Commercial Loans and Fun Blog

Commercial Loan Lessons #1 - Land Loans, Crashes, and Con Men

Posted by George Blackburne on Mon, May 19, 2014

Land LoansThe more expensive the commercial loan quote, the less likely it is to be either BS or some advance fee scheme.  Put another way, the higher the rate and points a lender quotes you, the more likely the commercial loan quote is to be real.

For example, a buddy of mine recently sent me an email saying that he had just funded a $1 million hard money land loan using a single, wealthy investor.  Apparently this investor used to be in the land banking business, and he only invests in land loans.  Here's the comment in his email that convinced me that this investor of his was real:  "This is expensive money - make no mistake about that.  The minimum IRR for him alone is 16-18% annually, before we get paid."

In contrast, an advance fee scammer would quote 5.5% and 2 points.  On a land loan?  Whenever you hear an unusually attractive quote like that, ask yourself, "Who is quoting 5.625% and forced this so-called lender (advance fee scammer?) to drop his rate to 5.5%?"


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Lenders only drop their interest rate and points in response to competition.  If a "lender" has no apparent competition, and his rates are deliciously low, be on your guard.  He's out to con a big application fee out of you.  The interest rates here at Blackburne & Sons started out at 5,000% per day (hey, I'm a proud capitalist), until we were forced by competitors to drop our rates.  Now we're quoting just 8.9% to 11.9% annually.  Darned competitors!  :-)


You know it's time to diet when you dance, and it makes the band skip.


The new hot commercial lending product out there is a blanket commercial loan against a portfolio of 5 or more rental houses.  More and more lenders are entering this market.  Blackburne & Sons is doing a $1.25 million blanket loan on about 35 homes this month.


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I have owned my own hard money commercial mortgage company now almost 34 years.  During those years we have survived three horrible real estate recessions.  The guys that bought commercial real estate at the very bottom of the market made a fortune.  If only I knew when the bottom was the bottom.  I would have loaded up on commercial real estate.

Hey, wait a minute!  I actually DO know.  In all three real estate crashes over the past 34 years, commercial real estate fell by almost exactly 45%.  All three times a 45% decline was the nadir (bottom point) of the collapse.


You know its time to diet when you are diagnosed with the flesh eating virus, and the doctor gives you 22 more years to live.


"Gee, George, if commercial real estate fell by almost exactly 45% during the Great Recession, you ought to be loading up on commercial real estate!"

We are!  That's why Blackburne & Sons has just come out with its new preferred equity program.  We add our equity on to your buyer's 25% downpayment to create a cash downpayment large enough to satisfy the bank.  You really-really need to understand this concept of preferred equity.  It will save so many of your commercial real estate loans and property sales.  Preferred equity is NOT a loan.  It's equity!


Learn More Details About Preferred Equity


About two dozen mortgage brokers out there have had the common sense to trade one banker making for commercial loans for the 2,000+ bankers making commercial loans on The Blackburne List.  "Gee, one for two thousand ... is that a good deal?"  You better jump all over this offer before it goes away.  Or you can buy The Blackburne List for $39.95.


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While we are on the subject of real estate crashes, did you ever wonder how commercial real estate appraisers find market comparables when nothing is selling?  That is when commercial real estate lenders stop talking about fair market value, and all they want to talk about is cost.  What did you pay for the building originally?  Don't tell me what it once appraised for.  What did you actually pay for it?  Cost-cost-cost.  Marcia-Marcia-Marcia.  All commercial lenders want to talk about during real estate crashes is cost.

This brings up the concept of clearing the market.  For almost all goods (including stocks in a financial panic), there is some price at which an all-cash buyer can be found.  The process is also called liquidation.  The price just has to drop - drop - drop until the asset finally clears the market.  I was reminded today of a Warren Buffet quote:

Be fearful when others are greedy, and be greedy when others are fearful.


Topics: Commercial loan lessons #1