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Being a private hard money investor, and lender, I probably see more than 50 deals across my little desk each week. Of these 50 deals, I seriously look at perhaps 10, and may fund 2 of the 10. That being said, the main reason I have such a high "attrition rate", is because of a thing that is the Holy Grail in the private hard money industry....PROTECTIVE EQUITY.


Protective is simple, it is the equity in the property that would protect an investor, should the investor be required to foreclose on the property. Normally this is the formula for protective equity when dealing with conventioanl loans...Value of property-debt=equity.

With a private hard money loan, it is defined a little differently...Quick sale value of property(180 day sale value)-debt=Protective Equity.

Let me use an example of a property we funded in Novenber of 2008

The property was a piece of raw land, with an MAI appraisal of $3.4M (As Is) and a 180 day value of $2.1M. My investors lent 50% of the $2.1M, or $1.050Million.

Now, you are probably wondering why the huge discrepancy in As Is value and quick sale value. Here is how a private investor looks at the deal. First, this is raw land, hardly a hot selling property in today's market. Every private hard money investor always assumes he will own the property via foreclosure. If the investor takes the property back, he wants to liquidate the asset to get his m oney back. So, he must lower the pricer of the land below other similar property so it will sell. Hence, that is whay on raw land, we normally use a Quick Sale value.


generally, the maximum loan to value on a private hard money loan is 65%. If the property is in a great area(West LA, Santa Monica), this can go higher. If it is in an area being hit hard(San Bernardino), it may go lower, perhaps 45-50%.

In my next blog, i will talk about how to achieve a higher loan to value with cross-collateralization of other assets.

Everard Korthals
---Preferred Lifestyle Advisors--- - Lancaster, PA
Mountain Realty

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Sincerely, Active Castellum

Dec 11, 2008 06:17 PM
Yvette Gardner
Keller Williams Realty, Spartanburg, SC - Spartanburg, SC

Welcome to the Active Rain community. This is a great site with lots of information.  Have fun with it and hope to see more of your blogs soon!  We have a team of three outstanding full time agents to assist your buyers and sellers in Spartanburg/Greenville, SC.  Let us know if we can ever help. Again, welcome to AR!!

Dec 13, 2008 12:16 AM
Todd Clark - Retired
eXp Realty LLC - Tigard, OR
Principle Broker Oregon

I've used some hard money lenders in the past and I plan to be making some calls on Monday as I have one person who has 60% equity in the properties and needs to make a short term loan to fix up the properties.

Certainly the number of hard money lenders compared to a few years ago is considerably smaller!

Welcome to the rain and look forward to reading more posts from a hard money lender vs a traditional lender.

Welcome to Activerain

Dec 13, 2008 06:45 AM