Brief topical overview –
Private Mortgage Finance -
What is it?
First mortgages? Yes
Second mortgages? Yes
Transition finance? Yes … (or) how to make a silk purse out of a
sow’s ear
Development finance? Yes, including “Phased Development”
funding for acquisition, structured equity or the like, with institutional
“exit”
Clean canvas? Yes … proposals stand on
commercial merits alone
Formulaic approach to
lending and recovery? No
What
is genuine private mortgage lending and who are private lenders? Who benefits?
What are the differences between private and institutional mortgage loans?
Put simply, according to one investment group,
“the definition of a private lender is an individual that you can negotiate directly with
on a personal basis to borrow money for real estate investments”.
Genuine Private Investor Mortgage Finance entails a personal
relationship.
Private lending is the oldest form of
lending. LRPM’s primary role has been to transition a non-code first
mortgage lending proposal which has merit but which does not fit
bank/institutional guidelines to a point where it does. Generally, this has
taken place over a term of 6 to 12 month.
Our facilities are heavily asset and “exit” focused.
Private first & second
mortgage funding is now available! $300,000 to $6,000,000 for a single
property, but significantly larger sums may be available for completed strata
units or other structured finance, including development loans.
Until recently, we had not
been involved in development funding. For developments, is it feasible for LRPM
to use private as well as bank/institutional debt, preferred private equity and
other structures in combination and peacefully co-exist? Categorically, “YES”!
LRPM refers to it as “Phased Development Finance”.
In the Private space, each
proposal is a clean canvas, and early discussion is important. There is no
strict formula or set of guidelines and each of our private investors has
differing appetites and price expectations. Therefore, it is not possible to
provide an un-equivocal “loan matrix”, until we have at least discussed the
proposal with you.
For example, in
appropriate circumstances, we will take into account the “uptick” in property
valuation achieved where the applicant has obtained DA during a long term
contract, option or similar. My understanding is that banks and other more
formal institutions will not. We may fund full purchase price under these
conditions where there is real “skin in the game” by the applicant, in terms of
DA and other costs associated with the added value.
This is the first
installment of several to clarify LRPM role, and genuine private investor
finance in the industry. LRPM is a packager and manager working in
conjunction with a limited number of high net worth individuals. We are not a
finance broker. We work on behalf of private investors, and there is no
conflict with finance brokers. We package, carry out due diligence, carry
forward to settlement, and manage after settlement. We do not claim to work
with numerous investors, but have strong commercial and personal relationships
with a few.
To
a degree, the “private mortgage lending” waters have been muddied over time by
smaller institutional lenders (with some of the characteristics of genuine
private lending), and this will be discussed in a subsequent installment.
In the meantime, if you
have a scenario to discuss or seek clarification, please contact the writer,
Steven Acworth via LinkedIn, or on 0488 22 44 16 or follow the details on our
web site …. (to be continued …)
