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Good investors know the
importance of leveraging their money by using other people’s money to fund
their real estate investments. Leveraging allows investors to use smaller
amounts of their personal funds to purchase larger investments and to yield
larger returns on their investments (ROI). The ROI is the number that
should be of the most importance to an investor. Focusing on making a good
ROI will automatically result in higher profit margins. If you are a
rehabber or looking to venture into distressed properties, you may want to
look at Smith Rothchild’s Rehab Loan Program. Smith Rothchild has been in
business for about 25 years and they are the specialists when it comes to
providing rehab loans to investors. We met with Tony Disano, the Vice
President of Smith Rothchild, to discuss their programs and the advantages
of working with them. Mr. Disano is a former, experienced
investor/rehabber. He no longer invests because his main focus is helping
others with their investments. He refers to his staff as “Rehab
Consultants” because they are experts in property rehab and provide advice
and insight to help investors succeed. In addition, they have comprised a
network of real estate experts and resources to assist their clients in
getting the job done right.
We asked Mr. Disano to give
our readers a break down of their rehab program:
“We lend
money to entrepreneurial real estate investors that want to buy and fix
distressed properties in need of rehab. The amount of financing is based on
75% of the future value or the After Repair Value (ARV). We work through
the numbers with our clients to ensure that they are not paying too much for
rehab properties. Typically we lend 90% of the purchase price and 100% of
the renovation costs. We require our clients to put 10% down on the
purchase and we fund the rehab cost to them in 4 equal draws. The term of
the loan is typically six months, however we are able to go to 12 months
depending on the project. There is no prepayment penalty because we want
our clients to get in and out as quickly as possible. As a rule of thumb,
and not a guideline, we typically want to see some reserves. We know that
if our clients have some disposable cash they will have the available funds
to start the project. |
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, We do require that the
first phase of the project be completed by the client. However, we always
recommend that our clients negotiate with the contractors to start that
first phase of the work. This ensures that the client isn’t coming out of
pocket and the contractors are more inclined to remain on the job. We have
found that if the contractors invest time in the project, they are more
likely to stay and finish the job. In addition, it is a way a weeding out
the bad contractors, because good contractors usually don’t have a problem
with doing that.”
Mr. Disano also talked with
us about their desire to help their clients become active participants in
the real estate market. He stated that they are really interested in
catering to production rehabbers who want to do more than one or two deals
per year. They seek to work and plan with them to do one and two deals per
month. “Some of our best clients do 7-10 projects a month, moderate clients
do 2-3 projects a month, and then we have a few that do one or two projects
every couple of months. We utilize our network and services to help our
clients get to the 1-2 deals per month phase.” The network he is referring
to is their “Circle of Success.” They don’t consider their institution as
just a money source. When their clients work with them, they get access to
realtors, mortgage brokers, contractors, attorneys, property wholesalers,
birddoggers, etc. They also help investors who are looking for properties
to locate them. This is much different than other lending institutions.
Compared to banks, which are a little more cautious with the types of loans
they make, Smith Rothchild is a private money lender which allots for more
creativity with their financing options. They are able to close deals
within 10 days or less, allowing their clients to be more competitive with
cash offers. Overall, they have the resources and the experience of working
with various types of deals, and they are able to pass that experience on to
their clients.
During the time spent with
Mr. Disano, two things stood out above all else- 1) his company’s desire to
service their clients and 2) to make a difference in people’s lives. Smith
Rothchild is successfully helping their clients become active rehabbers in a
booming market. We all agree that real estate is a means for helping
society to change their economic status. Not only does it allow investors
the means to change their status, but it also provides an outlet for
community revitalization, job opportunities and use of resources within the
community. He expressed to us that they have an average of 450 projects
going on at one time. That equates to about $65-$70 million going into
various communities at any given time. So there are millions of dollars
being injected into improving communities and sparking more rehab ideas from
others in the neighborhood. In addition, those numbers only support the
fact that Chicago is one of the hottest real estate markets in the United
States. Opportunities exist all over town---from vacant buildings to
foreclosures to people just looking to get out of tough situations. If you
look hard enough, you will find properties. The question is will you move
on them?
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