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4 Tips That Can Help Beginners When Investing In Properties

 September 12, 2013

Real-estate investment has helped many people become millionaire. I have never understood why people jump in head first to a business venture and begin investing their money with the hope that they can become successful in the real-estate industry without doing there homework. So it does not surprise me that many would be real estate moguls get in over their heads, and end up failing. These are 4 key tips that can help investors when investing make in this market and how to help them succeed... 

1. Using Your Property Has Leverage
The key to instant gratification is to own property free and clear to start.
Learning real estate is an expensive proposition. People tend to finance their properties paying interest that cuts into your profit margin.

The value of having a free and clear property gives you leverage to purchase other properties free and clear and create residual income. Paying cash eliminates the interest, but even then, there are property holding costs, such as taxes and utilities. Renovation costs must also be factored in. When you fix the house up and lease it, it will take months before you begin recouping your initial investment, but once you do that property can easily create a income that pays for itself.

2. Delegate Your Time
Renovating a home or apartment complex that you bought (as is) can be expensive and a time consuming business venture. Let’s face it with a smart investment you can make money from this business venture. Although the truth is it can take months to find and buy the right property. Once you own the house, you'll need to invest time to fix it up. Before you can lease it, you'll need to schedule inspections to make sure the property complies with applicable building codes. If it doesn't, you need to spend more time and money to bring it up to par. Next, where many people make their biggest mistake they try to do it all! Look there is so many hours in a day and you can only do what you can do. What you should do is research and locate a property management team that can take that stress off you. A good Property Management team responsibility is to lease, maintain and evict. Remember there are only so many hours in a day and if you spread yourself to thin, you will fall by the way side. Please make this mental note to yourself, if it does not make sense you will never make a dollars!



3. Know Your Limitations
The real money in investing in (as-is) properties comes from sweat equity. If you're handy with a hammer, enjoy laying carpet, can hang drywall, roof a house and install a kitchen sink, you've got the skills to renovate your investment and make money. On the other hand, if you have no skills, that’s okay. You have to know your limitation, if you have no skills as a carpenter, find someone who does and let them do the work for you. Always remember that there is strength in numbers. What makes a chain strong is not the single link, but the links!



 


4. Crawl Before You can Walk
As a first time investor you are going to make mistakes. Rome was not built in a day so don’t think that you are going to be the mogul phenomenon in the industry. Everyone has to learn to crawl before they can walk, and you will be no different. Take mental notes of what you did, as a matter of fact push it to the next level by documenting what you did and why you did it. The key in this industry is gain value from other peoples mistakes, read! To be successful in this business you have to be able to pick the right property, in the right location, at the right price. In a neighborhood of $100,000 homes, do you really expect to buy at $60,000 and sell at $200,000? The market is far too efficient for that to occur on a frequent basis. What could happen is you could buy a duplex for $60,000 and lease both units at $1000 dollars a month. You now have created a passive income of $2, 000 a month which is $24, 000 dollars a year.


Bottom Line
When you are ready to get involved in investing in properties, do your research! Like any other business venture, investing in properties is a science and requires time, money, patience, skill, and it will definitely wind up being more difficult than you ever imagined.  Once you get it and I know you will, you will start seeing the money roll in. I have one client that has 8 Duplex that are free and clear, and he makes $12, 000 a month. The bottom line is that once you figure out what to do and how to do it, your ability to earn an income will be unlimited!

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When Easy Money is Hard to Come By, Hard Money is an Easy Call

Septe,ber 12, 2013

Most investors are at least passingly familiar with conventional mortgage underwriting. We’re quite used to thinking about mortgages and mortgage underwriting in terms of cash flow. Banks are chiefly concerned with the stability of the borrower’s income and whether that income – plus an allowance of, say, 60 to 75 percent of anticipated rental income – will be steady enough and sufficient enough to keep up the payments on the property.

hard money loans for house flippersFor these lenders, your credit history is an imperfect but reliable indicator of the probability that you will default on the loan. Yes, people with high credit scores sometimes flop, and loans to people with poor credit scores often perform beautifully for the lender. But the correlation of credit history, reflected in your FICO score, and mortgage performance is strong enough that lenders continue to rely on it. Think of it: If the correlation between FICO scores and mortgage defaults began to weaken, FICO would start changing its algorithm so that it would still be a reliable tool for lenders. It’s not the only tool, by a long shot. But your FICO score, together with your income and employment history, is still a huge part of your ability to qualify for any mortgage.

That’s tough on people with unconventional professional histories, the self-employed (that includes any full-time, professional flipper or real estate agent!), and people with spotty credit. But fortunately, there’s more than one way to finance an investment property – especially a short-term investment.

That’s where so-called hard money lenders come in.

A hard money lender is a lender who specializes in loans to people or on properties which don’t fit into standard assumptions that traditional lenders use. These loans are generally shorter-term loans, which can be for anything from a few weeks to a few years, and they are geared toward fix-and-flip situations. Interest rates are typically higher than what your local bank charges for 15- or 30-year mortgages. But since flippers are typically in and out of a property in a few weeks or months, the interest rate on any particular deal is a relatively minor consideration.

The underwriting, however, is fundamentally different from bank underwriting. Bank underwriting is based primarily on cash flow analysis. But cash flow means little to the hard-money lender. Instead, the hard money lender relies on asset-based underwriting. This form of underwriting is much friendlier to the investor with a spotty credit history or an irregular income. Normally, the hard money lender doesn’t even care what your income or credit history is, as long as he is comfortable with your personal integrity. Instead, the lender is looking for security in the asset. Collateral is king.

Hard Money LTVs

Hard money lenders are generally looking to provide about 2-1 financing on any given project. That translates roughly into LTVs of 65 percent or less, though some lenders may go up as high as 75 percent. In many cases, hard-money lenders are open to cross-collateralization arrangements. That is, you can pledge a property or other asset that is not financed by the deal as collateral. 100 percent financed deals are possible if the collateral is there. These 100 percent financed deals are not unheard of in the hard money world, where there is substantial cross-collateralization.

For example: An investor owns four houses. He lives in one. He wants to buy another house for $200,000, but doesn’t have the cash for a 35 percent down payment. But by pledging the house he plans to buy, plus his equity in another one of his investment properties, he can finance the entire purchase and then some for the repair.

However, you can’t cross-collateralize an asset you hold in a retirement account for any loan outside of your retirement account.

Are They Loan Sharks?

No. Not by a long shot. Typically, hard money lenders are just investors, or bird-dogs acting for investors. They have to be licensed, and they don’t want to lose that license. The investors themselves are typically successful businesspeople looking to diversify their own (substantial) investment portfolio against low yields on savings and treasury bonds on one hand, and an uncertain stock market on the other, who are looking to get a decent rate of return on their capital. Hedge funds often allocate a portion of their capital to hard money lenders, because they can get a 6 to 8 percent return or better on their capital even in today’s environment of low interest rates, with some safety of capital thanks to the collateral.

You can expect a hard money lender to be very experienced in your niche – most hard money lenders specialize in specific kinds of loans, or loans within a certain geographical area. They will be very knowledgeable about conditions in your market – and a valuable source of market intelligence themselves.

Advantages of Hard Money

Speed

Hard money loans are fast. Because they don’t need as much due diligence on non-property-related issues, they can be approved and funded quickly – often within a week. An experienced lender will know what a property is worth, and can make a quick decision based on the estimated after-repair value of the property by itself.

Flexibility

Hard money lenders don’t need to conform to anyone else’s underwriting standards. Fannie, Freddie and the VA aren’t involved. The hard money lender is primarily interested in the safety of his capital. Demonstrate to the lender that his capital is more than secured by the collateral, and you’ll get the loan.

The hard money lender isn’t very interested in your tax returns, your income or anything else. If he knows the loan is secured by adequate collateral, all that other nonsense is irrelevant.

Less Red Tape

The hard money lender lends on the asset – not on your income and credit history. Because of that, the documentation is much less involved than your typical bank mortgage. If you’re a serious flipper, your time is money. Hours spent applying for bank loans are better spent finding good properties, overseeing process has value in and of itself.

More Suitable Terms

Yes, you’ll typically pay higher interest rates. You’ll also have more points or up-front fees for hard money loans. But many hard money loans have no payments for the first 90 days, 6 months, or even the first year. Instead, there may be a balloon payment due at the end of the loan term. This can be ideal for the short-term flipper, since you don’t want to be making mortgage payments on the loan while you’re busy trying to fix it and you can’t rent it. It may be worth it to trade a higher interest rate for improved cash flow when you are at your most vulnerable – during the repair and renovation process.

“After-Repair” Assessments

Yes, hard money lenders typically only lend 65 to 75 percent of the LTV. But they calculate the value based on the after-improvement resale value of the property. That’s a lot different from conventional mortgage underwriting. Banks usually lend based on the as-is value of the property. This means that in some circumstances, you may actually be able to borrow more money from a hard money lender than from a bank. Here’s how:

Imagine a $100,000 property in need of substantial renovations. You can make a convincing case to a hard money lender that you can add at least $35,000 in value with a $35,000 improvement. The hard money lender may say yes, and lend you up to $87,750, or 65 percent of $135,000. The bank might balk at lending at $87.75 percent of value on an investment property when the owner isn’t occupying. But a hard money lender might give you the green light.

Experience With Exit Plans

A good hard money lender can help walk you through an exit plan for your property as well. Although the underwriting is asset based, the hard money lender does not want to foreclose on the property. Why? Because of the value proposition they bring to their own investors. When a businessman or hedge fund manager gives money to a hard money lender to lend out, they are doing it for income. If a loan defaults, the income stops – and the hard money lender has to answer a lot of uncomfortable questions from his backers about when they’ll get their investment back.

That’s not what the hard money lender wants. They just want you to successfully complete your flip so you can sell – and then come back to them for the next deal.

What to Watch For

Prepayment Terms

Pay close attention to prepayment terms. Lenders don’t want capital sitting idle between loans. If they take a risk on you, they want their capital to be at work for a while. Many hard money loans contain a prepayment penalty of some sort, or require you to prepay a certain amount of interest.

High Fees

Private lenders typically charge a few points more for their deals than you would pay for conventional mortgages. It’s quite common for borrowers to pay 4 to 10 percent of the loan in closing costs, rather than the zero to 3 points common in bank financing. Every deal is different, and every lender is free to negotiate his own terms.

Conclusion

Hard money lending doesn’t make sense for every deal. If you have a great relationship with your bank, strong credit, and all your documentation ducks in a row, it’s nice to be able to get those good, cheap interest rates available now, and the lower fees of conventional financing. If you flip a lot of properties, those higher closing fees in the hard money world add up – and pretty soon you’re out a whole down payment in closing fees you’ve paid to lenders. There’s certainly value in bank loans on favorable terms.

It’s best to have an open mind, and cultivate relationships both with private hard money lenders and with conventional lenders.

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The Hard Money Loan Funding Process: A Guide for Rehabbers

September 9/10/2013
hard money rehab loan

You spot a house that you would like to rehab or flip and decide make an offer. You plan on financing through a hard money lender, but haven’t yet done this kind of deal, and wonder what happens after you’ve got the house under contract. Here’s a brief look at the process:

All hard money lenders have different requirements. Some will loan a percentage based on appraised value, while others will loan a percentage based on the purchase price. It is better to find the lenders that will loan on appraised value. The lender will give you a breakdown of your fees along with their terms, including:

  1. Loan Points
  2. Closing Costs (Escrow Fees, Document Fees, Notary Fees)
  3. Interest Amount

A typical lender might say:

I will loan 60% of ARV (appraised repaired value), with 5 points, 500 in document fees and a 6 month interest only balloon payment loan at 10%.

To translate on a deal that appraises at $200,000:
They will loan you up to 60% ($120,000). To get the loan you will pay $6,000 in points + $500 in document fees, and you will pay $1,167.67 on the loan, until you sell the property or until 6 months is up. They will take a trust deed and make you sign the other documents like on a typical mortgage.

Before you present a property, you should get familiar with local lenders and pre-qualify with them. Their lending requirements are often-times different than that of a traditional mortgage lender. Hard money lenders are usually most worried about the amount of cash you have, your level of experience, the specific deal and your credit.

Here’s the typical hard money lending process:

Step 1 – Pre-qualify: talk to the lender and see what they require of you and your deal.

Step 2 – Find and put a good deal under contract.

Step 3 – Call the hard money lender and inform them of what your contract price is, the estimated cost of the repairs, and what you think the ARV value is. Here’s a good worksheet to help you out.

Step 4 – The lender will either send their appraiser or give you an approved list of appraisers, and you will then get the property appraised.

Step 5 – They may request some of the escrow documents to verify the paperwork.

Step 6 – They will agree or disagree to fund the loan and will tell you what amount and under what terms it will be.

Step 7 – You close the loan — In many ways, its just like a conventional loan in that you do the closing at a title company or lawyer’s office. The lender puts the loan amount into escrow at the title company. The buyer might have to put in money or might get money back, depending on the deal. The title company issues checks as specified on the HUD; typically, a big one to the seller and points back to the lender. If there’s cash to the buyer, they would issue that check, too. The title company will ensure that all the proper paperwork is completed in the correct order and that funds are sent to the appropriate people.

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STGL BLOG

 

Small Businesses Having a Hard Time Getting Loans

 

August 10, 2013

More than 40 percent of small business owners needed money during the four years since the 2008 financial crisis, but couldn’t find a bank that would lend it to them, according to a new survey.
The National Small Business Association found that 43 percent of the small business owners that it surveyed needed funds, but couldn’t get financing. Banks tightened lending during the financial crisis making it hard for even companies that had good payment histories to get approved for a loan 
If your small business is in need of a loan NOW is the time to seek the capital you need. Set To Go Loans  continues to offer financing for small businesses SBA financing while many banks have been reluctant to do so. We are direct SBA 504 lenders and have over 150 different lending sources. Let Set To Go Loans help you find the capital you need to grow your business. We can get deals closed. Our Company Mission Statement is this, "Set TO Go Loans brings funding sources from around the country to the local business owner and investor to help keep this economy moving!" STGL give you a yes when others told you know. 

Websites: www.settogoloans.com 

 

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What is a 1003

A 1003 is a uniform residential loan application. This document contains all the information to help you obtain a loan.