December 16, 2022

Many investors feel that hiring a real estate agent is unnecessary and with the proper time and research they can acquire new properties all on their own. Whether they wish to simply save on commissions and fees or whether they have had previous experiences which left a bad taste in their mouth, investors need to step back and look at the larger picture. There are quite a few benefits of dealing with a real estate agent to maximize your investment opportunities. Below we will discuss a few of the many reasons why it is best to utilize a real estate agent when investing at a new property.

Access to Listings not on the Market

In one of the most competitive markets out there, seeking out listings through the local MLS (Multiple Listing Service) in your area will likely not yield the most lucrative investments. Seasoned real estate agents have spent years building a successful career by networking with other real estate agents, land owners, and investors.  Real estate agents often have inside access to listings that are off the market and never posted on the MLS.  These investment opportunities more times than not will offer a higher return and make the difference between whether or not it is worth the risk to invest your money in real estate.  Gaining access to all of the opportunities that occur off the market in real estate is one great reason to spend the added expenses involved in hiring a real estate agent.

Property Negotiations

Another great reason to work with a real estate agent when purchasing a new investment property is their ability to negotiate the deal on your behalf. The negotiation process can be one of the most stressful aspects of acquiring a new property. Having a third party negotiate the terms of an investment often results in a better deal in the end for all parties involved. Established real estate agents are well versed on the local real estate codes, market values, and numerous legal hiccups that can save you a lot of time and money down the road and ensure that you are making a sound investment before you sign on the dotted line. Additionally, removing the “personal” element from the negotiation process helps to focus all parties involved.  A good real estate agent knows when to hold firm on an offer and what to give in on during the negotiation process to help you get the results you are looking for.

Saving Time

Perhaps the largest benefit of hiring a real estate agent is the amount of time and hassle they will save you.  Acquiring a property requires a ton of paperwork and many hours of scheduling and viewing potential opportunities. When you hire a good agent, all you need to do is let them know the type of properties you are interested in and what your budget is and they will do all of the leg work on your behalf. They can weed through all of the properties that do not fit your criteria and schedule viewings when they are most convenient to your schedule.  Once they find a property you wish to move forward on, they will gather all of the necessary paperwork, negotiate the terms of the deal, and ensure that you check off all of the legal requirements in the properties area.

As the saying goes, “Time is money” and hiring a good real estate agent is one of the best ways to maximize both your time and money not to mention setting your mind at ease. From accessing listings which are off the market, negotiating the terms of an agreement, or saving you countless hours. Hiring a real estate agent is more than worth the added commissions you will pay and will helps you to make the best decision when investing in a new property.

December 8, 2022

For many, a rental property is the first major investment they make which they must also manage diligently. Many new real estate owners don’t move past a couple of properties, while others successfully grow their real estate portfolios into multiple individual properties. Each person has their own unique goals, and like all investments, rental property management is not for everyone. For investors who do prefer real estate as a way to build their wealth, below are some helpful tips for managing real estate accounting.

Typically, if you only have one rental property you can handle most of your accounting at year-end when you or your accountant are doing taxes. That said, as your portfolio of rental properties expands, there will be increasingly complex tax issues to consider, as well as more hands-on accounting for each unique property. While it may seem easier to group all rental costs into one bank account, this will likely create headaches down the line.

It’s worth noting that regular business expenses, tax liabilities and accounting for rental properties often span multiple years. From the time you buy the property to the time you sell it; you need to take advantage of all of the available real estate tax codes to reduce your liabilities. To accomplish this, it’s very important to keep clear records of the total money spent on each rental property separately.  Follow the steps below to keep track of each property, and you will eliminate many potential headaches for you and your tax professionals down the road.

Keep separate bank account for deposits/expenses for each property

Use a separate bank account to collect rent payments. It is unwise to let all of your tenants know your bank account number. A separate account will also let you easily track who has paid rent each month and who may still owe you money. As a general rule, you shouldn’t accept cash; but if someone needs to pay in cash, have them purchase a money order instead. As a general rule, cash is hard to track and easy to lose.

Independently track expenses for each rental property so you can properly disclose them on your tax returns. Ideally, you should maintain a separate bank account for each rental. If that’s too complicated to manage, group some properties into the same account. It’s important to keep in mind that at the end of each year, you’ll need to separate all the expenses by each property regardless of how many accounts you have set up, so it’s best to do it on the front end instead of waiting until the end of the year to divide out all of your property’s expenses.

Track improvements separately from repairs

It’s important to understand the difference between repairs versus capital improvements. This is very important because repairs are deductible when you pay for them, but improvements have to be depreciated over time. Typically, repairs won’t improve the value of your property, but rather simply bring it back to being useful. Capital improvements, on the other hand, will often increase the property value or prolong its useful life.

Don’t track depreciation

Although depreciation can be easy to calculate, don’t try to do so on your own; let your tax preparer calculate it. This is not a cash expense, so it won’t affect your bank account. The current tax code makes it simple, but if you have older properties or have made significant capital improvements, there may be other implications to consider. It’s likely best to leave depreciation calculations to a hired tax professional to handle it for you.

Simplify your accounting

Have a system for tracking income and expenses for each property. Don’t overcomplicate things.  Often times, jotting things down on a piece of paper can be just as effective as a spreadsheet or other more complicated accounting system. You are likely not tracking many transactions, so use whichever method you feel most comfortable with. The key take away here is to ensure you are tracking monthly, and don’t wait until year-end to do everything.

As you grow your rental income, you’ll likely have to expand your accounting system and it is critical to keep solid records. Accounting for your rental properties does not have to be a headache during tax season. Follow the instructions above to ensure you don’t miss any deductions and have detailed records when you eventually sell the property. No matter what system you decide to use, the main accounting objective for successful property ownership is to keep the best records possible and to keep everything organized!

December 1, 2022

If you’ve invested in a rental property hoping to make money, you may find it hard to get a high return if you don’t have the right help. Selling your rental property requires proper timing, pricing, and marketing to the right audience.  Here are several tips to help you sell your rental property quickly and for the highest return on your investment.

Include Your Tenants

Having a tenant in the property could be an important factor in how much money you may make when it comes time to sell your rental property. You need to decide whether or not it’s best to wait until the lease expires, pay to relocate the tenant, or sell the property with the tenant still living in the home. These decisions can make a huge difference in how you sell your property. If you must wait until the current lease expires, you’ll be more at the mercy of whatever current market situations you face when it comes time to sell. If the market is hot, but your lease doesn’t expire for six months, you will likely have to wait to sell unless the tenant is willing to work with you. On the flipside, you won’t need the tenant’s help if you wait until the lease expires. When the tenant vacates the property, you can make any necessary repairs or renovations and get the home ready to sell. Without tenants in the house, you are free to market it as a primary residence or investment property.  If you’re selling the home with a tenant in place, you can sell when the market is hot, but you’ll need the tenant’s help.

Depending on the relationship, its often at least worth asking the tenant politely to allow scheduled contractors in to fix up issues the home may need repaired. If the tenant is staying until their lease ends, they likely wont mind someone enhancing the home.  Staging the home is also important to discuss with the current tenant.  Since you will likely need to market the property to other renters down the road, it’s worth trying to stage the home in a way that wont disrupt the tenant too much but also will enhance the appeal of the home.  Dont forget to work on the curb appeal as well. While you don’t want to ask your tenant for too much assistance to sell the property, having their help is valuable, especially when it’s time for the inspection and appraisal.

Know The Home’s Value

It’s easy to think a home is worth a lot more than it is without researching the current market trends. Researching the market value of newly sold homes in the area will help you understand how much you can make on the sell of your property.  Often, if you inflate the price because you believe your home is more valuable, lenders often wont approve the loan. Therefore, unless the buyer is paying all cash, you won’t likely get more than the home is worth.  You should look at several properties in the area that sold within the last six months and are similar to the home you’re selling.  It’s important to compare not only your properties size and location but also all of its features. Your property may have more or fewer features than the comparable properties, in which case, you’ll need to adjust accordingly.

Take Professional Photos

This seems minor, but bad pictures can often break a deal. The better the pictures you take of the home, the more potential buyers will look at your property, and the more interest you have in your home, the faster it will sell.  The majority of buyers nowadays will only see properties online because it’s more convenient or they do not live close to the property. Furthermore, investors often look to invest in other areas where real estate is cheaper or where home prices are increasing to get the best deal.  Needless to say, high quality pictures are an important part of the selling process.

Before taking photos, make sure the property is properly staged and decluttered. If you have tenants living there, ask them politely for their assistance to showcase the home properly. It’s also important that the photos are honest and realistic. There are many programs like Photoshop that will make it easy to manipulate photos, but this practice should be avoided. It is normal to utilize a wide-angle lens which allows you to capture more room in a picture without inflating its  true size. You should also use the sun to your advantage. Wait until the sun is behind your home to take exterior photos. You should also try to avoid shadows by taking photos at an angle.  It’s recommended to take interior photos mid-day, not too early, but not too late. Try to aim for around noon when the sun is the highest.

Learn The Market

As described above, it’s important to learn everything you can about the current market before posting your property for sell. Understanding what buyers want makes all the difference. If you’ve owned the property many years, it’s likely the market has changed. Knowing the latest trends will help you get the most for your home.  Don’t worry to much about making the necessary renovations.  You’ll make it back when you sell the home for more than you would have otherwise. If, for example, the kitchen or bathroom in the house is outdated, you may want to fix those areas now. Knowing what buyers/renters want will help you make the home more attractive for investors willing to pay more money for a property they plan to keep for a long time.

Making top dollar for your rental property requires that you do your research, price the house correctly for the area, and renovate and repair things before you place it on the market. It may take a little time to sell your rental property, but with the above tips, hopefully you will make the most profit possible and sell it faster than you would otherwise.

November 18, 2022

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.

November 11, 2022

If you are considering to invest in property, you may be like so many others and asking yourself whether it is better to buy an existing property or build a new one in today’s current real estate market. Both scenarios have pros and cons, and the best decision for your will ultimately come down to your individual circumstances. To help you decide, here are some pros and cons to keep in mind when deciding whether it is best to build or buy your next investment property.

More and more people are choosing to buy existing properties as an investment, and there are several reasons why this can be a wise decision. Here are some of the key benefits:

Buying Advantages

You will know what you are getting. When you buy an existing property, you can inspect it thoroughly before deciding. It means there will hopefully not be any nasty surprises down the line.  It is usually cheaper.  Not only will you save money, but existing properties come with established finishes and landscaping. Therefore, it saves you money on landscaping costs.  It is easier to finance. Banks are often more willing to lend money for an existing property than for a new build, as they can use the property as collateral if you default on the loan.

As you start looking at existing properties, keep the following tips in mind:

Find a good real estate agent. An excellent real estate agent will deeply understand the local market. They help to find properties that match your investment criteria. Do your due diligence.  When you have found a property, you are interested in, be sure to do your research. Check out the surrounding area, speak to the neighbors, and get a feel for the community. You should also hire someone to conduct an in-depth home inspection to check for structural issues.  Have realistic expectations.  It is important to remember that property investment is a long-term play. Do not expect to make a quick profit. Rather, focus on building equity and generating rental income long term.

Building Advantages

Many people are put off by the idea of building an investment property, but there are several advantages to this approach. Here are some things to keep in mind.  When you build a new property, you can design it specifically for your needs. You also want to ensure you get the right mix of bedrooms and bathrooms. Also, enough living space to make your tenants comfortable.  A brand-new property will likely have fewer maintenance issues than an older one. It means you will save money on repairs down the line. Plus, it should come with a builder’s warranty to help with your peace of mind. Because new properties are in high demand, they often appreciate value more quickly. This means your investment could grow faster if you choose to sell in the future.

Now that we have looked at the advantages of building a new property, let us look at a few tips to help you get started:

When you are planning to build a new property, it is important to get expert help. A builder broker can connect you with the right builder for your project and help you get the best possible price.  The location of your property is one of the most critical factors in its success. So, make sure to choose an area that is growing in popularity and has good infrastructure.  It is important to remember that quality counts when you are building a new property. Do not cut corners on materials or construction as it will only come back to bite you down the line.

There is no easy answer when deciding whether to buy or build investment property. It ultimately comes down to your circumstances and what is important to you as an investor. Buying an existing property is probably your best bet if you are looking for a low hassle investment.  However, if you are looking for an investment that you can customize and that has the potential to appreciate, then building new might be the way to go. Whichever approach you choose, be sure to research and seek professional advice before making any decisions-because regardless of what you ultimately decide is best for you, investing in property is a big commitment.

November 2, 2022

Purchasing a property is likely the largest purchase you have or will ever make financially.  Owning your own place feels great, but you may not always be sure if your property is worth the monthly payments.  Given the current housing market, many people are considering whether or not to put their homes on the market. As nice as making a quick buck sounds, you should not base your decision to sell on that alone. There are several factors that should help guide your decision to either stay where you are or put your house up for on the market.  Here are a few tips to help you conclude whether or not you’re property is worth the monthly payments.

Rent Would Be Greater Than The Monthly Expenses

Diving deeper into the numbers can help you more clearly understand if the monthly payments  on a property ultimately make good financial sense. Look at whether or not the rent (after expenses) divided by the current market value is greater than the interest rate on the monthly payments. If the home can bring in more money than the cost of the monthly payments then it may be a worthwhile investment for you.  Anyone can use this formula regardless of whether or not they are actually planning to rent out a property.  Regardless of where you are in the decision making process, these findings can be very insightful on guiding you towards making a more educated decision whenever the time comes.

You Intend To Keep The Property Long Term

Even if your monthly payments are a little higher than you may ideally like, it does not necessarily mean your property is a bad investment.  Over time, with the more payments you make, less money will go to the interest and more goes to paying down principal.  This means the longer you hang onto a property, the more the monthly payments may become worth it in the long run.  One of the best questions you can ask yourself is ‘How long do I plan to keep this property?’ in determining if the monthly payments are worth it.

Property Taxes Aren’t Too Crazy

Regardless of where the property is located or who you are, ultimately, all property owners have to pay property taxes.   Property taxes in some areas are relatively reasonable but in other areas they make up a substantial part of a persons monthly mortgage, which could be a huge red flag.  Property taxes are known as a sunk cost, meaning it is money that cannot ever be recovered.  It’s important to be thorough and closely evaluate how much of your monthly payments are going to property taxes, how much to interest, and finally, how much is going to paying down your mortgage principal.

Great Location

It is not uncommon for many folks to purchase a home with the automatic assumption that the property value will always increase over time. However, this is only the case if the house is in an area people actually want to be in.  Some buy properties in the middle of nowhere hoping the value will increase but fail to consider that many may not wish to live in the middle of nowhere. More remote locations often make it harder to travel for work as well as provide fewer opportunities nearby to socialize.  These are just a couple of the reasons that could cause property values to climb much more slowly than in more densely populated areas.

You Can Afford It

No matter how much you love your home, it’s bound to be stressful if you can barely afford the monthly payments. Being house poor can make it hard to keep up with other essential expenses as well as enjoy even minor indulgences such as dining out or traveling periodically.  Perhaps your income has decreased since you bought the property or your expenses have increased. It could be that your budget is the same, but you’ve simply realized the monthly payment you signed up for are much too high.  No matter what the case, if a large monthly payment is causing a lot of stress in your life, it may not be sustainable long term.  On the other hand,  if the payments are within your monthly budget and not creating any financial strain than it could be worth the equity you will build to hang on to the property.

It’s Not the Most Expensive In The Neighborhood

There’s much more to life besides owning the one house on a street with the highest price tag. It can be tempting to envy the neighbor’s larger, more extravagant house, but the reality is, it’s probably not worth it.  Real estate agents use comparable local properties to gauge a home’s value. A house with a sale price notably higher than everyone else’s on the block was most likely valued too high.  Hopefully you’re not the neighbor with the overpriced house, but if you are, there’s likely a reason everyone else paid less to live in the area.

It may sound a little cheesy but home really is where the heart is. If you can easily afford your monthly payments and are truly happy with your property, then the monthly payments are probably worth it.  Whether the location is convenient to most everything in your life or it provides you peace from an otherwise hectic world, it’s not always so simple to put a price on your overall happiness.  If moving to save money on your mortgage payment would likely decrease your quality of life, it’s probably wise to simply stay put for the time being.

October 26, 2022

So, interests rates are rising and you need some money for a quick fix and flip? Many people looking to break into this business do and often struggle to determine what place is the right place to secure the financing that they need. The good news is, hard money lenders can help.  However, there are some people who have trepidation’s regarding hard money lenders. Perhaps they have heard a horror story in the past, perhaps it is the name “hard money” or perhaps it is the fact that they just don’t really understand what a hard money lender is.  The good news is, hard money lenders aren’t as scary as you think. In fact, they, in general, tend to make getting loans quite easy. Here’s what you need to know about hard money lenders and what they offer.

Why You Should Turn to Hard Money Lenders

Hard money lenders are private investors that are dedicated to helping people get short-term loans secured by real estate. These lenders specialize in short-term real estate investment opportunities such as fix and flips.  They typically give out loans for about 12 months, but they may lend longer, and they will ask you to provide monthly payments of interest or interest and some principal and at the end of the loan (when you sell your fix and flip) you will make a balloon payment for the remainder of the loan.  These lenders are going to work with you one-on-one and base their decisions on the deal they are presented with. They aren’t going to comb through your financial records. Instead, they are going to look at the potential for your fix and flip to earn money and base their loan terms on that.

What are the Pros of Hard Money Loans?

There are many pros of the hard money loans you can get from these lenders, this includes:

• Speed of Approval—you can typically get these loans secured very quickly compared to other mortgages, typically because the lender is mostly focused on collateral not all of the other financial documents that mortgage companies need from you.
• Flexibility—one of the biggest benefits of working with hard money lenders is that they can be more flexible than traditional loan officers. These lenders will evaluate each deal individually and are often more flexible with individuals than large companies are.
• More Approval Rates-with hard money loans, you can avoid issues with getting your loan approved. Credit issues, or bankruptcies aren’t going to prevent you from getting a loan approved in the way they would with other mortgages—hard money lenders are more focused on the deal.

So, if you have been apprehensive about hard money lenders in the past—now you know about just how helpful they can be when you need cash for your upcoming fix and flip. Keep this information in mind before you find the right financing for your investment property, as a hard money lender may be just the ticket to you getting the money you need to make your fix and flip dreams a reality.

October 20, 2022

For many, a rental property is the first major investment they make which they must also manage diligently. Many new real estate owners don’t move past a couple of properties, while others successfully grow their real estate portfolios into multiple individual properties. Each person has their own unique goals, and like all investments, rental property management is not for everyone. For investors who do prefer real estate as a way to build their wealth, below are some helpful tips for managing real estate accounting.

Typically, if you only have one rental property you can handle most of your accounting at year-end when you or your accountant are doing taxes. That said, as your portfolio of rental properties expands, there will be increasingly complex tax issues to consider, as well as more hands-on accounting for each unique property. While it may seem easier to group all rental costs into one bank account, this will likely create headaches down the line.

It’s worth noting that regular business expenses, tax liabilities and accounting for rental properties often span multiple years. From the time you buy the property to the time you sell it; you need to take advantage of all of the available real estate tax codes to reduce your liabilities. To accomplish this, it’s very important to keep clear records of the total money spent on each rental property separately.  Follow the steps below to keep track of each property, and you will eliminate many potential headaches for you and your tax professionals down the road.

Keep separate bank account for deposits/expenses for each property

Use a separate bank account to collect rent payments. It is unwise to let all of your tenants know your bank account number. A separate account will also let you easily track who has paid rent each month and who may still owe you money. As a general rule, you shouldn’t accept cash; but if someone needs to pay in cash, have them purchase a money order instead. As a general rule, cash is hard to track and easy to lose.

Independently track expenses for each rental property so you can properly disclose them on your tax returns. Ideally, you should maintain a separate bank account for each rental. If that’s too complicated to manage, group some properties into the same account. It’s important to keep in mind that at the end of each year, you’ll need to separate all the expenses by each property regardless of how many accounts you have set up, so it’s best to do it on the front end instead of waiting until the end of the year to divide out all of your property’s expenses.

Track improvements separately from repairs

It’s important to understand the difference between repairs versus capital improvements. This is very important because repairs are deductible when you pay for them, but improvements have to be depreciated over time. Typically, repairs won’t improve the value of your property, but rather simply bring it back to being useful. Capital improvements, on the other hand, will often increase the property value or prolong its useful life.

Don’t track depreciation

Although depreciation can be easy to calculate, don’t try to do so on your own; let your tax preparer calculate it. This is not a cash expense, so it won’t affect your bank account. The current tax code makes it simple, but if you have older properties or have made significant capital improvements, there may be other implications to consider. It’s likely best to leave depreciation calculations to a hired tax professional to handle it for you.

Simplify your accounting

Have a system for tracking income and expenses for each property. Don’t overcomplicate things.  Often times, jotting things down on a piece of paper can be just as effective as a spreadsheet or other more complicated accounting system. You are likely not tracking many transactions, so use whichever method you feel most comfortable with. The key take away here is to ensure you are tracking monthly, and don’t wait until year-end to do everything.

As you grow your rental income, you’ll likely have to expand your accounting system and it is critical to keep solid records. Accounting for your rental properties does not have to be a headache during tax season. Follow the instructions above to ensure you don’t miss any deductions and have detailed records when you eventually sell the property. No matter what system you decide to use, the main accounting objective for successful property ownership is to keep the best records possible and to keep everything organized!

October 14, 2022

Deciding to start flipping houses can be a solid option for generating extra revenue, particularly if you are talented in home design or are handy with doing repairs without hiring someone. That said, it’s typically not as cheap as many people believe. You’re not just purchasing land and a structure; you’re also buying appliances and any repairs and remodels you can’t do by yourself. You’re also often left with a situation where you may be waiting on the sale before you can collect any profits. This process can sometimes take months or even years to complete. Luckily, there are several financing options out there for house flippers to research and decide what options may work best for their specific needs. Below we will look at a few loan options to get you from start to finish until you can start collecting revenue on your new flipping investment.

Commercial Loans

Commercial loans are loans secured by liens on a commercial property. If the borrower does not have a well-established financial track record or high enough credit rating, lenders may require the borrower to guarantee the loan. If a loan guaranty is not required, and the property is the only means of recovery in the event of default, it is a non-recourse loan. Lenders have no recourse against anyone or anything beyond the property. Generally, the longer the loan repayment schedule, the higher the interest rate will typically be. Commercial loan Interest rates tend to be higher than on residential loans.

Home Equity Loans

A home equity line of credit is secured by utilizing your primary residences equity when you own a home. You can often get financing at a low interest rate. Home equity loans are, as the name indicates, based on home equity.  Equity is calculated by taking the value of your home minus what you owe on the mortgage.

Investment Line of Credit

With a line of credit loan, you borrow against your investment property’s equity. The property serves as collateral to repay the loan in the event something goes wrong during the repayment process. To qualify for a line of credit loan, you will most likely need good to excellent credit, and a history of successful real estate investments. In general, you must own the property at least one year to be considered eligible for a line of credit loan. As a result, lines of credit loans are usually not the best option for first time house flippers as they have not established a successful track record of real estate investment yet.

Bridge Loans

Bridge loans are intended to cover the “gap” between when you want to buy a property, and when you can secure long-term financing.  As a result, these loans are sometimes referred to as “gap” loans. They can be utilized to help cover the down payments expenses on your next flip so you can focus on finding another financing option to cover the rest of the purchase amount. Bridge loans are generally secured using some form of collateral in order to qualify for a loan with a lower interest rate compared to other loan options out there. Bridge loans are often easier to qualify for than other types of loans which make them appealing to flippers who are just starting out.

Cash Out Refi

Cash out refinance loans make it possible for you to use an existing properties equity to fund your next house flipping project or to make any necessary repairs or remodels needed. Borrowers can use their own home’s equity to take out a new loan and pay off the existing mortgage, and then use any remainder to finance their flipping project. Typically, in order be cost effective, you will generally need to have accumulated at least 30-40% equity in your home in order for as cash out refi to be an effective solution for you.

Traditional Bank Loans

Traditional bank loans are mortgages with fixed interest rates. Bank loans are usually best for those buying a home to stay in for at least 5 years while renovating it to sell for a profit. With a traditional bank loan, you will generally pay a lower interest than with other financing options and have up to 30 years to pay back the loan which makes them ideal for primary residences.  In order to qualify for a traditional loan, however, you will need enough for a down payment, a solid credit score, and a stable income.  The fed has recently raised the rates on these loans in order to curb inflation which is making most real estate markets grind to a snail’s pace as they transition from a seller to a buyers’ market.

Hard Money Loan

With a hard money loan, you work with non-bank lenders, individuals or lending companies like the 1,000’s of companies in our free online nationwide directory at hardmoneyhome.com. Hard money lenders often have less stringent eligibility requirements and you can often qualify even with little to no credit. These loans tend to have significantly higher interest rates, often with shorter repayment terms so it is critical to fully do your research before agreeing to the terms of any of these types of loans. That said, these loans are a great option for many investors and when used correctly can generate enormous gains in real estate revenue.

Whether you have been fixing up and flipping houses for decades or are interested in just getting started in house flipping to generate some extra revenue, try the above financing solutions to hopefully lay out less of your own hard-earned money to start flipping your next home investment project.

October 7, 2022

Property investment has often been considered by financial advisors to be a pretty sure bet. That said, there are some additional costs you’ll want to be prepared to encounter along the way which some new investors do not always consider ahead of time. Unfortunately, many new investors often don’t understand the total cost of purchasing and maintaining a property.  Ongoing costs are often largely underestimated when new investors are doing their first few cashflow analysis.  Generally speaking, it is wise to allocate 25-30% of the total rental income you expect to receive for regular ongoing costs and maintenance. The largest costs to keep in mind when doing a cashflow analysis is the interest rates being charged for property loans which have recently been raised due to inflation issues.  These higher rates are already causing a slowdown in lending across the board and are expected to continue through the end of the year.  Since rates can rise quickly and unpredictably, it is a good idea to factor in a buffer contingency in all of your cashflow analysis to account for any potential rate increases.

Down Payment

A sizeable down payment will be needed to get into the market on any new investment property project you plan on pursuing, especially considering that borrowers have recently tightened their lending requirements on new loans.  Lenders prefer borrowers who have at least 20% of the full value of a house saved up in advance for a down payment.  It is still possible to get a loan if you have a smaller deposit saved, but you may have to take out additional insurance and the property will also likely take longer to pay off the total balance with interest.

Lender fees 

The bank or lender you use will often charge a few different fees, which can average around a thousand dollars or more.  These fees typically cover the loan application process as well as other documentation fees.  It is also not uncommon for lenders to charge an additional monthly loan service fee, depending on your lenders terms of agreement which you should read carefully before signing and agreeing to any contractual obligations. Some other common fees include redraw fees on your loan balance, so understanding the upfront, ongoing, and hidden loan fees ahead of time is paramount to being successful in any investment project you plan to execute.

Home Inspection Reports

A home inspection is one of the most important steps when purchasing a property but is too often overlooked or passed over in an effort to save some quick money.   It is critical that you hire a licensed professional home inspector to visit the property and provide a full written report outlining all of their findings of potential issues with the property.  Many inspection companies, additionally, are now including video presentations along with their detailed written reports so consumers can quickly and easily see what issues the inspectors are calling out in their reporting. Home inspection costs will vary state to state, as well as charging different amounts depending on the properties size, building structure, and any other additional inspections you want to be done such as thermal scanning or foundation elevation reports.  An inspection for an average-sized property will generally cost around $500 to complete if you do not have any additional services you need to include.  A professional pest-control report will also be needed, which will roughly add another $200 to the inspection cost total.  Though the temptation to save a couple bucks in the beginning of an investment project may seem alluring to some, you should never ever skip out on hiring a qualified home inspector and receiving a detailed written home and pest inspection report.

Property Management Costs

Having a property management company manage your new investment property can be a smart decision and take a lot of the headaches of managing a property off your plate but the cost to do so can add up quickly.  The average property management fees currently range between 5-15% of your weekly rent, depending on which company you decide to use.  That is why it’s critical to ask any property management company you decide to utilize to call you for approval before organizing/performing any maintenance on the property.  Depending on your skill level, there are often many smaller maintenance projects you can take care of yourself, which can help you save a ton of money in the long run.

The overall and ongoing maintenance costs of any new investment property should always be budgeted for from the very beginning whenever possible.  Luckily, some of these costs can be offset through depreciation at the end of the financial year, which can provide you with a tax refund in some instances.  That said, the tax breaks should not ever be used as a measure for your cash flow analysis on a project, as depreciation decreases over time.  Planning for the above costs ahead of purchasing any new investment property can make all of the difference in whether or not the investment ends up being a worthwhile endeavor or loosing you hard earned time and money.