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

Creative Commercial Mortgages Being Funded Nationwide from Our Partners


We work with strong commercial lenders, they are nationwide direct non-bank lenders. They provide Transactional loans, they are one of the few  SBA Preferred Lender and they specialize in owner-occupied properties.

Some of the deals they’ve funded are:

Atlanta Office Building

Office Building in Atlanta the loan was submitted on a Wednesday, and they had approval by Friday. They sent docs out the following Thursday to meet the close of escrow. This was a 65% LTV Conventional loan of $2,080,000

Childcare Funding

They rose to the occasion with a lucky teacher in GA, funding a childcare facility using an SBA 7A loan with a high LTV (87.5) in a rural setting and startup business! They had other obstacles but persisted with creative financing and some additional collateral, they were able to close!

Industrial building funding

With an Industrial auto service bank turn-down that was submitted on the 16th for approval; by the 27th they used a SBA 504 loan and a combo 1st Trust deed and Bridge loan totaling over $3.3M. They closed this 90% LTV loan in Los Angeles in 2 weeks.

Fast Food Funding

Even after several lending institutions passed, because there were very minimal industry ownership/management experience, they were able to fund a fast-food purchase with a 2 loan combo for over $550,000 in CA.

Construction Company Funded

Our partners pleased their Construction company borrower after performing on a previous loan, they received the opportunity to fund a refinance of an existing asset, the borrower had issues and were declined by 3 other banks, the current loan had matured, and the borrower needed a 6 figure cash-out for working capital,  they obtained a 60% LTV conventional loan for $600k cash-out.

SBA 7a Loan Funding in North Carolina

They provided a $1.1M cash-out on an office condo in NC for a borrower to pay their taxes to be eligible for an SBA 7a loan to refinance a second building with working capital.

Office Funding in Florida

They were able to beat out a local bank for the business of a top operator who purchased an office in Florida for $300,000 at 85% LTV.

Retail Funding in San Francisco

Creatively speaking, our partners think outside the box and know the markets, they financed the purchase of a mixed-use retail and residential property that penciled out and had aggressive projections, at 80% LTV they made a loan over $1.3M in 32 days in San Francisco.

Hotel Purchase in Colorado

A hotel purchase in Colorado with a 2 loan combo, and over $4M in creative financing, the change in hotel flag due to change in ownership was an issue for some banks but my partners closed it up!

Multi-Tenant Refinance in Los Angeles

In Los Angeles, I  was happy when they performed great on a private money loan funded a multi-tenant refinance, taking the owner out of a high-interest loan to a low-interest conventional loan at 65% LTV.

Closed Despite Bankruptcy, Lien & Judgements

They were able to defeat multiple obstacles with a client that included: 2 operating companies, multiple affiliate businesses, inconsistent cash-flow, and a history that included a bankruptcy, multiple state lien &  judgements for over $1.6M.

Expansion Funds for a Construction Company

They helped an established contractor of 32 years fund an expansion for their business for over $850k, based on projections.

Cannabis & Hemp Funding

If you have the experience, cash reserves and good to great credit, we can look at Cannabis and Hemp financing requests.

If you’re in need of Commercial Financing, Contact me – Greg@fixandflippers.com with your Loan Scenario

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

On-Demand Project Managers to Your Site! Perfect for Contractors and Home Flippers


Why is Residential Construction is Ripe for On-Demand Disruption?

With a record year for the on-demand industry in 2019, the big prediction for 2020 is that on-demand companies will expand to new industries.

This is happening now in residential construction. A common issue with residential construction is going over budget, not meeting deadlines and plainly losing (wasting) money primarily due to lack of communication.

Most contractors do not use project management software to keep their jobs in-line.

95% of all residential remodel projects end up in frustration. Homeowners go into a project excited about their contractor only to soon be in the dark about what is going on.

TRY Project Buddy Services Today!

Check out: The new on-demand startup “Project Buddy” http://www.projectbuddyservices.com is the 1st of its kind and planning to revolutionize the industry: Creating completely transparent transactions between homeowners and contractors. Simply put, Project Buddy helps organize projects.

Project Buddy
Project Buddy Founder, Robert L. Williams

“After years of consulting in the construction industry I found that almost every job had a point where the client thought they were being cheated, it was almost always due to a simple lack of communication. Construction remodel projects are very organic and change daily. I started Project Buddy to help both Contractor and client stay up-to-date on a weekly basis.”

Project Buddy, from PGN Design Group, works with a cloud-based construction software that all parties have access to with their smartphone, tablet or computer. Project Buddy finally makes it easy for homeowners to follow the progress of their construction project from anywhere and makes it easy for contractors to keep their clients updated on day-to-day progress of their projects. It works with 5 easy steps.

  1. Upload project information to Project Buddy cloud-based software.
  2. Take daily photos of the project.
  3. Create daily work logs.
  4. Contact all contractors, subs and architects for scheduling purposes.
  5. Create an “end-of-week” report for the project.
project-buddy-logo

So who’s doing the actual work? Numerous “Buddy’s” manage jobs in the areas that they live in. They can work as much or as little as they want. Think of it as the “Uber for Construction Projects“.

The service will operate on weekly contracts so that there is no big commitment from homeowners or Buddy’s. For contractors, there’s no need to hire and train full-time employees only to have the burden of their salaries on the books when it gets slow.

At the end of each week, clients have the ability to either “opt-in” if they like the service or “opt-out” and we’ll see you on the next one!

Project Buddy will have the ability to do one or all of their jobs. The company is poised to disrupt the residential construction industry by helping smaller companies with growth, and larger companies with quality control. The price is $497/week for most projects, cheaper than the cost of a laborer sweeping up the site!

Why Use Them?

  1. Lost Time = Lost Money
  2. Cloud-based Software = Transparency, 24/7 access from any device.
  3. Organize contractor = Get’s the Job Done on time and on-budget!
  4. Weekly contracts = No Big Commitment
  5. One low rate for any size project (single-family or multi-family)

Project Buddy has launched in Los Angeles and the San Francisco Bay area with expansion to other major cities in the U.S. later in the year.

Preferred Partners:

  • Contractors/Developers – Instead of carrying a payroll employee as a superintendent, we can replace that cost, and we have no problem with working for 1 week..
  • Real Estate Agents – You know all of the Wholesalers, Flippers and Homeowners doing remodels, refer our service and receive a $497 referral for each.
  • Architects – You work with homeowners and flippers too, with our service, you can monitor the project remotely and not get left out of the circle. Refer our service and receive a $497 referral for each.
  • Hard Money LendersCLOSE MORE LOANS. We can act as a 3rd party service provider that can be financed and used as a kind of “insurance policy” Lenders can require their borrowers to use Project Buddy, and they’ll always know what’s going on with the project! Two words – Accountability Partner. Protect their loans. Fewer foreclosures will increase bottom-line. No COST to the Lender – You can build it into the loan (its a cost of doing business)
  • Owner Builders – You want someone to babysit the work-site, and you don’t want the job?
  • We’ll help week-to-week until you don’t need us anymore! You can see all the progress on your smartphone or preferred device, and read the notes left by the Buddy. Perfect Communication!

Book us for one job, for one week and you will quickly see how easy and smooth your job/s will run.

Find out more about our services TODAY www.projectbuddyservices.com

Or Call Greg Direct – 323-632-3279

Global Equity Project Funding


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Global Equity Project Funding

I’m working with an Equity Funding Group that will fund in select markets throughout North America, Canada & Mexico, Africa – Nigeria, Kenya, and South Africa, Asia/Pacific, Australia, Cambodia, Japan, Philippines, Singapore, etc, Caribbean – Anguilla, Antigua, The Bahamas, Barbados, British Virgin Islands, Cayman Islands, Curacao, Dominican Republic, Grenada, Jamaica, Martinique, St. Martin, St. Vincent, Trinidad & Tobago, Turks & Caicos Islands, Various other Islands.. Europe – including France, Germany, Greece, Netherlands, Spain, Sweden, United Kingdom, South America – Argentina, Belize, Brazil, Chile, Costa Rica, Ecuador, El Salvador, Guatemala, Honduras, Panama, Peru, Uruguay

They can provide:

  • Bridge Loans – Short-term, Interest Only, no monthly payments to be made.
  • Land Loans – Up to 50% LTV
  • Refinance – 50% of Value

They will loan on these property types:

  • Historical Buildings
  • Hotels
  • Motels
  • B & B’s
  • Auto Body Shops
  • Gas Stations
  • Ranches
  • Farms
  • Restaurants
  • Night Clubs
  • Casinos
  • Day Care Facilities
  • Religious Buildings
  • Warehouses
  • Self Storage Facilities
  • Religious Institutions
  • Amusement Parks
  • Power Plants
  • Green Projects
  • Office Buildings
  • Mines
  • Industrial Buildings
  • Multifamily
  • Mixed Use
  • Vacant Land
  • Shopping Centers
  • Strip Malls
  • Dry Cleaners
  • Laundromats
  • Golf Courses
  • Country Clubs
  • Marina
  • RV Parks

 

Closing Process:

  • Submit Loan Request/Application
  • File is underwritten to be declined or accepted
  • If accepted, an LOI will be issued with terms
  • Clients will need to pay due diligence fee of $15k+
  • Borrower executes LOI and arranges for site visit
  • Upon receipt of appraisal and other docs, final underwriting will take place.
  • Letter of Commitment will be issued
  • After the Commitment letter is accepted by the borrower, docs are prepared by attorneys
  • Closing date is set and funds wired to closing attorney

Income Producing – Single Purpose LLC, Recourse- PG may be guaranteed, DSCR < 1.1, No restriction for use of funds, 3 yrs max term, Rate is 10%+, Points – 3-7 points, Max LTV- 50% of 180-day value, Security- 1st mortgage+pledge of 100% of shares, Interest Reserves are available, terms are negotiable with higher DSCR

Rehab/Construction – Single Purpose LLC, Recourse – May be required of all principals, Use of funds are restricted to the subject collateral only 1 yr, 2-year renewal terms, Rate 10%+, 5-9 points, 100% LTC, 50% Max LTV based on 180-day value, Security – 1st mortgage+pledge of 100% of shares, Interest Reserve is available

Commercial or Land – Single Purpose LLC, Recourse – May be required of all principals, Use of funds are for the subject collateral only, 1 yr term with 1 yr renewal, Rate- 10%+ 100% LTC, 50% Max LTV based on 180-day value, Security – 1st mortgage+pledge of 100% of shares, Interest Reserves are available

If you pay an additional fee, you can waive the need for personal guarantee

Submit Your Scenario for Consideration