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THE RISE of a NEW ASSET CLASS an Educational Resource for Investors in Single Family Homes and Private Mortgages

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THE RISE of a NEW ASSET CLASS an Educational Resource for Investors in Single Family Homes and Private Mortgages THE RISE OF A NEW ASSET CLASS An Educational Resource for Investors in Single Family Homes and Private Mortgages White Papers and FAQ’s by: JAN B. BRZESKI AND GREGORY S. HEBNER [email protected] [email protected] 10990 Wilshire Boulevard, Suite 440 • Los Angeles, CA 90024 • 310-428-9109 • www.ArixaCapital.com THEW RISE OF THE NEW ASSET CLASS: An Educational Resource for Investors in Single Family Homes and Private Mortgages Contents HARD MONEY LENDING: Frequently Asked Questions ............................................................................. 2 SINGLE FAMILY INVESTING: Frequently Asked Questions .................................................................... 17 THE GREAT HOUSING WORKOUT: White Paper .................................................................................... 37 INVESTING IN SHORT-TERM REAL ESTATE LOANS: Frequently Asked Questions .......................... 57 CALIFORNIA FIRST TRUST DEEDS: White Paper ................................................................................... 79 Rise of the New Asset Class: an Educational Resource Page 1 of 93 Arixa Capital Advisors, LLC ©2013 All Rights Reserved HARD MONEY LENDING Frequently Asked Questions Contents What is Hard Money Lending? ........................................................................................................ …….5 What is a hard money lender? ................................................................................................................... 5 What differentiates hard money lenders from bank lenders? .................................................................... 5 Why do hard money lenders exist? ........................................................................................................... 5 When does it make sense for a developer to use a hard money loan? ...................................................... 5 What are other terms for hard money loans? ............................................................................................ 6 Are hard money loans used mainly when the borrower is in distress? ..................................................... 6 What are advantages of hard money lenders? ........................................................................................... 6 What are some disadvantages of hard money lenders? ............................................................................. 6 What kinds of property do hard money lenders lend on? ......................................................................... 7 When should you use a hard money lender? ............................................................................................ 7 What does the term "hard" mean in "hard money lender"? ....................................................................... 7 Who funds hard money loans? .................................................................................................................. 7 How do I get a hard money loan? ............................................................................................................. 7 What companies provide hard money loans?............................................................................................ 8 Why are so many hard money lenders based in California? ..................................................................... 8 Documentation, Terms & Conditions for Hard Money Lending ........................................................... 8 What documents are involved in a hard money loan? .............................................................................. 8 What is the purpose of a Letter of Intent? ................................................................................................. 8 Why does the lender need title insurance? ................................................................................................ 8 What happens in the event that a Mechanic’s Lien is filed on a property? ............................................... 9 How much do hard money lenders charge? .............................................................................................. 9 Do hard money lenders require deposits? ................................................................................................. 9 Is a hard money loan personally guaranteed? ........................................................................................... 9 What are typical hard money lenders terms? ............................................................................................ 9 Should I give a deposit to a hard money lenders? .................................................................................. 10 What are typical hard money lenders fees? ............................................................................................. 10 What happens if a borrower doesn't pay the hard money lenders back? ................................................ 10 What is the maximum loan-to-cost for hard money lenders? ................................................................. 10 What due diligence information due hard money lenders require? ........................................................ 10 Rise of the New Asset Class: an Educational Resource Page 2 of 93 Arixa Capital Advisors, LLC ©2013 All Rights Reserved Are hard money loan interest rates usually fixed rate or floating rate? .................................................. 11 Are all hard money loans backed by real estate? .................................................................................... 11 Are owner-occupied home hard money loans different from all other types? ........................................ 11 Can borrowers get a hard money loan even if there is another loan already in place? ....................... 11 When does it make the most sense for borrowers to use hard money loans? ......................................... 11 How can borrowers negotiate the best rate on a hard money loan? ........................................................ 11 What risks do borrowers face when working with a hard money lender? .............................................. 12 What is the difference between Hard Money Lenders vs. Banks? ....................................................... 12 How are hard money lenders regulated? ................................................................................................. 12 How do hard money lenders compare with banks? ................................................................................ 12 How can you tell if hard money lenders are reputable?.......................................................................... 12 How long does it take hard money lenders to fund a loan? .................................................................... 12 Can borrowers who start with hard money lenders move on to working with banks instead? .......... 13 Why are bank loan interest rates so much lower than hard money lenders interest rates? ............. 13 Competition among Hard Money Lenders ............................................................................................. 13 How do hard money lenders compete? ................................................................................................... 13 How do hard money lenders differ from one another? ........................................................................... 13 Do hard money lenders compete on price? ............................................................................................. 13 What is Trust Deed Investing and How is it Related? ........................................................................... 14 What is trust deed investing? .................................................................................................................. 14 How does trust deed investing relate to hard money lenders? ................................................................ 14 What is the business model of a hard money lender? What is a hard money lender? ....................... 14 How do hard money lenders make money? ............................................................................................ 14 How can one find hard money lenders?.................................................................................................. 14 How do hard money lenders decide how much to lend? ........................................................................ 15 What events can I attend to learn about hard money lenders? ................................................................ 15 What industry groups do hard money lenders belong to? ....................................................................... 15 What jobs do hard money lenders employees do? .................................................................................. 15 Why are most hard money lenders so localized? .................................................................................... 15 Why aren't there more "name brand" hard money lenders? .................................................................... 15 How can I file a complaint against a hard money lender? ...................................................................... 16 Is there a stigma associated with hard money loans? .............................................................................. 16 Do legitimate businesses use hard money loans? ................................................................................... 16 How Can I Invest in Hard Money Lending?
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