DRP Holdings

10/29/2022

Build Generational Wealth.

12/31/2021

Fun Fact:
It's easily forgotten that in Real Estate, the physical place and the paperwork can be separated for alternative ways of creating revenue for yourself. A good example is offering owner financing and immediately liquidating the loan with a 3rd party.

Wait... Are you saying that can I sell my clients owner-financed loan off for a % of the lump sum collected over 30 years??
I really do not enjoy keeping up with the paperwork and would prefer not to wait 30 years for some profit!
Yes, kiddo! A person or entity collecting loan payments has the ability to sell a mortgage note for a lump sum of cash today, instead of holding the loan long-term over many years. You can choose to sell all, or just a portion of your note, depending on your capital needs.

11/09/2021

Have you been wondering how you can help build your business credit? Well, look no further. Build your business credit quickly, obtaining access to working capital as you go. Your business credit quality will determine if you get approved for a business loan, the amount you’ll be approved for, and the rates and terms you’ll pay.

We provide you with an easy step-by-step system to build business credit through our cutting-edge finance suite platform. You’ll find a custom experience built exclusively for you to obtain credit and financing for your company. And, you’ll be guided through the process with your own business advising team who will help you with all aspects of building your business credit.

Watch a quick video on Business Credit Building and how it can help your business. OR If you're ready to get started building your business credit, apply now!

10/24/2021

PART 3

The Size of the Fix and Flip Loan is Also Affected by the After Repair Loan-to-Value Ratio

Every fix and flip lender will ask his residential appraiser to arrive at two different values - the As Is Value and the After Repair Value (“ARV”). Before arriving at an ARV, the appraiser will ask the renovator for his Scope of Work, which will detail exactly what repairs will be made and what materials will be used. The appraiser will then produce an appraisal with the two different values.

The highest any fix and flip lender will go, absent additional collateral and regardless of the size of the flippers's downpayment, is 70% of the After Repair Value. Some fix and flip lenders will only go 65% of the ARV, although is often comfortable at 70% of ARV. The good news is that most fix and flip deals end up satisfying the 70% of ARV Rule. Hooray!



Apply For a Fix and Flip Loan with us



Special Tip on Choosing a Property To Fix and Flip

Make sure that your fix and flip property is located in a good . The property is going to be much harder to sell if little Johnny is likely to be beaten up at school.

10/23/2021

PART 2

When Can a Flipper Get Away With a Downpayment of Just 15% to 20% of the Purchase Price, Rather Than 25%?

We start from the general rule that house flippers are supposed to contribute 25% of the purchase price of the dilapidated, old building; but there are many exceptions to this rule. The following positive factors will reduce that down payment requirement to something closer to 20% or even maybe even 15%:

A track record of successful flips, especially if a flipper can prove up this record with before and after pictures and before and after title settlement statements, will go a long way towards reducing his required down payment.

A good track record with the same lender will reduce the requirement.

Good credit always helps, especially if the flipper's credit is 680 or higher.

A decent net worth, say $650,000 or higher, will help to reduce the flipper's required down payment because the flipper's personal guarantee will mean something. Ideally his net worth should be greater than or equal to the total amount of the fix and flip loan, including the cost of the repairs and the monthly payment reserve. If you are a flipper, please don't fret. This requirement is NOT written in stone.

The location of the commercial building will definitely affect the size of the down payment requirement. If the property is located in a very desirable area, such as , Angeles, , , , or the suburbs of or , ., there will be scores of fix and flip lenders competing to make the flipper a loan. Competition will force the lender to allow the flipper to get away with a smaller downpayment.

The anticipated sales price of the renovated home will affect the desirability of the fix and flip loan, the number of lenders competing to make the loan, and ultimately how much leverage the flipper can negotiate. For example, let's suppose a flipper is trying to flip a $1 million home in the suburbs of the majority of middle class homes in the area are selling for less than $300,000. The competition for this fix and flip loan will be less, and the flipper will probably be required to put down at least 20% of the purchase price of the dilapidated, old home, if not 25%. In contrast, if the flipper is trying to flip a $700,000 house in Orange County, California, where nearby middle-income homes are selling for $700,000 to $1 million, then the competition among fix and flip lenders will be fierce. The flipper will surely be able to negotiate a smaller downpayment.

10/20/2021

If you have a balloon payment coming due on your commercial property, or if you are trying to buy an investment property, and you don't have a whopping 42% of the purchase price to put down in cash, this article is super-important to you.

Preferred equity is a wonderful form of commercial real estate capital that can save your bacon, whether you're a commercial loan broker or a commercial real estate investor. Some examples will hammer home this critical concept.





Let's suppose that you're a commercial real estate investor. You make your living buying and leasing out office buildings and shopping centers. In 2004, you paid $2.6 million for a strip center in Los Angeles. You put down $650,000 (25%) and took out a $1,950,000 new first mortgage from Ruby Bank. This new commercial first mortgage had a 10-year term.

It's now the year 2014. Your $1,950,000 first mortgage is ballooning, and you realize that you have a problem. During the trough of the Great Recession, your $2.6 million strip center had fallen in value to just $2 million. Fortunately, with the recovery, your strip center is now worth $2.5 million; but that's not enough.

The problem is that few commercial banks will make commercial real estate loans in excess of 58% to 63% loan-to-value today. Even if you could convince a bank to make you a loan of $1,575,000 (63% of $2.5 million), the proceeds of the loan won't be enough to pay off your $1,950,000 existing first mortgage. Yikes!

Even forgetting about points and closing costs, you will be short a whopping $375,000. The bank will expect you to bring the shortfall to the closing; but you don't have $375,000 in cash! You barely survived the Great Recession without losing any property. To make matters worse, you personally guaranteed the loan from Ruby Bank. You're in deep trouble. Your dog could leave you, and your wife could bite you.

You sit down with your banker, and you ask him, "What if I could find a hard money lender to make a $375,000 second mortgage?" The banker replies, "Commercial banks won't allow second mortgages behind their commercial first mortgages these days. They don't want the propety overburdened with debt. The danger is that if the owner's cash flow gets tight, he might be tempted to use the money earmarked for repairs and maintenance to make the payments on the second mortgage. The property will fall into disrepair, the tenants will move out, and the bank will end up foreclosing on a run-down, vacant strip center with a leaking roof and mold all over it."

"What am I going to do?" you ask the banker. The banker replies, "You need to find a partner to contribute $375,000 in cash to the deal, in return for a partial ownership of the building." So you go to your brother-in-law, begging for cash, only to find out that he is as impoverished as you are.

Fortunately you find us, the only realty capital provider in the country making small preferred equity investments (its easier to think of them as preferred equity loans), from $100,000 to $600,000. Most preferred equity providers won't even look at deals smaller than $3 million.
Let's assume DRP Holdings agrees to invest $300,000 in preferred equity into your property, bringing the preferred equity capital stack (the sum of the first mortgage plus the preferred equity) up to 75% of value. This means that you, the owner, still have to bring to the closing table $75,000 in cash, but this smaller amount is far more manageable. It sure beats defaulting on your balloon payment and getting sued for the deficiency.

Here's another example of how preferred equity can save your bacon:

You're a commercial loan broker. You have a wealthy commecial real estate investor who wants to buy an office building in Pleasanton, California for $3 million. Your customer is insisting on a new permanent loan of 75% loan-to-value, but of the 13 banks that you have approached, none of them would lend more than 63% of the purchase price. Your buyer refuses to put down more than $750,000, but the bank won't lend more than $1,890,000. You are short $360,000, but the bank won't even allow the seller to carry back a second mortgage. You're at loggerheads.

A $360,000 preferred equity investment from DRP Holdings can save this deal, along with your $22,750 commission (1 point).

Why would the bank allow a $360,000 preferred equity investment, but not a $360,000 second mortgage from the seller? Preferred equity is NOT a loan. If the buyer doesn't have the cash flow to make the preferred equity yield payments, he doesn't have to make them. They simply accrue and defer. The buyer doesn't have to neglect the needed repairs on the property in order to make the payments. This is the critical distinction between a second mortgage loan and a preferred equity investment.

Preferred equity is not cheap. It will cost the borrower between 16% and 22% annually, plus an 8 point investment banking fee to raise the capital. The investment term is five years. If the buyer does not pay us off at that time, the property will be sold to pay off the preferred equity investment. Any remaining profit goes to the buyer.

Why is preferred equity so expensive? Preferred equity competes against private money first mortgage investments, which can yield up to 12% to 14%. Clearly a $300,000 preferred equity investment behind a $2.5 million first mortgage from the bank is far-far more risky than a $300,000 hard money first mortgage investment. Suppose the tenants move out? The monthly payments on the underlying first mortgage from the bank could be $14,000 per month. Imagine making $14,000 monthly payments, month after month, as you deperately try to find new tenants.

But there is good news. DRP Holdings can be bought out at any time for what is "owed"; i.e., its original investment, any advances, interest on the advances, plus a 17% per annum preferred equity yield on the original investment. If our deal were a loan, you would say that our loan had no prepayment penalty.

An example will make this more clear. Let's suppose that Robert Buyer teams up with DRP Holdings to buy for $1 million a small row retail building in downtown Palo Alto, California. Mr. Buyer puts up $250,000 and DRP Holdings puts up $120,000 in a preferred equity position. The bank makes a new commercial loan of $630,000. The agreed-upon preferred equity return is 17%.

Just weeks after we buy the property, Apple Computer decides to buy this entire block in Palo Alto as part of their campus. Apple agrees to pay a ridiculous sum, a whopping $2 million. The all-cash deal closes just 10 days later. The equity holders get to split a cool $1 million profit. But who gets what?

The profit distribution plan of an equity venture is called a waterfall. In this case, the first equity investor to be repaid its $120,000 principal investment is DRP Holdings. Is there any more left over? Yup, there's TONS of money left over. Okay, so Robert Buyer gets back his $250,000 principal investment. Is there any money left over? Yes.

Therefore, DRP Holdings earns its preferred return of 17% annually (prorated for 37 days), so we earn a whopping $397. The balance of the $1 million profit ($999,603) goes to Robert Buyer!

Preferred equity capital is expensive. Therefore the wise borrower will repay at the fastest possible pace.

Are you a commercial mortgage banker? If so, you would be wise to heed my words here. This is a brand new program, and no one in the marketplace knows about it. Using our preferred equity, you can give your buyers and borrowers more leverage that any other mortgage banker in the country. This gives you a HUGE marketing advantage. In commercial real estate finance, the commercial mortgage banker who wins the deal and earns the fee is often NOT the guy with the lowest rate, but rather the guy who offers his borrowers the most dollars.

So be smart here. Promote the heck out of this program!

10/17/2021

Blessed to have gotten to where we are today and looking forward to what's coming next

10/16/2021

What Is a Fix and Flip Loan?

A fix and flip loan is a short-term loan used to buy a house (or a , , , or ) and then to renovate it in anticipation of an immediate sale. Most fix and flip loans are made to fix up single family residences.

Example: Steve Flipper might buy a neglected house in a nice area for $115,000 and then spend $50,000 renovating and updating it. The fix and flip lender loans him 80% of the dough he needs to buy the property and 100% of the capital he needs to fix it up. Four months later, Steve might sell it for $225,000. Experienced fix and flippers can make some serious money.

Will I Qualify for a Fix and Flip Loan?

Because fix and flip loans are made by private money lenders, like , as opposed to by commercial banks, it is pretty easy to qualify for a fix and flip loan. Generally you will need a credit score of at least 600+, although that number is NOT written in stone.

For example, suppose you were a home builder in 2008 and got caught with 12 unsold spec homes when the Great Recession hit. Your experience in new home construction is a huge plus that will excuse a lower credit score. Here’s a second example: If you have successfully flipped three houses, you will probably qualify, even if your credit score is just 570. greatly value fix and flip experience.

Even if you have superb credit, you will need a certain minimum amount of capital, what fix and flip lenders call . That magic number is 15% to 25% of the purchase price of the rundown home. The higher your credit score, the lower your required .

For example, if you are a clean, strong borrower, and you are buying the home for $200,000 - before any renovations - you will be required by 99% of all fix and flip lenders to contribute at least $30,000 in cash (15%) to the deal. The lender will probably be happy to loan you the remaining 85% of the purchase price ($170,000) plus another, say, $80,000 to fix up the property.

What if you don't have enough capital to get started? Occasionally, you can pledge in another as your downpayment. For example, let’s suppose you own your own a small office building worth $550,000, and your first mortgage is only $285,000.
You may be able to provide a second on your office building as additional collateral to your lender in lieu of, say, a $30,000 cash down payment.

We would definitely consider such a structure...

10/16/2021

HOW MUCH CASH DOES THE FLIPPER HAVE TO CONTRIBUTE FOR COMMERCIAL REAL ESTATE LOANS?
Leverage is an Important Issue To Flippers

Most home flippers only have a limited amount of cash or seed capital with which to work. If a miserly fix and flip lender required that the flipper contribute, say, a whopping $60,000 in order to qualify for a fix and flip loan, the flipper might not be left with enough cash to start his next flip, while the first house is up for sale. The flipper might be forced to twiddle his thumbs for two to three months out of the year as he awaits an ealier flip to sell.

Commercial Banks Require That the Flipper Contribute a Whopping 25% to 30% of the Total Cost of the Project - Ouch! (Don't Panic.)

In real life, very few home flippers ever use a commercial bank to finance their fix-and-flip. The reason why is because banks are soooo slow. By the time a commercial bank ever approved your fix and flip loan, your target property would be long gone - sold to a faster, more nimble flipper. In real life, the vast majority of all home flippers use a private money lenders, like us, to finance their renovation project. Private money lenders will give you far more leverage; i.e., they will require that you contribute much less money.



Apply For a Fix and Flip Loan - contact us



But let's go back to the banks for a teaching moment. Let's suppose that a home builder wanted to build a spec house. The bank would require today that the builder contribute 30% of the total cost of the project. Now don't forget, we are talking about the total cost of the project, not just hard costs. Total cost includes the land cost, the hard costs (brick and mortar), the soft costs (construction period interest, governmental fees and permits, appraisal cost, title costs, closing costs, etc.), plus a contingency reserve of 5% of hard and soft costs. That's a lot of costs! Now consider the fact that the poor developer has to contribute a whopping 30% of the total cost.

Fortunately Private Money Lenders Are Far More Aggressive

Fix and flip loans are all the rage today. Not only are private money lenders clawing each other's eyes out to get deals, but Wall Street is even fighting to get in on the action. As a result, the competition is driving fix and flip lenders to higher and higher loan amounts and smaller and smaller cash contributions from the flipper.

Private Money Lenders Are Not Even Using the Loan-to-Cost Ratio!

In our study of commercial banks and spec home construction loans, we saw that the banks will not exceed 70% of the total cost of the project. Private money lenders are not using a loan-to-cost ratio. Instead, they are basing their loan sizes on a percentage of the puchase prices of the dilapidated, old building. On top of that, the private money lender will loan you 100% of your renovation costs plus (sometimes) a four-month payment reserve. Now that's leverage!

Okay, but how much of a down payment then does a home flipper have to put down on that dilapidated, old house. Depending on the fix and flip lender, the answer is between 15% and 25% down of total cost, which is somewhere about only 10% to 17% of the total project cost. This is very high leverage in a post-Great-Recession world.

ONLY 10-17% is needed in Commercial Buildings
The important lesson to take from this section is that your cash contribution will be based on a percentage of the purchase price of the building, rather than on the total cost of the project.

Part 2 SOON!

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