Jorge and Rafi discuss 4 Ways to Spot a Fake Private Lender. They discuss valuable tips to keep yourself safe, including: transact in person, not making payment upfront and more.
Rafi: And good afternoon and welcome to another edition of the Graystone Brownbag Session, I’m Rafi, Chief for operating officer of Graystone Investment Group.
Jorge: I am Jorge Vazquez, CEO of Graystone Investment Group.
Rafi: And as always we have the beautiful Stephany in the background, hi Stephany!
Stephany: Hi guys!
Rafi: Stephany’s excited with this new setup, new setup, bigger conference room, beautiful view in the back, everything is nice. So Jorge, where can they find us.
Jorge: Rafi, they could always find us at homes4income.com, that is homes, the number four, income dot com, where you invest–
Rafi: We do the rest.
Rafi: Don’t forget to share this video, so like and share this video and guess what? We always say, don’t forget to subscribe to our YouTube channel, we promised it, every time we hit a hundred, we’re going to give a hundred dollar gift card, and guess what? We hit a hundred last week. So Stephany later, later today we’ll be basically writing down all the names of the current subscribers that we have and putting them all in a little bowl and we will pick that person that will win a hundred dollar Amazon gift card, so if you are one of our subscriber, thank you very much for subscribing. Make sure that when you subscribe in YouTube, you hit that little bell, that when you get notifications when we upload videos or when we go YouTube live, we’re thinking of doing a YouTube live soon–
Jorge: That’s right, that’s right.
Rafi: And let you know. [inaudible] understand better how it will works, what’s the difference between Facebook live and YouTube live, all that kind of stuff. If anyone of you out there is an expert on YouTube live, shoot us a comment so that we can contact you and understand better what’s the difference.
Jorge: Also there’s Twitter, Twitter live too.
Rafi: Twitter live.
Jorge: Where we have eleven thousand people there.
Rafi: Man, I guess now everything has to be live, so we live lives live.
Jorge: That’s right.
Rafi: That kind of make some sense. I saw–again this guys is driving and doing Facebook live some time, I still think that’s too much destruction, too much destruction between what you say, comments, all that kind of stuff so I know this people out there Etha[?], you’re one of those that does YouTube live–Facebook live while driving but I’m not sure. Today we have a very interesting topic, this is the time of the year because it’s tax season, where we have a lot of scams going out there, especially with the elderly population, specially here in Florida, a lot of retirees here so a lot of–unfortunately a lot scammers out there looking to take advantage of people, and we have seen it. Unfortunately also with private lenders in the real estate financing area, and we want to give you four tips on how to spot a fake private lender. Alright, but Jorge first, define what a private lender is.
Jorge: That’s a good question Rafi. A private lender is a private money, it’s an individual or a group that collects a certain amount of money in order to earn interest, to gain a specific greater return. Some people invest in houses, Rafi, some people lend the money for those people investing in the houses. It’s the ultimate passive real-estate investment
Jorge: –when you lend the money, so that’s pretty much what private lending is.
Rafi: So thinking of the Chase, Bank of America of the World, in the course of real-estate, it’s kind of their mortgage division but instead of Chase, Bank of America, it’s Little Jimmy or actually Big Jimmy [laughter] or a group. And this can be pretty large, right? We’re not talking about Mom and Pops[?]. We know great lenders like HIS, Rick and Sam over there, have a great operation, we have others like VCO, Freddy Co. Loan, lots of, what’s up to you. These are not just small little ventures, some of them can get pretty large, but again they’re not public funded, it’s not the whole operation like again the Bank of America, Chase of the world, correct?
Jorge: Right, we have different guidelines, they’re not as strict as regular banks. Sorry man, I’m losing my voice today–I got the water here–so easier to do business with pretty much Rafi, and they’re investor-friendly for the most part. Most of these private investors are also real estate investors so they understand your needs better and easy like I said, easier to work with than–
Rafi: And, and because of that higher rates, most of the time than traditional, conventional, what they call conventional lending, right? FHA, MBA and all that stuff. So private lenders because they’re assuming some other risk because of their more flexible standards, their rates are traditionally higher than, conventional.
Jorge: What do you point? Unlike a FHA that’s backed by the FHA, by the government, then they take the risk themselves so there is going to be a trade off, for sure.
Rafi: Absolutely, absolutely. So again, we’re going to talk about four tips, and fortunately some of them are great and we’ve made–make sure [?] couple of them but some of them were not that great and we want to give you guys four tips to make sure that you spot a fake private lending, right? And the first one is transact either in person or by phone. I know we love emails but how many Nigerian princess have you met?
Rafi: [laughter] way too many?
Rafi: You know, I have a Nigerian friend and she’s cool, she’s cool, she’s not a princess but she’s cool, so not all Nigerians you know all right, but transact in person or in phone or over the phone. Give me more information on that.
Jorge: Well, Rafi I’ll go beyond that, there’s a lot–because of social media, there’s a lot of postings out there in social media and maybe you think because it’s social media, you see somebody’s face or picture in this case that is going to be legit, it’s got to be legit because it’s coming through Facebook, that’s a big–
Jorge: So that’s not–as you guys seen in the news, fake news sometimes with social media, but yes, you got to make sure that you pick up the phone, and make sure there’s another person on the other line.
Rafi: And even then, some of them are very sophisticated that they have dedicated phone lines. I think ultimately at one point in time, you have to have some personal contact. I’ll give you an example of a deal that we did last year, where we initially transacts it over the phone, email and did the first deal but once we wanted to grow our relationship with that, guess what? We helped [inaudible] and we meet them over there, okay and we met them over there, are there offices. We saw the whole operation happening. So if you’re at the point where you’re going to definitely be doing a lot of stuff with a particular lender, I say invest with the time and money and meet up in person, that lender in person.
Jorge: What one red flag that you guys should always look for, if you see a posting with an email only, that’s the only way of contacting the supposed lender but you don’t have a phone number, that’s a red flag. If you get an email with no phone number, that’s a red flag.
Rafi: And some of them use the online platform which is great a hand on if you want to contact me, fill out this profile which you can do, but guess what? When you fill out the profile, don’t give out social– just give the information, your contact information – name, email, phone number, okay? And if that person emails you back to your point which because again, a lot of them use automated systems that, like email marketing campaigns, again make sure that there’s a website other than that, that you can make a phone call and live person you know picks up on the other line and really, there’s nothing, there’s nothing that beats meeting that lender in person at their place, not at a bar at that city, not at–you can go out to the bar or dinner after but meet them at their offices, so that you see how their person works, after that absolutely, you can have some beers and go from there.
Jorge: There are several questions that you could ask to test their knowledge or test their knowledge right away, what is the LTB, those, the property required to see some and for how long, this question is going to right away tell you whether the person–
Rafi: Their knowledge
Jorge: –their knowledge.
Rafi: Their knowledge that they have, yeah. So again, transact over the phone, in person if possible. The number two, the second tip and this one I can tell you, my wife Dahlia, she works for a Bank and she has seen this kind of happen a lot of times, they ask you for a payment upfront. I experienced it, because I know you’ve had experienced it, I have, me too.
Jorge: Rafi, unless it’s an appraisal fee and you have worked with this person in the past, I really do not advise it. You got to be careful because that’s how it starts, that’s how the scam starts, once you send them money, they’re gone. So, no money upfront or question it, if there’s money upfront. “What is the money for?”, “Can you send me an invoice?”, “Where is the money going to go?”. And then, if there’s an invoice and there’s–if it’s for an appraisal, contact the appraiser. “Is this money going to go to you?”, “How long have you worked with this company?” But if it’s just a fee to get the–
Rafi: Application fee
Jorge: application fee, no.
Rafi: Yeah, couple of more tips, if for example for that appraisal, if you can use a credit card to make that payment, that way if there’s a dispute, you have some rights–
Jorge: That’s a great idea.
Rafi: –some protection from the credit card company. I wouldn’t yeah, this is not the time to give a voided check at the loan application time. Definitely. So from that perspective, definitely this is not the time. And again like you said, contact, “Oh is that an appraisal company?” Excellent. What is the person’s company? Most lenders, most private lenders now I assume what they call AMC’s, appraisal management companies. Alright, these appraisal management companies, they basically vet, they certify that the appraiser has all the requirements that the lender is asking for, for that appraisal. Contact that company, they are online. A person makes just one of them. Well, again just look for AMC, it’s not the movie theaters but appraisal management companies. And you will find a bunch of them, ask them, what it is. But besides the appraisal to your point, the long process of application process should not have a requirement of you making a payment especially if they ask for a payment, Moneygram or money order, that’s that’s it. No, no good private lender’s going to ask you for a money order or like Moneygram or that kind of stuff. They’re going to need to ask you to send a check or you can pay with credit card. Big reflect if they ask for a payment over money ordered cash or Moneygram, that kind of stuff, okay? So again, very very important, do not pay in advance unless, that appraisal fee. But looking up at the appraisal is just what? Nothing happens? You give that appraisal. And most banks for thirty years will value it at first.
Jorge: You can have a question at anytime, they want money upfront. This lender wants money upfront, it is, it nothing is going to go towards appraising the property, then that’s an honor reflect, cause that’s the first thing you want to do–
Jorge: –as a lender.
Rafi: The third tip, oh yeah, some people that have joined, Ruen Ruiz joined, Janet Arana, Janet Arana, that rings a bell that last name, I don’t know. Liz Lopez, great at Linkedin profiles, Eddie Verdejo which Eddie Verdejo added. Hey, one reflect, they will not meet at their place of business. Definitely reflect. Absolutely, absolutely reflect. And then I saw that Albert Philly Gonzales from the Tampa Bay race joined the biggest son of a bitch, he knows what, what about this. The third tip, the third tip, do not fall, do not fall on unusually lows rates or fees. This is the perfect where you say, if it’s too good to be true? It’s probably too good to be true.
Jorge: Yes. Well, it goes back to studying first what is the market rate, right now. Having an idea you want to go with some sort of knowledge with these lenders because if you do, then you, you, you could, you’re going to be able to spot how fake they are a lot quicker. If somebody says, if you, if you’ve done your research, you’re too, too diligence and you know that the rate there. Most lenders out there have a range of seven to eleven percent and this lender is offering you two, then there’s something wrong there. If you note that the lenders, most lenders out there are doing sixty-five to seventy percent [?] LTV and this person is offering you a hundred then that’s another red flag there. So, educate yourself a little before you go in and talk to this new lender that you don’t know.
Rafi: And remember that the first person of your, in your team would always advise to be that mentor and that mentor will be someone that you go “Hey, what are the rates out there for this type of loans?” Now, we’re not saying that someone just have better rates than others, that’s, that’s hey, you want to get the best rate out there? Right? So if you know there’s a rate of seven to eleven, you want to find that seven–
Rafi: Absolutely. But, let me tell you, a lot of people back in 2007, 2008, 2009 got in trouble. It was because they were going for the too good to be true. Alright, They were going “Oh it’s one percent” Yeah, that’s one percent for the first three years after that it goes to two-fifty. And lot of people lost houses because of that. Because they got that for the first three years at a ridiculously low amount and then after that it was a mega balloon with a mega, in interest rate increase. So we’re not saying don’t shop for better rate, but again, too good to be true is too good to be true. There may be someone offering that two percent, but most likely there’s a kicker, three years, five years from now, a huge balloon payment with some a many of humongous pre-payment penalties. These are private lenders. So, they basically decide what kind of program they’re going to put out there. So, I’m always saying, what are the rate you have out there? Quote it and again, there’s nothing wrong when someone say “Hey, we’ll do rates as low as seven percent”. Okay, there may be a bunch of ways to get into that seven percent. Right? So shop for rate but if you see someone that again, their market is at seven to twelve, right now the market is between seven to twelve. It’s very hard to find something low seven and up, and over twelve you’re probably uncomfortable to vet. Outside that range, I will be very cautious. Again, if you found a five percent, good for you, that’s great. But I will be very cautious and make sure that you have double, triple checked those little fine prints, that ones that we never read. When they give you that term sheet, that term sheet, at the bottom, there’s fine print, always there’s fine print–
Jorge: Before we [inaudible]
Rafi: –with them.
Jorge: And Rafi, I get some crazy emails. I saw an email, a company offering one percent interest.
Rafi: I remember you said to them–
Jorge: You saw them, right?
Rafi: Yeah, yeah I–
Jorge: So I don’t to miss the red flag but if you, if you equip yourself with some knowledge and you ask the right questions, I’m telling you, you’re going to, most ninety percent of the times you’re going to be able to win them out. What is their cover ratio? What is the LTV? what is the seasoning? Is there pre-payment penalty? what is–used to asking those questions and if they’re like uh eh eh–then, then you got to be careful–
Rafi: Then you know.
Jorge: –with that.
Rafi: Then you know. After all just watch out again if too good to be true, it is most of the time too good to be true, unless it’s asked, we’re too good to be true.
Rafi: What is in reality?
Jorge: [inaudible] perfect
Rafi: We are too good to be true.
Rafi: Well, [inaudible] about it.
Rafi: The number four and the last one, real lenders fourth tip to spot a fake private lender. Real…oh–we have Stephany making signs back there.
Stephany: Ask Eric if the screen is still frozen?
Rafi: Ohhhh, primarily the screen froze. Or is it, is it that we offer? No, no it has to be frozen before. Eric let us know if the screen is still frozen.
Jorge: I’m looking on fact.
Rafi: It should be good, it should be good. So Ben and we have Brian girl, for the joined for a little bit there, so Brian hope everything is well you and your wife. But again, the fourth tip, again, how to spot a fake private lender. Real lenders need time and information to do business. I think that’s self-explanatory.
Rafi: I’m going to let you go out amigos. [laughter]
Jorge: Well, I think time when you get on somebody that says “Okay, you’re approved”. Within 24 hours, you should be concerned about that. If they especially, if they don’t, they haven’t asked you anything, any questions about your asset, your property–
Jorge: –your self, your credit, I’ll be very concern so, and people that actually anytime you have a lender really want to speed up things, there’s something wrong. There’s something going on. Lenders take time. And in the, the best case scenario, a week, two weeks–
Rafi: two weeks [inaudible]
Jorge: –anybody that says, “Oh I could, I could lend you the money in two days”, that’s not–
Rafi: Too good to be true.
Jorge: Right, better be careful.
Rafi: Put it this way Jorge, if you, you [inaudible], this guy has millions of dollars. If you are going to lend someone that you do not know, a hundred thousand dollars, will you do it two days?
Rafi: The answer’s, most of you the answer will be no, it’s the same way for the lender? It’s the same way. So, oh do you want us still in closing? Absolutely, and for that you need again, for your team you need a great talent company Alex and Ruel Titado. [?] You need your team, you want to speed up that closing. But there’s a bunch of documents that have to be provided to a lender, which again you can speed it up by knowing those documents beforehand. We’re not saying, slow it down, okay? But there’s insurance. If you have a, Jorge —
Jorge: That’ll work.
Rafi: –if you have a current loan, there’s a bay of amount that’s where in credit, tired of working in terms of the profit, which is by the way, we just, we just went through we don’t know our clients that the financing that he have on the property was done under the wrong LC.
Rafi: And signed, everyone signed in all of sort. And now, these are the companies works that way. These property are not yours. They’re a different LC. Okay, so there’s so much documentation. You have to appraisals, you have to do, again, I mean, an insurance quote, you have to do a bunch of things, okay. Provide taxes most likely, if they’re paying principal taxes, you could collect escrow, a lot of things. Right now, I think, one week is pushing, one week is pushing it. We’ve have lenders that said one week, we pushed it and we pushed into. So, one week is pushing. I think two, two weeks, you have a great lending team. But expect it in three four weeks, okay. But it’s the same thing, like, like when you go to, to buy a car and you have that salesman that once in the car from the [inaudible], let me have those, you come, say like “Oh, this is the car”, “Wow, enough”, “Bravo, this is the car”, it’s on sales and it’s end of the month and they keep pushing, how do you feel? You feel like “Uh, this is not it”, the same way. So, there should be no reason why, there’s plenty of time to provide recommendation. Speed up the process. Create a process so that you can provide this information fast. But, again, those things were a no, no, no. I know you approved without, go for appraisal I know. I’m realistic, optimistic but realistic.
Jorge: Well, Rafi, bottom line, this is, this is what’s offered out there and trust me we’ve been doing this for years, bottom line, seventy, sixty-five to eighty percent in it–
Rafi: Loan run too, yeah
Jorge: –loan to value
Rafi: Loan to value
Jorge: Anything more than that, I will question it.
Rafi: With that, I would not recommend it.
Rafi: We will, you always want to keep a cushion of twenty percent, if the market goes off ten percent or down two percent, you’re good. So we don’t recommend over eighty percent.
Jorge: Be careful, anybody that say more than eighty percent, you might be signing yourself into some sort of equity sharing agreement and not know it.
Jorge: You’re giving a small equity. So, red flag if there’s higher than eighty percent.
Rafi: Absolutely, absolutely
Jorge: Interest rates, Rafi, what would you say?
Rafi: I think right now, they range from seven to twelve.
Jorge: You might find a six point eight but anything beyond–
Rafi: That will be like an eight hundred credit score with a [inaudible] ratio of two maybe, and a great asset. So you can’t find those, you can’t find them. But believe me, I love to this not in private because as a lender if I’m giving you six point eight, man, I feel so confident that I’m going to get that one back and for that I need recommendation. So, they’re out there, but you won’t be an answer. It will be, maybe a teaser rate as “Hey, as low as six point nine” and then you end up in the eights and nine, which are not bad enough. The eights and nines are pretty good as of 2018 April. But, yeah, definitely it’s one of those things that between seven and twelve is going to be the rate.
Jorge: And last but not least, most of the time, your property has to be repair. If it’s a long-term financing for rental and you’re going to require minimum one month of seasoning, meaning you need to own the property for at least a month. Which is good news, in the past that, that option wasn’t available, usually, it’s usually six months.
Jorge: But if anybody that tells you, “Oh you could, they’re closing, I could give you eighty percent”, I will question that.
Rafi: Absolutely, absolutely. So, we have Dr. Riza Licea, got a great time, you said that he’s [inaudible]. Gloria Jesus also joined and let me go over the four tips again. The number one tip, transact in person or at least over the phone, but in person. Do not make payments upfront, no need to unless an appraisal. Do not fall for unusually low rates, okay?
Jorge: Anything below six are questionable.
Rafi: Below six right now, with these environments especially with the interest rates going up as they are and then real lenders need two things, time and information to make an informed decision to underwrite your loan properly they need that information, okay. We have a bonus. Ding-ding-ding-ding—bonus alert for the tips! This one, we talked about creating out your team, having a mentor, having your bank, your whatever, ask for references for the lender.
Rafi: If you know that lender has transact, let me, let me first say, most lenders that private lenders that we worked actually. All private lenders that we worked with having referred by either clients or partners.
Rafi: Right, so now–
Jorge: They, they shouldn’t mind.
Jorge: If you asked for a referral, they should—
Rafi: Ask for references.
Jorge: –their references.
Rafi: Ask your, the person that refer you, why you referring me? Because if you’re referring him to me because he didn’t work with you, don’t don’t refer it to me, right?
Rafi: So, most of the time, if they’re true mentors and true partners they’ll tell you, “Hang on, this worked well, this didn’t work as well”. I will be cautious of everything work with this lender, nothing was wrong. There’s always something that could, could have been known better. But ask for references, again, all the lenders I worked with have been referred by partners or clients, right.
Jorge: Absolutely, absolutely. So, it’s vital, first thing you should do, before doing anything else.
Rafi: And that’s why you need to have a, a team because you can ask from that mentor, you can ask from that you see, “Hey, you have worked with all your clients that have financier, and even they [inaudible] and give you reference for a lender”
Jorge: And by the way, Rafi, besides having fake lenders out there, you have lenders with good intentions but that did not perform. And those are as scary as the fake lenders because they waste your time, money. So–
Jorge: –once again
Rafi: That happened to us too
Jorge: That happened too–
Rafi: We were like almost, almost that one time when we were like two months [inaudible]
Jorge: How many applications Tony filled out before the [inaudible]
Jorge: “Oh we’re going to close, we’re going to close next week”, so time is more valuable than money to me. To me, that, that hurts me even more than the scam. If you got me in limbo for three months, for God’s sake–
Rafi: Okay, Yeah it happened in those on times, it was two months, there were lot of promises made and along the way we saw some of these reflects that they kept either delaying or pushing or this and that. Who’s not going to be on the reflect but they keep delaying, they keep delaying “Oh, we’ll do it in two weeks”, “We’ll do in three weeks”, Did they go to the writing? Not yet, okay that was last week. Did they go to the writing? Not yet, well that was two weeks now. So the same way, speeding up the process too much is a reflect when they delay it too much that’s a reflect for a non-performing lender. So watch out for this.
Jorge: Make, make sure you’re not their guinea pig after they’ve done this before.
Rafi: Absolutely, absolutely. So again the four tips, transact in person, do not make payment upfront, do not fall for unusually low rates or fees and real lenders need time and information. Bonus alert hoop, hoop hoop, ask for references on your private lenders, do we have any questions Stephany? [inaudible] about lending their life, just kid us about it. Go to Youtube channel, make the comments there, you can add comments later to this Facebook live. We will try we’ll answer them, as time permits once again, Jorge where can they find us?
Jorge: Rafi, they could always find us at homes4income.com, that is homes, the number four, income dot com, and the good news is we’re going to start providing lending ourselves–
Rafi: That’s right.
Jorge: in the [inaudible] future, so–
Rafi: We’re working on that so, it’s something that–stay tuned because it’s something that we have partnered with some more lenders and saying “Hey, we have client that are looking for options” It’s taking a while, but you know why? We want it to bet them. We want to make sure that we have those references that we do provide that we had a process in place where all the documents that they request when you exactly, which documents and why they were presenting documents. So it’s taking a while, people have been knocking on the door saying “Hey guys, I know you guys are financing new stuff who are using, so now we are ready to start doing that for from my portfolio [inaudible]
Rafi: As always we thank Stephany in the background, thank you Stephany.
Stephany: You’re welcome guys
Rafi: And we will see you next, next week. I think we’ll going to do it from the Net zero project again
Jorge: We’re going to do the AirBnB on Jason’s house.
Rafi: AirBnB, on Jason’s house?
Rafi: That’s a good one too
Rafi: For those of you interested in AirBnB, that’s the ones coming, I’m not sure if it’s next week or the week after but it’s coming, it’s coming. So, we will see then, next week or next Graystone brownbag session four, because when you rest–
Jorge: We do the rest