Hard Money Underwriter with Larry Goins & Tim Sykes


Learn how to use leverage for your real estate transactions. Get the right documentation and appraisals. How to analyze your LTV's and cash out options.


Larry: Welcome to the Wednesday night Brain Pick a Pro Teleconference. We are coming live from Lake Wylie, SC and from Charlotte, NC. Good friend, works with us here at Financial Help Services, a fellow Investor is Tim Sykes. Welcome to the call Tim, how are you doing?

Tim: Thank you.

Larry: Are you doing alright?

Tim: Feeling a little bit better.

Larry: Good, you are fighting a cold, aren’t you?

Tim: Yes, it seemed like it kicked in on Monday.

Larry: You know what the good news was, you were still here, weren’t you? Had loans to close, people wanting to get deals done. That is great. I hope you get to feeling better. Tim, I really appreciate you being on the call tonight, because I know you don’t feel well; but I thought it was important. We are going to keep this real informal. I thought it would be a really good thing to do. A lot of people that are Investors that get loans, they are out here talking to myself and Wendy and they hear and see kind of what happens on the front end. You know, you have to submit an application, get us your tax returns, and bank statement or whatever, but not many of them know what goes on behind the scenes. I thought it would be great to bring you on and share a little bit of that with us, with fellow Investors. Why don’t you start out and tell us a little bit about yourself, Tim.

Tim: Sure. My name is Tim Sykes and I just moved to North Carolina about a year ago, I’m originally from Pennsylvania. I worked for MBNA about five years in Customer Retention, Credit Card fraud and worked a lot directly with customers as well as monitoring what type of interest rates you can offer a customer. I purchased my first house about five years. My Mom, of course, she always, “don’t buy a house, just stay here.” I took that chance and I bought my first duplex. Everything worked out just fine. From there, about a year or so after that I bought my second duplex.

Larry: Now did you live in one side when you bought the first one?

Tim: Yes. I lived in one side and rented the top.

Larry: I noticed they do that a lot up North. A lot more than they do around here.

Tim: The cost of Real Estate in Pennsylvania, especially in Chester which is right outside of Philadelphia, one thing you have to be concerned about is property tax. The property tax is right around $2,500.00 and the price of Real Estate – there are deals out there but you have to go into Chester or Philadelphia or Wilmington, Delaware. For my first deal, I did not want to put a lot of money into it; because I really did not know much about it when I first got started. When I purchased the house, I learned when I first purchased it. They had a tenant in there already who was behind on their rent. I told them, “before I buy this house, I want you people to go through the eviction process”. They finally got the tenant out, I went in there cleaned it up, painted it and put down some ceramic tile in the kitchen.

Larry: You don’t have to replace that often, do you?

Tim: No, one time job. We had a tenant in there and what they paid for rent just about covered the mortgage, except for about $200.00. I was quite happy with that.

Larry: Wow, that was sweet and then you lived in the other side for $200.00 a month. That is pretty cool.

Tim: The second house that I purchased (second duplex) was already occupied and I really did not have to do anything other than buy the house, seemed like I was able to buy it at a discount, I finally got it at 80% lower than the value, which is always good. That was because of the location. From there, I met my current fiancée and we liked the area of Canada, but we just wanted to try something different and moved to Charlotte. When I first got down here, she had a job as a school teacher in the Charlotte Mecklenburg School Distsrict; and me, for the first time in my life I was without a job. For that was rather hard to swallow.

Larry: Yes, I bet so. Moving to a city where, did you know many people here or anybody here?

Tim: No body.

Larry: Really? Wow, what made you chose Charlotte?

Tim: I chose Charlotte when I was probably around eighteen years old. I went to the Smokey Mountains to go Whitewater rafting; and at one time we actually stopped in Gastonia and I was able to stay with a family member for about two weeks. I really liked the area, was able to pick up a job while I was staying with them, within a week or so. I worked for about two or three weeks in Gastonia and then decided it was time to go home and go back to college.

Larry: You were just kind of stopping through and got a job for two weeks to keep you going.

Tim: Absolutely, I just put the money in my pocket.

Larry: That is pretty cool!

Tim: From there we moved down here and we rented an apartment for a year and I always liked to fix stuff, so I knew renting an apartment just was not going to last. Once I moved down here, I started inquiring about following my dream to in the Mortgage Business, Loan Officer, Processor, Underwriter so I started going through the paper and saw an ad. It was Financial Help Services and I called Larry. I didn’t know to get into the business so I spoke with him. We talked for a while and he told me what I needed to do to get my License as a Loan Officer. During that time period, it took me about two months to get signed up for the class and I had to drive from Charlotte to Raleigh to go to the class, but it was worth it. During that time frame I was a substitute Teacher for Charlotte Mecklenburg School District.

Larry: Were you really? I didn’t know that Tim.

Tim: It was definitely an experience.

Larry: Was that High School students?

Tim: No actually it was fifth through eighth grade. I definitely had a lot of fun, because the kids are, I guess when they need substitutes in there – I am easy going and not real strict with the kids as long as they were doing what they were supposed to we had a good time. Finally, in December, I took my test and passed it the first time through. Then I called Larry back and talked with him and told him who I was and asked him if he remembered me. He offered me a job, I accepted it and I started working for Financial Help Services in January 19th and have been there ever since.

Larry: It was January what?

Tim: I think it was January 19th, when I started.

Larry: Wow! It has been a while now, hasn’t it?

Tim: Definitely learned a lot.

Larry: I am telling you Tim, you are a Mad Man in the office. I mean that sincerely. You really are, I mean your are running around doing what two or three people are doing, Running back and forth and grabbing this an on the phone an putting this one on hold and grabbing that one and you copying this and running back to do that. Man, I don’t see how you do it. I mean, how many loans do you keep processing at a time?

Tim: Right now, I probably have close to like fifteen.

Larry: You are doing not only a Loan Officer, Processing and Underwriting, all that rolled into one now aren’t you?

Tim: Yes. Also whenever I do talk to customers, we walk through the deal, make sure the numbers work, and it is in their best interest as far as buying the house before we even put it under contract. Sometimes, we have to talk people out of buying houses, because it is not a deal.

Larry: That is true. The good news is you, being an experienced Investor yourself, can help make that call. You can help bring it to the Investor’s attention that based on their goals and what they told us they wanted to do, this really doesn’t fit their goals or this is not a deal. Let’s see if we can you a deal or go find one at this LTV, investment to value or whatever. I am a firm believer that you should not pay retail for an investment property. On the ones we buy and sell, we have to be able to sell them at 70% of the after repaired value, including purchase price, rehab and closing costs. If you can go into a deal with 30% equity, that deal should cash flow. If it doesn’t, you should not buy it. Wouldn’t you agree?

Tim: Absolutely.

Larry: Let’s talk a little bit about what you do and about some of the different qualifying and some of the things you do. Tell us a little bit about qualifying for an non-owner occupied financing. Maybe Credit Score and the different kinds of programs available.

Tim: The first thing we are going to start talking about, we will talk about how we get you approved as far as what your job situation. There are primarily three categories that we would classify a borrower. We have a Full Doc, Stated and a No Doc.

Larry: A Full Doc, Stated and a No Doc.

Tim: That is right. Now a Full Doc Loan, actually what that means is you can prove your income. You work for a Company and you receive a paycheck, you have a W-2; and the money that you make is actually reported and can be verified. They will allow your best income to go up to about 50%. With a Full Doc Order we can offer you 100% financing on non-owner occupied units, if you have a Credit Score of 680 or above. You are able to buy the house and also you could negotiate closing costs up to 3%. With a Stated Loan, what that means, you have a job and the money that you make you don’t have to verify. We state it at whatever we need to get you qualified for the Loan.

Larry: Whatever the Borrower tells us.

Tim: Absolutely. In some situations, if we take your Loan stated, we could close it a lot faster. It is not as much “red tape”.

Larry: Processing.

Tim: Absolutely. For a Full Doc Loan, they may want to see your full Tax Return, all your schedules, your C & E; where for a Stated all you need is a CPA Letter confirming that you have been self employed for the past two years or you can get a verification of employment from your current employer and that is another way we can close your loan.

Larry: Now can you be a W-2 employee and do a Stated Loan?

Tim: Absolutely, we have several lenders that will allow a verification of employment, or you are a W-2 employee and we can still state your income and get a Loan closed for you.

Larry: That is strong. What is the price you pay for going Stated versus Full Doc?

Tim: Normally, there is about 3/8 price difference between a Full Doc and a Stated.

Larry: 3/8 of a percent in the rate?

Tim: Yes sir. Normally it is not too bad, the difference between a Stated and a Full Doc, sometimes it is just easier to take the lender.

Larry: Sometimes it is worth it, if you are in a hurry right?

Tim: Absolutely they close…. Like one Loan I am working on now, I sent the package in last Friday and it has always been underwritten by the Lender and it is clear to close as of today. Unfortunately, our Borrower is out of town and we have to wait for him to come back.

Larry: Right. You have to have that Borrower to sign.

Tim: Absolutely. The No Doc Program, these Loans are a little bit harder to close. Not as many Lenders. No Doc means that you are not verifying anything. No work, no assets. You are definitely going to pay in the interest rate; because the Lenders see it as a risk.

Larry: Absolutely. The way the Lender looks at it, is the Lender knows there is a reason you are going No Doc, right?

Tim: Yes. They offer it primarily for owner-occupied units but there are a few Lenders that will do non-owner occupied, but the rate is definitely much more than you would expect.

Larry: Right. I guess that is the price you pay; and the further down the scale you go, as far as from Full to Stated to No Doc, the better Credit strength you have to have. Isn’t that true?

Tim: Absolutely. If it is a No Doc you need a Credit Score in the 700s.

Larry: Oh really?

Tim: Exactly.

Larry: At what loan to value are you looking there?

Tim: If you are referring to a No Doc purchase, you are probably looking in the 80s or 85.

Larry: So that will be a 15% to 20% down?

Tim: Absolutely. That is out of your own pocket. The company does not allow Sellers to hold a second on this.

Larry: Okay. Some lenders will say, 80% LTV with a 90% CLTV. Can you explain to everybody what that is?

Tim: Well, let’s say if it is a Stated Loan, some lenders will, if you are trying to do a purchase, Stated Income, they will allow like an 80% LTV (which is Loan to Value) and a CLTV is (Cumulative Loan to Value), so they will allow 80% from the Lender and 10% can be held by the Seller. The other 10% will have to come out of your pocket.

Larry: And it is cash out of pocket?

Tim: That is correct.

Larry: What are some things that you are looking for when you pre-approve a Borrower?

Tim: One thing that we primarily look for is we will pull a Tri-Merge Credit Report.

Larry: Which most Lenders do now, right?

Tim: Most of the time they will use the same Tri-Merge Credit Report that we use, so you don’t have to worry about all the different Lender pulling a different report.

Larry: Oh really, I didn’t know that? Don’t they pull one just before closing?

Tim: Some Lenders may, but there are few out there that will just use our Tri-Merge Credit Report as long as it is within thirty days. With the Primary Credit Reports they look at the three scores and will take the middle score. From there, if you have a credit score of 640 or above, we will also need your tax returns, two most recent pay stubs if we are going to take you Full Doc.

Larry: How many tax returns?

Tim: We normally start off with just the previous year. If we are closing a Loan now, we just need your 2003 tax return, two most recent pay stubs, any type of assets like 401K, IRA, bank statements.

Larry: The statement from those?

Tim: Yes, the most recent Quarterly Statement would be fine. That would also be the same situation if you are a State Loan, we will just need a CPA Letter or verification of employment which you would get from your employer. The same information in regards to Bank statements and assets. Normally, when we send in a loan, we would get a verification of deposit. What that is just a single page that we send to your bank that they would fill out and they would indicate what your current balance is as of that particular day.

Larry: We call it a DOV or Verification of Deposit, right?

Tim: Yes, and they would also state your two month average in that particular account. We would send that Verification of Deposit instead of your bank statement. They really want to keep bank statements out of the Loan; because if somebody has let’s say a Direct Deposit from their employer and the amount is unstated. They see X and they are telling us that you have more than that and that may be a little conflict of interest.

Larry: Now you mentioned one thing and I want to go back to a couple of other things that you mentioned a minute ago. You mentioned a two month history on their Verification of Deposit. Why is that important?

Tim: What they want to see is that you are not. Let’s say that you need $10,000.00 to cover the principal and interest, tax and insurance payment for six months.

Larry: Plus your down payment.

Tim: Yes, for the reserve. They want to make sure that the money has been there and you are not borrowing it from someone else.

Larry: That Uncle Bob did not give you Ten Grand last week.

Tim: Yes, that you are not borrowing from Peter to pay Paul.

Larry: Absolutely. That is a good point.

Tim: They just want to make sure that your are a sound Borrower. That you have sufficient funds to close the Loan. In some situations you can use your 401K and IRA to cover your principal and interest, tax and insurance for six months reserve.

Larry: Oh really, that is good to know. What is it they call that, they want to make sure that money has been in there for a while?

Tim: That would be Seasoning.

Larry: Seasoning.

Tim: A few months seasoning on your bank scan, but they are pretty flexible. If there is a big fluctuation, you may have a concern; but if it goes up $1,000.00 or $1,500.00, I don’t think you would have too much to worry about.

Larry: Right, but if you are average balance is $1.500.00 and then all of a sudden you have $15,000.00 in there, they are going to want to know what it up.

Tim: Yes, they will want to see a paper trail.

Larry: Yes, exactly. Now you mentioned something also a minute ago about, we pull a Tri-Merge and take the middle score. Can you explain to everybody a little bit about that?

Tim: Well with three Credit Reporting Agencies, the Equifax, Excurian and TransUnion. Each Credit Reporting entity uses a different scoring system. They are very similar; but they do vary. So we are going to use the middle score just to be fair. The credit score, it is an evaluation of how well you pay your bills or what your current financial situation is. Now in some situations, you may not have the credit score that you deserve. Some people may have excellent credit but they may have too many inquiries on their credit in the past twenty-four months and their credit score could drop from too many inquiries. You credit score be effected if you have, let’s say you only have one or two credit cards, with (let’s just use $1,00.00 on each credit card that is your credit card limit)you go out and you charge $1,000.00 on each card, every month. That will definitely effect your credit rating, because the way they look at it is your potential debt between the two credit cards is $2,000.00, your current balance is $2,000.00 so your utilization is 100%. So they think you are maxed out.

Larry: Oh wow, that make sense. Never thought about it like that. The Credit Score is jus a snapshot in time, based on the day that the credit is pulled isn’t it?

Tim: Absolutely. Now your Credit Score, the way I see it since I have been working with it in the Credit Card industry for five years, and directly with the Credit Card interest rate. We used to pull credit all the time. Your Credit Score is pretty much updated whenever your Credit Card statement print. Whenever your statement is sent to you in the mail, that particular day, that is when they notify the Credit Agency what the current balance is.

Larry: The day the statement prints? Wow, I didn’t know that, that is good information.

Tim: That is correct. If you have a Credit Card that you charged every month and you pay it in full but you max it out, they do not know that you paid it in full. That is something that a lot of people, I guess, would take for granted. I paid in full and I should have great credit.

Larry: You have to wait until the next billing cycle, is that right?

Tim: That is correct. Whatever you see on your statement is what is going to show up on your credit report. That same dollar amount rounded.

Larry: Wow, I never knew that. That is good to know.

Tim: They also take a look as far as your overall delinquencies, that could also effect your overall credit rating, as well as if you have any derogatory information. That could be anywhere for hospital bills to slow paying, anything that would show up, judgments, all that information would show up and you would to definitely try to get it cleared up as quickly as you can.

Larry: Exactly. Let’s talk a little bit about how long it takes to close a Loan. Whether it be a traditional or rehab type loan.

Tim: With a traditional loan the normal time period is right around three weeks. It also depends on the Borrower and who they use to appraise the property. Some Appraisers, you know, they take a little bit longer than others. The appraisal will determine if we can close the loan or not.

Larry: Right. Sometimes we get all our stuff in and we are waiting on the Appraiser to e-mail the appraisal.

Tim: Absolutely. That is something that we cannot send in a package or even underwrite a loan with an appraisal. A lot of information is on the appraisal such as age, the taxes, the value, of course, and just to make sure that we also need to take a look at the contract to make sure that this is a good appraisal; because if you send it to some Lenders and they start looking at it. You know your house is worth $70,000.00, by the time they are done going through a constant or an adjustment then you know your house is worth $60,000.00.

Larry: Exactly. That is true. You have a little bit of experience doing some underwriting here about reading appraisals. Tell us a little bit about Comps on appraisals.

Tim: The comps that we like to see, normally they should be within two miles. They need to be similar type properties. If you are comparing a ranch, brick, three bedroom, one bath and they are pulling a comp with vinyl siding, two story there is no justification for that type of property to be even on the appraisal. Something that we always look for is similar properties and sometimes they may have to go a little bit further out, a little bit further than the two miles. As long as they indicate on the appraisal why they had to further out to find similar comps with similar age that is very important to make sure you are comparing apples with apples.

Larry: You also mentioned about adjustments. What is important about the adjustments in the comps?

Tim: The adjustments that we are looking for is two different adjustments that they use. What the adjustments are for is, if their comps that they are using, let’s say the house that you are buying has a garage and all the others houses that are sold in the area, they don’t have a garage. This means that your house is going to be worth a little bit more money; because it is going to be more desirable because you have an extra place to park your car, or work space. So the other comps are going to have to some additional value for not having a garage. There are different parameters that allow these adjustments. Normally we don’t want the adjustments to be any higher than 25%.

Larry: Now that is gross, right?

Tim: Gross, yes. There is also a net adjustment which we do not want to be higher than 15%.

Larry: Yes, that is a good point. What I guess would be even worse is your scenario turned around, where the subject house does not have a garage but all the comps do. I think one of the things that I heard, I don’t know if it was Wendy or somebody in the office had gone to the appraisal course and the Instructor said, “for every appraisal you look at you need to look at it and whichever house you would like to live in the least, as long as it is not the subject house, it probably is not too bad an appraisal.” I am sure you have heard that too.

Tim: Absolutely.

Larry: Exactly, if you are looking at an appraisal and you have a wood sided mill house as your subject and the rest of them are brick ranches with a carport; there is something wrong with that appraisal. I would like to share with everybody too about the appraisal. We tend to use appraisers that are fairly conservative. We do not want anybody that is going to rip it apart and kill the deal. We also are not looking to work with appraisers that are going to push the limit and pump up the value, because it may get one deal closed. However, if you are doing a rehab loan on this property; and we are using an appraiser that is fluffing up the value or pushing it as far as they can and we go to get that property re-financed and a lender kicks it out because it is not a good appraisal. Then you are setting there in that rehab loan and you cannot get out of it. Or if you have bought a property to fix up and sell, or even if you bought a property that is in good shape and you bought and you are trying to retail it. If you are trying to retail it to somebody and their Lender is cutting up the appraisal and reducing the value then it has not done you any good to buy that property and re-sale it, has it?

Tim: No not at all. Our most recent experience with that occurred on Saturday. We had a Borrower who had a contract on a property. She had a nonrefundable deposit on the house, it was $2,000.00 and she thought the house was going to be worth $90,000.00. She had it under contract for let’s say $30,000.00 and she needed about $30,000.00 worth of work. Well the numbers were working but when the appraiser went out and did his job, the house only appraised at $60.000.00.

Larry: Wow, that is 33% difference.

Tim: Absolutely, so it was hard to tell her that this isn’t a deal; need to find something else. Sometimes you have to look at it and convince the Borrower – don’t buy this house, we cannot help you. You have money on the property, but you need to chalk it up as a lose. Make sure whenever you are pulling comps for your next house, if you are not sure of the area, contact an appraiser. If you use the same appraiser a couple of times they will normally pull some comps for you without even charging you. They know they are going to get some repeat business from you.

Larry: That is a good point. I know I heard Fred Hoffman say one time that he makes his contracts subject to acceptable appraisal for Buyer. That is not a bad contingency to put in a contract.

Tim: No, not at all. I think in this situation she purchased the house from an auction. She was able to pull comps; but the comps she was pulling were too far away. I mean we are talking about in a different city.

Larry: I would not necessarily recommend an auction for a first time Investor either, would you?

Tim: No, not at all.

Larry: There are a couple of things wrong with the auction. Number one, you have limited time to inspect the property. Number 2, it is a done deal. You show up, you have your deposit, they are “as is, where is” with no contingencies. You are not allowed to do subject to inspection or subject to acceptable appraisal.

Tim: Normally, they want 10% down. Nonrefundable.

Larry: The day of sale, exactly. You know what the Third reason is that I do not recommend auctions, is especially people starting out? Going to an auction is really exciting. There are a lot of things going on, a lot of activity, people buying and selling and all that; but unfortunately you can get caught up in the hype and those auctioneers, it is their job. I mean I love auctions; but it is their job to get the top dollar. You can get caught up in the hype and end up running up your bid and paying a lot more than you thought you were going to or then you anticipated. Have you ever seen that happen?

Tim: Absolutely.

Larry: Yes, it is rather scary. If you do go to an auction, do your due diligence upfront and just know it is an “as is, where is” with no contingencies. It is all cash sale, you need to have your financing lined up and make sure you set a limit and no matter what happens, don’t go over that limit.

Tim: I agree with that.

Larry: Where do you see some Investors making mistakes Tim? And some ways an Investor could help you as a Processor, Underwriter, Originator to get their deal closed in a timely manner and get them the best terms and that sort of thing?

Tim: Most recently, I have been working with an Investor who has quite a few properties. He bought some houses, probably six or seven houses. What they did, they put them all on one Deed. That one Deed he also put it in his Company’s name. The loan he has on the properties is a commercial loan is actually from a private Lender, charging him aggressive interest and the term of the loan is stiff and he needs to re-finance the property. The Lenders we are working with, they are not going to allow more than one property per Deed. He has to have all the Deeds changed, divided up – that means he has to have a survey for each house, they have to be recorded.

Larry: Legal description and all that good stuff.

Tim: Absolutely, it is definitely time consuming and he is paying that high interest rate. What he should have done, during the time that he purchased the property, during the rehab period. He should have had surveys done on the property, had them recorded separately that way when it is time to re-finance it, it is already done.

Larry: It is ready to go.

Tim: Absolutely, we have been waiting over a month and a half to have the surveys, the Deeds recorded and it is really costing him a lot of money at this point.

Larry: Now we know. It is a learning experience and it is one of those things you work through and find out about and know not to do that in future. You mentioned about it a Company name. Tell us about, can we close in a name or LLC or a Trust?

Tim: Sure. Most Companies for a traditional loan will not allow you to close in a Company name or LLC or a Trust. There is maybe one or two companies out there that will allow you to close in your Company, Trust or LLC; but what they are going to do is cut the loan to value. If you want to close in anything other than your personal name, the loan to value that they offer on a re-finance is 65%. If you are doing a purchase and want to do it in anything but your personal name, the maximum loan to value they are going to offer on a purchase is 80%. That is definitely going to effect you if you are trying to cash out or rate and term a property then you have a little bit higher loan to value at this point.

Larry: Now what about even when you sell and it is in that Company name?

Tim: When you sell the property?

Larry: When you sell the property, you have bought it in a Company name, you fixed it up and you are going to sell it. Does you retail buyer’s lender have any problem with you owing that property short term and it being in a Company name?

Tim: Our Lenders, they do not care as far as who is selling the property. I have only seen one situation where a company actually cared or had guidelines on who was actually selling or listing the property. That was a Company, that it was owner/occupied purchase; and the people had credit problems. We were trying to get them 100% and the only way they could offer them 100% was if the property was listed thru MLS. That is the only problem I have ever seen with the owner or any type of selling property. That is a rare case. We were all shocked when we heard it.

Larry: Okay. One thing I would like to share right here is a little procedure to protect your assets if you cannot really buy them in Company names. Are you familiar with the way that Investors are doing it to get it over into their Trust or their LLC?

Tim: If you are buying a house and signing your personal names, after you close it and sign all the paperwork and the ink is dry. They are going to put claim Deed into their LLC and Company name and that is just recorded and the Company or LLC is going to show up as the current owner.

Larry: Right and that is the way we have seen a lot of Investors even Investors that own a tremendous amount of houses. They will buy it in their personal name. They will either do the rehab loan or pay cash or do a guidance line or whatever; and then once they re-finance and get into that long term, fixed rate, low interest financing; once they get it into the fleet, so to speak – to use Fred Hoffman’s term. Once they get it in that rental fleet and have it set up with their long term financing; then they can deed it over to either the LLC or you deed it over to a Trust; and make the LLC the beneficiary of the Trust. That way you, I guess a double layer of protection there for asset protection.
What about rehab loans, let’s talk a little bit about that. What is a rehab loan or hard money loan, a lot of people call it?

Tim: Rehab loans is definitely a great product. I pretty much handle all the hard money loans for Financial Help Services, from start to finish. If they any specific questions, if I cannot answer them I just normally turn them over to one of you and you help them with it. A rehab loan will enable a Borrower to buy a house, with no money out of their pocket, that would allow them to buy it, fix it and also include closing costs. We will loan up to 70% of the after repair value. At closing we do not allow the Borrower to receive any monies to start the project they are going to need to put some money into the property or what equity to actually start receiving a draw. How this is set up. If you buy a house and it needs new carpet, new paint and a new roof. You go in and tear out the carpet, replace the carpet, paint, then you need some money. You can fill out a draw form and send it in. We will send out an Inspector to make sure the work is done. That everything is within code. If you are approved for the draw, you will have within twenty four to forty eight hours.

Larry: That is pretty fast.

Tim: You can continue your rehab. You can have up to five draws per loan. The term of the loan is set up for a year, during that period of time you are making interest only payments. The interest rate is a little bit higher, it is at 15%; but 15% will allow you to buy a house, with no money out of your pocket. I just think 15% may be hard to swallow. But after everything is done and over with and you finish the house as far as the rehab and you are ready to re-finance it and get cashed out, then you have to think of the big picture at that point.

Larry: Yes, exactly. If you think 15% is high, try a partner. That is 50%, right? You say you can get up to five draws. Now you would not want to do that on a little $3,000.00 or $5,000.00 rehab project; but if you have a project going on with $10,000.00 or $15,000.00 or something, you could get up to five draws. Based on how much work was done at each draw, right?

Tim: That is correct.

Larry: You have actually done some of these inspections, as well, haven’t you Tim?

Tim: Yes, I have actually gone out and inspected the property just to make sure that what they are putting on their original list is, everything is done. What they say they are going to do is actually done. Most of these houses that I go and inspect, they are doing a great and you can definitely see the potential as far as for either cash flow or a retail or even wholesale after they are finished.

Larry: That is great; and the sooner they get it finished and get it in good shape, the sooner the appraiser can go back out and say, “yes all the work is done”. It is fixed up and now you have a house that you are truly in at 70% of appraised value, or less, and then you can re-finance it. Pay off the rehab loan and you could even re-finance it and pull a little bit of cash out, couldn’t you?

Tim: Absolutely, I have seen some people, depending on where they are, let’s say they have had the loan a little longer. When you first apply for the loan, there is four points to close the loan and also, every ninety days the loan will renew and there is two points. Your ultimate goal is to finish it as fast your can.

Larry: Right, so we do not have a pre-payment penalty. We encourage you to pay it off early, right!

Tim: Absolutely. We want you to pay it off and get out of the hard money loan and go do another.

Larry: And go do another one!

Tim: Absolutely, we put you into a traditional loan. Now normally, if you are going to keep the house, we like for you to keep it for at least a year so we can keep our Lenders happy, as well. I have seen people cash out, let’s say from $1,000.00 up to right around $3,500.00.

Larry: Wow, that must have been a big loan.

Tim: Absolutely, this individual purchased the house for $100,000.00, it needed $17,000.00 worth of work and it appraised for $195,000.00 the first time and the second time, when the work was done, had it re-appraised for $196,000.00.

Larry: Wow, that is pretty strong.

Tim: Absolutely. The $3,500.00 is the most and we have seen it a couple and come in and cash out at $20,000.00. It all depends on how well you can negotiate as well as finding the deal and working the numbers.

Larry: Exactly. So what you are saying is, as long as you can negotiate and get a good enough deal; where you are in the property at 70% or less of the after repaired value, including purchase price, rehab and closing costs. It is a no money down deal for the Investor.

Tim: Absolutely, and that is the best part of these hard money loans. People are able to buy houses with no money out of the pocket.

Larry: Now, what do you need to qualify for that?

Tim: Hard money loans, we like to see a Credit Score of at least a 640. We want to see your most recent pay stub and tax returns or your W-2, any type of bank accounts that you have and any type of investment. We will also need a copy of your Driver’s License and Social Security Card and from there we will, of course, we are going to pull your credit and make sure that you pay your bills.

Larry: The hard money, in the true sense of the word, is a hard money Lender usually does not care what your credit is. All they are interested in is the equity in the property; but we are a little bit different, in the sense that we want to make sure that we can get you out of that hard money loan. We do not want to put you into something that you are going to be setting twelve months from now and cannot re-finance and get out of it. That is not to say that things don’t happen and change, tbey do. We want to do everything we can to ensure that Investor that gets into a hard money or rehab loan, they can actually qualify to get out of it. So at any given point they are ready to re-finance, to pull out of the loan and go back in and do it again for another house, right?

Tim: Absolutely. We are looking at it as we want you to succeed. A lot of Lenders out there that will loan you the money; but they ultimate goal is, they want your house.

Larry: That is true.

Tim: The reason they want your house is the hardest thing about the hard money loans is finding the deal. Working the numbers, if they are able to get your house without even negotiating anything and they see that the numbers are working. That is a win/win situation for them.

Larry: Exactly.

Tim: Unfortunately, you have spent a lot of time negotiating, finding the deal, working on the property in some cases; but we want to make sure that the house is going to rent for the right reasons. We want to make sure that your are able to re-finance the house or your other extra strategy, of course, is to be able to sell the property. One thing we don’t want to see you listing on MLS. I mean you can, that is entirely your choice; but it kind of limit your exit strategy. Most Lenders, when you go to re-finance it, they don’t want to see the property listed on MLS. If it is listed, you have to wait six months before you can re-finance it into a traditional loan.

Larry: That is true, I remember that. It is not a good idea to send the Appraiser with a Realtor’s sign in the yard, is it?

Tim: No not at all. If your intentions are to sell the property, what we would recommend is put a “for sale by owner”. We also have a 100% financing signs that you can put in your front yard to help advertise your house.

Larry: Or at least a “rent to own” sign, but leave it down while the appraiser is going out there.

Tim: Take the signs out of the window.

Larry: Exactly. Take them out of the window while the appraiser is there; because they will make note of it.

Tim: They will take some pictures too.

Larry: Yes, they will take pictures and make some notes of that. Man Tim, we have covered a lot of ground tonight.

Tim: Yes sir, there are going to be a lot of questions. You know when I first started in the business what I really liked was the hard money loans and the reason that I am still interested in them is, when I was in Pennsylvania a few of my friends. Of course, they were established and had a little bit more money, they were buying a lot of houses in Chester right outside of Philadelphia. The best part about these houses they were buying. They were buying for like $12,000.00 to $15,000.00. Now granted, they needed work, but they right there in a college town. After they fix them, they rent for like $900.00.

Larry: Wow, no problem getting those rented.

Tim: No, not at all. People were lining up, as far as college kids, to get into these properties. If I knew about hard money loans, I am sure they offered them up there; but I just did not know about them. I probably would own more properties than I own right now.

Larry: Yes, because you can get in and out of a hard money loan pretty quick if you do it the right way. Which is the ultimate goal.

Tim: Yes, absolutely. Normally, it takes, the turn around time is everywhere from – I have seen as little as thirty days, but normally, the average, I would say is probably right around ninety days is the average term of a hard money loan. It all depends on who is doing your work. If you have the Contractor’s lined up to go in there or if you are going to do it yourself, you know, how much time can you dedicate to finish the house.

Larry: How quick can you close a rehab or hard money loan.

Tim: Typically, if we start on a Monday, I can probably have you close the following Tuesday or Wednesday, depending on the appraiser. Some appraisers, if they are not busy, they can get in there the following day and have the appraisal back in two or three days. We could probably close the same week. If you already have the appraisal done, we could definitely close within three to four days.

Larry: I guess that is the other good news about using a rehab loan, as well. You are not just taking the Seller’s word for it or not just making a low ball offer. Once you submit a property for us to do a loan on, you have to submit a job cost estimate, with total numbers, and then we give that to the appraiser. The appraiser goes out to the house and says, “if this work is done, then the house will be work X”.

Tim: That is correct. It definitely important that we get a strong appraisal, because we are relying on that particular number for the re-finance.

Larry: Right.

Tim: That is why we have appraisers that we use. We don’t use a lot of appraisers. You definitely have a choice of the appraiser you want to use. We strongly recommend a few appraisers in the area.

Larry: Who are familiar with investment property.

Tim: They know what we need and we don’t ask them to fluff the numbers at all on the house. We want it to be shown as accurate as they can possibly make it. We are not going to ask them to, you know, can you make this house instead of 95, can you make it 100. We don’t want them to do that.

Larry: No, we don’t want to play that game, but by saying they know what we need, they understand that if they have a list of repairs to be done, they can do it “subject to”. Not a lot of appraisers like to do “subject to” appraisals, do they?

Tim: No. A lot of the appraisers, we run into it from time to time, call us up and want us to send them some work. Every once in a while we will go out on a limb, since we know the area, we know the house and what it is going to appraise for. We may send a “subject to” to a new appraiser and they may take a lot longer and they make it harder than what it actually is.

Larry: Right.

Tim: They may be too conservative, you know, the value is not justified in their appraisal.

Larry: Do many of the appraisals that we get, Tim. Do they do rend comps?

Tim: On the “subject to” we do not require the rent comps. The rent comps are, we need them whenever you do a traditional re-finance or a non-owner investment property purchase. What the rent comps are, we are going to throw out a couple of numbers. There is like a 216 and a 1007, they are basically the terms used to indicate the form that they use to evaluate what the current market area rent analysis for the property. That way, whenever the Lender looks at it, they see that this property that is renting for $600.00. That $600.00 seems to be an average for the area so you are not inflating or – it is justified I guess you can say.

Larry: It is like doing a sales comparison on the comps on the appraisal except you are doing a rent comparison.

Tim: Yes, that is correct. On a similar basis, they will go around and they will take pictures of the other rental properties that they are comparing it to just to show that this house is receiving $700.00 and this house looks just like the other house, so it is getting $700.00 too.

Larry: That is strong. That is good to know. You mentioned you can close a rehab loan pretty quick. What is the process that a person would go through, I mean, you don’t want to wait until you find the house and then say, “hey I need to go and apply for a loan, do you?”

Tim: No. What we do, if you can actually visit our website which is financialhelpservices.com and we have a lot of information as far as for first time investors or even experienced investors. Talking about, the different types of interest rates and common questions. There is just a list of questions that go into great details as far as answers. From there you can fill out an application, get pre-approved. We normally give you a call back, sometimes the same day and if not, within twenty-four hours. Just to go over your application, make sure everything is accurate, to find out what your goals are and what you are looking for. As Larry mentioned, we also sell houses. I enjoy selling houses, once I find out we have a house available, I have a list of people that I call and just let them know that we do have a house available. So we can also put you on that list; but the most important part is that if you fill out an application and we get you pre-approved that way if you find a house that you are interested in, you can act quickly, call us and we can give you a pre-approved letter. That way, whenever you make your offer, you turn in the pre-approved letter and they will take your offer more seriously and then you can close the loan and you can close it quickly.

Larry: Exactly. That is a good point, because I don’t know how a lot of people buy their properties; but we buy most of ours from the bank and I know the bank wants a prove of funds letter. That is something that you can give our investors, can’t you Tim?

Tim: Yes. As far as the pre-approved letter lets them know that you are pre-qualified and as long as the appraisal comes in and the title is clear, you get the loan.

Larry: Exactly. That is great. How about we open it up for questions for a few minutes. Do you want to do that?

Tim: Let’s do it.

Larry: Does anybody have a question for Tim?

Voice From The Audience: Yes, this is Stephanie from Massachusetts.

Larry: Hey Stephanie, how are you?

Stephanie: I am great. How are you doing? What states do you give Mortgage Loans in?

Larry: Right now, we do Mortgage Loans in North Carolina, South Carolina, Indiana, Colorado, Wyoming, Arkansas and Montana

Stephanie: Great, Thank You.

Larry: Hello, does anyone else have a question?

Another Voice From The Audience: I have a question.

Larry: Sure, who is this?

Voice From The Audience: This is John, here in Charlotte.

Larry: Hey, John, how are you doing?

John: Good, this question is for Tim about the Stated Loan. I heard you talking about the Full Doc and the No Doc and the percentages that were required as down payments. What about a State Loan, what is the most you can do on it? Can you do 100% or 90%?

Tim: As far as for a Stated Loan, most likely, we are going to be looking right around 90%. That is the most common. We may be, depending on your credit situation, able to go up to 95% on a Stated purchase.

Larry: Now will that be just an LTV or would that include a CLTV, Tim?

Tim: That is an LTV. That would be your LTV and on CLVT, they will go no higher than 95. I know there are a lot new Lenders, so it is very possible that they might be able to go to 100; but we have not really clarified that with any of the new Lenders. We receive stuff on the fax every day, but once we check into it it may not be that way.

John: Larry, I have a follow up question on that? Can you do, on a hard money rehab loan, can you do that as a Stated Loan also. I know you said you needed a 614 credit score plus tax returns and pay stubs.

Larry: That is a good question for Tim. He is our underwriter.

Tim: What we are going to do. We are going to look at your financial situation. Are you a first time Investor?

John: Yes.

Tim: What we are going to do. We are going to look at a couple of things. We are going to look at your current assets and how much we have to actually state your income from what it actually is. But in this situations, there is some flexibility and we know that when we get to pre-qualify, we have to look at it as if it is a traditional loan; because we have to be able to get you out. If it is within reason, we should be able to get you pre-approved for hard money as well.

Larry: Great, does anyone else have a question for Tim.

Ladies Voice From Audience: A have a clarification and two quick questions. I just wanted to clarify that the comps that are collected for the hard money loan is collected at closing, so you are actually paying a 15% interest on the points, is that correct?

Larry: That is correct.

Larry: The other question, do you have to pay the taxes at closing, to try to get your closing cost down so you can issue more for the value?

Larry: Tim, can you answer that?

Tim: Depending on whether the taxes are due. Most of the time, let’s say you are buying a property in September, and the taxes are due in December. Normally, what they are going to do, is they will give you a credit for the nine months, that would actually be a credit on your side as far as on the HUD. You will only have to pay for the three months, you know the September, October, November and December. But if they are due, your taxes are collected at closing or on the hard money loan.

Larry: You don’t have to escrow that for the next year either.

Ladies Voice From Audience: The very last question I have. I am getting ready to leave my current job and go into Real Estate and be a Realtor/Broker. How will I be able to get a hard money loan if you would need pay stubs for that?

Tim: How long have you been in the Real Estate Business?

Ladies Voice From Audience: Well, I work for a Builder now, but I am getting ready to leave and go get my License and be an actual Realtor. So it is still the home building industry and sales, the same industry, but you know you only get paid when you close a deal. So, I would not have pay stubs once I became a Realtor.

Tim: So right now, are you a salaried or W-2 employee?

Ladies Voice From Audience: Yes.

Tim: Here is where you may run into problems. We need a two year job history and what happens if you are a
W-2 employee and then you are going to go into sales as a Real Estate Agent. What will put you as self-employed, so you may have trouble as far as getting a loan because you do not have the two year job history, which is required for one of your exit strategies on the re-finance.

Ladies Voice From Audience: So, even if it is the same industry, and I am commission only with my Builder because I’m going self-employed they need two years with the Real Estate Agency in order to get a hard money loan?

Tim: That is correct. In these situations, if you have a partner or someone you can trust as far as to put the loan in their name. What we normally recommend is don’t quit your day job even if you want to start as a Real Estate Investor or Real Estate Agent. Get your license, but keep your current job and then once you are practicing or sell a couple of houses, transition into a full time agent. We are not saying don’t do that, but that is something that you might want to consider if you plan on buying houses in the very near future.

Larry: Yes, it does really limit you as to what you can do if you quit “cold turkey” and start another thing; especially for the traditional lenders that take out loans to get you out of the hard money loan. They are going to want so see a two year job history. If it is salary employee working with a Builder until last month, and now it is a self-employed Realtor, that may keep us from being able to get you out of the hard money loan and that is what we don’t want to do. Get you into something that you would not be able to get out of.

Tim: Do you currently have any rental properties?

Ladies Voice From Audience: We have three, right now.

Tim: Do you have a CPA?

Ladies Voice From Audience: Yes.

Larry: How long have you had those?

Ladies Voice From Audience: One for five years and the other two for two years.

Larry: Excellent.

Tim: I actually just purchased my first house in North Carolina in June and I through the same situation. I worked for MBNA, I was a W-2 employee and when I started working for Financial Help Services I had a gap in my employment, but I had been investing for in Real Estate for five years. I also have a CPA, that is a very important thing because he was able to write a letter saying that I had been investing in Real Estate for at least the past two years and I was able to get a loan that way, a traditional loan.

Ladies Voice From Audience: Oh,

Tim: But it all depends on, some investors do their own taxes and that puts them at a disadvantage, so if you have a CPA that will open a few doors for you. So it is definitely a possibility.

Ladies Voice From Audience: Okay, great. Thank you very much Tim.

Another Male Voice From Audience: I have two quick questions. First, regarding a Full Doc Loan, when you take a quick claim from your personal and you put into your LLC Name, does that activate a due on sales clause or anything like that?

Larry: If you are the Beneficiary of the LLC or the owner of the LLC (excuse me it is a Member Manager). If you are the Member Manager of the LLC so you are still in control of it, our experience has been that the Lenders will accept that and don’t really have a problem with it. But if you are using transfer to a Trust or to an LLC and selling the shares in that or whatever and somebody else is the owner, than yes, the Lender will not like that.

Another Male Voice From Audience: But if I am the sole member of my LLC, there should be no problem.

Larry: There should not be any problem, but always be sure and do this. Contact your Insurance Company and add your LLC as an additional insured on the policy.

Larry: Along with my name, I mean along with my name, use both of them?

Larry: Absolutely. The Mortgage is still in your name, so add it as an additional insured on the policy. So that way, both of them are covered if something happens that both names are on the policy.

Another Male Voice From Audience: Okay, my other question was – on for example a hard money loan, what is the check to income ratio on that?

Larry: That is a good question for Tim.

Tim: Are you referring to a Full Doc or …

Another Male Voice From Audience: Just a standard hard money or Full Doc, is fine.

Tim: We will normally go up to about 65%, because when we are underwriting the loan, we are looking at the current financial situation of the current property at 15% interest and interest only payments. That is based on your twelve monthly payments. If we actually went into a traditional loan the rate is going to be in the 7 on a thirty year fixed rate or interest only so we will be able to realign or readjust your present income at point when we refinance you up.

Another Male Voice From Audience: Okay. One more thing also. I have had my first rental house for the last year. How does that, am I able to use that as part of my income or a certain percent of that as income or will I have had to hold it longer than a year?

Tim: That is a great question. What we look at is, we look at your rental income the same way as a traditional Lender and what they will do, they will 75% of your first rental income. If you receive $1,000.00, we will allow you to use $750.00 towards your income.

Another Male Voice From Audience: Do I have to have held the property for a certain time for that to kick in?

Tim: No. There is no seasoning gone down at all.

Another Male Voice From Audience: Okay. Thank you very much!

Larry: Tim, I have got to say, you have had more questions than anybody that has ever been on the Wednesday Night Brain Pick a Pro Teleconference. Most of the time it is two or three.

I would like to remind everybody about we are having a Boot Camp October 22, 23 and 24, 2004. If you would like more details about that you can go to www.larrygoins.com. We have a room reserved for 50 people. We currently have 38 or 39 sold, so there is 10, 11, 12 seats left and I am offering a special. The price is $1,500.00, but if you sign up so we can go ahead and get it put away $995.00. I will throw in the Insider’s Guide to Financing for Investors, which includes a lot of the information that we talked about tonight on the call, as well as understanding and reading Appraisals, understanding and reading Credit Reports. All about the different types of loan programs. All about hard money, all the Hard Money Loans that you need. That program is two volumes, five hundred pages, 10 Audio CDs and 2 Forms Disks. It is a $399.00 value, we will throw it in if you come to the Boot Camp. The price on the website is not $995.00, so you will need to call me direct and we will take your order over the phone. You can reach us at 803-831-0056, I am at extension 304. Even if you would just like to ask me some more questions about it. The Boot Camp is completely, 100% guaranteed. We are having four or five guest speakers. We are going to do a bus tour, go and tour properties under rehab, we are going to make live telephone calls with Sellers, Realtors and Tenant Buyers, we are going to talk about asset protection, entity structuring, lease options, negotiating, an over view of the whole Real Estate investment industry. Pretty much about everything to do with Real Estate. There are a lot of details on the website and if you have any questions, please feel free to give me a call. And Tim, once again, thanks so much for being on the call. It was a lot of fun.

Tim: One thing, Larry, with your Program people do not realize that they can call you up even after they take this class and walk through some deals or if they have any questions.

Larry: Absolutely.

Tim: I remember when I first started I was seeing these commercials where you call up and they will send you all these Videos and ….

Larry: The no money down Seminars?

Tim: Yes, it was waste, I did not learn anything from it and you call the company up and you get a Telemarketer on the line and it is like, I’m sending this stuff back.

Larry: I hear your. That is one of the things that is pretty neat, we are right here, if you go to one of the big National Guru’s Seminars or Boot Camps is hard to pick up the phone and call them on Monday morning, but I am here in the office every day. I just gave out my phone number and my extension and I am right here. We answer phone calls every day, talk to people every day, refer them to the website for freebies that are on the website. By the way anybody on the call, if you have not signed up for our free Newsletter, please do that. We get probably five to ten new subscriptions a day and it is really growing and we are expanding on that.

I’m going to go ahead and sign off. Thanks everybody for calling in, I appreciate it. Look forward to your calls and if you enjoyed tonight, please shot us some e-mails, let us know, you can shot Tim an e-mail at tfykef76@msn.com and extension 803-831-0056, ext. 324. If anyone is interested in some houses just shot Tim and e-mail or give him a call. Let him know where you are interested in buying, as houses become available he will contact you. The houses we sell, we sell at 70% of value so that way we can get them in with no money down on the rehab loan.

Thanks everybody for calling in and everybody have a good night.

Hi, this is Larry Goins and I would like to thank your for listening to this audio program and I would like to remind you to please visit our website at www.larrygoins.com for other information as well as we have a link for freebies, we have articles that you can read and I would like to share with you that we also offer one day training events for basic Real Estate Investing and we also have three day Boot Camps as well as the Boot Camp in a Box, which contains the complete three day Boot Camp on Audio CD as well as DVD Video. Please visit our website for the location and schedule of our one day and three day Boot Camps coming up. We also have a home study course called The Complete Insider’s Guide to Financing for Investors which consists of over 500 pages in the manual and ten audio CDs as well as two forms disks and other products and services as well. We also offer personal coaching and mentoring so whatever you needs may be, please feel free to give us a call. If you are a Real Estate Group, Investor Association, Mortgage Company owner or other Organization and would like to have either myself or Wendy Sweet or Leon Humphrey speak at your group about Real Estate and Finance and Investing, please feel free to give us a call. Our direct office number is: 803-831-0056, I am at extension 304, Wendy Sweet is 310. I would also like to remind you that we also offer traditional financing as well as hard money and re-hab loans for investors. Please visit our website there at www.financialhelpservices.com. Thank you very much for your business, we sincerely appreciate and please remember: Our Mission is to Put People and Principles in Front of Profits, when we do that everybody profits.

Thank you and have a great day!