Tag Archive for: real estate loans

What Is the Best Real Estate Loan For Investing?

/in ,

10 things to look for to find the best real estate loan for your investing.

You can get confused fast with real estate funding. 

What’s the difference between hard money and private money? Institutional lenders and bank lenders? And what even is OPM?

Most importantly – how do you know which lending option is best for you?

Our goal is to make sure you use the correct leverage for your real estate project:

  • What will fit your project?
  • What will be the most profitable for you?

Realistically, you need a little bit of everything.

Let’s go through the nuances of each leverage type, so you know the best real estate loan for your investments. Here are 10 qualities of real estate leverage to consider.

1. Speed

In real estate investing, most of your deals come down to speed. If you can close faster than another bidder, you can get the property – even if the other person offered more money.

Typically, the fastest lending options will be hard money and real OPM. 

OPM is using real people’s money, from family, friends, or anyone with money to lend. If you build a relationship with the right OPM lenders, this can be your fastest funding option. OPM can be one phone call and bank transfer away.

Although more expensive, hard money lenders can save you money in the long run with the savings you get from closing quickly on wholesale properties. Hard money lenders can potentially get you money within days (sometimes quicker).

Institutional lenders are fairly quick, typically taking two or three weeks, sometimes four.

Banks are usually the slowest at four or more weeks (unless you already have a line of credit set up, like a HELOC).

2. Credit Score

Credit is a major factor in the loan process. Requirements for credit scores have gone up over the last few months as money tightens. 

Institutions and banks have strict credit score requirements. The target for acceptable credit is constantly moving. Currently, you’ll have a tough time finding any loans with a score lower than 680. The best loans are available to people with a 740 and above.

Hard money lenders will check credit to make sure you’re not defaulting. But your actual score doesn’t have much bearing on your ability to get a loan.

OPM lenders aren’t as concerned with your actual credit score. OPM requirements will vary from person to person. But as long as you’re responsible in protecting their money, you can get an OPM loan.

3. Experience

Have you been in business for 2 years? Have you done enough transactions?

The toughest on experience are banks and institutional lenders.

Institutional lenders typically require three to five transactions over a three-year period. They’ll still consider you if you have less experience than that, but they’ll need a higher down payment.

Banks are the strictest. They usually want you to have five completed projects in recent years, plus at least two years of tax history on investment properties.

Hard money and OPM are the easiest on experience.

Hard money lenders care that you have a profitable deal. OPM lenders care that they get a return on their money. Neither lender will be overly concerned with your experience level. They’re more understanding that “you gotta start somewhere.”

4. Income

What lenders are concerned with your debt ratio? 

Banks are the only lenders that are always concerned with your income. 

Institutions look at the money you have in the bank, but not necessarily what you have coming in as income.

Hard money might look at your tax returns, but it won’t make or break your loan.

5. Underwriting

How does each lender look at your whole file? What is their criteria, and is it similar from lender-to-lender?

Institutional lenders have fairly consistent underwriting. They all basically require experience, 10 – 20% down, etc.

The other three types of lenders vary drastically.

Banks will always have some sort of requirements. But it’s different between large banks and small banks. Local banks will always be more interested in lending to investors.

Hard money and OPM both vary, too. You have to get to know the lenders in your area to get a feel for their requirements.

6. Flexibility

What if you need a loan for a rural property? Or what if some other unique situation pops up? Which lenders can be flexible with that.

Institutions and banks are the most fixed in what they offer. Institutional lenders loan only within MSAs. If a property is outside of city limits, they won’t offer any loans. Similarly, banks typically only lend within their footprint. You’ll have to talk to banks near you to learn those service areas.

Of course, hard money and OPM are more flexible with locations, funding plans, and more.

7. Pricing

Every loan has a cost.

Bank loans have a lot of limitations, but this is where they shine. Interest rates and origination fees will almost always be lowest at banks. Interest rates average around 5.5 – 6%, and fees are around 1 – 1.5 points.

OPM is also pretty cheap, and more flexible than banks. Your interest rate will depend on your lender, but there are usually little to no points with real OPM.

Institutional and hard money lenders will be the most expensive, with interest rates around 10 – 12% and fees at 2 – 3 points.

8. Verified Funds

It makes sense that lenders want to know that you’ll have enough money to pay them back. But lenders go about verifying funds differently.

Institutions and banks typically require two months of bank statements. They want to prove you have the money for the down payment, rehab costs, and any carry costs. These lenders emphasize how much money you have and where it came from. They often don’t allow gap funding.

Hard money and OPM lenders, however, are fine with gap funding. These lenders’ requirements vary, but generally, funds are not a major consideration.

9. Funds Available

How much money does the lender have to offer? Do they ever run out of money, or tell you you’ll have to wait a couple weeks before they have funds?

Typically, the places that have “unlimited” money are institutions and banks. Institutions are backed by Wall Street funds, and banks can always borrow from the Fed.

Hard money and OPM are a bit more limited. Hard money fund availability is based on how many investors they have. Real OPM is limited by the bank account of your lender. A downside of hard money and OPM is that money may run dry; there’s no guaranteed constant flow.

10. Multiple States

If you’re an investor who does deals in multiple states, who will be able to consistently help you? If you live in Oklahoma but invest in Texas, which lender can you count on?

Typically, institutions are your best bet for multi-state investments. If you need someone to grow with you state-to-state, this is your main option.

Many hard money lenders are local, and they focus their investments in a single community. Similarly, banks only lend within their region.

OPM’s multi-state lending ability depends on the client, but there is flexibility.

So What Is the Best Real Estate Loan?

All in all, there is no “best” real estate loan. Remember, you need all types of leverage for a flexible, lucrative investment career.

Each loan has its limitations and perks. Here’s a quick overview of each type of real estate loan.

More Info on Real Estate Loans

If you’re left with questions about the best leverage option for you, we’re here to help.

Email us at Mike@HardMoneyMike.com with questions about your deal.

Or join our weekly call here, every Thursday from 1:15 PM – 2:15 PM MST.

Text: "When to Use Hard Money"

5 Times You Should Use Hard Money for Your Real Estate Investments

/in ,

Here are 5 ways to use hard money right as a real estate investor.

Real estate investing is all about making profit.

And sometimes, to make profit, you need to use hard money loans.

When is hard money your best option in real estate investing? Let’s look at 5 situations where you should use hard money to fuel your investments.

1. Using Hard Money for Speed

The number one way hard money makes you money in real estate investing is how fast they are.

Look at a real example from one of our clients.

He was able to buy a property in Colorado at a $30,000 discount.

Five other people were bidding as high as $330,000 on the property.

But our client was able to close in less than a week, so the sellers accepted his bid of $300,000.

How Much Does a Hard Money Loan Cost?

People can get tripped up with the cost of hard money. Wouldn’t the price of the loan leave our client at a loss here? Let’s compare his hard money loan on this deal to his competitors with a bank loan.

For hard money, he spent $7,500 on origination. A bank loan would have cost $4,500.

Six months’ worth of interest on the hard money loan adds up to $15,000. The same time on a bank loan would accrue $9,900 of interest.

Appraisal underwriting, and processing fees were lower with hard money at $984 (vs $1500 with the bank.)

Overall, our client did pay a lot more for the loan itself using hard money. His hard money loan cost $23,484, and a bank loan would have cost $15,525. That’s an extra cost of $7,959 to use hard money.

Can You Save Money by Using Hard Money for Real Estate?

Despite seeming more expensive, hard money still gave this investor a discount. Why? Hard money enabled him to close fast, so he got a better deal on purchase price.

What was the total cost of hard money? The discounted price of the property ($300,000) plus the hard money loan costs equals $323,484. 

What about the bank loan? The home price of $330,000 plus bank loan costs totals $345,525.

This is a savings of $22,041. Just for closing fast with hard money rather than using the cheaper but slower bank loan.

Using hard money for speed works even when the discount is smaller.

Let’s say our client had bid only 10,000 less than the other investors. He still would’ve saved $1,191 up front on the deal.

Hard Money Savings without a Purchase Price Discount

The option of buying real estate with bank loans is often cheaper. However, in many investment situations, using a bank loan is not a viable option.

If you have to wait 4 weeks to clear your bank loan, but only 4 days for a hard money loan… that becomes the difference between closing on the property or not.

Ultimately, even if using hard money doesn’t get you the lowest price, you still save money in the long run. If the speed of a hard money loan gets you a property, you will still come out on top.

Buying then selling a profitable fix-and-flip will always make more money than never buying and never selling.

2. Use Hard Money if You Have Low Credit

Institutional lenders, private equity, and banks have credit score minimums. If you don’t have a high enough score, you don’t get a loan.

Hard money lenders, on the other hand, are typically not credit-score-driven. Yes, they’ll probably look at your credit, but they won’t base your loan on it.

Real estate investors can have low credit scores for many reasons:

  • Usage – You put your flip rehab costs on credit cards
  • Thin Credit – You have few lines of credit, or young lines of credit
  • One-time Event – You had good credit, then life happened and your score temporarily dipped.

Hard money lenders understand that these issues are not always a reflection of your ability to pay back loans. 

That’s why hard money lenders don’t worry about your credit score, just your credit.

Do you have a history of late payments? Are you defaulting? That will negatively affect you with a hard money lender. 

If you are responsible with credit, but have a score banks won’t accept, a hard money lender will be a good option.

3. Using Hard Money Because It’s Flexible

Sometimes you need an outside-of-the-box lender.

  • Unique Properties – If you have a house or area that’s unique (maybe a dome house, an old manufacturer, etc.), hard money lenders will give you more options.
  • Rural Areas – Most local banks and large hard money lenders don’t lend outside of MSAs. Traditional lenders might not cover thirty miles outside of an urban area, but many small hard money lenders will.
  • Cross Liens – Hard money lenders have more flexibility putting a cross lien on another property. This is useful if you don’t have a lot of money to put down, but do have another property with a lot of equity.
  • Gap funding – Sometimes a mortgage doesn’t quite cover all the costs of your project. Hard money can fill in those gaps.
  • Lot splits – Splitting off a lot can be a headache with a traditional lender. A hard money lender is more flexible with the time it takes to get a survey and everything else prepared. This allows you to split off a lot, sell the house, and keep the lot.

4. Using Hard Money for BRRRRs

Hard money is crucial for successful BRRRRs.

With BRRRR (rental flips), you:

  • Buy undermarket valued properties
  • With a hard money loan
  • Then rate-and-term refinance into a longer-term loan.

If you want to get into BRRRR transactions (rental properties), you have to find a hard money lender or private lender who will loan you 75-80% of the after-repair value of the property you want to buy.

If you get a hard money loan to fund the purchase price and rehab up to 75-80% ARV, you can maximize your refinance. This saves you money, time, and interest.

5. Other Times to Use Hard Money

There are many other reasons real estate investors use hard money. Here are a few:

  • Banks limit you to 2-3 loans. If you’ve maxed out those lenders, hard money can help.
  • Hard money can work as a bridge loan. It covers the down payment of your next property until your other bank-funded property sells.
  • You can keep a project off your credit. Hard money typically doesn’t show up on your credit report.
  • Investment beginners might need help with their first couple projects started before banks will lend to them.
  • Complete a started project. If you end up with a property mid-flip, many banks won’t lend for it. But a hard money lender can easily provide a gap loan to finish the rehab.
  • Hard money has the flexibility to let you come in with other funding sources. (If you want to put repair costs on a credit card, want to use an OPM lender, etc.).

How to Use Hard Money for Real Estate

Want to learn more about real estate funding? Wondering if a hard money loan might be right for your investment? 

Email us your questions anytime at Mike@HardMoneyMike.com. 

Or join our weekly Leverage Up call here, every Thursday from 1:15 PM to 2:15 PM (MST).

Text: "ARV & Comps: How to profit on your real estate investments"

What Does ARV Mean in Real Estate Investing?

/in ,

To profit in real estate investing, you’ll need to know: What does ARV mean?

Real Estate Investing: What Does ARV Mean?

ARV is the after repair value. It’s what the property will appraise for, or sell for, on the current market once the scope of work is completed.

You estimate a property’s ARV by looking at the prices of similar homes in the current market.

What Are Comps?

Comps (comparables) are those similar homes you look at. It’s important that your comps have the same value as your property.

For example, if your deal is for a 950 square-foot home, you’ll compare it to other 900 to 1,000 square-foot homes on the market, not a 2,000 square-foot one. Similarly, compare a 2-bedroom, 1-bath house to houses of the same specifications – not to 4-bedroom, 2-bath homes.

How To Get an Accurate ARV

For your ARV to be accurate, you need to stay true to your scope of work. If you only repaint and re-carpet a house that needed much more work, you won’t get top-of-the-market value when you try to sell or refinance.

On the other hand, if your scope of work is a full remodel, your comparables should be homes that are fully remodeled, so you don’t miss out on any profit.

The money you put into fixing up a house isn’t a direct indicator of how much the house will be worth. What the property looks like when it’s finished has nothing to do with how much it cost to get it there.

What Does ARV Mean for Profit in Real Estate Investing?

Estimated profit is what you expect to make on the transaction between:

  • buying the property
  • fixing it up
  • selling it again.

Additionally, equity is the difference between the amount you owe and what the property is worth. You build equity on your rentals by:

  • buying properties with a low purchase price and a high ARV
  • successfully refinancing after a flip
  • paying down the mortgage with rent income.

If you want to find the true profitability of a deal, then use your ARV and comparables:

ARV – (Purchase Price + Budget) = Profit Amount

Read the full article here.

Watch the video here:

https://youtu.be/4RErCDhSi44

Text: "Get Money Wise!"

7 Real Estate Loan Fundamentals – Hard Money 101

/in ,

For a successful investment career, start with these 7 real estate loan fundamentals.

Are you “money wise”? It’s not hard to get there. And it will save you a lot of cash down the line.

It’s like when a person who knows about cars goes to a mechanic – they have peace of mind because they understand what’s going on. If you’re not a “car person,” at the mechanic’s it’s harder to figure out if they’re telling you the truth, or just trying to sell you more than you need.

As a real estate investor, leverage is at the center of what you do. It’s like a foreign language when you first start out. But when you become money wise, the leverage in your real estate investment career is fully in your hands.

Here are 7 real estate loan fundamentals that will make you money wise.

Fundamentals of a Real Estate Deal

There’s certain information you’ll need to bring to your lender when you need a loan. If you know the answers to their questions, the time with your lender will be much more productive.

At the end of the day, lenders want to know: Do you have a good deal? (And you should want to know the answer, too!)

We’re going to dive into 7 main concepts to answer that question:

  • Strategy
  • Purchase Price / Contract
  • Scope of Work
  • Budget
  • Estimated Profit  / Equity
  • Comps / ARV
  • Exit Strategy

1. Strategy – What Is a Real Estate Strategy?

When your lender asks about your strategy, they want to know whether you’ll use the property as a

  • fix-and-flip
  • a rental
  • or if you’re not sure yet.

What is a real estate strategy dependent on? 1) your goals, and 2) the property.

You’ll have to know the numbers to know if the property will make a good flip with carry costs you can afford, or if it would cash flow well as a BRRRR-style rental.

But how do you “know the numbers”? Let’s start with the cost of the property.

2. Purchase Price / Contract – What Are the Fundamental Numbers of a Real Estate Loan?

Your lender could refer to this as purchase price, contract, or as-is value.

In real estate investment, there’s a distinction between what you’re paying for a property and what it’s worth. The purchase price isn’t necessarily what the value of the home is. 

This is the number on the contract, the number you’ve agreed to buy the property for. And this number is foundational to whether or not your project will turn a profit.

3. Scope of Work – How Do You Fix Up a Real Estate Investment?

Many beginner investors mistake “scope of work” for the budget. Scope of work is what you’re going to do to the property, not the number of what that work will cost. 

Will you add a bedroom? Re-do the garage? Are you going to convert the porch to additional square footage? Or add egress windows to the basement?

Scope of work is your rehab plan. Lenders need this info to find out what kinds of properties they should compare to yours to estimate an after repair value.

4. Budget – What Is a Real Estate Budget?

During the conversation with your lender, have a high overview of your construction budget. You don’t necessarily need all the details ironed out quite yet.

For example, you can estimate that the kitchen will cost $10,000, siding $6,000, windows $4,000, and new paint $2,000. At this point, you don’t need to share a breakdown of the cost of each new appliance, labor and materials, etc.

You just need a realistic estimate of how much it will cost to get into the property. Having your scope of work lined out helps you with an estimated budget. When you know the purchase price an your budget, then you know how much the entire project will cost.

5. Estimated Profit (Flips) / Estimated Equity (Rentals) – How Much Will a Deal Make?

Estimated profit is what you expect to make on the transaction, between buying the property, fixing it up, and selling it again.

Equity is the difference between the amount you owe and what the property is worth. You build equity on your rentals by successfully refinancing after a flip and paying down the mortgage with rent income.

The number one reason to be in real estate investment is to make money and create wealth – it’s true for lenders, and it’s true for you. So, it’s important to both you and your lender that your properties make profit or build equity.

You’ll need your estimated profit / equity when you bring a deal to your lender.

6. Comps / ARV – What Does ARV Mean in Real Estate Investing?

ARV is the after repair value. It’s what the property will appraise for, or sell for, on the current market once the scope of work is completed.

You estimate a property’s ARV by looking at the prices of similar homes in the current market. 

Comps (comparables) are those similar homes you look at. It’s important that your comps have the same value as your property.

For example, if your deal is for a 950 square-foot home, you’ll compare it to other 900 to 1,000 square-foot homes on the market, not a 2,000 square-foot one. A 2-bedroom, 1-bath house will be compared to houses of the same specifications, and not compared with 4-bedroom, 2-bath homes.

For your ARV to be accurate, you need to stay true to your scope of work. If you only repaint and re-carpet a house that needed much more work, you won’t get top-of-the-market value when you try to sell or refinance.

On the other hand, if your scope of work is a full remodel, your comparables should be homes that are fully remodeled, so you don’t miss out on any profit.

The money you put into fixing up a house isn’t a direct indicator of how much the house will be worth. What the property looks like when it’s finished has nothing to do with how much it cost to get it there.

To find the true profitability of a deal, your ARV and comparables help:

ARV – (Purchase Price + Budget) = Profit Amount

7. Exit Strategy – How Will You Pay Your Real Estate Loans?

When a lender asks for your exit strategy, they want to know your plan for paying off the loan. For hard money loans, your exit should be fast.

If it’s a flip, your exit strategy is to sell the property, then pay off the loan.

If it’s a rental, your exit strategy is to refinance into a long-term loan, which will pay off the hard money loan.

The Why Behind Money Wise – Real Estate Investing Definitions

When you come to the table prepared, with strategies, numbers, and knowledge, you can speak the same language as your lender.

This is key to ensuring you have a safe transaction with a lender that is working in your best interest.

Curious About Other Real Estate Loan Fundamentals?

If you have any questions, or want coaching through a deal, we’re happy to help. Reach out at HardMoneyMike.com.

For more info on real estate loan fundamentals, keep up with our Hard Money 101 series on our blog, or visit our YouTube channel here.

Happy Investing.

Text: "Loans for Investing with Rising Inflation"

Loans for Investing with Rising Inflation: What Should You Expect?

/in ,

With rising inflation, how will your loans for investing be impacted?

In the past few years, everyone with money rushed into the real estate industry. All that money flowed freely, making real estate investing relatively easy and cheap.

But with rising inflation, that money is now leaving. Here are some changes you can expect around loans for investing.

What Does a Rising Federal Fund Rate Mean?

To combat inflation, the Fed has started raising their rates. They do this to raise the cost of credit, making less money available across the board.

And obviously, this affects us as real estate investors.

When interest rates rise, money tightens up. There’s less of it available for everyone, and lenders adopt stricter requirements. 

While this makes loans for investing harder to get, it also means there will be less competition. Many current investors won’t be able to qualify for loans for investing with rising inflation.

What Will Investing Look Like with Rising Inflation?

It’s hard to say when money will start coming into the real estate market again. Lenders don’t know where exactly home prices are going. And property values are one of the main factors that decides the availability of funds.

But while everyone else is running out of the real estate market, you want to be running in. Why? Because that’s when prices will be the lowest. If you have the leverage to get into properties at low prices, you can refinance when interest rates come down. This is how you capture the wealth real estate investing offers.

This is the time you want to buy, yet it’s also the time where loans for investing are hardest to come by.

You’ll need to be prepared and qualified to take advantage of the upcoming market.

Read the full article here.

Watch the video here:

Text: "Inflation! Why You Should Still Invest in Real Estate

Real Estate Funding When Inflation Hits: Loans for Real Estate Investing

/in ,

You have to adapt to the changing market. Here’s what you need to know about real estate funding when inflation hits.

Real estate investors need to be in debt. We need leverage. We need the easiest, fastest, cheapest money, no matter what.

So when inflation hits and money tightens, where do you find real estate funding?

Is it possible to take advantage of this time as an investor? Here’s what you’ll need to know about loans when inflation hits.

Loans for Investing with Rising Inflation

In the past few years, everyone with money rushed into the real estate industry. All that money flowed freely, making real estate investing relatively easy and cheap.

But with rising inflation, that money is now leaving. Here are some changes you can expect around loans for investing.

What Does a Rising Federal Fund Rate Mean?

To combat inflation, the Fed has started raising their rates. They do this to raise the cost of credit, making less money available across the board.

And obviously, this affects us as real estate investors.

When interest rates rise, money tightens up. There’s less of it available for everyone, and lenders adopt stricter requirements. 

While this makes loans for investing harder to get, it also means there will be less competition. Many current investors won’t be able to qualify for loans for investing with rising inflation.

What Will Investing Look Like with Rising Inflation?

It’s hard to say when money will start coming into the real estate market again. Lenders don’t know where exactly home prices are going. And property values are one of the main factors that decides the availability of funds.

But while everyone else is running out of the real estate market, you want to be running in. Why? Because that’s when prices will be the lowest. If you have the leverage to get into properties at low prices, you can refinance when interest rates come down. This is how you capture the wealth real estate investing offers.

This is the time you want to buy, yet it’s also the time where loans for investing are hardest to come by.

You’ll need to be prepared and qualified to take advantage of the upcoming market.

Getting Real Estate Investment Loans When Inflation Hits

Two of the main players putting money into real estate investment are hedge funds and banks.

Where Money Goes During the Rise of Inflation

During inflation, hedge funds step away from real estate and take their money with them. They won’t jump back into the real estate market until it’s clear where prices will land.

Banks are required by the Fed to raise rates and step back from the real estate investment world for now, too.

Without Banks, Where Do You Get Real Estate Funding When Inflation Hits?

With federal requirements, banks are backing out of the real estate investment market. They’ll only be able to lend to the top percentage of real estate investors.

Banks are lowering their loan-to-values, which increases down payment requirements. Or they’re squeezing investors out of loans altogether with higher credit, income, and experience requirements.

nvestors who used to always be bank-approved are now in greater need for gap funding. Those who primarily relied on bank loans previously are being pulled down to hard money.

Private Lending During Inflation

Private lenders will have more real estate investment loan options than banks during inflation. 

Hard money won’t just be for  fix-and-flips anymore. Many of these lenders will expand to offer loans that appeal to the typically-bank-approved investors who are shifting down.

And what does this all mean for you?

In your real estate investment career, you’ll have to start expanding.

If you only worked with one or two banks before, now you might need to find six to get the real estate loans you need. And if banks can’t lend at a fast enough rate for you, you should start getting to know the hard money lenders in your area – even if you traditionally don’t go the hard money path.

Lending options will narrow soon. Start expanding your options now to prepare.

Loan Options to Fund Your Investment

When inflation hits, you need to expand your options for real estate funding. This means partnering with a broader pool of lenders. But it also means understanding your loan options to fund your investments.

In the last five years or so, we’ve been in a refinance and mortgage boom, focused on traditional loans like 30-year fixed mortgages.

But when inflation hits, other loans that have always been around will be popular again. Let’s look at a few of these loan options to fund your investment.

Adjustable-Rate Mortgages (ARMs)

Adjustable-rate mortgages, or ARMs, are fixed for five or seven years, then become adjustable. They allow you to get into a property with a .5-1% lower interest rate than a 30-year mortgage. 

A lower interest rate with an ARM means better cash flow for your investment.

Interest-Only Loan

With the interest-only loan option, you just pay interest for the first ten years – no principle. This benefits cash flow for investors because you’re not making a loan payment every month.

Interest-only loans work for some strategies but not others. If you’re prioritizing cash flow on properties you know you’ll refinance later, this type of loan could be a great option.

40-Year Amortizations

40-year amortizations are not as popular, but they’re still an important option to consider. A 40-year amortization is an alternative to the 30-year fixed mortgage. Your payments are spread across a 40-year span instead of 30, so your payments are lower.

Using this loan allows you to get into a property with increased cash flow while you wait for home values to  rise so you can refinance into a more traditional loan.

Adjust To the Market To Fund Your Investment

For these loan options to work, you have to start getting ready now. Prices will come down soon, and the faster you adjust to the new-normal, the better.

The market will be different than it has been for awhile. Look at different loan options from the past, and work with as many lenders as you can who understand and fund these loans.

No Money Down Investing Options in 2022

When inflation hits, real estate funding constricts. With banks lowering LTVs and raising down payments, your no money down investing options will look different in the remainder of 2022.

Traditional no money down investing options will be harder to come by with limited bank funding. Here are three options to adapt to the changing market if you want to invest with no money out-of-pocket in 2022.

Subject To Properties

Subject tos have been out of favor for a while, but they’ll offer great opportunities in the near future.

When market prices are high and someone can sell a house for whatever price they want, they don’t need the “escape” of the subject to. 

Now that prices are coming down, more people will be stuck with properties they can’t sell and/or can’t pay for. More people will be open to you taking over their mortgage so they don’t wreck their credit or foreclose.

Owner Carries

An owner carry is when someone owns a house free and clear, and they carry the mortgage instead of going through a bank. You make mortgage payments to them directly. 

They get a better rate than if they sold and kept the money in an account. And you get a better rate than you would trying to take out a traditional loan from a bank when inflation hits. 

With owner carries, you usually don’t have to worry about credit, income, or, oftentimes, even down payment. Closing a deal with an owner carry is easier, cheaper money.

OPM Partnerships

Real OPM will be crucial to real estate funding when inflation hits. With LTVs coming down, you’ll need to bring in more money for deals. A HELOC can be helpful, but if you truly want to take advantage of low prices and buy 10 or more properties, it’s wise to partner with real people’s money. 

People can get better, more stable returns in a secured real estate note than they would in either the stock market or a bank account. You can set up a win-win deal to receive a loan from a normal person rather than a lending institution.

Real Estate Funding Options in 2022

2022 is the time to expand your real estate investing options beyond the traditional loans.

As banks tighten up, OPM loosens up. Regular people with money will be searching for options to get a decent return during inflationary times.

OPM – Your Top Real Estate Funding Option When Inflation Hits

At Hard Money Mike, we’re major proponents of using OPM for your real estate funding. Especially when inflation hits, and especially as the market shifts.

We’ve specialized in OPM over the past 15 years. You need money in real estate investing, but it doesn’t have to be your money.

Utilizing other people’s money truly benefits both lender and investor alike.

You can approach a family member or friend with all their money in an IRA and offer them a better return. You need a plan, with the right numbers and a secured set up. But as long as you treat their money carefully, people will not only lend to you but recommend you to other OPM lenders too.

When traditional lenders are lowering LTVs and requiring higher down payments, OPM is how you’ll be able to fill in the gaps to actually buy these properties at their upcoming low prices.

How Do You Set Up an OPM Deal?

The secret to OPM deals is making them a win for both parties. It’s not hard to do, you just need to know where to start.

We’d love to help you set up your OPM agreement. We have a lot of experience with OPM, and we want to see it accelerate your real estate career during this market.

Reach out at HardMoneyMike.com, and download our free OPM Checklist here.

When Inflation Hits, Your Real Estate Funding Doesn’t Have To Stop

Many investors don’t understand the money side of real estate investing. Leverage is a huge part of this industry. When inflation hits, it can be scary when you don’t know the right steps.

Learn how to get faster, cheaper, easier money, and how to partner with lenders.

To get help with your real estate investment career during this market, reach out with your questions at HardMoneyMike.com.

Happy Investing.

Credit score mix

The Must-Know Basics About Your Credit Score

/in ,

What a credit score is and why you should care (if you care about your investments).

There’s a magical triple-digit number that seems to decide your fate in this world.

It can determine what car you drive, where you live, and how much money you can have at your disposal.

And in some cases, it can make or break your success as a real estate investor.

It’s your credit score.

But it’s not as magical as it seems. There’s a logic to your score, and you have the power to change it.

So let’s break it down.

What is a Credit Score?

A credit score is a way for lenders to determine your “creditworthiness.” In other words, your “you-can-trust-me-to-pay-back-your-money”-ness.

Because you know whether someone can trust you with their money. But financial institutions don’t know you like you do.

Lenders need a way to decide if you’re safe to lend to. So your score tells them the story of your financial habits.

How Is My Credit Score Calculated?

There are a couple different types of credit scores, but the numbers we’ll use here reflect FICO scores (the most widely used credit score for most lenders).

Credit scores range between 0 and 850. More than 740 is great, and a score of less than 700 begins to limit your options.

This number is calculated by looking at five main pieces of information:

  • Credit mix
  • New Credit
  • Credit History
  • Payment history
  • Amounts owed

Credit Mix

Close to 10% of your score is based on the mix of credit you already have.

Do you have seven credit cards?

Or zero?

Do you have a car payment, a mortgage, student loans, personal loans?

Typically, the more diverse your lines of credit are, the better it is for your score.

New Credit

Around 10% is based on “new credit,” or how often you get credit inquiries or open a new line of credit.

New credit can temporarily lower your score. So for example, if you buy a new car, you’ll probably have trouble securing a loan for a property right away.

Length of Credit History

About 15% of your score is calculated based on how long you’ve had your lines of credit.

If you opened your first line of credit less than 5 years ago, you’ll have a lower score than someone whose credit is 40 years old.

Amounts Owed

These last two categories are the most important. They make up two-thirds of your credit score.

About 30% of your score is determined by something called amounts owed. Amounts owed is about your debt. More specifically, it’s about how much of your available credit you’re using.

For example, let’s say your credit card has a max of $1,000. You buy a new set of tires and brakes, so now you owe $1,000 on your card. You’re using 100% of your $1,000 limit – you’re maxed out.

The story creditors see when they look at you is that you’re not managing your credit well. They’ll assume you won’t manage other loans well either, so you get a lower score.

But let’s look at another situation.

Say you got a different credit card with a max of $5,000. That same borrowed $1,000 has a way different effect on your credit score. You’re only using 20% of your credit line, and you’re leaving 80% at your disposal. Creditors like that story. So you get a higher score.

Payment History

The biggest amount of your score, up to 35%, is based on your payment history.

Payment history is exactly what it sounds like:

  • How are you paying your bills?
  • Do you always pay on time?
  • Have you had any bankruptcies?

Financial institutions can see this information, and it’s the top factor they consider. At the end of the day, lenders want to know: Will you pay them back? On time?

Need More Information?

Your score is incredibly important to keep on your radar. Especially when you’re investing in real estate.

It’s not a made up number that has no effect on your life. But it’s also not as difficult to understand as it may seem at first.

For more tips on building good credit and maximizing real estate investment leverage, check out these helpful videos on our Youtube Channel.

You can also download our Credit Score Checklist at this link.

Happy investing.

Investing in Real Estate with Zero Down

3 Ways to Start Investing in Real Estate with Zero Down

/in

Is investing in Real Estate with Zero Down for real?

No money to put down on your first investment? That shouldn’t stop you.

Use these 3 tips to get started.

You don’t have enough savings. After all, flipping is how you want to start making money, right? And you want to begin that real estate investment journey now.

But if you don’t have the money to begin with… how are you even supposed to start?

We see people do it every day. Here are the 3 main ways people have made successful real estate careers with zero money down.

  1. Get a HELOC

    If you already own a house, the first tactic you should use to get money for real estate is to get a HELOC.

    HELOC stands for “home equity line of credit.” It’s basically a second mortgage that works like a line of credit that you can use and pay off over and over again. You’re able to use it for multiple properties.

    You could get a HELOC from credit unions or banks. We usually send our clients to credit unions because they tend to have better options for HELOCs. A credit union will likely give you:

    • A longer term
    • Fixed rates
    • A little more money

    If you already own a home, go to a local credit union and ask them about a HELOC first.

  2. Start a Partnership

    But what if you don’t have a house, so you can’t get a HELOC? A partnership might be your next best option. There are two routes you can go.

    Family or Friends

    You can ask a family member or friend to be a money partner. They can provide you with the cash to use for a property’s down payment, or for the repairs of your flip.

    The close and personal aspect of partnering with someone you know can be the best option for some people. In other cases, it’s nice to partner with a person or entity who’s not so personal.

    Outside Partner

    You could also look for an outside partner.

    For example, Hard Money Mike partners with people who find good deals but don’t have the money to make that first purchase. We help them finance the whole amount so they can get into their first two or three deals. After letting us help fund their first three deals, most people come out with enough money to do their own down payment and repair costs on their next property, with no partner.

    Beginning investors can make their business independent quickly when they seek out the right partner to get them started.

  3. Use a credit card

    Many people hesitate to use a credit card to fund their investments – for good reason. But when done right, a 0% credit card can be the simplest way to start investing with no money down.

    What are the wrong ways to use a credit card for a fix-and-flip?

    • Getting a credit card with a high APR.
    • Using the card to go out and have fun.
    • Not paying back the charges you put on the card.

    If you’re smart, it can be easy to use a credit card the right way. Start with a 0% APR card. Understand that it’s a tool for your business, so treat it that way. Only use the card for repairs, contractors, and other costs associated with your flip.

    Take out the money, sell the property, then clear the card back to zero before moving onto your next project. Don’t let the debt accumulate. Don’t keep a balance from deal to deal. This is where credit card use falls through for most investors. They don’t use the money from the sale to fully pay off the card, and it gets out of hand fast.

    But if you do it right, a credit card works as a great way to help beginners get the funds needed to start in real estate.

What Are Other Ways to Investing in Real Estate with Zero Down?

Clients come to us wanting to get into real estate but think they need money in the bank. That’s not always the case.

Here are the 3 key ways we see people start their investments with no money:

  1. If you already have a mortgage, get a HELOC.
  2. Start with money from family, a friend, or an outside partner.
  3. Use a 0% credit card to fund the costs of your investment.

These aren’t the only ways we’ve seen people succeed with a new real estate career.

Want even more ways to get into flipping and property investment with zero down? Download our free checklist, or check out these videos on our YouTube channel.

Happy investing

Investing in Real Estate with Zero Down