Loan Servicing

Cash

A real estate loan servicer is a company/person that is tagged in after closing by the lender to handle the administrative aspects of a loan. Surprisingly, many mortgage companies and owner finance lenders do not service their own loans but hire a third-party company to serve as a liaison between themselves and their borrower, ultimately managing the loan.   

There are many companies who specialize in servicing real estate loans, and they often offer an array of services. The type of loan you have, and the lenders needs, will determine what services are opted in to. Often the fee associated with the management of the loan is written into the closing documents and passed on to the borrower.

Finding a loan servicer you can trust, and one that fits your needs is imperative. Always read the fine print and be sure to have a clear understanding of your servicing agreement.  If you operate nationwide, be sure to find a servicer that does, too.  Remember that not all servicing agents are created equal. Some are very specific on the types of loans they can service while others are a one-stop shop.

As a lender there are many things you must stay on top of for things to run smoothly. Your servicer is there to make sure nothing is missed. Depending on your need and/or terms agreed to at closing you may expect your loan servicer to keep track of the following:

Accepting borrower paymentsCollecting fees
Keeping track of loan balances, amortization schedules, and records of paymentsSending out late notices and acceleration/demand letters
Collecting escrow for taxes and insuranceManaging extensions
Paying taxes and insuranceProviding payoff’s
Releasing drawsServing as the main point of contact/interfacing with the borrower

Servicing a loan is not only time-consuming, but one must know how to navigate through the legalities and compliance issues that may arise. Laws vary from state to state and can change over time. Often there are strict rules and timelines when it comes to collections, notifications, etc. and your servicer will help you stay on top of it all.  If you are going to finance the sale of a property yourself, a loan servicer is necessary to ensure everything is done legally and correctly, and protects both the borrower and the lender.

What Investors Should Know About Title Commitments

What is a Title Commitment and Why Do Investors Need One?

The title commitment for insurance is the insurers promise to issue title insurance after closing and should be carefully reviewed and understood. It is essentially a disclosure document that outlines any issues/requirements that need to be addressed prior to closing as well as any liens, obligations, and defects affecting a property. This is a snapshot in time looking backwards. Your title commitment will not ensure any title issues that arise after this date (ex. liens put on the property after the commitment is issued, etc.) and expires six months from the effective date seen on Schedule A of the commitment. After closing, your title company will issue your official Title Insurance Policy using the commitment previously provided. This document is important as it protects you should any disputes arise regarding ownership and provides coverage against losses due to title defects.

Loan Policy and Owner’s Policy

There are two types of title policy’s: the loan policy and owner’s policy. The loan policy is usually a requirement of any lender and will protect their interest in the property they are loaning money on. This policy is usually written at the loan amount. It does NOT insure the owner should any title issues arise. A separate owner’s policy can be purchased that will insure you for the full amount of the property purchase price (not just the loan amount) and will remain in place as long as you have an interest in the property.

Title Commitment Sections

Each title commitment is made up of three parts: Schedule A which covers the basics of the transaction, Schedule B Section I which lists all requirements that must be addressed prior to closing, and Schedule B Section II which addresses exceptions to coverage.

How to Read a Title Commitment

Schedule A

This part of the Title Commitment covers the basics of your transaction. It is imperative that all information here is correct. You will want to check your effective date, the name of the person who currently holds title (verify that this is your seller), the legal description (title companies do not insure addresses only legal descriptions and it must be correct), the proposed buyer and sales price (coverage amount for the owners policy), and the name of the lender and loan amount (coverage amount for the loan policy). You will also want to check that the commitment is countersigned by the insurance company.

Schedule B Section I – Requirements

This section outlines requirements to be addressed prior to closing in order to obtain coverage. You can expect to find information regarding paying off the sellers existing mortgage/lien, obtaining release of liens on the title, recording new loan documents, Taxes and HOA dues past due and current, and correcting errors in title. Fulfilling these requirements are sometimes as simple as providing documentation to the title company.

Schedule B Section II – Exceptions

This section lists things that will not be covered under your policy such as HOA restrictions, mineral and water rights, utility and access easements, encroachments, plat restrictions, liens not found in public record, etc. Most things you will find here are pretty standard however, you must review this section carefully as it may impact the way you use your property and ownership.

Investing in real estate is an important decision. When choosing a lender, be sure to select an experienced one that will walk you through the process and answer any questions you may have. Investor Loan Source is happy to assist you along the the way.

ARV, LTV and LTC: What Does it All Mean?

Lenders often use these acronyms to define their loan products. Understanding these terms will help you to choose the right lender for your project.

ARV: After Repair Value

This term is used by appraisers to tell the value of a structure once all items on the scope of work (SOW) have been completed. Most lenders will loan a percentage of this valuation to a borrower and then hold the repair funds in escrow.

LTV: Loan to Value

This term is used to define the amount a lender will loan on a particular property in reference to the valuation. For instance, if you are looking to buy an investment property that has an appraisal of 100,000 and your lender loans 70% LTV, then you can expect a loan on this property for 70K. If your contract for purchase is for 80,000, then you must bring at least 10,000 to closing. If it is under, you may be able to cash out.

LTC: Loan to Cost

Some lenders use this to tell us the percentage of funding one can expect on a purchase. Sometimes this is regulated by the state. For instance, if a lender tells you that they loan 90% LTC, you can expect to receive a loan of 90,000 when your purchase price is 100,000. This means you will have to bring the difference to closing.

How They Work Together

Let’s imagine that Sam has a rehab property under contract for 60,000. He needs to invest 20,000 into this property for repairs, bringing his total loan amount to 80,000. His ARV appraisal states that after his work is done on the property it will be worth 100,000. However, Sam’s lender only loans 70% ARV and 90% LTC. Since the property is under contract for 60,000 the lender will only loan 90% of that amount which is 54,000. In this scenario the lender agrees to loan 100% of the repairs (which will be held in escrow) up to the after repair value of 70% which is 70,000. Since the contract is for 60,000 and the loan amount on the contract will be 54,000 there is 16,000 left to use towards repairs, meeting the 70% ARV or 70,000. Remember that Sam needs 80,000 total and that is what the appraisal was based on. Therefore, Sam must bring the difference to closing which is 10,000.

Let’s look at another example. Imagine that Mary has a rental property she is looking to refinance. The appraisal comes in “AS IS” at 80,000. Mary still owes 30,000 on her lien leaving her with 50,000 in equity. Her lender agrees to loan 70% of the LTV an 100% of the LTC. In this case she would get a loan for 56,000. Of that 30,000 would pay off her prior lien leaving her with 26,000 to cash out on. In this scenario Mary is only paying her closing costs. Please note that in some cases lenders will allow you to roll in closing cost fees.

Find a Lender You Can Trust

Finding a lender you can trust is essential in this business. Understanding their loan thresholds can help you to evaluate deals before you invest a significant amount of time into a project that may ultimately not work for your circumstance. Be sure to choose your lender that will explain the loan terms and any items that you don’t fully understand.

Debt vs. Equity

With so many options out there for real estate investors to choose from, understanding the pros and cons of debt vs. equity deals will help you make an informed decision.

What is a Debt Deal?

When investing in a debt deal you are the lender on a property. In exchange, you are promised a set rate of return dependent on your investment amount. Principal is either paid back throughout the life of the loan or in a balloon payment after a pre-determined amount of time. Examples of debt deals are real estate notes/mortgage-backed securities and real estate debt funds.

Pro’s of Debt Deals

Less risk – You become the lien holder and are granted certain rights, such as foreclosure, in the case your borrower defaults on the agreed upon terms

Steady Income – debt deals are great for those investors who depend on the income. They have a predictable payment schedule (usually monthly or quarterly) and pay the pre-determined rate.

Shorter lock-in periods – Most debt instruments have a life span between 6 and 24 months or until project completion. This is an ideal time-period for persons not willing to tie up their funds in any one asset for extended periods of time. 

Con’s of Debt Deals

Capped Rate – Since your earnings are pre-determined there is no chance to profit more if the project is uber successful. Less risk equals less return.

Pre-Payments – There is always the chance that your borrower may pay off the loan early. This can leave you looking for a place to re-deploy funds sooner than expected. You also risk the chance of not recouping your investment fees and interrupting your expected income.

Higher Fees – Most debt investing opportunities include a fee for bringing you the opportunity. They could potentially pass the origination fees on to you in addition to legal document prep of the transfer documents and recording fees.

No voice – As a lender you have no say in how the project is run. The owner retains this right.

What are Equity Deals?

Equity deals are real estate investment opportunities where you take part ownership in the project. Returns can come in the form of cash flow produced by the asset such as rent, and your share of that return is dependent on your investment amount. When the property is sold or refinanced you too take a percentage of profit. Equity deals can be offered as one-off opportunities, equity syndications, REIT’s, etc.

Pro’s of Equity Deals

No cap on returns – Investors can generate higher returns than they might in a debt deal since returns are based on the performance of the asset.

Hedge against inflation – Real estate appreciates over time and keeps pace with inflation. When the cost of living goes up your cost of ownership does not. Rents are raised and the value of your property investment rises as well. As an equity holder you share in the profit spun from this. Be sure your investment takes advantage of the buy low, sell high mantra!

Tax advantages– You can dramatically reduce your tax liability each year through depreciation. Real estate owners (not lenders) can benefit from this. Always consult your CPA for the pro’s and con’s of any investment and how they might personally effect you.

Con’s of Equity Deals

Risk – Higher reward equals higher risk. There is no guarantee your asset will perform well or even as expected. You run the risk of losing some or all of your investment.

Holding Period – Equity deals are usually accompanied by lengthy hold times and no liquidity.

Before committing to any investment, you should do your research. Learn everything you can about the investment and those offering it. Have your attorney help evaluate the legal paperwork and point out risk. Ask your CPA what the tax implications are for this investment in direct correlation to your situation. Do not be afraid to ask questions to those offering the investment. You want to be well versed in your investment so you can have peace of mind.

In addition, ask yourself these questions:

  • What is my tolerance for risk?
  • Am I dependent on this income and need to know exactly what to expect and when?
  • What is my need for liquidity?

There is no blanket right or wrong answer to these questions. However, truthfully answering these questions can help you to decide what type of real estate investments you should be considering: Debt, Equity, or both! 

The In’s and Out’s of Due Diligence

The Importance of Due Diligence

When investing in real estate proper due diligence is one of the most important keys to success. There are many issues that can arrive after closing that could have been prevented with a little homework. Thankfully, many professional underwriters and lending companies will aide in this endeavor once a contract has been accepted.

The due diligence period generally refers to a set amount of time one has to investigate the aspects of the property after a contract is accepted and before closing. During this time the buyer may back out of the contract for any reason without repercussions. Generally, the length of time is pre-determined by either the state (usually 10-15+ days) or agreed upon in the contract and begins when escrow is opened.

Every lender and title company will have a set list of what they require to complete what they believe is proper due diligence on an investment. This not only protects them but you as the buyer. However, not everyone’s requirements and parameters are the same. A private individual lender may require very little due diligence to be done while the bank will have you jumping through hoops. Knowing what to look for and expect is crucial in this business regardless of if you are doing it all yourself or leveraging your team.

Buyer’s Due Diligence

  • Physical Inspection – plumbing, structural, roof, HVAC, pests, septic, well, etc.
  • Crime (including sex offender) statistics
  • Upcoming building plans in the neighboring area / Zoning
  • Talk with neighbors to get the inside scoop on the area
  • Median Household Income
  • Surrounding Rental Rates
  • School Rankings
  • Repair Quotes (if applicable)
  • Estimate your Debt to Service Coverage Ratio – DSCR (if applicable)
  • Review of Seller’s Disclosures
  • Property Rights
  • Submit all requested documents to lender
  • Review all legal documents for accuracy and understanding

Lender’s Due Diligence

  • Review of all documents for accuracy and suitability
  • Contract / Assignment – review terms and make sure the seller has the right to sell property etc.
  • Deed or Proof of Ownership – review chain of custody
  • Interior and Exterior Photos
  • Scope of Work / Lease Agreements
  • Bank Statements
  • Background Checks – this can include criminal, credit, tax liens, death index, bankruptcy, lawsuit history, etc.
  • Insurance Quotes – verify amount, terms, address, type (hazard, flood, windstorm, vacant, occupied, builder’s risk, commercial etc), and insured names
  • Flood Determination – what flood zone does the property lie in
  • Corporate Docs (if applicable)
    • Certificate of Formation
    • Certificate of Filing
    • Operating Agreements
    • Amendments
    • Resolutions
    • FEIN or W-9
  • Entity Search – verify the entity is active and managing members
  • Driver’s License (state ID’s) – citizenship
  • Social Security or W-9
  • Contact Information from borrower
  • Appraisal / Survey – Value of property and boundary lines
  • Permits
  • Homeowners Association (HOA) – restrictions and verify dues are up to date
  • Verify Taxes are Current and that there are no liens
  • Review of Title Commitment
    • Legal Descriptions
    • Policy Amount
    • Encroachments / Easements
    • Liens – Verify Clear Title / Judgements
  • Review of Loan Package and Closing Disclosure

Commercial

  • Phase 1 Environmental (if applicable) and Phase 2 if needed
  • Proposed Plat Changes
  • Drawings / Spec’s
  • Executive Summary
  • Rent Roll
  • Feasibility Study
  • Pro-Forma P&L

Ready to Invest?

This list is in no way meant to be used as a complete guide to due diligence, but it aims to serve as a starting point. There are many things to consider when investing in real estate and are often driven by one’s school of thought. Asset based lenders vs. credit-based lenders will have varying requirements, as well those investors who invest in fix-n-flip, rental, and commercial loans. The bottom line here is to do your homework throughout the entire process. Make sure you ask lots of questions and that you understand the legal documentation you are signing. Consult with your lawyer or financial advisor if you have questions or are still unsure. Don’t be afraid to walk away from a deal if you find an issue during the due diligence period that the seller refuses to fix or can’t. Better to lose a small sum of cash than to get in over your head. Be sure to partner up with a lender that you can trust. Now that you are armed with this knowledge, get out there and find some deals!

How To Start Investing in Real Estate

Thinking of investing in real estate, but not sure how to begin? First and foremost, know that you are not alone. Real estate investing is a great way to build your wealth, but when you have little to no experience it can seem a bit overwhelming.

Do Your Research.

We have all heard the old adage that knowledge is power, and it still holds true today. One of the best pieces of advice one can be given is to do their research. In this day and age, there is no excuse not to. So much information is available to us instantaneously. Begin by learning popular real estate terms. So often I get asked the definition for “ARV” and “deed of trust”. Arming yourself with the basic understanding of the lingo is imperative.

Time is of the essence, and most people feel they do not have enough of it. However, if you are serious about real estate investing you will find time. Listen to a podcast, eBook, or real estate talk radio while you are driving in the car, working out, or as you drift off to sleep. This is a great way to get your head in the game and learn while doing it.

Grow Your Network.

Your network equals your net worth! Surround yourself with like-minded people. There are so many avenues one can pursue with real estate investing, but one thing is certain, you will need trustworthy, competent people at your side. Do your research and build your network. Most large cities have Real Estate Investment Association groups (REIA’s) which are great places to learn the industry while making contacts. Many teach classes on real estate investing, tell both success and horror stories, and introduce you to reputable industry professionals and investments. Lenders, title companies, contractors, CPA’s, real estate attorneys and real estate agents are all worth getting to know. Leverage the experience and the field of expertise of those around you.  These people will help you grow your business/investments setting you up for success.

Find a Mentor.

An ideal mentor is an experience investor with time and knowledge to share. They can help you stay on track, keep focused, and guide you in the right direction. Be sure to ask lots of questions. Find out what your mentor did to become successful and mimic it.

Assess Yourself.

Next, you will need to do an honest assessment of yourself and your situation. You do not always need a lot of cash on hand or a perfect credit score to take advantage real estate investments. However, knowing your limitations will help set you up for success. 

Other questions you will need to ask yourself is how much time you have to dedicate to your real estate investments. If you have a full-time job, volunteer three times a week, and must keep your schedule as well as your kids, you might be better suited for a passive investment. One that does not take a lot of your time. Therefore, a fix and flip project may not be best suited to your situation. Semi-passive to passive options like real estate notes might work best for you.

Decide on the amount of risk you are willing to take. Do you have extensive knowledge in the industry and a pool of cash for investments that would allow you to go after those high-risk high-reward opportunities? If so, commercial deals might be your niche. Are you close to retirement and principal preservation is imperative, consider funds or REIT’s? Do you need passive monthly income? Consider a rental property. There are both aggressive and conservative options out there and knowing which category you are comfortable in will help guide you to the right investment.

Additional items to consider are the type of funds you are looking to invest; cash or structured funds (IRA’s, 401K, etc). If you, will you be investing as an entity or as an individual and what the taxing consequences might be in direct correlation to your situation (seek the advice of a CPA). Look at state laws and how they might affect your investment. These questions can be deciding factors.

Find a Trustworthy Lender.

Most new investors have limited cash resources. If that is your situation, consider finding a lender who can help you. There are private lenders, banks, hard money lenders and others out there who can help you get started. Even seasoned investors often use outside financial resources to help them grow their investment portfolio. Be sure to do your research and ensure your lender is trustworthy and deserves your business. Ask for referrals or ask your real estate networking group if you are having trouble finding good lenders.

Make Your Dream a Reality.

Once you have done these things go out and find your investment, do the leg work, and make your dream a reality. Remember to be realistic in your expectations and set goals. Do not overextend yourself either mentally or financially. Keep your mentor close, leverage the experience of industry professionals and never forget that your knowledge and network are the two most important things in your arsenal. This is how you will set yourself up for success.

New Year’s Resolutions for Real Estate Investors

A new year is the perfect time to reflect on the past year and celebrate your achievements, identify areas with room for improvement, learn from the setbacks and move forward. It’s also the perfect time to set new goals and come up with attainable resolutions both personally and professionally. For real estate investors looking to grow their business and achieve financial success, setting new, tangible goals is imperative.

For many of us, 2020 seemed to drag on due to COVID scares and shut-downs. It came with many speed-bumps, hurdles and other uncertainties and discouraging events. Ready for 2021? We all are. Here are some useful resolution ideas to help this year be a more lucrative one for your real estate investment business.

  • Work to Increase Your Return on Investment

For new real estate investors, this means staying focused on finding opportunities with low risk and high profit. Looking at your expenditures, monthly and yearly costs to see if there are areas you could save money is critical for both seasoned and newer investors. One easy step is to ensure you aren’t overpaying for utility services. Another is to review rental rates on a regular basis to be sure you are charging rent consistent with the local market. Smart investors will also learn how to efficiently schedule contractors, pre-apply for permits, pre-order supplies and aggressively price and market their properties for quick sale. Each day saved equates to less money towed to your lender in interest. Evaluating the cash coming in and the amount of cash going out regularly will help you identify ways to increase your return on investment.

  • Mix Up Your Strategy to Find New Properties

Using MLS may be easy, but it won’t usually allow you to get ahead of your competition in finding hot investment properties first. Consider hitting the streets in your car to find for sale by owner signs this year. Focus on networking and growing your contact list. Be sure to include realtors, investors and contractors. A good contact list may help you learn about new foreclosures and opportunities before anyone else.

  • Improve Your Time Management

Improving your time management can help you both personally and professionally. Consider waking up an hour earlier each day and setting that time aside to answer emails and planning your daily list of items to get done that day. Stay focused on accomplishing that to-do list before you get sidetracked. You may find that you get more done in the day if you plan it out carefully. For those that simply don’t time for the more mundane tasks of answering emails and making phone calls, think about hiring a virtual assistant to help free up your time for tasks that could be used for making investment deals.

  • Improve Your Marketing Strategies

Thoroughly planned marketing improvements will generally lead to a more profitable investment business. If you are not on the social media bandwagon, hop on in 2021! If you already have a social media presence, set a goal of increasing your followers by 10% this year. Streamlining your websites, direct mail and mass email can all also help you grow your business.

  • Refine Your Investment Portfolio

Last year you may have found your niche. Now is the time evaluate your portfolio and identify properties that just don’t fit anymore. Or maybe you’d like to diversify your portfolio and invest in single family notes. Look over your portfolio and plan how you want your portfolio to grow this year. Decide which markets you’d like to explore. Carefully planning your strategy and talking with your investment advisor will help you refine your portfolio successfully.

  • Learn Something New

Personal growth can be achieved through learning something new and expanding your knowledge. Interested in learning more about commercial real estate investing? Join an in-person or online group or attend webinars. Take a course or read a book about something you’ve always wanted to learn. The possibilities are endless. Hopefully you’ll enjoy the process as well.

  • Improve Yourself

Need to drop 10 or 20 pounds? Want to exercise more? Stay committed by joining a health club, or sharing the goal with a friend or fitness group. Stay more organized this year by using a planner, app on your phone or cleaning out your office. Communicating proactively and more often is also a great resolution that will also help you as an investor. Improving yourself can reduce your stress level and lead to a more positive 2021. Decide what areas of your life are bringing you down or need the most improvement and focus on that. You will thank yourself later.

Most resolutions are easy to set and harder to keep. The key is making small improvements each day. Whatever went wrong in 2020, learn from that and move on. Don’t let the past hold you down. You have a cleaner slate and a fresh opportunity to build a better real estate investment business and ultimately a better you. Ready to dominate in 2021?

Having a great lender to partner with you in 2021 is essential. Let Investor Loan Source help you by walking you through our loan products. Contact us at 409-735-6267 if you have questions or email our loan specialists at info@ils.cash for more information.

House Flipping 101

Whether you’re looking for a new career or just a way to make money on the side, flipping houses can be profitable and rewarding if done right. In 2019 approximately 245,864 homes were flipped in the United States. The median gross flipping profit on home flips in the fourth quarter of 2019 was $62,500. Sounds like a great way to make money, right? You’ve seen it on tv shows, but there is more to learn and understand.

What exactly is house flipping? 

Flipping houses is when an investor purchases a property with the intention of fixing it up and quickly reselling it. Most homebuyers want a move-in ready home, so flippers often buy properties that most buyers aren’t able or willing to renovate. The key is finding the right property and flipping it fast.

It can also refer to purchasing and reselling properties in a market where home values are on the rise. In this case, a real estate investor may spot a foreclosure or low-priced home, purchase it and wait a few months until home prices increase. They will then re-list it at a higher price and sell it for a profit.

Ready to get started? Read on to learn about the important steps to take when starting out.

1. Research a range of markets.

How much money will you have to work with? $20,000 will not help you invest in areas with an average sales price of $800,000. Your budget will help you narrow your options. If your hometown is outrageously expensive, consider investing in areas further away, especially ones with rising home prices and strong demand.

2. Set a budget and a business plan.

Every good entrepreneur needs a plan. What amount are you comfortable investing? How big of a renovation project are you up for? All of these things need to be considered when making your plan.

3. Line up your financing BEFORE you need it.

The best deals out there will be snatched up quickly. Make sure you are already pre-approved and have a lender lined up who can finance your deal before you look at properties. You don’t want to miss out on a hot property with huge profit potential. Investor Loan Source can help you with a fix and flip loan. Visit us online to learn more or better yet, apply online today!

4. Build your network of contractors.

It is important to have a team of contractors that you can depend on. You will likely need general contractors, electricians, roofers, plumbers, painters, HVAC experts and well-rounded handymen at some point while flipping houses. Begin building your network ahead of time to avoid stress and delays – time is money in this business.

5. Find a house to flip.

One of the most important aspects of flipping houses is being able to find good deals. It is important to find homes that are not only priced below value, but with wide enough margins to cover your many expenses. For help finding on-market deals you can work with a realtor. For help finding off-market deals you may want to consider working with wholesalers or beginning a direct mail campaign. Patience is often key when finding houses to flip.

6. Buy the house.

As soon as your contract is accepted, you will want to hire a home inspector to ensure the home is structurally sound and the mechanical systems are in good working order. A thorough home inspection will likely take several hours and is critical in ensuring the home will not come with expensive surprises. After the inspection, walk the home with your chosen contractors so you can properly prepare for the next important step.

7. Renovate the property.

Every month that goes by comes with interest and carrying costs – utilities, taxes, insurance and other expenses. The faster you can complete renovations, the faster you can sell it! Be sure to make repairs and upgrades to the home that will add value to the property. Don’t overdo it. Adding high-end, expensive countertops to an $80,000 property is probably not necessary and could eat away your profits. Stick to your budget and timeline.

8. Sell it!

This step is often the easiest if you’ve made the right renovations and priced the home correctly. It’s also the funnest as it entails reaping the profits of your hard work and planning!

Learning how to flip houses can be overwhelming. Lean on experts – your lender, contractors, home inspectors and realtors. Network with other house flippers. Most experienced house flippers have learned from their mistakes and will be happy to share tips on what to do and what to avoid when investing in homes in need of repairs. Building a strong network and planning ahead will help you set yourself up for success.

Need a fix and flip loan for your investment property? Contact Investor Loan Source at 409-735-6267 or visit our website and get pre-approved today!

A Letter from Our CEO, Tom Berry

As I write this letter, I can’t help but think that this will probably be the craziest, most unpredictable experience of my lifetime. First, I hope you and your family members are well and are in good spirits and optimistic about the future. I read in a “good book” one time that “without vision, the people will parish”. I think it is important to always look to the future with vision and wisdom. Fear is crippling and debilitating. It is born of uncertainty and a lack of understanding. Today is certainly ripe for that, isn’t it? So much is unknown right now that I wanted to focus on what we do know and share with you what we at Investor Loan Source have done and what we continue to do, to ensure that we remain strong and secure for our families, investors, lenders and partners.

We have always taken what we have considered a conservative approach to lending and investing. We have never swung for the fences. We keep our pricing at reasonable, sustainable levels, and we have limited exposure as much as possible. When our competitors slashed their margins and raised their LTV maximums, we didn’t chase them. We let borrowers go to them and we focused on diversifying our product lines, so we didn’t have to compete with craziness. It turns out that our strategy worked out well, as many of those competitors are now unable to lend or have closed their doors all together. As a result, we have had record numbers of loan applications in the last 30 days. With this THREE-FOLD increase in applications, we have been able to make changes that will only serve to make us and our loans even stronger.

  1. We raised the credit score requirements of borrowers to get into our A&B loan programs. This results in higher percentage rates on most of our loans without us really raising rates.
  2. We lowered LTV maximums on certain loans. This means they need to bring more of their own money to close.
  3. We have lowered the maximum loan amount for residential fix and flip loans. Now we will generally lend only up to $250,000 in most of our markets, as we believe that the higher priced houses may take a value hit in the next 12 months. As an investor over the last 13 years, I know that the blue collar “affordable housing” is always in short supply and demand increases during rough financial times. This leads to smaller price drops as a percentage on lower priced homes compared to higher priced homes. It creates more work for us since we get paid based on the loan amount and a $500,000 loan takes the same amount of time as a $50,000 loan, while paying only one tenth as much. At this time, we are fine with that to keep the integrity of our loan portfolio as high as possible.
  4. We have diversified into commercial bridge loans that have higher loan amounts in asset classes not effected as greatly by the downturn (if it hits real estate). This has given us the ability to diversify geographically, by asset class and by industry. Our approach is to not have huge exposure in any one place.

While we have taken a cautious attitude through all this turmoil, we are very optimistic about the future. Our borrower payment rates have been outstanding. We have not seen much of a difference, if any, from our normal collection rate. Our Private Equity Funds have been posting phenomenal returns and I expect that to get a little higher, given our ability to charge more interest in the current market. With less competitors, we are able to cherry pick the best loans out there and let the rest lay. While the future is uncertain, with the wisdom of the past and steady patience, opportunities will abound. I will remain diligent and seek to bring in the very best business I can. Donald and I look forward to many more years of our families working with you and your families.

Best Regards,

Tom Berry Signature
Tom Berry