including documents, templates, marketing and full instructions. Tactics that work in today’s market! You can get more info here.

Private Lending Success Video Course

I’ve Pre-recorded 6 modules that will teach you the basics and tricks I use in private lending, perfect for real estate agents, loan officers, real estate wholesalers, even those looking for another source of income. This course is short – 4.5hrs, and will teach you how to use a mobile phone to launch an extremely effective and powerful marketing campaign.

Download Private Lending Success Ebook FREE for a limited time!

Visit this link and confirm your email and receive the PDF

You can register for free on my pre-launched site Lender Tribune

Or if you want to pay a few dollars, go over to Udemy and sign up there.

greg@fixandflippers.com

323-632-3279

Investor Bailout Loan Options Available.


Need an Emergency Loan?

Lenders I work with are making loans for homeowners in foreclosure or default.

Bail Out Loans

They are very effective in assisting homeowners in foreclosure or Default in restoring their loan Situation.

65% L.T.V Cash out with Default or Foreclosure

Our Specialty loans

  • Bailout loan 65% L.T.V 
  • 2nd T.D. For Business Purpose up to 65% C.L.T.V
  • Land Loans up to 70% 
  • Purchase Fix and Flip 90%  with 100% Rehab. 
  • 1 Day in the Investment business no problem 80% L.T.V. Purchase.
  • 1 Day on Title 70% L.T.V Refinance N/O/O

Gap Loans

Gap loans are generally high interest, last option loans that may cost 12% + APR and more than likely will cost a chunk of your profit on the back end. Many lenders will ask for up to 50% of your profits.

Most lenders won’t gap behind another lenders loan. If you lack the funds for a down-payment but your deal has a lot of current or potential equity, you may persuade them to go up to 75% of the ARV or after repaired value. This would include funds for acquisition, rehab and holding costs such as interest payments, etc.

Gap loans can also be self-generated by way of unsecured credit lines, business credit lines or term loans.

Also EMD funding is available to assist in certain situations.

Business Lending

They provide capital based on an average of $10k monthly deposit and 6 months in the business. They can fund in as little as 5 days. 

Residential, Multi-Family, Commercial, Specialty Properties and Land

Large or small, condo or townhouse, house or Mansion. 

Contact Me greg@fixandflippers.com

Hard Money and Private Funds Available for Investors


Hard Money & Private Funds Available for Investors
Loans from $75,000
Not many lenders arrange loans as small as $50,000. We will!
Fix and Flip
We lend up to 90% of the purchase price and 100% of the renovation budget. In addition, we don’t charge interest payments on the rehab dollars until it is drawn.
Competitive rates and fees 
You came to the right place if you are looking for a private or institutional hard money!
Bail Out Loans
An equity-based program. If we can keep it under 65% LTV, we can bail
you out in 7-10 days. (Only CA and TX)
Commercial, Land, Agricultural and Specialty Properties
Commercial, apartments, land, Wearhouse, partially completed construction projects, industrial, automotive and many other types of properties are those we lend on.
2nd and 3rd Mortgages
We arrange second and third mortgages every month.  (Only CA, TX)
Construction Completion/Development Project
Got construction project? We have multiple ways to structure your file, so you can complete your project and get it sold!
Business/Merchant Funding
Do you need working capital/payroll/expansion for your business? We
can fund in 5-7 days. To qualify, all we require is the business to be
established for at least 6 months and provide 6 months business and
credit card-merchant processing statements. 
                                                                     
Long Term Rental Loan Programs                                                                      We offer 5,7,10 and 30-year fixed term, starting at 5.875% rate and can
leverage up to 85% LTV

Looking for Investors with Liquid Funds to deploy on 2nd Trust Deed Opportunities


download (1)

If you aren’t meeting your financial goals this year due to lack of deals, consider investing in 2nd Trust Deed opportunities or Gap Loans, as they are affectionately called.

You get handed the best deals on a silver platter – without the responsibility of marketing, lead generation, follow-up, deal structure, project management, etc. you earn upfront points, monthly interest payments and profit splits at the end.

download

I’m looking for Investors who want to invest in 2nd Trust Deeds, who have between $150K-$10M to deploy NOW on primarily California  Non-Owner Occupied & Commercial loans. But we are also working with borrowers in NV,CO,WA,AZ,FL,GA,NY who are in need as well.

images

Every lender wants to make loans to the best operators: these are the investors with lots of experience, stable business models and capital reserves..but the catch 22 is: these guys already have lender relationships, one that offers (too good to pass up) terms, usually 100% of their acquisition costs, 100% of their rehab costs, and interest reserves to cover the payments for 6-18 months.

So the best way for a lender to work with the best operators is to come in as a Gap lender in 2nd position, but since the interest payments are covered on the 1st TD and rehab budgets are controlled, it offers a great opportunity to make a safe loan with a high return.

Usually the Gap loans are from $100k-$500k and short-term, 6-12 months, they may cover closing costs, rehab or costs to acquire permits and plans, which would enable the next stage of funding.

Somerset 3

Rancho Rendering

home1

I’m looking to connect with individuals who have experience in making trust deed loans.

  • These investors can enjoy passive income from 9.99%-13% + per annum, plus a generous split of the profits.
  • The loans are secured by trust deeds and will be 2nd Trust Deeds.
  • I have over 13 years experience in real estate with 7+ years in finance.
    I’ve developed relationships with top industry professionals to source them private financing options for Fix and Flips, Ground-up Construction, Luxury Re-Developments, Commercial Multi-Family, Mixed-Use Acquisitions & Refinances, also Credit lines for Flippers.The operators I work with agree to Joint Venture structured loan programs to enable the investor to earn attractive returns.The subject properties are located in: **CA,FL,GA,TX,AZ,NV,WA major areas and are non-owner occupied or commercial.

download (2)

  • Rehab Funds are always held in control to protect the investors.
  • Everything can be turnkey: Servicing, Foreclosure (if necessary) Project management/Rehab & finally disposition.
  • With a full pipeline, you can immediately deploy your funds to work on low LTV deals with turnover of those funds at least twice per year.  In fact, I constantly get requests from investors needing funds for their Gaps..
  • Escrow & Title with every transaction.
  • Investors receive full due-diligence file before making decision or deploying funds.If interested inquire below or email me.

Greg@FixAndFlippers.com

5

Business Funding & Gap Funds for Investors


images
As a consultant, I often hear of the “growing pains” business-people suffer when attempting to scale up their businesses.
I tend to work with a lot of real estate investors to raise capital for their businesses.  Working capital allows them to have funds for marketing, expenses, and fills in the gaps from hard money.  Their funding range is typically from $50k -$150k.
images (2)
I partnered with a company that helps business owners secure unsecured business lines of credit .  The credit lines are based on personal credit, however, the lenders we work with ONLY report to the business credit bureaus (Dunn & Bradstreet, Corporate Experian, and Equifax Commercial).  This is advantageous to the business owner in three ways:
1. You are establishing business relationships with quality lenders.
2. You are building your business credit profile.
3. Even if the lines are maxed out, it will not affect the business owners personal credit.  

Other Aspects of the Program:

Requirements:
1. Must have a business entity registered with the state (s-corp, c-corp, or LLC)
2. Must have a personal credit score of 680 or Higher or the option of using a credit partner (Lower scores can be use on a case-by-case basis)

Features and Benefits:

1. 0% interest for the first 6-12 months.
2.  NO Upfront fees or costs.
3.  Approval decision within 7-15 business days.
4. Complimentary consultation and business analysis.
5. NO income verification,
6. No collateral required.
7. Credit lines are unsecured.
images (1)
They do not charge any up front fee’s to clients.  They are a success based company.  After the client receives funding they charge a one time fee of 8% of the amount raised for the client.
If they do not get funding completed, they don’t get paid!

Contact Me To Get Started!

Standing in a Lenders Shoes: How They Size Up Potential Borrowers For ARV Loans


image

                      From A Lender’s Eyes

I’ve had the opportunity to speak with many lenders over the last couple months. And I’ve spoken to 3 times as many home flippers.
The nature of the market has created an environment in which there are some amazing deals available.
However, these deals are becoming increasingly more complex with higher purchase prices, larger rehab budgets, and located in more exclusive communities.

This breeds a couple results:
-Lenders are more concerned about the borrowers experience with this business. (have they flipped homes before?!)
-Tighter guidelines, lower LTVs, increased scrutiny over credit, recent accounts, income and assets. (Are they responsible?!)

100% Financing Models
These were designed to offer maximum capital leverage for the professional property flippers who have proven priority examples of buying low, appropriately managing rehab budgets, complete the sale by achieving the target ROI or exceeding it, not once but multiple times.

These preferred investors know their business and they are willing to put their own “skin-in-the-game” which equates to cash, existing assets, or equity; sometimes all of the above.

The lenders don’t want to lend their money to anyone who
A.) Has no risk in the transaction
B.) Has no experience
C.) Has no money in the deal

Wait a minute Greg! Sounds like a catch 22!

It’s true.

You need a loan because you don’t have enough cash.
You can’t get the loan until you can bring enough cash to close.
How do you get the cash to start with?

I can think of a couple ways, wholesaling is one way.
The other way is: something called a Gap Lender.

Most properties don’t qualify for 100% Financing. 
(A simple exercise is: add the acquisition+rehab  then divide that by the ARV) If that exceeds .70, it does not qualify for 100% financing.)

image

 

 

 

 

 

 

Gap Lenders
-If you are lucky enough to have a relationship with a lender who will loan in 2nd position, this can be used to secure the larger portion of your loan which is the acquisition portion and holding costs (monthly interest-only payments 6-12)
-The Gap Lender will be providing the rehab budget (which is actually held in control) this is an assurance to the 1st trust deed investor that the funds are present to secure the completion of the project if the borrower defaults.
-The Gap Lender will be paying the closing costs (points,escrow,title,processing)
-These are often highly sought-after capital partners.
-They are often impersonated by lenders who have no real intention of lending in 2nd position, they want to see the deal and will try to loan the acquisition portion.

image

Equity Splits
-The Gap Lenders are heavily rewarded for their risk incurred.
-They earn 50% profit split on the back-end of the deal, interest-only payments, and points.
-With profits in excess of $150k in 6 month time-frames, you can see how it would be attractive.
-The borrowers are professionals, so they are available to secure the best projects with the most upside, they have large cushions built-in for Finance costs, so they happily work with Gap Lenders to secure preferred financing options.
-I’m seeing guys with profits projected to be in excess of $500k, with volume in mind, they want a good capital source that they know can/will fund their next flip. They can afford to give up 50% in exchange for JV capital in quick flip scenarios.

image

Most borrowers will fit in the 80/80 program, or 80% of the acquisition, 80% of the rehab funds.

This program has borrower participation or skin-in-the-game. You will need to find those funds.

If you are a gap lender, please contact me. I have business for you.

If you are a serious, accomplished flipper and you want a relationship to deliver the largest loans possible for your flips, contact me with your scenario.

Purchase, Refi, or Cash-out

Luxury, Bread & Butter, Cross Collateralized Assets possible

Greg@fixandflippers.com | 858-386-0949