Learn To Be A Fix & Flip Investor

Tuesday, January 22, 2019

What you Need to Know About Fix and Flip Loans

A growing segment of today’s real estate investment strategies is the fix and flip model. There are several key factors to be aware of if you are looking to obtain your first Arizona fix and flip loan.

While today’s reality TV shows on fix and flipping homes may make flipping houses and making money seem like a done deal, it is not quite as easy as it appears in this thing called “real life.” There exists the real possibility that you can lose money as well as make it depending on how you manage your project and capital. Let’s take a look at the number one roadblock many just starting out in this field run into—the money to obtain their first property.

So, just what are Arizona fix and flip loans? It is a type of loan that many in this segment of real estate investing turn to in order to get into this sometimes-lucrative investment strategy. It is a short-term loan, made by non-conventional lenders. What is a non-conventional lender? These types of loans are typically made by private investors or investment groups and are considered hard money loans. The Arizona fix and flip loan is exactly what the term says it is—a loan used to purchase a property you plan to fix up and sell.

With a Arizona fix and flip loan, you can expect a term of six to twelve months, an interest rate in the range of 12% to 21% (if you have used Arizona fix and flip loans previously, then you may expect a lower rate), a no prepayment penalty (depending on the lender), and a loan http://applewoodfund.com/arizona-fix-and-flip-loans/amount that lies between 60% to 75% depending on the value of the property.

The Advantages of Arizona fix and flip loans

When you have located a property that you have an accepted bid on, speed is essential. These loans can be closed in as little as a few days to one week. This is an advantage for the real estate investor. This is compared to a conventional lender where it may take the conventional bank 30 to 60 days for an approval. In addition, the conventional lender will require mounds of paperwork. A fix and flip lender will care less about debt-to-income ratios, your credit score, and even your income. The property is not considered as current value but the after-renovation value. The fix and flip lender will also look at the market the property is located in, if the borrower seems trustworthy, and if the numbers in the business plan submitted by the borrower makes sense.

Unfortunately, there is also a downside to these loans. At Level 4 Funding, we can help you determine if this type of loan is right for your specific real estate investment.

Some of the downsides of Arizona fix and flip loans are the higher interest rates, shorter terms, and higher costs upfront such as points and origination fees which can make it harder to turn a profit on a project for the first time (inexperienced) investor. As an inexperienced investor, you make consider taking on a partner that is experienced in fixing and flipping homes. Taking on a partner will make it easier to secure funding. If you are considering venturing into becoming a real estate investor, you will need to develop a business plan and run the numbers on the target property to make sure the project makes sense. The ideal project entails obtaining a property that you can purchase well below the value, and quickly fix and flip the property in a short period of time for the increased market value.

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.

The Facts About an Arizona Owner-Occupied Hard Money Loan

An Arizona owner-occupied hard money loan requires the borrower to live on the property. With the tightening of underwriting for conventional mortgages, individuals are turning to these types of loans.

Since the financial crisis in 2008, the U.S. regulators have tightened the regulations on home mortgages. Higher credit scores, more cash, and increasing credit worthiness are all things that have changed. If you are in a situation where one or all of these items will prevent you from getting a conventional home mortgage, then you may want to look at an owner-occupied hard money lender. These are loans that the owner of the property will be living in the property that the loan is being secured for.

If you are in a situation where you cannot be approved for a conventional mortgage, then an alternative may be the owner-occupied hard money loan. If properly underwritten and the loan is compliant with government regulations, this could be a great alternative. The hard money loan is also a great alternative for real estate agents or mortgage professionals whose clients may not be able to purchase a home going the conventional route.

Another type of hard money loan is the consumer bridge loan. This type of loan is short term in nature, with terms that start as low as three months. The purpose of the loan is focused on borrowers who cannot secure a conventional loan. Some of the reasons that a conventional loan is not an option is: the borrower has one existing home and is seeking to purchase a new home, downsizing, short-term problems the borrower faces such as foreclosure, bankruptcy, or insufficient amount of time on a new job, a short sale, not enough cash for a sufficient down payment, divorce or probate, avoiding the need to liquidate assets such as stocks, 401Ks, 1031 exchanges, and fallout from reverse mortgages. Conventional lenders will usually not make a conventional loan if any of these situations are present.

The Terms for a Bridge Loan

The terms for a bridge loan are: closes in 5-7 days, but could be longer, the term is eleven months maximum, typical interest rate is 9.9% and expect to pay points in the range of 2-3% plus admin and doc fees.

There are Arizona Hard Money Lenders that offer loans with longer terms. At Level 4 Funding, we often extend existing loans for current lenders and can help you find the right type of loan for your current real estate project.

An Arizona owner-occupied hard money loan is, as the name states, a hard money loan for a longer term on a private owner-occupied residence. These are less common. Most times, when a borrower seeks this route, it is because of credit issues that cannot be resolved in 12 months. A borrower will need to have his credit “seasoned” and it may take longer than a year. The borrower may be either self-employed or has a short time on the job. These types of loans could close in as little as 5-7 days, but expect longer, there is no prepayment penalty, and you will need to pay points in the range of 2-3% as well as admin fee and doc fees and debt ratios that must be below FNMA requirements. Other loans terms that a private lender could offer are 20/20 and maybe 15/15. Finally, do your homework, conduct due diligence and research the lender to make sure your loan is in compliance with BRE regulations. Here, at Level 4 Funding, we offer some of the best interest rates in the market. Call us for a no-obligation quote.

How to Secure Arizona spec home financing for Construction

Spec home financing is the term used for obtaining a construction loan on a property that does not yet have a buyer. They differ from a conventional loan in a few key metrics.

A spec loan is an industry term used for financing construction of a property, residential or commercial, that the builder has not sold yet. Spec loans are a small percentage of the total construction loans made. To secure an approval for your project you will need to do more leg work compared to a conventional lender. There are, however, lenders out there—as long as your project has good profitability. Due to the fact that Arizona spec home financing is a loan for a construction project that has no committed buyer, this type of loan is much riskier than other construction loans. If you locate land that is completely unimproved, you will improve your chances of qualifying for a loan, so you can build on the lot.

The project you choose should be able to be completed within a solid time frame. You want to look for an acquisition that can be completed quickly since construction loans are short term loans. They last only as long as the project lasts. The loan is paid out in draws with the consideration of the percentage of completion. By starting a project that can be completed quickly, you minimize the lender’s risks. Because the loan draws are based on a percentage of completion, they tend to be small in the beginning and increase as building ensues. You would be well advised to have a cash reserve before beginning your project.

The land is your equity. Using your land as collateral for Arizona spec home financing may increase your chances to secure the construction loan for your project. Some lenders may require you to put the land up for additional collateral for the construction loan. The land could even be used as your whole or partial down payment.

If You Do Not Have Experience, Bring in a Partner

To see yourself succeeding in securing the construction loan, you may want to consider bringing in an experienced partner to demonstrate to the lender your ability to complete the project and show a profit. Bringing in a partner with credit that is better than yours can also improve your chances of securing Arizona spec home financing for the project as well as demonstrating that the project is more creditworthy. If you are short on cash, bringing in a partner can also help with a down payment. They can also assist with improving the asset picture when applying for the loan, particularly if the debt to equity ratio would benefit. Lastly, know when bringing in a partner that you will be reducing your projected profit by giving a share to the partner you bring in.

Develop a business plan that is compelling.

Since you have not secured a buyer yet for your project, you will need to “sell” your lender on your project. You need to tell a story why your project will succeed as well as develop projected financials that are detailed and show how you will produce a profit. You will need to work hard to convince the lender that your project is a risk that he wants to invest in. You will need to develop where your project begins, what your view is as far as how you will develop it, and where the project will be at the end. Every lender will want to know your exit strategy—the “end of the story” that tells him how you will repay the loan. We, at Level 4 Funding, are happy to assist you in developing your strategy for a successful project. Call us for a no-obligation quote.

Monday, January 21, 2019

All You Need to Know About 100% LTV Commercial Real Estate Financing

100% commercial real estate financing is possible. Let’s take a look at what lenders look for when determining your eligibility.

This type of loan is used solely for income producing properties and is not for residential use. Some of the types of properties that you can obtain a 100% LTV commercial real estate financing for include shopping centers, retail malls, hotels, complexes and office buildings. Independent lenders and home mortgages are actively making loans on commercial real estate. Additional lending companies are pension funds, insurance companies, private investors and SBA loans. A small percentage of preferred lenders offer 100% LTV commercial real estate financing for owner occupied commercial properties—meaning that your business must occupy at least 51% of the property. This SBA loan is for established businesses only.

A mortgage is typically loaned to an individual borrower. Commercial real estate loans, on the other hand, provide loans to entities which include corporations, developers, funds, trusts and limited liability partnerships, all of whom are formed specifically to own commercial real estate. If the entity does not have a verifiable credit rating or financial track record, then the financial organization may want the principal’s personal guarantees. In the event of a default on the loan, the lender will look at the loan guarantors to recover the funds. If you obtain a loan without a personal guarantor, the lender cannot seek recourse with the principals.

Loan repayment schedules differ from one type of loan to the other. Residential loans are repaid over the term of the loans and are amortized over the life of the loan. Commercial loans range from five years to twenty years and the amortization period is usually longer than the loan. The lender will charge an interest rate depending on the term of the loan and the amortization schedule. Additional considerations for the interest rate are the borrower’s credit strength and the negotiable terms. Higher interest rates will normally be charged on longer term loans.

Loan to Value Ratios

Loan to value ratios are another way to differentiate commercial loans from residential. This is a figure that measures the loan to value (LTV) against the property. The lower the LTV for both commercial and residential loans, the more favorable interest rates the borrower will qualify for. The reason is that the more equity the borrower has in the acquisition property, the less risk the lender needs to assume. Commercial loan’s LTV fall into the 65% to 80% range. The rates will differ depending on the loan type, such as raw land versus rehabbed land. This means, of course, that you will usually be paying a higher interest rate for 100% LTV commercial real estate financing.

DSCR stands for Debt Service Ratio and is one of the ratios lenders consider when approving loans.

Lenders will look at the properties ability to service the debt by looking at the ability of the commercial property to service the debt, including interest. This is known as the Debt Service Ratio (DSCR). If the DSCR is less than 1 then this indicates a negative cash flow. Lenders look for loans with a DSCR of 1.25 or greater. Unlike residential loans, commercial loans carry higher interest rates. There are additional fees added to the overall cost of the loan which differs from residential loans. Some of the fees include appraisal, loan application, legal, survey fees and origination fees. Some of these costs are upfront fees. Restrictions may be built into the loan for disallowing prepayment of the loan. This is an important consideration as many investors are looking to turn properties quickly and a prepayment penalty can significantly affect the bottom line. If you’re looking for commercial real estate financing, call us at Level 4 funding for a no-obligation quote.

What You Need To Secure Rental Property Loans

All lenders are slightly different and have a variety of criteria required to qualify for a loan. But the criteria for Rental Property Loans in Arizona are very similar from lender to lender.

Securing Rental Property Loans in Arizona is a bit more challenging than getting financed to purchase a home that you are going to make your primary residence. But the added obstacles are certainly worth the effort to create a passive stream of revenue to increase your personal wealth and secure your future. Understanding how to be an attractive borrower and meet lenders criteria for Rental Property Loans in Arizona can greatly reduce your stress level and increase the speed of your loan processing and approval.

Down payments are critical when purchasing a rental property or any investment property. There is no mortgage insurance on investment property loans so you will need to make a down payment of 20% or more to secure most rental property loans. But if you can make a larger down payment, that will work in your favor. You will have instant equity in the property and that will make lenders more eager to loan you the money that you are requesting. The equity represents great security for you and for the lender as well.

Credit scores are always important when seeking traditional financing. And borrowers can get a loan for a primary residence with a score as low as about 600. But investment property loans require a higher credit score to secure at a reasonable interest rate. A rate in the 700’s is certain to get a borrower a respectable interest rate and favorable loan terms. If your score is lower than 700, you might want to wait to invest in a rental property and focus on increasing your credit score by lowering your debt to income ratio and increasing your savings.

Cash Reserves

Cash reserves are always important when you are financing an investment property. The lender wants to know that you have accessible cash to cover mortgage payments in the case of a vacant property and no revenue coming in. The lender also wants to know that you can afford to make any needed repairs should issues arise. Without the reserve to cover unexpected repairs, the property could sit empty for months with no rental income, making it very difficult to pay the mortgage, taxes, and insurance.

Real Estate Investing Experience

Having experience in the real estate industry is also a big benefit for borrowers. Lenders want to know that a borrower understands all of the potential issues that can arise with a rental property or an investment property. Borrowers who understand these potential challenges will be prepared for them and will not fail to make mortgage payments or allow the property to fall into disrepair and become worthless as collateral on the loan. For new investors, it can be very helpful to create a business plan for the rental property and to submit that document to the lender with the loan application to demonstrate that you have a well thought out plan for managing the property and remaining profitable and successful.

What Are The Best Arizona Fix And Flip Loans?

A traditional loan is not the best choice for a fix and flip project. But there are some options that are options that are great for Arizona Fix And Flip Loans.

Fix and flip projects are normally short-term projects that real investors look for to turn a fast profit on a property that is not in perfect condition. The investor purchases the property with the intention of renovating and repairing issues so that the property becomes more desirable and more valuable. The key to success is finding the right property at the right price and quickly purchasing it before another investor becomes interested and a bidding war ensues.

The speed of Arizona Hard Money Loans make these privately funded loans perfect Arizona Fix And Flip Loans. The time frame of a hard money loan is normally six months to a few years but that can vary depending on the needs of the borrower. Being that the lender is a private individual or lending group, the terms of Arizona Hard Money Loans are much more flexible than those of a traditional lender. In many cases, private lenders can fund a fix and flip loan in as little as 15 days.

In addition, hard money is an asset-based loan, meaning that the loan qualification is based primarily on the value of the property and not on the borrower's person creditworthiness. This allows borrowers with lower credit scores or no credit history to obtain a fix and flip loan to begin a new career in real estate investing. The borrower just needs to know the value of the property that he or she is purchasing as well as the cost of the needed renovations to create a realistic fix and flip budget and to determine the down payment needed for the project.

Refinance Your Home

Because investment property loans, including Arizona Fix And Flip Loans, do not offer mortgage insurance borrowers will need to have 20% or even 25% of the purchase price to make the down payment. One of the easiest ways to secure that much money is to refinance your personal home and liquidate the equity for the Arizona Fix And Flip Loans down payment. A home equity line of credit is another way to tap into the equity in your home to begin a fix and flip project.

The Nature Of Fix and Flips

Almost all fix and flip projects are designed to be very fast. The buyer does not want to carry the mortgage on the property any longer than necessary. So the repairs and renovations are carefully scheduled to be completed as quickly and efficiently as possible. Then the property is placed on the market at a competitive price in the hope that it sells quickly. Knowing this, investors are willing to pay the higher interest rate on a hard money loan because this loan funds quickly and allows for a fast purchase to begin the renovation project. Of all of the short-term options available, hard money is often the one which suits a fix and flip project the best.