I had a great time chatting with Brad Lundgren of cobra Mortgage Services Ltd. (click here for their website). We discussed what private lending is with a particular focus on commercial transactions including hotels and motels. Yes you have read this correctly – hotels and motels. Brad also talked about why private lenders are important and his opinion on where conventional banks are now (think “under capitalized”).
The year was 1996 and I was sitting across the desk from the man that would not only teach me about private lending but would become a mentor, investor and friend. The question was asked “do you know what a mortgage is?” to which I nervously replied “no”. I had heard the word before but at the ripe age of 18 years old I had not yet had a mortgage nor did I understand what they were or why they were needed. The man went on to share with me that he and his friends were providing money to people that were not able to get the money they wanted from a bank for a variety of reasons. These people would provide a piece of real estate as security and they would borrow money at interest rates that were 1.0% per month to 2.75% per month plus fees. He went on to share with me that these opportunities were considered high risk and were generally less than 6 months in length. From from time to time he would have to foreclose (another foreign term to me at the time) but because he was always lending less than what a property was worth he had never lost his money or the money of his friends. Continue reading “Why do private lenders matter?”
It would appear that with the limited amount of lending opportunities available in the marketplace that private lenders have been prepared to reconsider their policies for providing mortgages on parcels of land and future development sites. For the past few years it was difficult or nearly impossible to obtain financing for land as most lenders chose to finance income producing real estate that generated the required cash flow to service a mortgage payment. Recently we have seen private lenders being selective about the land deals they finance by limiting the amount they lend (typically less than 50% of what a property is worth) and ensuring the location of the property is strong. With market values having stabilized a private lender can put out their capital with limited exposure and feel confident that they will be able to earn their required return even if they need to foreclose and take a property back. At conservative loan to value levels the chance of them losing their principal and interest is relatively low. While there is still a lot of land in the market that is over financed opportunities still exist for developers (and investment groups) that have not over leveraged their land to now consider developing out and bringing new supply to market.
If you have a land deal you would like to discuss, please email firstname.lastname@example.org or visit www.bridgecap.ca/dylan