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Text: "Start investing in real estate at 40"

How to Start Investing in Real Estate at 40

September 6, 2022/in Beginners, Blog

Set yourself up for retirement – start investing in real estate at age 40+!

We have a lot of people in their 40s and 50s come to us wanting to get into real estate investing. They always say the same thing:

“I wish I would have started 20 years ago.”

But it’s never too late to start real estate investing. The best time is now.

It’s possible for people 40+ years of age to start real estate investing now and retire at 65.

Here’s our plan for how to kickstart your real estate portfolio quickly. In 10-15 years, you’ll have wealth built and cash flowing for retirement.

How to Create Wealth Investing in Real Estate Past 40 – The Plan

Here’s the plan we give to people wanting to start investing in real estate at 40:

Buy ten properties in three years.

For a beginner, that sounds like a lot. But we break it up, you take your time, and ten properties in three years becomes doable.

The Breakdown

Year One: You buy two properties. You’re learning the ropes this year, so you take it slow. Take this year to learn how to do everything right, build relationships in the industry, and prep for the coming years.

Year Two: You get three more properties. After the initial experience of your first year, it’s a reasonable stretch to do one more property. By the end of year two, you’re halfway to your goal of ten properties.

Year Three: You do the remaining five properties. By this time, you’re in the swing of things, you know the right people, and buying five properties in one year is very manageable.

Now Is the Best Time

This is a great time to be in real estate investing. Rent is high, supply is low. Plus, we’re about to hit a recession.

Property prices will come down soon. Low prices are the best time to buy, and the best opportunity to create the most wealth.

Maybe after hearing all this, you’re concerned about how you’d pay off ten properties in 10-15 years. How are you really building wealth when you’re spending hundreds of thousands on real estate?

You don’t have to wait 30 years to pay off the mortgages of these homes. Next, we’ll talk about the numbers behind this plan and how these ten properties will change your retirement.

Example of Building Wealth in Real Estate Over 40

So the plan is to buy ten properties, fast. You’ll learn the logistics of that process quickly enough with the three-year breakdown… But how on earth are you expected to pay for ten pieces of real estate in such a short amount of time?

Here’s an example of how the money breaks down for these retirement properties.

What Type of Properties to Buy Over 40 (And How to Pay for Them)

These ten properties should be BRRRRs or subject tos. Both of these real estate investment methods are ways to:

1) Gain properties with little to no money down

2) Create rental properties that will generate cash flow.

So when we say “buy 10 properties,” it’s not with money out of your pocket. It’ll be with debt leverage and investment strategies that will help you reach your goals quickly (without dipping into retirement savings or hurting cash flow).

Understanding Your Numbers – Example of Real Estate Retirement

In this example, we’ll look at properties with a value of $200,000. That number is spot on for some regions, and very low for others. Remember, you can use these same equations and concepts no matter what actual price range you’re dealing with.

Let’s say we’re using BRRRR and looking at $200,000 properties. You can get a loan for $150,000 per property (which means you only owe $150,000 on each house).

Each property adds $50,000 in net worth to your portfolio. So ten properties in three years automatically builds you $500,000 in net worth.

Also, these rental properties will add up to $800/month in cash flow (more on cash flow in the next section).

How to Use Cash Flow

If you don’t need the cash flow immediately, you can use it to pay down the loans. This way, you own the houses free and clear. When you do retire, you have all that equity in your portfolio, plus a higher monthly cash flow.

Next, we’ll dig into the details of cash flow and how it can help you retire early.

Retire Early with Real Estate – How to Make Cash Flow Work for You

We’re all about the money and leverage side of real estate. We want you to understand the numbers behind the mortgages so you can reach your goals and get out of the loans faster.

To retire early at 40+, it’s important to look at some key numbers.

Evaluating Cash Flow When You Start Investing in Real Estate at 40

Let’s look at an example property that has a loan for $150,000 and an interest rate of 6%.

In this case, your monthly principal and interest payment will be $899.33.

Once you add taxes, insurance, and other costs, you’ll be at $1,184.33 in expenses.

If you’re in an area where you’re finding a $200,000, 3-bedroom 2-bath property, you should be able to reasonably rent for $1,600.

With that rent, we’d have a net total of $415.67/month coming into the property.

How Should You Use the Cash Flow?

If you’re nearing retirement age and don’t need to pocket the cash flow on your new properties, there are some options to make that money work for you.

By using the income from your rentals, you can get the properties completely paid off. So once you finally retire, you’ll have several options:

Sell off the houses
Take out equity loans to buy more real estate or supplement retirement income
Get higher cash flow on each property with no loan payments

Increasing Cash Flow to Retire Early with Real Estate

If you use the cash flow on properties pre-retirement to pay down the mortgages, you can retire early (and with more money!).

Let’s round our $415.67/month net income down to $400. So instead of taking that $400 and putting it in your pocket, let’s see what it looks like to pay down an extra $400 on your mortgage every month.

Instead of paying around $1,200 toward your loan plus insurance and taxes, you’ll be doing around $1,600/month total.

This will cut your mortgage down to 14 years. So even if you’re 50, you can own these properties free and clear by the time you’re 65.

And once all the houses are paid off, you’ll automatically have:

$2 million in equity.
$1,300/month income per property. (You no longer have to pay principal or interest, just taxes and insurance.)

$1,300/month per property equals $13,000/month total across 10 properties. That’s an annual income of $156,000/year. While being retired!

Long-Term Wealth in Real Estate Over 40

Once the houses are paid off, the only work left to do is upkeep on the properties. A small price to pay to make over 150k every year you’re retired!

These calculations, of course, are in “today’s” money. Inflation will continue at a steady rate, so rents will go up and home values will go up. But all costs will rise over time, so these amounts will “feel” about the same.

It’s never too late to start investing in real estate.

Real Estate Investing for 40+ Beginners with No Money

Ten properties in three years. Paying down the loans so you own them free and clear by retirement. It really is great, but…

How can you start with no money?

BRRRR

BRRRR stands for Buy, Rehab, Rent, Refinance, Repeat.

You buy the same type of properties as fix-and-flippers, but instead of selling them, you rent. They’re properties from wholesalers that are listed undermarket.

These properties require quite a bit of work to fix up, but they have the opportunity for the highest cash flow.

Subject To

A subject to is when you take ownership of someone’s property without taking out a loan. You make all payments, but the previous owner keeps their mortgage on it.

Subject tos are a great way to get into a property for little money – this is especially important since money is tightening in the real estate lending world. This investment technique has been less popular in recent years, but with the market turning, they’ll be coming back strong in the next year or two.

The Value of No Money Down Investing for Soon-To-Be Retirees

You don’t want to tap into your retirement or savings with your real estate investments – you want to add to them.

Look into BRRRR, Subject Tos, and other no money down investment techniques. This is the path to adding $2 million to your net worth without spending any money.

Real Estate Investing for Beginners in a Recession

A recession can cause unease for people nearing retirement – and people who are considering any major investments.

So why is this the best time to get into real estate investing? Even for older people?

Looking Back at the Great Recession

If you had bought the homes real estate investors did in 2010, you’d be retired by now.

Our current market is beginning to look a bit like 2008-2009 – a recession coming on, inflation hitting, the money supply tightening. Which means there will be more homes available at a discount.

Consumer debt is increasing. Especially after the housing blitz we’re just getting out of, it will be harder for homeowners to keep up on payments. When people need to move, it will be harder for them to sell. People get stuck with houses they can’t afford.

For real estate investors, that means there’s more inventory, at lower prices.

Using The Recession to Increase Net Worth

Buy soon, when prices are down and inventory is high. In the future, rates will come down and prices will go back up. So that plan that offers $2 million of net worth could potentially double or triple.

In 2010, we helped people use the same retirement real estate investment plan outlined in this article.

One client bought ten properties that year. Since then, his real estate has quadrupled in value, and ten years later, he owns eight of the properties free and clear.

This is the time. You don’t want to buy when prices are high and sellers have control. Jump in and buy now to get the deals that will truly create wealth and help you achieve the retirement you want.

Start Real Estate Investing at 40 – Where to Go From Here?

Whether you’re ready to kickstart your investment career now or not, the best place to start is to get educated.

It doesn’t matter if you’re 30, 40, or 50 years old. Reach out to us with specific questions, or any help starting your plan for retirement at info@hardmoneymike.com or HardMoneyMike.com.

Visit these links for a BRRRR investment guide and more information on no money down investing.

Text: "Finding Hard Money Bridge Loan Lenders"

Where Do You Find a Hard Money Bridge Loan Lender?

September 4, 2022/in Blog, Lending Options

Does every hard money lender do bridge loans? Where do you find a hard money bridge loan lender?

A lot of people use the term bridge loan interchangeably with gap funding or hard money, but a true bridge loan is slightly different. They’re shorter-term than a hard money loan, and they’re typically less expensive because of that.

Is a Bridge Loan Different from a Hard Money Loan?

A hard money loan is longer and broader than a bridge loan.

The average bridge loan lasts 30 to 45 days. Hard money loans can last up to a year or longer.
Bridge loans get you from one property to the next. Hard money focuses more on a single project.
Bridge loans get paid when your old property sells. Hard money loans get paid when you refinance or sell the property the loan was originally for.
A bridge loan is used as temporary funds to close on a house. A hard money loan can be used as a more general budget for a purchase. Many come with the option for escrows to fix up the property over time.

Typically bridge loans are used for 3 situations in real estate investing. When you:

Are buying a new property and already have one listed for sale
Need to cover down payment on a new property
Find a great deal but your bank’s financing won’t be ready in time.

What Lender Give Bridge Loans?

To find these quick, short loans, a small local lender (like Hard Money Mike) will be your best and fastest option. Smaller hard money lenders prefer working with deals that provide good, safe returns. Bridge loans do exactly that.

A bigger hard money lender will do a bridge loan, too. But they may take up to four weeks to close, which often defeats the purpose of true bridge lending.

You can also get bridge loans from some banks. Not big, national banks, but many local banks and credit unions who work with real estate investors may do bridge loans, too. Banks usually offer the cheapest bridge loans, but can take 3 – 4 weeks or longer.

Ask around to hard money bridge loan lenders you know to learn their pricing and see if it’s worth it. You can use our free loan optimizer to find out if you can get a good deal on bridge loans near you.

Read the full article here.

Watch the video here:

BRRRR Is Not Dead: How to Invest in Real Estate in an Inflation Market

September 1, 2022/in Blog, BRRRR

When inflation hits, BRRRR does not die.

Real estate investment in general is extremely money-dependent. BRRRR in particular totally relies on the availability of funds.

So does that mean BRRRR dies when inflation hits and money tightens?

Absolutely not. You can be successful with BRRRR even during times of uncertainty. But that doesn’t mean BRRRR will look exactly the same as it did in a hot market.

Here’s what to know about BRRRR investments during inflation.

What Does BRRRR Mean?

First, let’s start with the basics. What does BRRRR mean? Your understanding of BRRRR will determine your success when inflation hits.

BRRRR comes down to two key factors.

1) Buying Undermarket Properties

Buying undermarket properties is the crux of BRRRR.

This important point has been confusing to people in the last few years. That’s because truly good undermarket properties have been hard to find.

We’ve been seeing people buy at 80-85% of a property’s ARV. In the near future, those values will come down.

Back in 2010, people were able to buy properties for 60-65% of the ARV. We’re hoping that’s where this next market will take real estate investors.

So, what does BRRRR mean? First of all, it means buying undermarket properties. And with inflation, lower priced BRRRR properties will be coming back.

2) Using a Two-Loan Strategy

The other foundational concept in BRRRR is its two-step loan process.

The whole point of BRRRR is to get into properties with little to no money down. To do this, you need two loans – one to acquire it, and one to hold it long-term.

Once you own the property (using the first loan), you can refinance it using the appraised value (via the second loan).

If you can buy a property undermarket (with private money) and own it, you capture the equity of the house when you refinance it.

Instead of pulling more money from your pocket for your next deal, you can use the equity you create with one BRRRR to buy more real estate – even with inflation.

Learning More About What BRRRR Means

BRRRR means two things: buying undermarket real estate, and utilizing two loans to do it.

We’ve been doing BRRRR for over 15 years – before this strategy was even called “BRRRR.” For more on BRRRR fundamentals, check out these YouTube videos, or reach out to us anytime at HardMoneyMike.com.

BRRRR In an Inflationary Market

For real estate investors, including BRRRR, inflation means money tightens up.

Money tightening means there’s less money for all real estate investors. The federal government makes money harder to get to slow down spending.

So how can you expect these effects of inflation to impact BRRRR?

How an Inflationary Market Changes BRRRR Lender Requirements

In the lending world, money tightening looks like lower loan-to-values. Maybe your hard money lender used to give you 75% of the anticipated value of the home, but now they’d give 70%.

LTVs are tightening not just on the front-end BRRRR loan, but the back-end refinance as well. Lenders are:

Tightening their cash out requirements
Offering lower LTVs
Raising income requirements
Expecting higher down payments
Requiring just plain better deals.

A big qualification to focus on is lenders’ credit score requirements. The minimum acceptable credit score has gone up by 20-40 points.

If your credit is on the border, your main priority should be to raise your score. There’s less money out there. You want to be one of the people who can get leverage once property prices go down.

BRRRR Lenders and Equity in Inflationary Times

Lenders want to make sure they’re lending to the best of the best. They’re concerned with equity.

Prices are going down. So if they lend at 70% LTV, then in 6 months home prices go down 10%, but then that 70% is no longer 70%.

So lenders will be more conservative with their LTVs. Money in general will be more conservative during this time. Eventually, we’ll land at a “new normal,” and everyone in the money world can work off the same level. For now, things are heading down in an unpredictable way, so money will be harder to get.

If you’re investing in BRRRR in an inflationary market, stay aware of the constant changes. Rates have more than doubled this year, LTVs are going down, and the cash flow on your rental properties will take a hit.

New BRRRR Lending Options with Inflation

With rates so good over the last three to four years, all BRRRR investors were looking at one loan product – the 30-year fixed mortgage.

With rates increasing, however, you might need to look beyond the 30-year fixed loan to get into good BRRRR properties. Here are some options that can bridge your properties until rates go down.

ARMs (Adjustable-Rate Mortgages)

You can get three-, five-, or seven-year ARMs. Whichever time length you pick, the rates will be fixed during that period. Afterward, the rates become adjustable.

In rising markets, these loans aren’t that great. In declining markets, though, they can be the perfect loan to bridge you into a rental property.

You can get an ARM for .5-2% lower than a 30-year fixed mortgage. These lower rates can cash flow a property until either prices go up and you can sell, or rates go down and you can refinance.

Interest-Only Loans

With the interest-only BRRRR lending option, you don’t pay any principal for the first ten years.

An interest-only loan is appealing right now because it keeps cash flowing. Your loan amount doesn’t go down, so it’s not a great option for the long-term. But it is a good lending option to get you into a property during this next market.

40-Year AM (Adjustable Mortgage)

A 40-year AM spreads the loan payments over 40 years instead of the 30 with a traditional fixed mortgage. This adjustable mortgage gives you lower monthly payments… and more cash flow.

What To Keep In Mind with These BRRRR Inflation Lending Options

ARMs give lower rates, 40-year AMs offer lower payments, and interest-only loans postpone the principle.

Keep in mind: these loans won’t help your equity or get a property paid down quickly. But they are good options to get into properties while values are low and funding is tight.

Remember that conditions of BRRRR are ever-changing. Get plugged into the money side of investing, and talk to lenders to see what’s available for you in inflationary times.

BRRRR Loan Requirements with Inflation

BRRRR has two loans – hard money to buy, long-term to refinance. With inflation, both BRRRR loans can expect lower LTVs. What else can you expect?

Hard Money BRRRR Loan Requirements

Many private money companies – particularly bigger, national lenders – are requiring 20% down.

Hard Money Mike is a little different. We fund using real private money, so our loans aren’t as dictated by federal rates. We still go up to 100% on financing, as long as you’re approved for your long-term loan up-front.

Smaller lenders can give you a better advantage with BRRRR during inflation. But you should still expect many private lenders to offer lower LTVs.

Bank BRRRR Loans with Inflation

Long-term loans are decreasing, making it harder to cash out. Traditional lenders could go down to 70% or 65% LTVs, or just have tougher requirements.

Money is shrinking, so the pot of money available to you on either BRRRR loan is shrinking.

The Plus Side of BRRRR and Inflation

What’s the good in all of this? If you’re in a bad financial position, you’ll have a hard time continuing your real estate career in inflationary times.

But, if you’re in a good position, you’ll be able to find fantastic properties in your pricepoint. And you’ll be able to find them for 20-40% less money than you could a year ago.

Don’t fight what’s happening with the economy – figure out how to use it.

Understand lending requirements now. If you get into a BRRRR, fix it fast and refinance fast. Figure out your BRRRR’s long-term loan first before you look for a short-term loan.

Things are changing rapidly in the real estate investment world. Get yourself in the best position to be able to work with it.

Alternatives to BRRRR in 2022

We’re probably three to six months out from the really cheap homes getting on the market. How can you finance BRRRRs as values go down?

BRRRRs are about getting into value-add properties with little to no money down. But as we’ve mentioned, getting into the properties will be the hard part with money tightening.

Will there be any good alternatives to BRRRR in 2022?

Subject Tos As an Alternative to BRRRR with Inflation

Here’s another way to look at rental properties with a BRRRR spirit:

What if you could take over someone’s loan and house with no money down, no credit or other requirements, 100% financing, and a great rate?

That’s what subject tos are.

You’ll see more and more subject tos popping up soon. Maybe someone bought their home at 100% last year, but values have come down 10-15% so they can’t sell without losing money or putting more in. People don’t want to go through foreclosure, so in a situation like this, they’d be interested in a subject to.

You can take over the mortgage and put the home in your name. You can do it properly, through title, and create a rental property using someone else’s financing.

This method doesn’t require your income, your credit, or any other qualifications. It only requires a secure set-up, and for you to make the payments on the mortgage.

This is a great way to purchase rental properties as an alternative to BRRRR in 2022 if you don’t have leverage.

Owner Carries in 2022

An owner carry can happen when the seller owns a property free and clear. In this situation, the owner takes on the mortgage.

The seller would likely plan to invest the money they get when the house sells. But the stock market is up and down, and banks only offer 2% maximum interest rates in CDs and accounts.

For the owner, carrying the mortgage when they sell to you is a way to double or triple their interest rate, secured by an asset they already know.

For you, an owner carry is easier, cheaper money. You won’t find a 5% interest rate, with 100% financing and no credit check anywhere else.

Open-Minded Financing Alternatives During Inflation

There’s creative financing available in the real estate investment world.

Whether it’s subject tos, owner carries, or OPM relationships, it’s important to look always into your options for doing zero down investments. Especially now that BRRRR loans are less likely to cover 100% financing.

BRRRR Is Not Dead During Inflation

BRRRR isn’t dead! But it may look different.

This is the best time to get prepared – before the housing market completely dips. We can help you get ready.

Whether you have questions about setting up subject tos, or you’re wanting to jump into BRRRR when prices drop, we can help.

Reach out to us on Facebook, or email us at info@hardmoneymike.com

Use us as a resource – this is the time to be money prepared.

Happy Investing.

How to Set Up Your BRRRR Lenders

September 1, 2022/in Blog, BRRRR

People who win at BRRRR understand the two most important aspects of the process: getting properties undermarket, and organizing their lenders early on.

Lenders are an important member of your investment team. Here’s how to get them ready for your BRRRR investments.

BRRRR Lender Options

You’ll have a hard money or private money lender up-front. Then, in the second half of the project, you’ll have a more conventional lender with a traditional loan.

This traditional loan is usually 30-year with fixed rates, but comes with some constraints. You’re limited to ten properties with this kind of loan (including your own home). There’s also usually a limit on loan-to-value ratio, and conventional loans won’t let you put a loan in an LLC’s name.

Another option for this second loan is DSCR no-income loans. DSCR loans come in a variety of options: five- or seven-year ARMs, standard 30-year fixed mortgages, and more. Successful BRRRR investors know all their options for refinancing.

Set Your Lenders Up Ahead of Time

People who win at BRRRR set up all their lenders before they jump into a deal.

The amount loaned for the purchase and for rehab can very a lot from lender to lender. Good investors will always know how much their hard money lenders will give them.

Hard Money Mike, for example, does a lot of 100% loans if the cost is 75% less than ARV because we know the investor can easily refinance out. We know we can set them up with a rate-and-term refinance, and they’ll have no money out-of-pocket.

BRRRR winners don’t get into a property, get it fixed up, and then figure out the long-term loan. Winners figure out first whether they can get the cash out they need, and how.

Smart BRRRR investors have a pool of lenders they work with. They know what each lender can offer, and which will best fit their current strategy, ability, and deal.

Read the full article here.

Watch the video here:

Text: "Loans for Investing with Rising Inflation"

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

September 1, 2022/in Blog, Lending Options

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:

What Formula Do Lenders Use for DSCR Loans?

September 1, 2022/in Blog, Lending Options

An important part of considering a DSCR loan is understanding the DSCR calculation. All lenders will look at this formula for DSCR loans.

Let’s go through and look at the numbers to find out if your property has enough cash flow for a DSCR loan.

Income & Expenses

The number one thing DSCR lenders look at is income.

For this example, let’s say our rent is $1,000 per month.

The next thing they look at is expenses.

They want to make sure your income more than covers your total costs. They’ll look at: mortgage payments, taxes, insurance, and HOA. Right now, they don’t look at property management costs, but that could change in the future.

Let’s fill out these numbers for our example property:

So, the total expenses for this property are $850. Right away, we can see that income more than covers expenses, and this property cash flows $150/month.

Applying the DSCR Formula

Then, the equation lenders will do to determine this cash flow will be:

Income ÷ Expenses = Cash Flow Rate

Or, in this case:

1000 ÷ 850 = 1.17+

Lenders are looking for a positive cash flow. They want properties with:

Bare minimum: One-to-one. This means your rent at least covers your costs. (Example: Rent is $1000 and your monthly expenses on the property is $1000).
Better: 1+
Best: 1.25+

Download our free spreadsheet to fill out this formula for your properties to see if they’d qualify for a DSCR loan.

Read the full article here.

Watch the full video here:

Text: "How to Buy an Airbnb with Zero Down"

How to Buy Your First Airbnb with No Money Down

August 31, 2022/in Blog, Making Money

Are you looking to buy your first Airbnb? Do you know you could do it with no money down?

If an investor decides to use short-term rentals as an income stream, ideally, they won’t want to pay a bunch of money up front for the property.

But is it possible to buy your first Airbnb with no money down? What does it take to get 100% financing on a property to convert into an Airbnb?

Using the BRRRR Strategy to Invest in an Airbnb with No Money Down

One possible way to get a short-term rental with zero money down is to use the BRRRR strategy.

If you can buy a property undermarket, fix it up within budget, and refinance, then you can set up an Airbnb for no money down.

We’ve helped a lot of people use the BRRRR strategy to get into Airbnbs. They keep the purchase and rehab costs at 75% or below the ARV, then get into a long-term conventional loan or DSCR loan.

The BRRRR process for Airbnbs is mostly the same as for a traditional rental properties, with a few slightly different requirements.

Long-term Loan Requirements to Invest in Airbnb

You’ll find conventional lenders that will lend for an Airbnb. But they may require that you have:

Two years of experience with Airbnbs
Other real estate investment history
The income for the loan (from a W2 job or your own business) without any income from the property.

If you’d need a loan with fewer requirements for your first Airbnb, then a DSCR loan may be right for you. A DSCR loan’s only major requirement is that the income from rent covers the expenses of the property.

What If You Can’t Get an Airbnb for Zero Down?

If you land a good BRRRR opportunity – that is, if you find a property you can buy and fix up for under 75% of the ARV – you can get it with zero down.

Otherwise, you’ll be asked to put 20-30% down, depending on:

Your credit
Your income
The income potential of the property

In the full article, we explore options for covering these down payments and other costs that a loan won’t cover.

Read the full article here.

Watch the video here:

What Credit Score Do I Need to Invest in Real Estate? (And What If I Don’t Have It?)

August 30, 2022/in Blog, Credit

What do you need to do to invest in real estate with a low credit score?

60% of the calls we gotten in 20+ years in real estate lending involve the question:

“What credit score do I need to invest?”

And unfortunately, there are a lot of beginner investors out there who need to work on their credit. But until they increase their credit score, how can they get money to start their real estate career?

Right now is a great opportunity to start. A good credit score is crucial to take advantage of the kind of market we haven’t seen for twelve years.

The credit score you need to invest in real estate depends on who you’re getting money from. Let’s take a look at some of your funding options with different credit scores.

Do Hard Money Lenders Check Credit?

First of all, a question for many beginner investors is: “Do hard money lenders check credit?”

Yes and no.

In the hard money lending world, there’s a big split in lenders’ approach to credit scores.

National Hard Money Lenders – Credit Scores to Invest in Real Estate

On one side, there’s the national lenders, the big hedge funds, the major institutions. For them, it’s all about credit and experience.

You end up being a number to these bigger companies – a data point. So they focus on the numbers that represent your success. The most important of these numbers is your credit score.

The larger the institution, the smaller the box they need you to fit in. So if you’re looking for money and your credit is below 680, you probably won’t fit in the box of national hard money lenders.

Local Hard Money Lenders and Credit

On the other side, there’s smaller, local hard money companies. These local lenders won’t base their loans on your credit score.

Most local hard money lenders look at you and your deal. They’ll want to know:

what you’ll do with the property
what the house is like
what the numbers are

to see whether you have a good chance of making money from the deal.

If you’re investing while your credit score is lower, gear yourself toward these local lenders. There are plenty of these hard money lenders around – hundreds in the Denver market alone!

What Do Hard Money Lenders Require?

Most local hard money lenders won’t credit check, but they will look at a few other things.

What do they look for? How do you know if you’re the type of person they want to lend money to?

What Hard Money Lenders Generally Require

Local hard money lenders look at a combination of information about you:

Your experience
Whether you’ve done flips or rental properties before
The success of your past investments
How many you’ve done in the past three to five years

And if you’re new to investing, lenders will want to see that you’re working with people – realtors, contractors, etc. – who do have good real estate investment experience.

Cash Requirements By Hard Money Lenders

Hard money lenders will also require some cash.

It might be 10-20% down. Or maybe your deal is so good they won’t require any money to be put into the property. Either way, most lenders will still want to see that you have a little cash accumulated.

This backup money is considered reserves. If an unexpected rehab cost comes up, your lender will want to be sure you could cover it.

Also, the lender will simply want to ensure that you can make your payments. They want to build a great relationship with their clients, which starts with choosing investors that will make the process smooth.

All small lenders want is to lend money, then get it back with interest. If you can prove you can make that process happen as simply as possible, any local lender would be happy to work with you.

Credit Score Requirements to Invest in Real Estate with Local Hard Money

Local hard money lenders might not require your credit score, but they’ll still check your credit.

Your credit report will give them an idea of your financial habits – who they’d be getting into a money relationship with. They’re mainly looking for a history of bankruptcy, foreclosure, or lack of payments.

Why don’t local hard money lenders require credit scores? Real estate investors are credit-dependent in a credit-driven industry. A lot of our clients use credit cards to cover the cost of flipping. These high card balances result in real estate investors tending to have lower credit scores.

How to Find Loans for Fix-and-Flips and BRRRRs

As an investor looking for money for a fix-and-flip, you might be getting squeezed out by rising credit score requirements. As the economy changes and lenders get tighter: Who do you reach out to? How do you get loans for fix and flips?

If your credit score is outside of the current credit score requirements for lenders, here are some tips on how to find loans for fix-and-flips.

Local Hard Money Lenders and OPM for Fix-and-Flip Loans

As we mentioned, local hard money lenders will be the most likely to get you real estate investment loans under current credit conditions.

But there’s another major way we recommend to fund your fix and flips, especially during this market: OPM.

Real, average people who want a better return on their money than they’d get with bonds or stocks will be willing to lend to you during this time. If you can show people you can secure their money, they’re likely to lend to you.

BRRRR with Low Credit Score to Invest in Real Estate

Typically, when you buy an undermarket rental, you use two loans: a hard money loan and a long-term refinance loan. If your credit score isn’t where it needs to be for banks, you’ll need to look into OPM for the longer term loan.

You could still get bank loans with a low credit score, but they’ll likely have higher down payments.

If a 720 score could get a loan that requires 20% down, a 640 score might only get you a loan if you can bring in 40%. OPM can cover that down payment cost, or any other gap in funding for a BRRRR or fix-and-flip loan.

Other Options Beyond Fix-and-Flips

With rising interest rates and lender requirements, it just might not be the right time for you to do fix-and-flips. What are some other options to focus your investment career on?

Owner carries and subject tos can be a great option in this upcoming market. These are ways to obtain properties without needing to qualify for a loan through a bank. The homeowner either lends you money to take over the property, or keeps the mortgage in their name while you make payments.

Subject tos and owner carries are important options to consider when your credit score to invest is low.

What Is Real Private Money?

We’ve mentioned it several times in this article, and now it’s time to really dig in. What is real OPM? How can you set up and use real private money?

OPM When You Don’t Have the Credit Score to Invest In Real Estate

OPM is a tried-and-true method to get money when you have a bad credit score. It’s fallen out of popularity a bit in the last few years because there had been a lot of money flooding in real estate. With money so easy to get from banks, many investors devalued the power of OPM.

We believe you should always have OPM lenders in your portfolio, but especially in a down market.

What Is Real OPM?

OPM lenders can be family, friends, or other people you may not even know personally. Real private money can come from anyone looking for a better return on a large chunk of money. As long as you take care of someone’s money, you can always find people who want a secured, asset-backed place for their cash.

Once you prove to be a competent investor, you can build strong OPM relationships. It can be as simple as calling up your lender, telling them about a deal, then getting the money exactly when you need it.

Now is a great time to start finding these people. Especially if you don’t have the right credit score to invest in real estate in more traditional ways.

Get The Credit Score You Need To Invest In Real Estate

If you got into investing recently, maybe you’re not quite sure what to do now that lenders have raised credit requirements. You can start by looking at:

small private lenders
OPM
alternative investment methods like subject tos and owner carries.

But your number one goal should always be to raise your credit score. Raising your credit score to invest in real estate will automatically open up options for you, even as things are tightening overall. And the faster, easier, and cheaper you can find the money, the more you can take advantage of the next market.

If you need help getting your credit where it needs to be, check out these videos.

Download this free credit checklist.

Or reach out with your credit or hard money questions at HardMoneyMike.com.

Happy Investing.

Real Estate Investing In a Declining Market

August 29, 2022/in Beginners, Blog

Should you bother with real estate investing in a declining market? YES.

You keep hearing that the fed is raising rates, inflation is hitting, and money is tightening. But what does this really mean for real estate investors?

Availability In a Declining Market

As inflation goes up, there’s less money for everyone. Including real estate investors.

This might feel like whiplash from the last ten years. Until recently, there was plenty of money for everyone in the real estate world. Rates were lower, loan-to-values on loans were higher, and money flowed fairly freely.

But now funds are tightening up. This will mean two main things for investors:

Lenders will require more money down
They will have higher credit score range expectations for borrowers.

Now is the perfect time to prioritize your credit score. Improving your credit score by thirty percent will put you in a fantastic position moving into this next market.

Real Estate Purchase Opportunities in a Declining Market

Rates are going up, money’s tightening… but inventory is growing. Soon, the cost of homes will drop.

You want to buy right at that moment, as money is shifting down but properties are shifting up. Sooner or later, the market will shift back.

When money gets easy again and prices go up, you increase your cash flow and net worth because you bought in the declining market.

Inflationary times are not a negative for investors. As long as you’re prepared, now is the best time to invest in real estate. If you can get money, you’ll be one of the few people out there looking for deals. Five to ten years from now, you’ll be reaping the benefits in big ways.

Read the full article here.

Watch the video here:

Where Do You Find a Gap Lender for Real Estate?

August 29, 2022/in Blog

Gap lenders aren’t exactly like hard money lenders. You can’t walk into a gap lending institution and ask for a loan. So where do you find a gap lender?

Who are Gap Lenders?

There are some hard-money-style lenders out there that focus on gap funding, but they’ll charge you a 12 – 20% interest rate. The best place to find reasonable gap funding is with ordinary people.

Traditionally, gap lenders are people you meet – family, friends, people in real estate groups, or anyone with money who wants to dip a toe into real estate investing. These people have a couple tens of thousands of dollars they’d like to make a better return on.

Half the people in real estate groups want to be real estate investors, but don’t want the burden of managing an entire project. Gap funding is secured with a lien against the property, so lending is safer than investing.

Gap lenders tend to have around $50,000 to $60,000 they’d like to put toward real estate. Not enough to do a full transaction, but perfect to fill the gaps your financing will leave on your flip.

Where Can You Go to Find Gap Lenders?

How do you find a gap lender? Get involved in the real estate community, and keep your eyes and ears open. Go to meet-ups. Talk to people with money.

A lot of how to find gap lenders boils down to: How do you convince them to give you money? How do you set up the lending relationship?

If you have questions on how to find and approach gap funders, you can watch these videos, use our OPM checklist, or reach out at HardMoneyMike.com.

Read the full article here.

Watch the video here: