Learn To Be A Fix & Flip Investor

Friday, November 16, 2018

REGULATIONS OF VACATION HOME LOANS

You have finally figured out how to get that lake house you have dreamt of for years. You can rent it out when you are not using it—genius idea! But, hold on because traditional lender rules may not allow that deal to come true.

The first thing you must know is there are different mortgages to finance a vacation home and each of these mortgages have their own set of rules. There are three main mortgages: primary residence loans, second-home loans and non-owner occupied loans.

A primary residence loan is where a borrower will find the lowest mortgage rates. After living in the house for at least one year you are legally free to rent out the home as an airbnb. A second-home loan has the same rates as primary residence loans; however, down payments will be larger. On the average lenders require 20-25%. Finally, non-owner occupied loans, which are also called rental property loans. These loans will run you about .35 percent higher than primary and secondary home rates and your down payment will typically be 30-35%. With a non-owner occupied loan you will be allowed to rent it out and also to use it when it’s not being rented.

When you take a loan for an airbnb, there is a document titled the note. The note will have all the information about the “cans” and “can’ts” of your loan. This will include everything from the loan rate to any additional requirements of the loan. This is where you will find, in a second-home mortgage, that says you can not rent out the home. If you do not follow these laid out rules you will be found in default of the loan.

MAKE SURE YOU TAKE OUT THE RIGHT LOAN FOR AN AIRBNB

Many people are choosing to invest in vacation properties. If the property is near a popular tourist destination it is very possible that the entirety of the mortgage can be paid solely from renting the property out. Airbnb is taking over hotels. Why would people pay the same amount for a hotel room when they can have an entire condo for close to the same price? It’s a brilliant idea to buy a vacation home and have the mortgage paid by tourists. Unfortunately, financing the purchase of vacation real estate can be quite the challenge. Typically, lenders don’t lend large loans on vacation rentals because they are considered investment properties. The problem lies in that banks have no reliable source of data for the vacancy rates on a vacation rental property. Add on that appraisers don’t use short-term rental rates when looking at rental or vacation properties. What that means to a potential buyer is that these properties are undervalued in their potential generation of income. Therefore, banks are not confident on a borrower’s ability to pay the mortgage on said property.

Help with getting a loan for an Airbnb in Arizona

This is where a hard money loan comes into play. These investors know the market is out there and believe a profit can be made. Hard money investors do not base your ability to pay back the loan on your debt-to-ratio or your credit. These loans are based on a borrower’s assets. They are asset based loans. You can find them as low as 7% interest and your investor will work with you closely on loan terms. Remember, where there is a dream, there is a way. See a hard money investor to explore the options that are available to you.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

WHY 100% LTV Financing in Arizona IS HARD TO GET

100% LTV Financing in Arizona is not impossible to get, but it can be challenging.

Hard money lenders are typically disinclined to approve 100% financing on a deal. It is unsettling, to most lenders, when a borrower requires 100% financing. There are 3 main reasons that most lenders won’t approve 100% financing.

1. The borrower has no experience in real estate or hard money: Not having any experience in hard money loans or real estate increases the chances that the borrower will make a mistake and this will cause both the lender and the borrower to lose both time and money.

2. The borrower isn’t financially solid: When a borrower asks for 100% financing it casts doubt on their financial situation. This can cause the lender concern about the loan being repaid. Typically, lenders feel that a borrower who isn’t risking any of their own money has very little skin in the game; and that is not a risk most lenders want to take.

3. The borrower won’t assume risk on the deal: When a borrower requests 100% LTV Financing in Arizona and therefore has no equity into an investment, it makes sense that lenders feel it would be easy for the borrower to walk away from the property, leaving the lender fully responsible for any potential losses.

100% financing is rare in commercial real estate deals. You will see it more in residential investing; and even more commonly you will see it in fix-and-flip deals. A lender is more likely to finance 100% of the project if it is a short-term deal with a clear predetermined strategy. Most lenders that finance an entire purchase will only do so for experienced real estate investors. A borrower that is new to the game will have a much more difficult time finding complete financing.

INEXPERIENCED BORROWERS NEED SKIN IN THE GAME

When it comes to investments you will always take it more seriously if you have some skin in the game. It’s a little like being a kid; remember, wanting new shoes, or a video game, or a remote-control plane? You would ask your mom or dad and they would say, “yes.” More than likely once the excitement settled down you would toss it wherever the “toys of yesterday” lived. But, remember saving your money and buying that same toy? I’m willing to bet you took better care of it. It is human nature to take care of things better if you have invested in them. If you have no money invested, it will always be easier to walk away.

What is cross collateral and how can it help you get 100% financing?

Cross Collateral is where the borrower allows the loan to be secured by equity in an additional property. Hard money loans are always backed by real estate. In cross collateral there is more than one property and at least one of the properties are free and clear—meaning the owner owes nothing on the property.

Let’s say you find a property you want to purchase for $200,000. You want to purchase this price, but don’t want to put money down on it. You also have a property that is appraised at $175,000 and is paid off. You will find lenders that will give you the $200,000 because the property you own free and clear plus the new property are enough collateral to pay back the loan if you default on the terms of the loan. That is cross collateral—and that is what you will most likely need if you are an inexperienced investor looking for 100% financing.

Thursday, November 15, 2018

4 Secrets Spec Home Investors Use to Make Money

Speculative building is a hot topic these days. But what exactly is it and what are some secrets the pros use to make money?

First, for the uninitiated, let's look at what spec building is. Spec home investing involves building a single-family or multi-family property without having a buyer lined up already. It can be risky — spec builders build without knowing for sure if they'll be able to find buyers and turn a profit, partly because they're at the mercy of the market and a wealth of other factors.

That risk can really pay off, though. Spec housing development doesn't have as much competition as, say, flipping. Also, instead of the surprises that most flippers have in store (termite damage, mold, etc) you're able to start with a clean slate.

Mitigating the risk of spec building

Thankfully, there are some ways to mitigate the risk. Here are four secrets the experts say will help you do just that:

Check, double check and then check again. The numbers don't lie: in most spec building projects, much of the profit will come from the lot acquisition. So double and triple check that the lot is a good deal.
Know the market backward and forward. If you're considering getting into the spec building game, research may be your most valuable ally. Learn the area's absorption rate (properties sold vs. properties listed). Learn the employment factors for the region. Learn what homes are selling for and how long they're taking to sell. Learn about your competition. Essentially, learn everything you can before taking the plunge.
Choose wisely. Becoming a wise spec home investor means choosing your allies carefully. Shop contractors carefully and ensure you've got one you can trust and one who has a long track record of building quality properties.
Get the right funding. You don't have to use your own money to get into the business. In fact, if you find an unbeatable deal and have your ducks in a row, you wouldn't want to miss out on it because you don't have the funds. And don't think that less-than-ideal credit or past problems mean you can't get funding.

Getting funding for spec home investing

As we mentioned above, having bad credit, a poor history, or low funds won't necessarily prevent you from getting a loan for spec home investing. A bank loan? Perhaps. But hard money lenders use collateral rather than credit scores and bank account numbers to determine eligibility, so it's all within your reach!

3 Ways to Get a Rental Property Loan and Become a Landlord

If you've always dreamed of investing in a rental property, you might be wondering how to secure financing for it. There is a range of ways to do it, and we'll detail a few for you here.

With the real estate crash firmly in our rearview mirror, housing prices are healthy and climbing steadily again. However, the days of ultra-easy financing are over thanks to regulations put in place to prevent another catastrophe in the housing market. To get funding, you may have to get a little creative. Here are four ways you can make your real estate dreams come true.

Buy as an owner occupant. One of the easiest and least risky ways to get into the rental business is to buy as an owner occupant. To do this, you'd look for properties that would work well as a rental, but you buy it as your primary residence. You'd need to live there for the required minimum of 12 months, but while you're there, you can learn the nuances of the property, make improvements, and get it ready for tenants. With this method, you'd typically go through a bank and get a regular, longer-term mortgage. But with some experience in the business, a rental property hard money loan with slightly longer terms might work as well.
Buy a rental property. If you just want to buy a straight-up rental property, the rigors of getting a loan go up tenfold. A typical bank will want you to have nearly spotless credit and a quite sizeable down payment. In fact, most will ask for 20 to 25 percent down, so when you add the closing costs and the funds for renovation, you'll need a hefty sum up front.
Use a hard money loan. With a rental property hard money loan, you won't need to have the cash up front and your finances won't be scrutinized on the same level as a bank or broker. That's because hard money loans use collateral as the main decider for approval, not credit scores or down payments.

Is a hard money loan right for your rental property?

Hard money loans come through quickly and are more flexible when it comes to qualifications, so if your credit is less than stellar or you need to move quickly to secure the property, they might be right for you. Keep in mind that they also will come with higher interest rates and shorter terms (usually 1-2 years).

Where can you find a rental property loan?

If you're looking for a rental property hard money loan, you're in the right place. We specialize in hard money loans for fix and flippers, soon-to-be landlords, and anyone who has a dream to get into real estate investment.

Why residential hard money loans get an unfair bad rap

Let's face it — thanks to some shady, predatory lenders in the past, hard money sometimes gets a bad rap. In this article, we'll tell you what residential hard money loans are actually about and remove some of the stigmas surrounding them.

Unfortunately, in the past, some hard money lenders used schemes like "loan to own" where they provided incredibly risky loans to borrowers with the sole intention of foreclosing on the collateral property. Thankfully, in today's market, these types of predatory tactics don't exist anymore. In fact, hard money loans are a completely legitimate way for real estate investors to get funding, especially if they've experienced a recent short sale or foreclosure.

So, what exactly is a hard money loan? To put it simply, a residential hard money loan is a loan that's used for a single family home (or a duplex) and that's both short-term and secured by real estate. With a loan of this type, the money typically comes from private investors instead of credit unions and banks. The length is generally about one year, but some can be extended for as much as five years. The borrower puts up assets like a property as collateral; this can be a property they already own or the property they intend to fix and flip.

Residential hard money loans versus bank loans

Because the lender has this collateral to fall back on, they are less concerned with the borrower's credit, financial history, or current funds. This is a good thing in several ways. One, it means much less red tape, so many borrowers can get approved in a day or two and get funded in as little as a week, compared to the 30-45 days they may wait for a bank loan. Two, it means that a mistake in the past doesn't have to doom the borrower's real estate career for good. And, finally, it means the borrower doesn't have to have a full-time job on the side to show the bank a steady income. Instead, they can focus on their real estate dreams.

Finding a reputable hard money lender in Arizona

If a residential hard money loan seems like the right move for you, you want to find a reputable lender to work with. It's easy! Send us an email or give us a call and we can sit down with you, hear your real estate dreams and help them come true.

Everything You Need to Know About Getting Loans to Flip Houses

When it's done right, flipping a house is a great way to turn a quick profit and keep yourself out of the dull 9-5 office routine. Of course, most flippers need to procure funds quickly so they can jump on hot properties in a competitive market. Here's how.

At 207,000, 2017 saw the most houses flipped in over a decade. And, with the average return on investment sitting at 49.8%, it's pretty clear that fixing-and-flipping is as hot as ever. This is especially true with high-end housing. Flipped houses valued between $1 million and $2 million shot up by 42%, while those priced between $2 million and $5 million dollars exploded by more than 350%.

So how do you get loans to flip houses? You can go through a bank or broker, but there are some drawbacks to this method. Yes, it's the tried and true way to do it, but getting a bank loan means having a respectable credit score, a healthy balance in the bank, and verifiable income. It also means having your finances scrutinized ad nauseam, which can often take a month or more.

Hard money loans for flipping houses

Another way to do it is to go through a hard money lender. Hard money lenders aren't as worried about how good your credit score is, how much you've got in your bank account, or how much money you've got coming in on a weekly basis. Instead, they're concerned with collateral. If you have assets to put up, you can sit down with a hard money lender, talk about your plans, and conceivably have the funds within 15 days. That flexibility and speed can be the difference you need to get a leg up on the competition in your market.

Is a hard money loan right for your situation?

Hard money loans to flip houses are typically fast and simple if you have assets to put up as collateral. However, they also come with higher interest rates than a traditional bank loan and are usually due within one to five years. That means they're great for people who are experienced flippers; ones who have a better idea of what kind of profit can be made and how fast. They also may work for novices who have hired a seasoned contractor. If you fall into one of those categories and you're interested in getting a loan to flip houses, you may want to sit down with a hard money lender.