Why Steed Talker Realty & Investments gives its Business to Private Investors
There are three primary reasons that We exclusively offer our investment opportunities to Private Investors rather than commercial banks.
Most loan originators sell the deeds of trust that they originate on the secondary market so that they can re-capitalize and continue lending. Freddie/Fannie purchase the vast majority of these secondary deeds of trust. For the primary lenders to be able to sell to Freddie/Fannie they must follow Freddie/Fannie guidelines. Freddie/Fannie stipulate that any one real estate investor can hold no more than four deeds of trust at any one time. We cannot stay in business with this as a limitation. We have to do a larger value than this stipulation allows.
Secondly, Time is money. The only way that we can purchase properties below market value is with rapid closing. To close rapidly capital for closing must be readily available. To operate profitably we must be able to bring purchases to closing within 10 days of making the purchase offer and going under contract to purchase.
A typical bank loan takes a minimum of 30 days, if the purchaser is fortunate. Not infrequently, the time from purchase offer to closing is extended to 60 and often 90 plus days. We have had closing using commercial banks that have taken even longer.
The third reason is the aspect of cash verses financing. Readily available capital is king when it comes to purchasing discounted properties. The ability to put capital on the table and bring a purchase to closing in 10 days is the difference between getting the deal or loosing it to the next purchaser in line. To operate profitably, Steed Talker Realty & Investments must have a source of readily available capital and Private Investors provide the most efficient way and means to that end. See the table below Speed and Capital Make the Difference.
The Table: Speed and Capital Make the Difference compares the company’s profitability using commercial banking sources against that of using Private Investment sources. As the table illustrates, Private Investment provides us with profit opportunities far beyond that provided by commercial banks.
Table: Speed and Capital Make the Difference
Speed and Capital Make the Difference
|# Of Projects Per Year||Profit Per Project||Gross Profit||Borrowed Funds||Interest Rate||Interest Paid||Net Profit|
The table illustrates the major drag that working with commercial banks has on company profitability because of the two factors mentioned above (Freddie/Fannie limitation and the length of time to closing). The 18 projects per year that the company is shown as doing in the table with private funds verses the 6 with conventional lenders is just the beginning.
With Private Investment capital, the number of projects possible is limited not by commercial banking constraint but by project availability. Therefore, the number of projects possible is considerably more and thus profits can grow substantially beyond that shown in the chart. Whereas, with commercial banks, no matter how many properties are available the number of projects doable will always be limited to no more than 6.
Because the potential for profitability between commercial bank sources and Private Investment is considerable, Steed Talker Realty & Investments gladly pays higher interest rates to Private Investors than what would be paid to commercial banks. The ability to increase business profitability makes paying more for capital and reduced time to closing a very sound and practical business decision. The availability of capital is much more important to business profitability than is the cost of capital.
Costs More but Creates More Profit
Even though paying for capital from conventional sources provides lower interest rates, in the end it is a costly practice because profits are limited. Interest rates paid to Private Investors are higher but paying them for speed and readily available capital is, in the end, a much more profitable and sound business practice. As mentioned earlier, the intent of Private Investment is to make profits – profits for both the Private Investor and the real estate investor.