Vested Interest: Protecting Equity

Vested interest arm

Vested Interest: Protecting Equity

Vested Interest is a Strong Qualification

        Today I’d like to talk about vested interest, and why bridge lenders look to this as a primary qualifier in moving forward. As a commercial bridge lender, I want to see how much skin you have in a deal.  I lend money based on the reality that the borrower has much to lose if they fail to use the money properly. Based on my past experience, those who have real equity in their property will climb mountains in order to maintain and improve that equity position.  They pay attention to the cost of their money, as well as the results of money spent.  This inevitably leads to a great relationship between the myself and the borrower.  Remember, my interest is in pursuing a rate of return on money lent. I’m uninterested in developing a real estate project or business endeavor in order to protect my interest.  That is the borrower’s job.

        I had a call yesterday, whereby the caller/borrower had a primary lender who was willing to lend 70% of the value of the property. Additionally, she needed someone to lend the shortfall of 30%.  According to her, the property was undervalued by 30%, and the after repair value would double the value of the property. Nonetheless, I have no interest in these types of deals as they are built on pure speculation.  I also have no interest in being a prime lender at 70%. My borrowers have to have adequate skin in the game to be approved. My security is in knowing that repayment is the only viable option.

Certainty Provides Mutual Benefit

A good bridge lender will always lend money based on the certainty of repayment.  Given that I lend my own money, I always look for loans whereby the borrower’s number one priority is to protect the value of their equity.  Above all, this is the hallmark of a borrower I want in my portfolio of investments.

My feelings on the subject,

Nathaniel S. Fulford 

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When to Use Short Term Bridge Financing

Category : Blogs

Short Term Bridge Financing

Time is of The Essence

        First off, let’s define our terms. Short term bridge financing has a one to three year term followed by a balloon payment.  You can’t afford to be indecisive. In acquiring bridge financing, you’ve traded equity for liquidity on a short-term basis.  You want to use the funds to quickly increase the value of the asset more than the cost of liquidity.

Watch out!

        A common misconception of inexperienced investors is the assumption that an acquisition of 30% less than estimated market value generates an immediate net gain.  However, in actuality the cost to arrive at this estimated market value can easily exceed 30%, if you fail to properly assess the cost of the rehab.   That is why I can’t impress upon you enough, how important it is to do your due diligence(i.e. rehab cost, sale or rental income, carrying cost, probability of refinance on additional short or long term basis,  etc.) Trading equity for short term investment funding can greatly increase your net worth.  Use the money soundly.

My feelings on the subject,

-Nathaniel S. Fulford V

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