Online Financial Tips

Archive for October, 2011

As a commercial mortgage professional who deals in private (hard money) lending one of the most frequent questions I am asked “What loan amount can I get?” Privately funded loans are much less standardized than conventional, institutionally funded loans so there are no hard-and-fast rules. However, I speak to lenders and investors everyday and can offer the following guidelines.

Land

Private lenders shun raw land and fear rural land. Hard money people think in terms of a quick sale if they (God forbid) have to take back the dirt. Raw, un-entitled, land and farm land are among the most difficult to sell quickly. If you are for fortunate enough to find a lender willing to make a deal on either of these two property types, do not expect to be offered more than, the lesser of, 50% of the purchase price or 50% of the collateral’s quick-sale value. If the land can’t be financed conventionally and you are looking for hard money, be prepared to put down a huge down-payment or have the seller carry-back a big 2nd.

Properly zoned and fully entitled land with all permits in place is a valuable commodity, even in today’s challenging real estate market. Land, however, does not produce income and therefore can not pay its own mortgage the way a hotel or an office building can. For this reason, most private lenders will only lend up to about 65% against land unless there are special circumstances. Further, if a borrower can’t demonstrate means to make payment on-time, lenders will insist interest payments are held by a third party as an “interest reserve”. In this way lenders are protected. Any interest payments not made, due to early pay-off, will be returned to the borrower.

Vacant Buildings

From a lenders perspective, a vacant building or a building that is underperforming has the same problem that land has; insufficient income. (apart from the borrower) The loan amount that will be offered by a private commercial mortgage lender will depend on the extent of the vacancy and the condition of the building. You won’t find any lenders in helping you acquire a vacant building unless you have a sound, well thought-out plan for leasing it up in short-order, and even then LTVs will be in the 50% range. Partially rented facilities with some income being generated might fetch as much as 65%. But again borrowers must have a plan in place to fill the space up ASAP.

Income Producing Buildings

This category is the most sought-after type of collateral for hard money lenders. A lender has a lien on the income a building produces not just the building itself. So, in the event of a collection or foreclosure scenario, rental income mitigates the costs of a reposition action. Investors and property owners can expect to receive loan proposals of between 60%-70% of value or purchase price, whichever is lower. Apartments, office and retail are the most prized asset with warehouses and self storage facilities a close second. Industrial facilities are lees attractive to lenders because often it’s the business, not the real estate, responsible for the income generation.

The LTV numbers I mentioned above are typical but are by-no-means definitive. The important thing to keep in mind about hard money loans is that they are offered by private finance firms or wealthy individuals. These lenders are free to be as flexible as they wish, after-all, it’s there money. Keep these guidelines in mind, but, don’t hesitate to pitch your deal to any private lender. If the deal is strong and you can sell the merits of it, you might just get lucky and receive more than you thought you could.

PRIVATE PARTY CAR LOANS

A person-to-person auto loan is when you buy your vehicle from a private party, not a dealership. This type of financing has some of the same characteristics as loans for dealership purchases. However, there are also some key differences.

Loan terms


Private party auto loan terms tend to be less than buying a new car from a dealership. New auto loans are typically offered for as long as 72 months. On the contrary, the maximum available loan term for private party auto financing is usually 48 months.

**Please note that the longer you finance your vehicle for, the more money you are going to pay in interest over the entire life of the loan. Therefore, try and finance for as short a time as possible.

Interest rates


The interest rates associated with person-to-person car loans are usually higher than new or used car purchases from dealerships. It is very common for interest rates to be as much as 2% higher than new car dealer purchases and 1% for used cars. What interest rates you receive will ultimately depend on your credit rating and history.

**It is recommended that you obtain a copy of your credit report before applying for any type of auto financing. You need to make certain that all of your information is 100% accurate and current.

Down payments


Most auto loan providers will not require any sort of down payment when applying for a loan for either a dealership or private party purchase. However, a good rule of thumb is to try and put down no less than 20% to avoid becoming upside-down on your auto loan. Meaning, you wind up owing more than the car is worth.

Taxes, title and registration


The fees associated with taxes, title and registration can be combined into the final loan amount when buying from a dealer. However, these fees can not be combined into your person-to-person loan. You will have to pay these fees out of pocket.

Name on title


When you buy a car from a dealer, your name is put on the title the instant you sign the papers and make the deal official. However, when buying a car from a private seller, it can take as long as two weeks for your name to be placed on the title of your car. This happens because it sometimes takes the seller’s lender some time before they fully complete the payoff process.

In conclusion, it is important to understand how private party car loans work. When you buy a car from a friend, family member or even a stranger, it is likely you will get a good deal. However, as mentioned, interest rates associated with private party auto loans are higher. This means that you may end up paying more for the vehicle as a result.

Many Americans do a poor job of planning for their future. It’s true. As a result an increasing number of individuals and families look to the federal and state government for solutions. Most often the solutions are insufficient.

That is why legislators at both the federal and state levels offer significant tax incentives to encourage Americans to plan. From tax deductions for retirement savings options to deductibility for home mortgages, all of these are ways government entities are giving people incentives to be self-sufficient,

As millions of Americans live longer lives, into their 80s, 90s and even beyond, the number of people needing long-term care continues to grow. Some 10 million Americans currently require long-term care services. Most force loved ones and family members into becoming their caregivers. Others are turning to taxpayers for aid.

Long-term care costs are now a significant budget line in many states. When dollars are spent caring for elderly, there are fewer dollars to pay for schools, police and the many other services a society requires. As a result, government officials have recognized the importance of educating Americans about the newfound need to plan for long-term care.

Tax-deductible retirement savings launched the 401(k) plan from relative obscurity into the most-popular way Americans save for retirement.

Tax-deductible LTC health insurance may do the same for the first generation of Americans who need to plan for living a long life.

Recognizing this fact, the Internal Revenue Service (IRS) has approved increased deductibility levels for insurance policies purchased in 2010 according to a just-issued report by the American Association for Long-Term Care Insurance, the industry trade group.

Some 8.25 million Americans currently own policies and several hundred thousand new individuals purchase protection each year according to the trade group. In addition to federal tax advantages, a number of states now offer tax deductions or credits to those who purchase LTC insurance protection. A credit is a dollar-for-dollar reduction in the actual cost of insurance.

Tax deductions are limited for individuals financial experts note. However, business owners may be able to fully deduct the cost for themselves and selected employees. In addition to the tax deductions, a number of insurers now are offering discounts to employers who offer coverage to as few as three employees.

There is still time to take advantage of tax deductions in 2009 and also benefit from the increased deductible limits for insurance next year. To accomplish this, the policy must be purchased prior to the close of the tax year and financial professionals recommend speaking to both your insurance and accounting professional.

The federal deductible limits under Section 213(d)(10) for eligible long-term care premiums includable in the term ‘medical care’ are as follows:

2010 Long-Term Care Insurance Deductible Limits
Attained Age Before Close of Taxable Year
40 or less: Deductible Limit: $ 330
More than 40 but not more than 50: $ 620
More than 50 but not more than 60: $1,230
More than 60 but not more than 70: $3,290
More than 70: $4,110

Source: IRS Revenue Procedure 2009-50 (2010 Limits)

Are you trying to find homeowners insurance in California? If so, let me show you what you need to know first and where to find the best quotes online in California.

It is not required by law to have home insurance, but all financial institutions require that California borrowers purchase California home insurance when owning a home. The very basic California home insurance policies will cover fire damage, wind, lightning and major explosions. When getting your quotes online make sure to pay very close attention to the coverage that is provided.

Important, basic California home insurance policies do not cover floods or earthquakes. In this case you need to look into getting two additional California home insurance policies. These policies or so called “special coverage policies” which are offered at a different rate.

It is is crucial that when searching for flood insurance you consider the average time it takes them to pay claims. When obtaining your quote you will be provided with this information.

Although it can cost more, earthquake insurance is definitely a must have in California. Earthquake insurance will cover the replenishment of property damaged. California home insurance companies are to cover damage to the structure of the home and expenses for temporary housing.

California home insurance companies have the right to charge higher earthquake insurance premiums when a house is old or appears more likely to be destroyed by an earthquake. The construction of your home is crucial, as wood homes are much cheaper to cover. Insurance companies also include the location of a house when determining your premium rates. Hence, if you live near the fault line you are going to pay a lot more.

When choosing a California home insurance company get several quotes online first. This makes your decision much easier and more informative. Your cost will depend on several factors, like the ones which were discussed.

Hedge funds and private equity firms are investment companies set up by Wall Street investment banks and funded by wealthy individuals and cash rich corporate entities. Unlike standard, publicly traded mutual funds, hedge funds are largely unregulated and have much more leeway in their investment choices. Many of these funds have recognized the opportunity that’s emerged in commercial real estate lending, and have stepped in to fill the funding gap. The money managers in charge of these massive pools of capital are savvy investing pros, they know a good deal when they see it and can be very nimble. Hedge funds and private equity funds are not afraid of risk; in fact they thrive on it. If they like a deal, they make decisions quickly and can close loan or equity financing in just days.

There are many private funds that specialize in commercial real estate investing or have a commercial mortgage lending division. They are cash rich and actively seeking quality deals to fund. They can be an excellent alternative to banks and other traditional lenders.
But, be aware, they are very professional and highly sophisticated. Do not approach hedge funds with shoddy or incomplete packages. They’re pros and work exclusively with other pros.

Hedge fund and private equity people have a Wall Street mentality; they are traders art heart. When they look at a deal they want to be able to make decisions quickly.

When approaching a fund you’ll want to have a complete, well documented package ready to show them at a moments notice, but don’t give it to them all at once. Having worked for Wall Street firms for more than 20 years, I’ve determined that the best way to approach money mangers is with a concise, well written 1 page deal summary.

Sum-up the selling points of your deal on a single sheet of paper, stressing the profit potential, the investors level of experience, the strength of the location and some of the other strong points of the project. They’ll appreciate the fact that you respected their time by being brief. If they like what they see they will ask for more. Give them precisely what they ask for; don’t bog them down with documentation until they tell you they want to see it. Sell them the big story before you try to sell them the details.

If you want to secure funding from a big private equity shop or a hedge fund, I’d strongly suggest you utilize the services of a professional intermediary with Wall Street experience. They can speak the language of fund managers and know exactly what’s important to highlight about a particular deal. These funds tend to operate like private clubs, it helps a-lot if you have an “in”. If you are fortunate enough to develop a relationship with this unique type of lender, you will enjoy a seemingly endless source of capital.

The issue of whether Debt consolidation loans affect your credit has been mired in controversy in recent times. While many critics of these loans point to the fact they are the major causes of America’s slide into indebtedness this is in fact not true. The subject needs to be looked at more soberly and not just from the hyped media debates currently taking place. The correct answer to the above question would be that debt consolidation loans have both negative and positive effects on a creditor.

Although a short term loan will not reflect an immediate change in the quantity of debt or the ratio of debt to income, it will in the long run decrease due in part to the efforts of a short term loan company. Additionally, shorter loans are what enable you to pay the huge amount of debt that you initially had and so in the process will decrease the amount of credit owed to you.

Some components of shorter loans could actually affect your credit negatively. One situation is whereby the loans that are negotiated by the debt consolidation experts are reflected as ‘defaulted’ or ‘settled’ on your credit report. Though this may act as a blow to you, the effects are only for a limited period; normally not beyond six years. Put simply the loans that you get in the short term will definitely have a higher interest rate but they will be beneficial in the long run in helping you to reduce your debt.

The downside of a payday loan is that if you fail in repayment of a single month the loan could reach a staggering amount. The main reason for this is that because your debt is all lumped up together, you will be way off your repayment schedule. This is however a rarity rather than the norm.

Finally, payday loans will for the most affect your credit positively. They will help you reduce your debt amounts considerably. Though in recent times, these loans have been cited as being the chief causes of the global financial crises this is not true.