Learn To Be A Fix and Flip Investor: July 2020

Wednesday, July 22, 2020

How To Find Your First Investment Deal Fast

How To Find Your First Investment Deal Fast Most people in the residential redevelopment business will tell you that once you land your first investment deal, everything starts to fall into place, but we all know that’s easier said than done.

How exactly do you find those real estate deals when starting out? What precisely do you need to do to ensure that it leads to a speedy completion?

One of the most important components of a successful foray toward your first deal is to have a clear, articulated strategy for what your result will be, and what type of property fits in with that strategy. Another key factor is to give your marketing time (and focus) to come to fruition. Finally, perhaps the biggest element of completing your first deal quickly is to have all your ducks in a row and be ready to act when need be.

Here are some strategies you can use to find (and close) on your first investment deal, far quicker than you would have ever thought possible:

Finding Your First Investment Deal Made Simple

1. Be Clear About Your Strategy

As Stephen Covey said so eloquently in the 7 Habits of Highly Effective People, it is crucial that you “begin with the end in mind.” Finding real estate deals requires focus and an understanding of exactly what kind of property you want.

Are you looking for a fix-and-flip property? It is vital you understand the after-repair value (ARV) of the property, minus repairs, to see if the return will provide you enough of a cushion.

Are you looking for wholesale real estate deals to generate a little extra cash? What, exactly, is your wholesaling fee going to be? Do you have a wholesale buyers list already set up?

As with any area of business, if you know your numbers, you know whether a deal makes sense for you. Oftentimes first-time real estate investors will walk away from a promising project, just because they could not determine its projected profitability. Do not make this same mistake. Know your numbers.

2. Give Your Marketing a Chance

It can be frustrating, when trying to get your real estate investing career off the ground, to endure the many stops-and-starts that come from marketing for real estate deals. Though we would love to able to predict with absolute certainty what the results of our marketing will be, it is not always a quid pro quo — do “this” and “that” will happen — situation. This requires we approach our marketing with patience, focus and more than a little innovation.

Key things to keep in mind include:

Not giving up too early: Just because those 10 bandit signs you put up over the weekend or those 50 direct mail postcards you sent out last month didn’t yield any instant leads, doesn’t mean that the entire campaign should be scrapped. It is important to give each form of your marketing — whether Facebook Ads or Craigslist posts — a chance to work its magic.

Know what is working: Again, it is all about the numbers. What is your conversion rate? What is your cost per lead? Which marketing sources create the best, most profitable leads, and which provide truly little return on investment (ROI)? Many times, what you do not is just as important as what you do when it comes to marketing.

Always be testing: Unfortunately, there is truly little “set it and forget it” when it comes to marketing. You must always be attentive to how a marketing campaign is doing, and whether there is any way that you can improve it, even on a small scale. Will a change in copy (or color scheme or subject line) make a difference? Change one thing at a time and track your results. This can often reduce marketing cost and make the slightest difference between profit and loss.

3. Strike While the Iron is Hot

Unfortunately, learning how to find real estate deals is just the first step. The key to successfully navigating your investing journey to a finished deal is to be able to move with speed when the opportunity presents itself. This means:

Having your team ready: Do you have a contractor in your network who can get you repair estimates or at least provide a quick walk-through of a property? How about a realtor who can run comps? How about financing? Making sure you have all the components ready, if you decide to pull the trigger on a property, can dramatically boost your chances of completing that first investment deal.

Having your numbers ready: You must know your numbers. Make sure the projected return, and cost of repairs and acquisition, work for you financially. Good deals and bad deals are relative; it is all about how it fits in with your investing picture.

Give your self-doubt a night off: A certain amount of caution is healthy — required even — before plunging ahead with an investment. However, it is important to separate healthy, critical thinking with that voice of self-doubt in your head. Just remind: If the numbers work on paper, and you have done your homework, that nagging self-doubt might be nothing more than you are shedding an old pre-entrepreneur mindset.

Have you learned anything while trying to close your first investment deal? Let us know in the comments below.

If You Are Not Using Level 4 Funding, You’re
Probably Paying Way Too Much

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

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: 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.
© 2019 Level 4 Funding LLC. All Rights Reserved.

Tuesday, July 21, 2020

Become A Private Money Lender: Tips From The Pros

Simply put private money lending allows you to act as the bank for other investors.

Rather than directly purchasing assets, you get the opportunity to fund those owned by colleagues and partners. By now you likely realize how beneficial this set up can be. However, there are a few more things you should know before getting started. Read through the following tips before taking on your first deal as a private money lender:

Start Out Small: Identify a range you are comfortable working with, and stick to it. The number one mistake private money lenders make when starting out is spreading themselves too thin. Assess your finances and your preferred level of risk and create clear guidelines for potential projects. If someone approaches you searching for more than you want to offer, do not be afraid to refer them elsewhere.

Find A Good Attorney: Becoming a private money lender does not make you a lawyer. You will still need help when it comes to negotiating and reviewing contracts. Additionally, if you start a private money lending business there are several legal protections you need to have in place before getting started. Find a qualified real estate attorney in your area and bring them on to your team. Their role in your company will be invaluable over time.
Work Locally: There are profitable real estate deals all over the country; however, there are also deals right under your nose. If you decide to start your private money lending business locally, you can meet face to face with investors. Additionally, you will likely be more available for communications and future investment options. Do not underestimate the potential of your own market, you never know what kind of deals may come your way. You can always expand in the future.
Be Transparent: Avoid inflating your portfolio or background to attract potential investments. No matter what point you are at in your investing career, let your work speak for itself. You do not want to misrepresent yourself or your lending business. Always maintain transparency and stay true to your mission and values.
Do not Forget About Yourself: Remember, just because you are not purchasing assets directly does not mean you aren’t an investor. Continue your professional and financial education even if you opt for the role of lender. You still need to stay on top of market trends, financial news and other factors impacting the real estate world. While you don’t have a hands-on role in the investments you finance, you still need to have a strong business acumen.
Learn The Subject Matter: Review the types of borrowers listed above and familiarize yourself with the different deal types. Learn what factors go into a successful rehab, buy, and hold or rental property. That way when a borrower pitches a deal you know how to evaluate it for yourself. Obviously, they are going to paint the investment in a good light, but is it profitable? To be a successful private money lender it is crucial to understand exactly what goes on in the niche you choose to invest in.

What Is Hard Money Lending

Hard money lending is another alternative to traditional lending sources and allows borrowers to use the investment (in many cases a property) as collateral on the loan. While many lending sources rely on a borrower’s credit history, hard money lending relies on the asset in question. Hard money lending will typically require higher interest fees than traditional loans but can provide borrowers with increased access to capital and a more lenient approval process. Investors with low credit and high equity in a property will often turn to hard money for funding. Additionally, property owners at risk of foreclosure may also utilize hard money loans.

How To Become A Hard Money Lender

Hard money lending can represent a unique opportunity for investors with extra capital on their hands. Though, with any financial decision it is important to mind due diligence and premeditate any potential risks. If you are interested in becoming a hard money lender, here are a few steps you can follow:

Name your business and create your company structure.
Set up an online presence for your business.
Seek legal counseling on the creation of a limited liability company check regulations.
Investigate potential investment opportunities.
Make a business plan and draft the criteria of future loans.
Project the future financial outcome of any potential loans.
Launch your hard money lending business.
Pros Of Hard Money Lending

Hard money lending gives investors the chance to stay active in real estate, without necessarily adding a property to their portfolios. Some hard money lenders may never purchase a property themselves at all. This can be a huge perk for anyone without the time and resources to actually acquire a real estate deal, as it allows lenders to tap into the lucrative potential of real estate without “getting their hands dirty” so to speak.

Another major benefit of hard money lending is the degree of control it offers. Hard money lenders get the final say in who they work with and on what terms. Anyone who has purchased a piece of real estate likely remembers the process of applying for funds, waiting on application approvals, and going through negotiations. Being a hard money lender puts you in the driver’s seat—and that is quite an attractive perk for many.

Cons Of Hard Money Lending

With any financial opportunity, there are going to be cons involved. For those interested in hard money lending, the most obvious challenge is coming up with enough capital to get started. The amount of funds required can serve as a steep barrier to entry, but it is important to remember that real estate offers a great way in. Investors can work their way up by managing successful real estate deals themselves; over time they can generate the funds necessary to start lending.

Hard money lending also has an inherent degree of risk for the lender.

By operating outside of the traditional loan application process that big banks use, hard money lenders can truly choose who they work with. This means taking a risk on an investor who may not be approved by some standards. To counteract this risk, hard money lenders must come up with standards of their own. Lenders should be prepared to research investors, properties, and ultimately trust their gut feeling about a potential candidate.

Summary

Private money lending can represent an attractive opportunity for both parties involved. Investors seeking alternative financing sources will find the benefits include a faster approval process and increased access to funding. On the other hand, those lending may find they have unique access to potential investments and deals. No matter which side of the transaction you are on, private money lending is a viable option for expanding your financial portfolio and wealth building.

Is a lack of funds keeping you from investing in real estate? Do not let it! Give us a call.

If You Are Not Using Level 4 Funding, You’re

Probably Paying Way Too Much

Private Money Lending Guide: How To Get Started

Investing in real estate is essentially one of the smartest and safest strategies to promote wealth building.

With the proper foundation and knowledge, investing in real estate can be highly lucrative for anyone. But let us be honest, you already knew that. Of interest, however, is what an investor can do with the money they make from a profitable career.

While a portion of profits will undoubtedly be allocated to the lifestyle of their choice, investors are advised to be smart with their money. Of course, you can reinvest into another property, but if you are looking for an alternative there may be one option you have not considered yet: private money lending.

Investors who have the funds to do so should consider private money lending in real estate. This process offers the same type of underlying security and profit potential as rehabbing or wholesaling, but without acquiring new properties.

What Is Private Money Lending?

Private money lending is when individuals lend their own capital to other investors or professionally managed real estate funds, while securing said loan with a mortgage against real estate. Essentially, private money lending serves as an alternative to traditional lending institutions, like big banks.

As rookie investors gain experience, they strive to aim higher. Leaving your hard-earned money in a savings account is no way to protect and grow your assets. At the end of the day, private money lending allows you to secure a loan with real estate that is worth much more than the loan. In some ways, this process can be less risky than owning real estate. That is why it’s important to familiarize yourself with the best real estate financing options available to today’s investors.

In the past, real estate financing typically came from banks, government agencies, insurance companies, and pension funds. However, with a list of strict requirements and a timeline not conducive to the average real estate investor, a need for alternative lending sources quickly developed. At the same time, it became obvious to those with appropriate funds that their money could better serve investors than large institutions. Now, private money lending is a critical component to the real estate investment industry. In fact, its presence makes it more possible for the average investor to run and maintain a sustainable career.

In case you were unaware, there are several benefits involved for those who choose to lend private money as well. If done correctly, offering alternative real estate financing options can mitigate risk while simultaneously establishing wealth. Of course, this is not a path for everyone. You need to ask yourself if you can afford to do so. Having a little extra money in the bank does not necessarily mean you should throw it at the first investor who comes your way. If you are equipped to mitigate potential risks and take advantage of the opportunities that present themselves, private money lending may warrant your consideration.

You may want to consider private money lending if one of the following applies to you:

· You are a real estate investor looking to expand your portfolio.

· You are a doctor, lawyer, CEO, or professional of another kind who has a great income or a surplus of cash.

· You have a sizable retirement savings account.

· You are a retiree looking for a passive income investment.

· You are owner of an estate or other trust fund.

· You are a tech entrepreneur who owns a successful startup.

· You are a lottery winner.

· You want to and can help a friend or family member.

Still on the fence? Don’t worry; the following will answer any questions or concerns you may have about pursuing a private money lending business:

The Anatomy Of A Private Money Loan

The concept of a private money loan is relatively simple, three elements are required for a loan of this nature to transpire: a borrower, a lender, and a lot of paperwork.

For all intents and purposes, private money lending is perhaps your best chance to invest in real estate with no money of your own. If for nothing else, private money loans can provide for investors in need. While they seem to serve the same purpose as traditional lending institutions, there are several key differences. Private money loans typically charge higher rates than banks, but they are also more available in cases an average bank would pass on. Additionally, banks and other financial institutions typically do not provide the same combination of speed and transparency in the decision-making process.

How To Become a Private Money Lender

As I mentioned above, private money lending can offer several benefits for everyone involved. It is not uncommon for investors to eventually expand into private money lending themselves due to these benefits. If you are interested in private money lending, there are a few steps you can follow:

1. Establish your business and obtain the required insurance.

2. Meet with a lawyer to create your company structure and review regulations.

3. Identify your preferred lending focus.

4. Join a peer to peer lending platform or network to find possible investments.

5. Evaluate any potential clients by calculating potential returns and risk levels.

6. Start your business in private money lending.

Private Money Lending: How To Identify Borrowers

The concept of private money lending is relatively simple: without money, real estate investing does not exist. Money, like in every other industry, is the lifeblood of an investor. Real estate investors need to actively work on securing private money loans to fund their deals. Often, the average investor isn’t capable of funding a deal with their own money. Moreover, even if the funds are readily available, investors will seek the assistance of private money. Regardless of a investor’s situation, there is a particular likelihood of them needing private money assistance. Instead of having to pool money or stretch every dollar, investors are given more options to grow their business with the use of private money.

Perhaps even more importantly, is the speed and efficiency in which private money may be obtained. The speed of implementation is critical to an investor, and it can mean the difference between closing on a deal and losing one. Having the money in a timely manner can make it that much easier to close on a deal.

With private money lending, you will be confronted with several types of borrowers. While each is unique, they are all looking for the same thing. Here are the four types of borrowers you may encounter:

· Rehab/Sell: This type of investor will typically purchase a residential property and complete renovations with the intention of reselling it once the project is complete. Borrowers in this sector find private money attractive because conventional banks will often not lend to properties in poor condition. Perhaps even more importantly, access to private money is more conducive to a timely and profitable flip.

· Rehab/Rent: These investors typically purchase a residential property and complete renovations with the intention of renting the property for cash flow purposes. These borrowers find private money attractive for the same reasons as investors in the rehab/sell category.

· Builders/Developers: Builders and developers will purchase vacant land to permit and develop into residential or commercial use. Borrowers in this sector are interested in private money primarily based on the speed with which the funds can be available. Also, many banks will not lend on speculative development.

· Commercial Investors: This population of investors may seek to use private money as a “bridge loan” for a commercial property when a conventional bank will not lend on an un-stabilized asset.

Money Lending: How To Get Paid

Private money lending is attractive because of the flexibility it offers, not only to borrowers but to lenders as well. You see, with a traditional loan lender will generate income through interest payments made by the borrower. Private loans, on the other hand, allow lenders to negotiate exactly how (and when) they will be paid back for the loan. This opportunity opens several perks not traditionally offered to investors. Read through the following agreements to learn more about making money as a private lender.

· Joint Ventures: As a private money lender, a profit split can be one of the most attractive options for financing an investment. Investors can negotiate to a receive a percentage of the final profits in this type of agreement. The amount will vary based on the contract and the investment, though it could be quite profitable. In some cases, private money lenders will even find borrowers who propose this option. Just make sure you believe in the potential success of the deal and you are all set.

· Exit Fees: This loan structure requires the borrower to pay a predetermined amount at the end of the loan term. The exit fee is often negotiated as a percentage of the overall price of the investment. In some cases, lenders may even negotiate an increasing exit fee that changes depending on when the loan is paid in full. For example, if the borrower needed a few extra months to repay the loan, then they would pay a larger exit fee.

· Interest Payments: As I mentioned above, interest payments are one of several ways to generate income from a private money loan. In fact, this is the most common set up in private money. Lenders can set an interest rate at the time of the loan approval and sit back and wait for the money to arrive. Typically, private money loans are associated with higher interest rates than other loans, making this a particularly attractive arrangement for lenders.

· Points: Points are essentially fees paid by borrowers in exchange for lower interest rates. Points are calculated as percentages of the overall loan, with one point referring to one percent of the loan amount. The reason some lenders prefer this system is that points allow them to be paid in larger sums, with additional interest payments to follow. Often, points are paid at the beginning of the loan term and are suggested by the borrower as an incentive for granting the loan.

Saturday, July 18, 2020

Hard Money Lending For Real Estate

Understanding the basics of hard money lending represents the first step of breaking down real estate financing. Hard money loans are, after all, a real estate investor’s best friend; they are the quickest path to securing a deal. Nonetheless, hard money lending can get complicated quickly, so you need to realize what you are getting into before making any decisions for yourself.

When exploring real estate hard money lending, you need to comprehend several questions: What are the pros and cons of such a strategy? When should you use private financing for real estate? Where can you find hard money lenders for real estate? The more you know about hard money, for that matter, the better. This guide should serve to lay a solid foundation for everything you need to know about one of today’s greatest sources of capital.

What Is Hard Money Lending?

Many investors looking for alternative financing that doesn’t involve their local bank may have heard the term “hard money.” They may have even asked themselves a simple follow up question: what is hard money lending?

Hard money lending is a short-term loan obtained from private investors or individuals, at terms that may be stricter than a traditional loan. Though the terms of this creative financing option may be stricter, this form of private financing for real estate generally has more lenient criteria.

Investor Q&A: What Is Hard Money Lending?

1. The Big-Picture Of Hard Money Lending

Hard money lending is another way an investor can finance their real estate projects, outside of the traditional mortgage means. This is a short-term loan secured from private investors or individuals, as opposed to other traditional institutions like banks or credit unions.

Hard money lending is often used by investors who aim to improve or renovate a property and sell it. Given that you can usually get a loan in a matter of days (as opposed to weeks from banks), this is a fine choice for house flippers and real estate developers. This is also an option for investors who only need to do quick fixes to raise a property’s value, then secure another loan based on the new value to pay off the hard money lender.

2. Hard Money Lending Vs. Other Lending Types

The main difference between hard money lending and other types of loans is that this type of financing does not focus on your credit history or income as collateral. Instead, lenders will see the property’s value as the determining factor, placing emphasis on its after-repair value (ARV). ARV is the worth of the property once your renovations are done.

Other differences include:

Hard money lenders do not invest in primary residences. Owner-occupied residential properties are subject to many rules and regulations, thereby increasing the risk for lenders.

Hard money lenders do not sell loans to Freddie Mac or Fannie Mae. Often, lenders use their own money or raise it from a pool of investors. The amount they loan are based on their property specialization (if there are any) and the risks they are comfortable taking.

Hard money loans are short term. You will not have the luxury of 15 to 30 years to repay your loans. Hard money loans are typically needing to be repaid anywhere between 6 to 18 months.

Hard money lenders have their own lending criteria. A private lender, for example, could be your friend, family, or business associate. As such, they may not have any preset criteria before lending you money, giving you more flexibility in negotiating terms. Hard money lenders, on the other hand, come with a specific set of upfront points, interest rates, and defined durations.

The Pros And Cons Of Hard Money Loans

I maintain that hard money loans represent one of the single most advantageous funding opportunities for investors to take advantage of. Few sources of capital, if any, can compete on the same level as hard money and offer the same competitive edge. It is hard money loans, after all, that many investors must thank for acquiring their deals in the first place. That said, hard money is not without its own caveats. Despite its superior benefits, there are downsides to hard money that warrant the consideration of every investor.

Let us look at the pros and cons of hard money so you can weigh the pros and cons yourself.

Pros

Securing financing with a hard money lending loan offers you a number of benefits, including:

Speed: The Dodd-Frank Act is a financial reform legislation enacted in the past decade. It came with new regulations on mortgage lending, which then means a lot of time (often, months) is needed for an investor to close a loan. Hard money lending, on the other hand, is fast, as you can secure a loan in a days or weeks (depending on negotiations). Time is of the essence, especially for large development projects, and hard money lending can help speed that process along.

Flexibility: Terms can be negotiated with hard money lending loans, since you are dealing directly with individual investors. Banks are not as flexible.

Collateral: With hard money financing, the property itself is your collateral for the loan. Some lenders even accept other assets, like your retirement account or a residential property under your name, as a basis for starting a loan.

No “Red Tape”: Getting a loan for an investment property with a traditional mortgage is difficult, if not impossible. Traditional borrowers need to worry about credit score, LTV ratios, debt-to-income, and several other indicators they need to meet criteria for. Hard money lenders, however, function as asset-based lenders who are more concerned with the property than the borrower’s credentials.

Convenience: There is something to be said for the convenience of being able to close with cash. Having to supply a lender with bank statements, income documentation, tax returns and leases can become overbearing and consume your focus and energy. Hard money, on the other hand, cuts out the middleman and a lot of the headaches.

Volume: Hard money lenders allow investors to leverage other people’s money. That means investors could potentially fund more than one deal at a time. Traditional loans will do no such thing. If you want to fund multiple deals at a time, you should really consider a hard money loan.

Competitive Edge: Hard money allows investors to beat out the competition, or at least those using a traditional loan. If for nothing else, sellers prefer the two things hard money offers: cash and a timely transaction.

Cons

There are, however, certain disadvantages to using hard money for real estate investments:

Cost: The convenience that comes with hard money lending may be its primary benefit; however, it is also its main drawback. Given that hard money lenders are at higher risk than borrowers, many may demand up to 10 percentage points higher than traditional loans. Interest rates range from 10 to 15 percent. Expect other fees to be also at a relatively increased rate, including origination fees and closing costs.

Short Repayment Schedule: A shorter repayment period is the price to pay for being able to get a property listed on the market ASAP. This can be anywhere between 6 to 18 months. Make sure that you can sell the property and profit in the soonest time possible.

When To Use Hard Money For Real Estate

Though hard money lenders will often issue loans for almost any type of property, there are certain types of property investments which were absolutely made for hard money. Rehab projects, construction loans, and land loans were made to be financed through hard money.

This does not mean that other types of investments should not be financed through hard money. If you, the buyer of a property, has credit issues, or you need to act quickly on a deal before it disappears, the speed and convenience afforded by a hard money loan can be worth its weight in gold.

Finding Hard Money Lenders For Real Estate Investing

Many new investors fret over how they will find hard money lenders to get moving on the financing of their project. But here are a couple of simple ways to approach this:

REIA or Meetup Meetings: Often hard money lenders will speak at local real estate events. If not, ask fellow members to see if they know any trustworthy lenders.

Real Estate Agent or Traditional Lender: Ask that realtor, or mortgage broker, in your real estate network if they know a hard money lender you could do business with.

Google “Hard Money Lender”: Just be careful, there are some unscrupulous individuals out there. Be sure to ask for references and talk to fellow investors to get their opinion.

How Does Hard Money Lending Work?

Given that these are private individuals, every hard money lender is different. As stated above, these lenders come with their own requirements, which include the process they need to close the transaction.

To give you a general idea, this is the usual course hard money lending takes:

Step #1: Find a hard lender near you. Do not let the rejection of a bank loan drive you to desperation. Research and make sure the lender can be trusted. Do they have a legitimate website? Are they in good standing with their own investors? Do they have pending lawsuits over bad loans?

Step #2: Arrange a meeting with the lender. This is also the time when you can inquire whether they specialize in a kind of investment property or if they have worked with projects previously that mirror yours. Assess the time frame specified for the loan and see if this is something you can work with.

Step #3: Prepare a contract. Make sure that you are offering a good deal with a sound financial plan.

Step #4: Inform the lender of your contract price. Most lenders are willing to fund 60 to 70 percent of the property’s ARV. The remaining 30 to 40 percent is up to you. You will increase your chances of getting approved if you already have this at hand.

Step #5: Get the property appraised. The lender will either send a list of their trusted appraisers or have their own.

Step #6: Prepare additional documents needed. Some lenders may require that you present other documentations, like W-2s, bank statements, pay stubs, etc.

Step #7: Wait for lender’s approval. If it is a deal that the lender finds satisfactory, then they will inform you of the amount and terms for payment.

Step #8: Consult with a lawyer. Make sure that you are legally protected, especially after getting the lender’s counteroffer.

Step #9: Close the loan. This will be done typically at a title company or a lawyer’s office. The lender will then put the money into escrow at the title company. The title company would make sure all paperwork is completed, and that checks issued to all parties involved. Additional costs may include any closing fees and property insurances.

Often, lenders grant money to properties that will not be in the market for long, that have good selling potential. Make sure your team budgets ample time to complete renovations. There is no sense in coming up with unrealistic projections. This cannot only set you back financially, but possibly burn a possible future relationship with your hard money lender.

Summary

Using hard money lending for real estate acquisitions has become commonplace in the housing sector. If for nothing else, a hard money loan gives investors an edge over those that are using traditional financing methods. Not only should hard money borrowers be able to secure capital faster, but sellers will also favor their offers because they are made with cash. That said, if you are looking to fund a deal, you may not want to ignore hard money; it could be the one thing that gets you what you need.

Have you ever bought an investment property with hard money? What was your experience like? Feel free to let us know how things went in the comments below.

Tips & Advice For Financing Your First Investment Property

Financing your first investment property does not need to be as complicated as far too many inexperienced investors make it out to be. In fact, there are not only more ways to finance your first real estate investment than many people realize, but there are also several tips and tricks that can make the endeavor a lot less arduous. That said, it is those that know the options made available to them that stand to realize the most success in finding and securing financing for their first deal.

How To Finance Your First Investment Property

There are several ways for financing your first investment property with other people’s money, not the least of which include:

Traditional Loans
Private Money Lenders
Hard Money Lenders
Seller Financing

Whether you are brand-new to the real estate investing landscape or a seasoned veteran, there is at least one fundamental thing every deal must have in place: money. At the risk of sounding obvious, no deal will be completed in the absence of capital; it is as simple as that. It is worth noting, however, that the money for a respective deal does not have to come from your own pockets. In fact, I maintain that financing your first investment property should be done with other people’s money.

Even if you have the cash reserves to buy a house, it’s usually better to use someone else’s money for a deal. That way, you remain liquid and retain a “safety net” in your own coffers.

Real Estate Financing Methods

There are several creative real estate financing methods investors can use for acquiring properties, but there are six main strategies that have withstood the test of time:

Conventional Or Traditional Loans: As their names would lead you to believe, traditional loans originate from the most familiar of places: banks and institutionalized lenders. These loans can have some of the lowest interest rates, but the application process can be lengthy. Those applying for traditional loans often need to have a minimum credit score in the 600’s and have a down payment between 5 and 20 percent of the purchase price.
Private Money Lenders: Private money lenders are essentially anyone in your inner circle, or close to it, that aren’t institutionalized and have some extra cash they are willing to invest. That said, just about anyone you know can be a private money lender if they have the funds available.
Cash-out Refinance And Home Equity Loans: If you are purchasing your second property, you may be able to use existing equity to do so. This involves borrowing against the value of your home through a home equity line of credit (HELOC), home equity loan, or cash-out refinance. The biggest benefit to this method is the potential for low interest rates, though there are some risks.
Hard Money Lenders: Hard money lenders are organized semi-institutional lenders who should be licensed to lend money to investors. They specialize in providing short-term, high-rate loans with fees that allow residential redevelopers to purchase properties fast and painless.
Seller Financing: Seller financing strategies will witness the homeowner you intend to buy from act as the bank, offering to lend you the money on their terms. So instead of making payments to another lender, you would make payments to the seller in the amount you predetermined.

Financing Tips For Buying An Investment Property

1. Lower Rates Are Not Always Better

I want to make it abundantly clear: lower rates are not always better when financing your first investment property. That is not to say you do not want to secure a loan with the lowest interest rate, but rather that there are a lot more things to consider. Take private and hard money lenders, for example; they often have rates that are often four and five times higher than that of a traditional lending institution, but I would argue that they are better sources of capital for investors. Namely, because of their ability to act fast. While the interest rate on a private money loan may be higher than your own bank, the speed of implementation they offer investors is invaluable. Whereas a bank can take upwards of several months to process a loan, private and hard money lenders can have the money in your hands in a matter of days. That said, those with access to funds right away stand a better chance at landing a deal. In a market as competitive as today’s, only those that can act fast will be able to realize success. So again: interest rates are not everything. I would rather pay more in interest (especially when loans are short-term) to have access to money immediately, as to be able to acquire the deals that are brought before me.

2. Have The Financing Lined Up Before You Look For A Deal

Far too many new investors make the mistake of trying to find a deal before they have the capital to purchase it; for a number of reasons, that’s a bad idea. For starters, you will not know which homes fit within your budget if you do not have access to capital. How can you possibly know which homes are in your price range if you do not have access to any money yet? There is a good chance you will waste time looking at properties if you are not yet approved for a certain amount. It is worth noting, however, that those with the proper funding on hand will know exactly how much they can afford to spend. What is more, you will be able to act a lot faster once a viable candidate reveals itself to you. Again, speed of implementation is everything as a real estate investor. If you find a deal and have to wait around to get your money, there’s a good chance the competition will beat you to it and close on the property before you can even make an offer. If, however, you already have the money lined up, you will find it a lot easier to make the first offer, which is a huge advantage in this industry.

What Is The Average Interest Rate On An Investment Property?

Interest rates are the price we pay to borrow money — no more, no less. However, interest rates do not share a universal constant, and are even sometimes left open to interpretation. That said, it is common for interest rates to fluctuate in conjunction with the state of the economy and marketplace. Subsequently, interest rates will differ between individual loan originators. You see, each source of money has come up with what they believe to be a fair charge for borrowing their money, and investors must either choose to accept it, or look for an alternative.

If you are wondering what the average interest rate on an investment property is, the first thing you need to do is identify the source of where the capital is coming from. For a better idea of the interest rate you would expect to pay for a loan, refer to the following lenders:

Traditional Loans: The average rate on a traditional 30-year fixed loan is now 4.18%, according to Bankrate.
Private Money Lenders: Typically, private money lenders will ask for a high interest rate: oftentimes between six and 12 percent. That said, I would not let the high rate scare you away. While it is true, private money lenders’ services come at a higher cost, their ability to fund a deal in a relatively quick period is well worth the cost of admission. What is more, their term durations are not nearly if the 30 years bank loans typically coincide with. So, while interest rates are certainly higher, you will not be paying them for nearly as long — oftentimes just a few short months.
Hard Money Lenders: Not unlike their private money counterparts, hard money lenders will require borrowers to pay high interest rates. It is not uncommon for hard money lenders to ask for 11 to 15 percent. On top of that, they might ask for points (an additional upfront percentage fee based on the actual loan amount). Again, do not let their high rates scare you away, because I can assure you their services are well worth it.
Seller Financing: Sellers financing their own sale can ask for their own terms, and oftentimes end up on the higher end of the spectrum for the inconvenience. However, it is entirely possible to find a seller looking for incredibly low interest rates. Just know this: sellers are often the easiest to negotiate terms with, so give it a shot.

Summary

Financing your first investment property can represent an intimidating step at the beginning of your career, but it does not have to be as scary as many make it out to be. If for nothing else, your first real estate investment should be exciting, and something you look forward to.

The best way to get started is to educate yourself on real estate financing. Only once you are familiar with the different real estate financing methods, can you move forward with one. Therein lies the reason we have compiled this information for you; hopefully, it will shed some light on an otherwise intimidating topic for new investors. Look into traditional loans, private or hard money lenders, HELOCs, and seller financing. Allow these options to guide your research as you make the best decision on upcoming deals.

Have you been wanting to invest in your first property, but are otherwise unsure of the best way to finance it? Perhaps you have had better luck with a different financing method we left out? Whatever the case may be, please feel free to share your thoughts in the comments below.

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