Category: General Lending

August 13, 2021

Before entering into a new relationship with someone, it is not uncommon to ask yourself a series of questions first. Does this person’s values align with mine? Etc. It is no different when making a serious financial commitment like borrowing money from a potential new lender. There are some important questions you should always ask yourself and questions to ask the potential future lender before agreeing to anything in writing.  Below we will discuss several questions you should ask yourself before acquiring a new loan.

How Is Your Credit?

Make sure you have reviewed and understand your credit history as well as your credit score. The better your credit score, the lower the interest rate you will likely qualify for. Interest rate matters. If, for example, you were to borrow $25,000 for 60 months, the difference between how much you could pay with an excellent credit score and how much you might pay with a fair score, could be night and day. While a 100-point difference in credit score may not seem huge, it can be costly. With a fair score, your monthly payment could be hundreds of dollars higher, and you might end up paying thousands more for the loan over five years. Before taking out a loan, try to increase your credit score if you feel it is not where it needs to be. While it will take some time and effort, it is likely to pay off in a big way.

What’s Your Actual Budget?

The fact that you’re approved for a loan doesn’t mean you can actually afford it, particularly if you have lots of financial obligations that don’t show up on your credit report. For example, if you’re paying for your children’s education, monthly memberships, vacations, and several different hobbies, you may have trouble repaying the loan as agreed.  Even if you’ve been approved for a personal loan, take a hard look at your budget, including how much you spend on the things you enjoy each month. That way, you can make sure you can easily afford the monthly payments. In doing so, you may find you need to cut certain expenses in order to make way for a new financial obligation.

Is A Loan The Best Long Term Option?

We often spend money on things which provide great experiences and memories but no financial return. A great meal at a fancy new restaurant may be worth the price in terms of experience, but in terms of finances, you won’t likely see a return on this type of investment.  On the other hand, If you’re considering taking out a loan to remodel your bathroom or to install some new landscaping features, you could recoup your entire investment and then some. Before contacting a loan lender, determine whether or not you will likely see a return on your investment.  Now that you have a better idea of what you’re looking for in a loan, here are some more questions to inquire about with potential lenders:

What’s The Best Interest Rate Offered?

As the above scenario shows, monthly interest payments matter. A difference of 1%-2% can save you a lot of money long term. This is why it’s important to get comparative quotes from several lenders before settling on one.  The great thing about most loan lenders is that they will typically only run a “soft” credit check before letting you know if you qualify for a loan, and if so, what your interest rate will be. A soft check does not impact your credit score. It’s only when you decide to proceed with a loan that the lender runs a “hard” credit check that may ding your credit score a bit. Don’t worry, though. As long as you make regular payments on the loan, your credit score should rebound relatively quickly.

Is A Secured Loan Better?

Say you are interested in making several upgrades to your home to add to its overall value. If you’re trying to get the lowest possible interest rate, it pays to determine how much that rate would be if you opted for a secured loan rather than an unsecured loan. Most personal loans are unsecured, meaning you don’t put anything of value up as collateral.  On the other hand, a secured loan requires you to put up some form of collateral like a home or car in return for a lower interest rate. As long as its value is enough to pay off the loan if you fail to make the required payments, a lender may be interested.  Although a secured loan is likely to save you money, it’s worth remembering that If you don’t make payments as agreed, the lender has the legal right to repossess the collateral, sell it, and recoup their losses.

Are There Extra Charges?

With an excellent credit score there is no reason to pay for extras like an origination fee or an early payoff penalty. If your credit score makes you appealing to potential lenders, make sure to ask about fees. The difference between making a financial decision that works for you and one you may grow to regret is in asking questions before signing your name to a contract. Use the above guide to help make the right decision before you move forward on your next loan.

August 6, 2021

If you’re considering securing a loan, you should always make sure you are getting the best deal possible from whichever lender you finally choose. Obviously, there are no free rides when it comes to borrowing money, but the lower the overall cost of a loan, the quicker it will be to get out of debt.  That said, finding the right loan isn’t always as simple as it seems because there’s a lot to think about when deciding which lender to borrow from. To help insure you choose the right loan for your particular needs, follow the below tips when comparing loan offers.

Get Several Quotes

All kinds of lenders offer loans including online-only lenders, banks, and credit unions.  There can be major differences from one lender to another when it comes to interest rates, repayment guidelines, fees, and how long it takes to close a loan, so it’s important to get multiple quotes when shopping around for a loan.  You should try to get quotes from at least three lenders, but preferably more if you have the time, so you don’t miss out on a better loan offer.  It’s important to compare different kinds of lenders too.  Online banks, for example, often have lower rates and qualifying requirements than traditional banks because they require less overhead to run their business.

Avoid Hard Credit Inquiries

When you are shopping around for financing, some institutions will cause a hard credit inquiry to be placed on your credit report. Too many of these hard inquiries can hurt your credit score and can stay on your credit report for up to three years.  Luckily, many lenders will pre-approve you for a loan and disclose their rates and terms before placing a hard inquiry onto your record. In these instances, the companies will ask you to provide your Social Security number and some other basic information, and then perform a soft inquiry to find out what interest rate you’ll qualify for. You can then decide if you want to move forward with that lender and have them place a hard inquiry on your report.  Lenders that make it easy to comparison shop with soft inquiries allow you to protect your credit score while finding the best deals available on financing.

Compare Apples To Apples

When comparing loan rates from multiple lenders, it is important to make sure the type of terms are similar, not just the scheduled payments.  If, for example, one lender offers lower monthly payments but a longer repayment schedule, you may end up owing more in total for the loan than you would for a loan with higher monthly payments due to the added interest you’ll end up paying.  Always consider whether both lenders are offering fixed-rate loans.  Variable loan rates generally have a lower starting interest rate versus fixed-rate loans. These loans may seem like a sweeter deal because of the lower rate being offered, however, you’ll be increasing your risk with a variable-rate loan because the interest rate could rise during repayment. When rates increase, total loan costs go up in addition to the monthly payments.  That said, sometimes a variable-rate loan can make more sense, especially if you plan to pay the loan off early and can afford higher payments for a short period of time. Always make sure you compare loans with the same type of interest rate structure so you can get the best deal regardless of which type of loan you end up taking out.

Compare Total Costs

You always want to keep borrowing costs as low as possible, so it is common sense to go with whichever loan offers the lowest total overall costs including interest rates and fees.  When comparing rates, it’s critical to compare the APR not just the interest rate. The APR includes any added fees to show you what the total rate is that you will pay per year for borrowing money.  A lender should be able to tell you the total interest you’ll pay over the life of the loan, which is affected by your payment timeline and how often interest compounds.  Clearly understanding the total interest you’ll pay can help you pick the loan that will cost you the least in the end.  This way is a better bet than focusing just on monthly payments or annual interest rate, which can show a misleading picture if one loan has a longer loan repayment term or has more fees versus another.

Read The Fine Print

Always read the fine print for any loan you consider to find out all of the hidden details that could result in added costs.  For example, some lenders charge prepayment penalties meaning that if you decide to pay your loan off early, you could end up paying more for the loan than you might for a comparable loan without a prepayment fee. Some variable-rate lenders may adjust rates more frequently than others, which increases the likelihood of rates rising during the repayment term.  You need a complete understanding of the loans fine print terms to understand all of the risks and potential charges you could incur in order to make a fully informed choice about which lender is actually best for your situation.

Taking the time to compare loan offers is important, as some lenders offer significantly better deals than others. You don’t want to pay more to borrow than you need to, so make sure you follow the tips above when you shop around for your next loan.

July 23, 2021

Diversifying where you put your investment funds is a critical part of whether or not you will be financially successful long term. It is far too risky to potentially suffer the losses that can come from putting all your eggs in one basket.  These losses can happen in an instant and leave you with nothing. This is why it is much smarter to invest some funds in the stock market and some in real estate.  That way, you will help increase your chances of higher earnings and fewer losses across the board.  A lot of investors avoid real estate investments because they are intimidated or believe the misconception that you need a lot of money up front to invest. Luckily, neither scenario is true. Below are a few great reasons why real estate investing is a smart move.

Better Leverage

There aren’t very many investments options which allow you to invest in assets worth much more in value than you may have to invest. For example, $10,000 invested in the stock market will usually just get you $10,000 worth of stock. Real estate, on the other hand, can allow you to put down a small percentage of the properties cost and invest in the entire thing. For example, investors often secure a property worth $100,000; and only have to put down $10,000. It is not hard to find a lender to finance the rest as long as your income and credit are within good standings. This means you can invest just 10% of the property’s value and work towards owning it. As you make the monthly payments, you’ll secure more of the investment, increasing the rate of return and also gain from the property’s appreciation over time.

Better Appreciation

On that note, it is important to understand that real estate appreciates naturally most of the time. Typically, real estate appreciates 3% – 5% annually without you doing much besides maintaining the property. If you wish to go beyond that rate of appreciation, you can usually increase the rate by making even minor improvements and repairs.  That said, not ever improvement will increase a property’s value, so it’s smart to hire a licensed appraiser or real estate agent to find out the best renovations to maximize the appreciation.  Keep in mind, the renovations don’t have to be major.  Of course, adding a room will typically add more value than simple cosmetic improvements, but even minor enhancements can drastically affect a property’s value.

Tax Benefits

Real estate investors can take advantage of many tax write-offs. As a business owner, you can often write off the following expenses:  The interest paid on the loan, origination points, maintenance expenses, depreciation, property taxes, homeowner’s insurance, and HOA dues.  It is wise to consult with a tax expert before assuming you can write expenses off, but know that investing in real estate has many advantages. When you invest in stocks, you can only write off the capital losses if you need to sell the asset for less than you paid for it.

Steady Cash Flow

If you buy and hold a property, you can earn monthly cash flow by renting it out, and this increases the returns from owning real estate since you aren’t relying only on the appreciation but the monthly rental income.  It can feel overwhelming to buy an investment property, find a reliable tenant, and manage the property, but there are many available companies and resources out there to assist you along the way.

Financial Security

There’s a lot of financial uncertainty when you invest all of your funds in the stock market. As we all learned during covid, it can change in the blink of an eye. When you invest in real estate, on the other hand, you have an appreciating asset. It may go through ups and downs along the way, but a property’s value will usually return to overall gains if you hold onto it long enough.

Like all investments, there are pros and cons to investing in real estate. Understanding the risks can help you make the right investment choice for your needs. You may find that you still want to invest, but knowing the negatives can help guide you to smarter decisions that will protect you long-term.  Real estate is a great way to diversify your investment portfolio. When you invest some of your funds in real estate you can offset other high-risk investments like the stock market. In addition, if you invest in rental homes, you can enjoy the cash flow while the home appreciates, giving you significant gains when the time comes for you to retire.

July 16, 2021

When investing in real estate there may be a better option for financing besides using a traditional loan every time. While it is true that traditional loans have been used to successfully secure many types of real estate investments, obtaining a traditional real estate loan comes with a lot of challenges. There are tons of boxes investors must check for a traditional lending institution to agree to fund their loans. Luckily, these challenges do not mean that investors who do not qualify for a traditional loan should give up on trying to invest in the real estate market. To the contrary, many investors do not even bother to go through the traditional loan process to fund their real estate investments. If you’re curious to learn what investors do when they need quick financing at affordable rates, the answer to your next investment funding could be in securing a hard money loan.

What Are Hard Money Loans?

Hard money loans are investment loans given by individual investors or companies who lend money to investors that are secured by the asset they are lending money on. The asset itself is used as collateral to reduce the risk for both the lender and the loanee.  Hard money loans are great for fast financing where investors need to purchase a fixer upper, quickly remodel the property and then sell it at a profit.  Most of the time, hard money loans are short-term loans lasting from 1 to 3 years. With the shorter loan terms, they also carry higher interest rates than traditional financing options like primary mortgages.  If you are considering whether or not a hard money loan is the right fit for you, here are three benefits you should consider before making a decision.

Processing Times

Traditional lenders usually take around 28 days to process and complete funding for a loan which is often way too long for fix and flip investors. If things are going well within those 28 days, investors could secure a hard money loan, purchase a property, and begin renovations.  For that reason, hard money loans have become a very attractive alternative to traditional bank loans.

High Approval Odds

One of the biggest challenges facing real estate investors today is simply being approved for a loan from a traditional lender like a bank or government agency. Lenders almost always evaluate the applicant’s credit status and annual income before deciding whether they will approve the loan.  A lot of times, banks will only provide a portion of the full loan amount, leaving the loanee with little to no choice but to find another way to fund the remaining balance of the loan in need.  Hard money lenders, on the other hand, don’t typically consider the investor’s credit or their income. The main requirement for determining approval for a hard money loan is whether or not the loan amount is equivalent to the collateral on the property value being purchased.

Flexible Repayment

You usually will have more flexibility when negotiating the loan terms for a hard money loan since they are funded by private investors as opposed to large financial institutions. You can usually customize the repayment options to suit your financial position which in return makes hard money loans very convenient, especially for someone who’s just getting started in the real estate business.

As an investor, you often have very few options with little turnaround time to secure the financing you need to purchase a property. A hard money loan can be a great fit because they do not typically come with all of the red tapes that come with traditional bank financing.  If you decide to fund your next real estate investment using a hard money lender, try to avoid making and quick decisions. Make sure you evaluate the terms of the agreement, any fees that may be included, and what interest rates will be involved, so you can make a wise decision that is best suited for your needs.

July 9, 2021

If you are a real estate investor, there are a lot more financial numbers to keep track of besides just the rental income you generate. If you only keep track of income, you’d be responsible for a larger tax bill at the end of each year than you anticipated. Tracking expenses helps ensure that the investment is profitable overall. It also allows you to deduct as many of your costs as possible, which decreases tax liability and increases the bottom line. If you are curious of the best ways to track rental property expenses, use the below guide to help you keep track of everything.

What To Track?

Writing your rental property expenses down and proving them are two different things. It’s important to keep a careful log, but let’s first look at what you need to prove your expenses, especially if you’re planning on writing them off.

Leases – Keep all current and past leases for several years. You don’t want to be blindsided by surprise when something pops up unexpectedly from a prior years’ tax returns.

Proof Of Rent Collected – Make sure to keep proof of all the rent you’ve collected. If you collect rent digitally, track it. If you collect checks, make a copy of the check.

Copies Of Bills – Keep copies of all bills you pay connected with running the property, including tax bills, utility bills, and insurance bills.

Mortgage Papers – Keep all mortgage statements and proof of payments if you have a mortgage out on the property.

Legal Fees – Keep a receipt and make copies of any legal fees you incur in connection with the property.

Sale Papers – You must report the profits on your tax return if you sell any investment property. Understanding capital gains and how you can offset them is critical, and purchase contracts are an essential part of this equation. You should also make sure any expenses you pay in connection with the property are reasonable for the area. You should never attempt to increase what you pay and should always have keep good records for proof.

Best Ways To Track Expenses?

Similar to personal finances, these is not one right or wrong way to track rental property expenses. There are many ways to accomplish the same end goal so it’s ok to do whatever works best for your specific needs. The best approach is one that allows you to keep track of things in real time. It’s important to keep on top of expenses to ensure you file your taxes properly and get all the deductions you are entitled to.  Below we will look at some best ways to track rental property expenses.

Accounting Software

Luckily, in 2021 there are many accounting software programs to help you track your rental income. Programs like QuickBooks and TurboTax all provide solid options for real estate investors.  Do your research and figure out which one you understand the most and will use consistently as they all have costs associated with them. Many options have a free trial, so you can try before you buy. Take advantage of these free trials so you don’t pay for a program that doesn’t work for your needs.  The right program for you will vary based on the number of properties you have, your total expenses, and the complexity of all your other business needs.

Property Management Software

Property management software is a specific product meant just for real estate investors. They can help you track rental income, automatically track income and expenses, and keep track of all your real estate investment properties in one place. Most of these programs also offer a free trial so you can see how they work and determine if they’re a good fit for your business needs. Next we will look at some common expenses to be aware of.

Common Expenses

Tracking your real estate investment expenses is critical. Here are the most common rental expenses most investors pay: Mortgage costs, closing costs, inspection fees, appraisal fees, real estate commissions, marketing and screening costs, maintenance costs, repair costs, materials, as well as any legal costs. Most real estate investors have fixed and variable rental property expenses.

Fixed expenses include:

Mortgage payments, utility fees, trash fees, property taxes, home insurance, property management fees, as well as any required HOA fees. Other fees you may have include the costs to find a new tenant, maintenance and repairs, vacancy costs and major improvements.

What’s Considered Rental Income?

Rental income includes all of the following in addition to the rent you receive:

Security Deposits – You are required to claim any security deposits earned if it’s not returnable at the end of the lease. If your lease includes a clause to return the security deposit, it’s not income, but the difference is taxable if you do not return the entire sum. If you collect the first and last month’s rent when you accept a lease, that’s also income that needs to be tracked.

Other Tips To Track Expenses

As you can see above, there is a ton that goes into preparing taxes when you own rental property. Everything you spend or collect matters and makes a huge difference in the amount of taxes you owe at tax time.  To make sure you accurately track your rental property expenses, consider the following:

Keep your business bank account separate. It’s challenging to differentiate between personal and business income and expenses when you keep them all together. It’s wise to open a separate bank account and conduct all business from that account. Keep track of all receipts. Its smart to scan copies of them and store them on our computer or phone to always have a record on file.  Regardless of what system you decide is best for you, figure out a system and subscribe to the software that suits your needs the most. Take the help above to maximize your tax write-offs by staying organized as a real estate investor.

July 2, 2021

As a first-time investor, you might be hesitant to commit to your first investment. It can be quite stressful to think about putting all your eggs in one basket, especially when first starting out. There are many factors to consider before investing in a property, and it’s critical to take your time and research before you jump right in.  It’s wise to start off slow before taking a giant leap and betting your entire life savings. To assist, here are some smart strategies for first-time investors to get started with investing in real estate.

Passive Investing

Many first-time investors often invest as a passive investor for their first deal. This approach allows a more experienced investor to lead up the investment and then report back to their shareholders. This helps new investors understand the ins and outs of how a property performs and low points that can affect performance on returns without having to carry the entire wait of the investment on their shoulders to begin.

Limit Your Individual Risk

It’s wise to start small by partnering up with an experienced investor so you can hopefully limit your financial risk. Everyone has to start somewhere and many first-time investors jump into things alone and experience fatigue or end up over extended without the proper experience. It’s much smarter to start out with a seasoned investor and consider hiring them to coach you or partner up on a deal.  This way you have the opportunity to observe their process and possible team up with them on a solid deal.

Real Estate Investment Trusts

Another smart strategy to consider when starting out is to look into something easy and relatively low-risk like a Real Estate Investment Trust.  These trusts help take the daily management off the table but you can still get an overview of the types of returns to expect as well as the markets for real estate in certain geographies. These trust help form the basis of knowledge you can utilize to grow your investments into more focused and viable investments in the future.

Find A One-Year Tenant

It’s smart to find a property in a good neighborhood and find a tenant that is willing to commit for at least one year from the start of their lease. This will give you the opportunity to have immediate cash coming in as well as secure your cash flow once the lease expires.

Turn Your Primary Home Into A Rental Property

If you’re not ready to give up the security of your own home to invest in a rental property, consider starting out by hanging onto it and turning it into a rental property. You will already be more familiar with the property, aware of its current condition, monthly expenses and any necessary repairs; it can become a great starting point for beginning  your rental portfolio.

Set A Small Budget and Get Started

It’s wise to start with a small budget. It is a challenge to start small in real estate investing, the processes and burdens of owning investment real estate are very similar if not more difficult for smaller properties. Smaller properties often require more personal attention and care from the individual investor while larger properties can garner that attention and care from professional property managers. If you have been wanting to invest but are too shy or worried it will be a giant mistake, simply budget an amount you don’t mind losing and take the ride. Once you’ve made it to the other side, you will better understand if you want to ride again or cut your losses and try some other form of financial investment.

June 25, 2021

When debating whether or not to buy an investment property, condos can be an appealing option, especially if it’s your first investment. They often cost less than single-family homes and can be simpler to maintain.  Whether or not they’re a good investment, however, depends on a variable of different factors. Here’s what you need to know about investing in condos:

Condo Appreciation

Most of the time, condos appreciate at a slower rate than single-family homes. For example, the average sales price of a condo was up nearly 10% last year, however, the average sales price of a single-family homes was up over 15% during the same period. That said, condos will still likely increase in value over time. Some factors to consider when predicting appreciation include: Location, walkability, amenities, population, demand for low-maintenance housing, as well as how well the property is maintained.

Pros To Condo Investing

Investing in condos can be a wise choice, especially in an expensive part of the country. Condos often cost less than single-family homes and most of the time you do not have to worry about maintenance or repairs. Here are some of the main advantages to buying a condo:

They’re Cost Effective

One of the main draws of owning a condo is their price tags. The average sales price of a condo is currently around $300k nationwide, while the average price of a single-family home is currently around $350k across the country. Since the number of available homes for sale are currently quite low and prices are continuing to increase, many investors are looking to condos as an appealing, cost-effective option.

They Offer More Amenities

For those interested in communal living, condos offer attractive amenities. Many condo communities include picnic areas, gyms, saunas, pools, and other community centers. These attractive amenities can make it easier to find renters for a condo or guests to rent out the condo short term on one of the many vacation rental sites online.

Fewer Repairs and Upkeep

Most condo fees are relatively low once you factor in that you aren’t responsible for all of the maintenance and repairs. With a single-family home, you’ll be on the hook for maintaining the roof, patio, gutters, paint, and every other part of your house. With condos, however, you pay your regular fee and the homeowners association takes care of the external upkeep including snow removal, yard work, and other exterior maintenance. This can make things much simpler for a first time investor.

Appreciates and Provides Cash Flow

A condo can provide immediate cash flow, whether you decide to rent it out or post it online as a vacation rental property.  While receiving this cash flow, the condo also appreciates in value over time, increasing your equity overall.

Cons To Condo Investing

While convenient and typically cheaper than single-family homes, condos come with their own set of drawbacks. HOA fees and rental restrictions are just a few negatives you might be concerned of as an investor or first time condo owner. Here are some of the main drawbacks to purchasing a condo:

Association fees

Depending on the location, condo association fees can be anywhere from a few hundred dollars a month to a thousand dollars and beyond. Additionally, large monthly condo fees increase your payment, diminishing your overall return on investment. It’s important to learn as much as you can about the condo’s HOA before you buy a rental property there. Request to see the HOA’s finances and make sure they have adequate cash reserves for unexpected expenses. If the HOA doesn’t have an adequate reserve fund, it might have to increase dues or impose special assessments to cover certain renovations or replenish that empty reserve down the road, which will ultimately cost you more money.

Rental Restrictions

Not every condo community allows you to rent out the condo, especially in the short term as a vacation rental online. If you plan on renting out your unit, be sure to understand the limitations the community has in place prior to purchasing a property.

Association Restrictions

In addition to rental restrictions, a condo community may have other restrictions to consider. It is not uncommon for a communities homeowner’s association to limit the types of modifications you can make to the unit or the number of pets you can own. For some investors, these restrictions can be a deal breaker.

Difficulty Financing

It can be harder to get financing for a condo than with a single family home. Condo mortgage rates tend to be higher than rates for single-family homes, and the lender might have other conditions, like expecting a certain amount of the units in a community to be owner-occupied before offering you pre-approval. When shopping around for condo financing, you might need to show a high level of financial health and provide a larger down payment to be approved. You might also be required to show additional documentation about the condo community before a bank will agree to consider you for a loan.  All of this additional red tape can be time consuming and slow down approval, so be prepared to allow additional time during the closing process for a condo.

Are Condos A Smart Move?

Before investing in a condo, carefully evaluate your specific financial situation as well as your long term investment goals, and weigh all of the pros and cons. If you are considering investing in condos, make sure that you’re choosing a location that’s likely to provide a good rate of appreciation in a desired market.  You should also consider how much time you plan to spend on maintenance and general upkeep as well. As long as you are prepared to keep up with all of the required fees and any restrictions that may prevent you from renting out the property, investing in a condo can be a very wise financial move.

June 18, 2021

Flipping houses is a common option for generating extra revenue, particularly for those who are good at handyman type repairs. That said, it’s often not a cheap endeavor. The cost can add up quickly because you’re typically not simply buying the land with a building on it; buy also appliances, and are on the hook for any repairs and improvements you can’t do yourself. You must wait on the sale of the property before you can collect any profits. This process can often take months or even years to complete. Luckily, there are several financing options out there for flippers. Below are some of the common options to help bridge the gap until you can collect from the sale.

Commercial Loans

Commercial loans are loans secured by liens on commercial property. If the borrower has no financial track record or credit rating, lenders will typically require them to guarantee the loan. If a guarantee is not required, and the property is the only means of recovery in the event of default, it is known as a non-recourse loan. In this scenario, lenders have no recourse against anyone or anything beyond the property. Generally, the longer the loan repayment schedule, the higher the interest rate. Commercial loan Interest rates tend to be higher than on residential loans so its important to understand how much interest you will be expected to repay before agreeing to any commercial loan deal you are offered.

Equity Crowdfunding

Equity crowdfunding’s are equity stock offering from a company not listed on exchanges, which differs from rewards-based places (like Kickstarter) where investors get an incentive/perk for their donation. With equity-based crowdfunding, the investor receives equity.  Flippers in these scenarios do not need to become a fully reporting public company and investors don’t not be accredited, which makes for fewer hoops to jump through when securing financing of a real estate flip investment.

Home Equity Loans

A home equity line of credit is a loan secured by your primary residence when you own a home. You can usually get financing at a low interest rate with these types of loans. Home equity loans are, as the name indicates, based on home equity.  To figure out the potential equity you may have to invest, you should take the current value of your home and subtract what you owe on the mortgage. The difference will give you the equity accumulated on your primary residence.

Investment Property Line Of Credit

For this type of line of credit, you borrow against your investment property’s equity. The property serves as collateral to secure the loan. To qualify for these, you will generally need good to excellent credit, and a history of successful real estate investments. In general, you must own the property at least one year for eligibility. As a result, investment property lines of credit are usually not the best option for first time house flippers.

Business Line Of Credit

With a business line of credit, you get access to a revolving credit line. You can use up to a set amount, but only make payments and pay interest on the amount you actually use. You may use it repeatedly if/when issues pop up or when it’s time for your next real estate flip. You generally need great credit, with a stable history of flipping success to qualify for a business line of credit.

Seller Financing

With these deals, you work directly with the seller to come up with the terms of a payment plan and create an agreed upon contract. You will pay directly to the seller on an agreed-upon schedule, based on a price you both set, with interest. This poses more risk to the original property owner. Therefore, you will often pay a higher interest rate, with a shorter repayment term than other types of loans.

Bridge Loans

Bridge loans cover the gap between when you want to buy a property, and when you can secure long-term financing. They can be used to help cover the cost of the down payment on your next flip. This frees you up to then focus on finding another financing option to cover the remaining amount. Most of the time, bridge loans will be secured with collateral, so you can often get approved for a loan with a lower interest rate, versus other options. Bridge loans are generally easier to qualify for than most other types of loans.

Cash Out Refi

Cash out refinance loans enable you to refinance an existing property to fund your house flipping project or for any necessary repairs. Borrowers can put up their own home’s equity to take out a new loan and then pay off the existing mortgage balance. Once complete, they may then use any remainder balance to finance their flipping projects. In order to be cost effective, however, you generally need 30-40% equity in your home. Otherwise, a cash out refinance loan is likely not the best option for you.

Long Term Bank Loans

These are traditional mortgages with fixed interest rates. Bank loans are usually best for those buying a home to stay in for five years or more while renovating it. You will usually pay lower interest than with other financing options with up to 30 years to pay. With these traditional loans, however, you will need enough for a down payment, good to excellent credit, and a stable income, to qualify.

Hard money loans

With hard money loans, you work with non-bank lenders.  Hard money lenders often have less stringent eligibility requirements and you can often qualify even with poor credit. These loans tend to have higher interest rates, often with shorter repayment terms.

Conclusion

Whether you are a long term fix and flip investor or are interested in just getting started in house flipping to generate some extra income, try the above funding options to hopefully lay out less of your own money on the path of generating a new stream of investment income.

June 11, 2021

Getting a loan for an investment property can be tricky but it doesn’t have to be. Obtaining a loan to invest in real estate isn’t too different from seeking a loan for a primary residence. There are, however, several different things to consider and some additional avenues to explore. Investing in real estate can turn out to be quite beneficial, but can also be risky, and you can lose dearly if you don’t know how to play the game smart. Below is a list of basics to understanding what it takes to get a loan to invest in real estate.

When considering acquiring a loan for real estate there are a few different loan options for you to consider, including:

Traditional bank loans

You’ve probably had some familiarity with this option, especially if you’ve secured an owner-occupied property in the past. Securing more traditional financing can make the process simpler, but it’s important to know that most banks expect a down payment of 20% for the purchase of a home. If you’re obtaining a loan for an investment property, many institutions may require 30% of the value up front as a down payment. Your ability to get approved, and the kind of interest rates offered, will depend on your individual credit score and history. Most lenders will also review your income and assets before making a determination on whether or not to approve you for a loan. For traditional bank loans you will also need to be able to show you can afford any existing mortgages and monthly loan payments for the investment property.

Hard money loans

Another loan option you should research is a “hard money loan.” Hard money loans are basically short-term loans that investors can use to purchase, renovate or build a property. These are typically offered by private lenders as opposed to traditional bank. One of the many benefits of hard money loans is their flexibility, as they depend on the discretion of the agreement made between you and the lender.

Factors for getting a loan

There are several factors you should consider to help you in the process of obtaining a loan. You definitely want to ensure you are well organized and prepared ahead of time so that either banks or private lenders will be willing to take a risk on lending you money.

Saving for a down payment

Saving for a down payment usually takes some time, but it’s the easiest way to secure a loan for a property. The money saved for a down payment can be used to secure a property. The more money you have for a deposit, the fewer hurdles you’ll have to jump through.

Home equity

If you don’t have the money saved for a down payment, or the necessary time or means to save up for one, you can potentially avoid this is if you already own a home with positive equity. You can use part or all of this equity as a down payment for your investment property.  How much equity you have is calculated by subtracting the value of your remaining mortgage debt from the market value of the property. Keep in mind that when you use the equity from another property, the principal you have to repay will increase. It’s important to make sure you can handle taking on that extra load and also make the required loan payments, or increase the overall amount you are repaying, before making the decision to tap into your home equity.

Guarantor

You can also choose to use a guarantor on your investment property loan. This is usually done by asking a close family member to use a part of their own equity to secure a loan for you. The guarantor must be at least 21 years of age, have a good credit history, financial stability and it also helps if they own their own home.  This is a common option for many investors wishing to speed up the process of obtaining a property. Like with all things, however, there are risks that both the buyer and the guarantor should be aware of before moving forward.  Mainly, if the borrower is unable to repay the loan, the guarantor will be liable to repay the portion of the loan they agreed to secure.

Ability to make repayments

Everyone, regardless of whether they use a private lender or bank, needs to prove that they are able to make payments in a timely manner. This is the most important aspect of any lending process so most lenders and banks will look at the following: Your income, employment history, previous bank statements, spending history, any assets you own as well as your credit history.

Summary

There are quite a few things to consider when looking into obtaining loans for investing in real estate. First, you need to decide what loan you need based on your circumstances and where you are going to get your loan from. Second, you need to go through the process in order to obtain a loan. Use the above options as a guide on the necessary steps to take. If you follow the recommendations listed above, you should be on your way to obtaining the necessary funds to invest in real estate.

May 28, 2021

Vegas odds would suggest that if you’ve invested in real estate, it was likely to make money. Knowing when the right time to sell can be challenging. If you are unsure if now is the best time to sell and make a decent profit, the below advice may help you determine if now is the right time to sell.  You could have hundreds of reasons to sell a rental property, but here are the most common reasons people sell:

You’re Done With Real Estate Investment

Whether you’ve been investing in real estate for a few months or years, there often comes a time when you’re just over it. Maybe it wasn’t what you expected, it takes too much time and energy, or things have just naturally run its course.  There’s nothing wrong with throwing in the towel and calling it quits, as long as you do things strategically.

The Appreciation Grew Significantly

If properties in the area are selling for much more than you bought for, you may consider if you should sell. Appreciation naturally occurs, but you can expedite it by making enhancements to the home and stay on top of needed repairs.  Deciding when it’s the right time to sell when the property appreciates depends on your goals. Are you needing to save for retirement or for a shorter-term return? If you invested for retirement, you might want to hold onto the home longer so you’re certain the capital gains will be worthwhile.  It all boils down to timing the sale right, which we will discuss below. If you sell during a year you have a high income, you may increase your tax liability significantly and walk away with less money in your pocket than you thought.

Tenant Retention Challenges

You have to keep the home occupied with tenants if you own a rental property. It’s not always a simple task, and some areas that were once great markets may die out over time.  If you’re having a hard time keeping the home occupied, you may want to cut your losses and try selling for a profit so you can invest your money elsewhere.

You Found A More Lucrative Investment

If another investment appears more lucrative, you may want to pull money from your real estate investment and invest in something with potentially higher returns. If all goes well, you may want to sell your property to use the money to enhance your new investment.  If you invest the funds in more real estate investments, you may get away with a Like-Kind Exchange, which means you don’t get hit for taxes on the property since you use the money to invest in another home. However, if you’ve invested in anything else, you’ll likely pay the taxes on your capital gains, which requires proper timing.

Too Much Upkeep

Let’s face it, handling a rental property can be hard work. You are the landlord, aka the person responsible for every little thing that goes wrong with the home. You’re also must handle payments, defaults, and lease contracts.  The work load can add up quickly. You can hire a property management company, but unfortunately that will eat up a lot of your profits. If you can’t keep up with all that’s involved, you may decide to sell and invest your proceeds elsewhere. Whenever you decide to sell, you have a few considerations to make.

Tax Obligations

When you sell your rental property, you’ll owe taxes on the capital gains. Unlike primary residences, you won’t likely receive the capital gains exclusions for living in the property. You’ll most likely pay taxes on every dollar you gain.  You should try your best to time the sale to minimize your tax liability. Unless you are just over real estate investment, you may want to consider a Like-Kind Exchange or at least see if you’re eligible instead. It’s worth the money to consult with a licensed tax professional or accountant to determine your eligibility.  If you are done with real estate investing, its critical to understand the tax implications ahead of time. If you’ve owned the home for less than one year, you’ll probably pay a short-term capital gains tax. This means you’ll need to pay taxes at the current rate. If the capital gains bump you up to the next tax bracket, you’ll end up paying even more.  If you owned the home for a year or more, you’ll likely pay a long-term capital gains tax, with the average investor paying 10% of their capital gains in taxes.

Tenants

If you have tenants in your rental property when you decide to sell, you’ll need to choose how you’ll sell. Here are a few options to consider.

Wait for the lease to expire – If you have a current tenant lease, you can wait until it expires, fix up the home and list it. If you choose this option, you can market the home to any buyer, not just investors. The downside is you have to wait to sell until the lease expires. If you have a lot of time remaining on the lease, you may not make as large of a profit as you hoped if the market changes.

Pay the tenant to vacate – If you want to sell now, you may be able to convince your tenant by paying them to vacate early. How much you should offer depends on the circumstances. You may go back and forth with the tenant a few times before you can reach an agreement. You’ll likely need to pay to help them move, cover the difference between the new rent and your rent for the remainder of the lease, or come up with another compromise.

Sell with a current lease – A final option is to sell with an active lease on the property. Also known as a turnkey property, you sell the home to another investor who takes over the landlord duties and earns cash flow from day one.

Answering the above questions, will be a critical first step in deciding whether or not now is the best time to sell your rental property or if you should wait until the cards are stacked more in your favor.