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Basics
Q: What criteria does EquityMax use in making and offering its investors mortgage loans?
A: Although we are "hard equity lenders", we use all of four main criteria, among others, in our underwriting decisions:
1. Equity in the property
2. Borrower´s creditworthiness
3. Borrower´s own cash invested/exposed in the property
4. Purchase price of the property
Q: What type of borrowers does EquityMax lend to?
A: We make loans primarily to real estate investors with good credit. We make very few loans to owner occupants.
Q: What types of property represents EquityMax´s collateral, and where is it located?
A: We lend on all types of real estate, mostly located in Florida. Primarily residential and residential income properties.
Q: How is a typical mortgage structured?
A: EquityMax typically lends 80-95% of what a real estate investor pays for an undervalued property, but not to exceed 60-65% of the after-repaired value.
Q: Only 60-65% of after-repaired value? Isn´t this a bit too conservative?
A: Not really. While it´s nice to get a great return on your money when the borrower makes his monthly payments quite automatically (the usual scenario), it´s important that our investors have enough of a cushion for the rare occasion when, let´s say, our borrower doesn´t put his mortgage payments to us at the "forefront" of his mind, and therefore becomes "delinquent". Unfortunately, we may have to foreclose. Fortunately, we get the property at a very comfortable 65 cents on the dollar. That´s value! Now we likely have a better scenario than just a good return on investment. We can sell the real estate for a nice profit!
Q: Who closes the mortgage? Who administers the loan? Who collects the payments?
A: The closing agents will vary, depending on the contract between the buyer and seller in the transaction. However, the mortgage is always prepared by our attorney, and controlled by our attorney (as is the funding of the loan) who is representing YOU! You will be guided through the transaction by us, and advised when to wire or deliver the funds by us and our attorney. As always, all closing costs are paid by the borrower. Your return is based on your investment or a pure ROI (Return on Investment). Shortly after the loan is closed, you will receive a complete closing package, with all of the pertinent documents, title insurance commitment, and any monies due you from closing. In 4-6 weeks, generally, the final title insurance policy and recorded mortgage document will be delivered to you. We also keep a copy of your documents on file in our office. While we can guide you on the "administration" of your mortgage, it will be your responsibility to keep your own records, keep track of your interest and other income received, and follow up when your payments are due.
A Little Analysis
Q: Why is it sometimes easier to obtain a business loan than a mortgage on something as safe and "permanent" as a home?
A: Because it´s easier for the bank to digest the potential of getting a steady stream of monthly payments derived from the income generated from the business. The loan "fits" their model. The decision becomes more "cookie cutter". We, on the other hand, are primarily concerned with the value of the underlying collateral. We satisfy a void in the market, that is, helping real estate investors buying homes that need to be fixed up, such that the home can be later sold at a profit or refinanced, and held for long-term investment. While the bank might look at this as being "speculative", we recognize it as being profitable.
Q: But why lend money primarily or only to real estate investors? Isn´t that sort of restrictive?
A: We don´t limit ouselves, per se. However, our type of mortgages lend themselves more to the needs of real estate investors. Our mortgages are short term in nature, 2 years, and carry double-digit interest rates. For a buyer or refi-nancier of an owner-occupied property, the monthly payments, over time, may become burdensome. But for the realestate investor who needs the money short term, the expense is absorbable. In the end, the real estate investor still sells the property for a nice profit, and the lender earns a nice return. Everybody wins. And, if the lender´s money is coming from a pension plan or self-directed IRA, the favorable, accumulating returns are more magnified by the favor-able tax sheltering of the cash flow.
Q: Is my money pooled with others for the purpose of making these loans?
A: No. You will be the 100% owner of each mortgage you originate.
Q: Are these loans government guaranteed?
A: No, they have nothing to do with local, state, or Federal government and/or any connected agencies. However, we are governed, and you are protected by both state and Federal statutes related to the mortgage industry. However, always remember that the underwriting decisions are made by you, the lender, with information provided by the mortgage broker.
Q: What is the minimum I can invest in mortgages with you?
A: About $50,000-$100,000. Once in awhile we get requests for smaller loans ? and we´ll happily accommodate. But, not often.
Q: How long will my money be tied up?
A: This depends on your comfort level. The terms of our mortgages range from 2-7 years. We will try to place you where you are most comfortable. Historically, the mortgages generally are paid off significantly earlier than maturity date. Therefore, to preclude the erosion of return, and increase ROI, we usually try to add a prepayment penalty if paid off "too soon". The good news is that getting paid off early, inclusive of receipt of the prepayment penalty, dramatically enhances the lender´s yield!
Q: This all sounds great. Great ROI, safety, well-administered. But3;, what if, for unforseen reasons, I want my cash before the mortgage term is up? Is this investment liquid to any extent?
A: Mortgages, like any other financial investment are certainly liquid3;to a degree. If you wanted to unload some stocks or bonds, you could, but the price obtainable would be subject to the desireability in the market at that point in time. Same with mortgage investments. However, unlike publicly traded stocks and bonds, the market for mortgages of this type is understandably more limited. However, we will be glad to help, and likely can find you a buyer (or we may buy it ourselves) rather quickly.
Q: Since EquityMax is credit-score driven, why in the world would anyone want to borrow money from me, on a loan arranged by you at double-digit rates, when they could walk into a bank and borrow at rates of 5-10% less?
A: Indeed, many borrowers do just that! But those borrowers do not make up our target market. Our typical borrower is usually either a:
1. "for-profit" real estate investor who needs to close quicker than his banker can approve the loan;
2. real estate investor or owner-occupant who is buying a property in a somewhat distressed condition, which won´t meet the bank´s underwriting criteria (of course a coat of paint, re-roof, and some land-scaping will fix all that very soon);
3. buyer who just plain doesn´t want to go through the qualifying process, doesn´t want to open up his entire financial history to the bank for a fast, and probably short-term loan.
In other words, our borrowers are motivated to own the subject property fast. In this competitive market, with limited deals available, he who is prepared to close the fastest usually gets the deal. Making offers contingent on bank financing creates uncertainty for the seller. An all cash offer, funded by a hard equity loan, such as ours and yours, is what´s needed.
Can bad really equal good?
Q: This, of course, sounds too good to be true. Usually when things sound that way, they usually are too good to be true! So, here´s the show stopper: What happens if the borrower doesn´t make his payments?
A: Well, do you want the good news3;or the good news? Answer: When the borrower stops paying, you earn more. Re-member, your mortgage pricncipal is only 60-65% of the property´s value. You are way ahead of the curve here! You are the one in the driver´s seat. So3;, when the borrower is late beyond his 5-day grace period (but you may want to allow 15 days to be decent about it), you may allow him to keep his mortgage current if he pays, with a late fee, and with or without a 1% reinstatement fee (if you have already had foreclosure started by our attorney ? which we can assist you with), and reimbursement of any legal or other costs, or you may choose to sell the mortgage to any one of several cash buyers we have of these instruments (us included).
Q: If my exposure is only 60-65% of value, why would I want to sell the mortgage and give up the chance of making the bigger bucks?
A: No reason to. It´s your choice. A foreclosure action, if not remedied by the borrower, can go on for 5-6 months. At conclusion, it will either be purchased at the courthouse sale (in which case, you will receive your entire principal balance and all interest, points, prepayment penalties, and late fees allowed by law and any expense reimbursements), or you will get the property back. At that point, you can sell it, or we will be glad to handle that for you. If you decide you don´t want to "stay the course" for the 6 months, or if you don´t even want to file a foreclosure at all, we will assist in your disposition of the mortgage before that even starts.
Q: But let´s think in terms of really worst-case scenarios, like the borrowers getting divorced, declaring bankruptcy, getting ill3;!
A: Yes, let´s indeed think of the worst! It has been said that you should always try to cover your downside because the upside will take care of itself. Well, you have. None of these worst-case scenarios will materially affect you. Small delays, maybe, but that´s about it. Remember, our primary safety net is the value of the collateral. We don´t have to depend on the borrower´s ability to repay. You, the lender, are always in control. You will either receive your money, getting a premium ROI, or you will end up with control of an asset worth far more than your money invested.
Q: OK, I think you´ve covered the waterfront. Let's go. I´m ready to invest! When can I send you money?
A: Glad to hear it. But hold your enthusiasm for one moment longer. Remember that EquityMax is not the only company offering this type of investment. But one thing for sure is that the documentation we provide you, the investor, is the best in the business, designed to protect you, the lender, and is identical to that used by Equitymax on our own mortgages. If you are ever offered a mortgage investment without the equivalent of an EquityMax package, then "keep your money in your pocket!" Here is our lender package:
- Title insurance, insuring that the borrower, and you, have clear, insurable, and marketable title;
- Property hazard, windstorm, and, if applicable (pursuant to EquityMax requirements), flood insurance;
- Copy of the original mortgage (with the original to be delivered to you post-recording);
- The original Note (evidence of the borrower´s indebtedness to you);
- An EquityMax verbal or written broker´s price/value opinion, or a certified appraisal if required;
- A "no lien affidavit", indicating that there is no pending unpaid-for work on the property which could result in a future claim on the property;
- Auxiliary documentation, such as ID affidavits, copies of drivers´ licenses, Truth-in-lending waivers on investment properties, non-coercion waivers, and compliance agreements, and when applicable, a credit report, loan application, and survey.
And...don´t send us any money! All funds are to be sent directly to the closing agent. You will be advised by either EquityMax or our attorney when to wire or deliver the funds. Then, the closing takes place. Only after all of the documents are properly executed by the borrower, will our attorney give the closing agent a "funding number", thereby allowing the loan to be funded.
Q: Is the procedure any different if I want to make the loan from funds in my self-directed IRA or pension plan?
A: No, except that the funds will be sent from your trustee or director of that account or plan. The mortgage will be in the name of that entity, and all payments by the borrower will be directed to be paid to that entity.
Q: I guess, now, you´ve really answered everything. How do I get started?
A: Let us know how much you have available to invest, and submit the below "lending criteria form" to us. |
