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What’s an Example of a Subject To?

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Subject to deals are unique (and potentially confusing). Here’s a subject to example deal – what the process should look like from beginning to end.

Why the Seller Wants a Subject To

A subject to starts with a seller who has a problem. Either they can’t make payments on their property, or they need to move ASAP (got a new job across the country, etc). They can’t sell the property as fast as they need to; or maybe they could sell, but paying 6% realtor fees and 2% closing would leave them upside down.

The seller would rather have someone else take over the property and make the loan’s payments. This saves the seller’s credit and helps them avoid foreclosure.

A subject to helps a seller get out of a messy situation.

Closing the Sale

Once you find a seller, you’ll need to set up your terms. You’ll go through a typical closing, so you can get a title report and check for any existing liens.

You’re responsible for any liens on the property. They may have a first, second, or judgment lien that would become your responsibility. You don’t want to get stuck with a property whose value is way undermarket.

Payment Example for Subject Tos

After closing, you’ll need to set up the payment system to the seller’s mortgage company. Many people use a third-party escrow company. They make the payments to the escrow company, and that company makes the actual payments to the mortgage lender.

A seller’s credit is on the line when they agree to a subject to deal. If you offer to use a third-party company to make the payments, that could give the seller the reassurance they need to go through with a deal.

The escrow company may cost five to twenty-five dollars per month, but it’s a small price to get in on an existing loan with 2.5% – 3% interest.

Read the full article here.

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

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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.

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The Pros and Cons of a DSCR Loan

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Every loan in the world has its pros and cons – DSCR loans are no exception. The important thing is to be able to evaluate whether it’s right for your property.

DSCR Loan Pros

No Income Requirements

The biggest advantage to a DSCR Loan is that there are no income requirements.

You don’t have to work a W2 job, or be self-employed for 2 years. The application won’t ask where you work or what you do.

This is helpful if you’ve just started a new job, become recently unemployed, or have more unconventional income.

The number one requirement for a DSCR loan is the income from the property itself.

Business-Friendly Financing

DSCRs are considered business loans since the properties are non-owner-occupied. The majority of them allow you to finance in an LLC or other business name.

They also do loans in different states. If you have properties in Colorado and Florida, you can go to one lender and they can lend both places.

Minimal Paperwork

If you’ve ever done a traditional loan, you know the paperwork is a giant hassle. DSCR loans have very minimal paperwork. They’ll need to look at your:

  • Credit score
  • Loan-to-value
  • Rent

And that’s it.

The majority of lenders won’t ask for info on your other properties. They just want to know the other properties are current, and that shows up on your credit report. Even if you have other rental properties with negative cash flow, it won’t impact your ability to get a DSCR loan on a positive cash-flowing one.

As long as you have a property that’s making money, you can get this loan for very little paperwork.

DSCR Loan Cons

Prepayment Penalties

DSCR loans almost always come with pre-pay penalties. You have to keep the loan for a minimum timeframe of around 3-5 years to avoid a fee for paying off early.

So, if you get a DSCR loan, then a year later you find someone who wants to buy, or some other unexpected event comes up and you have to sell the property… You’re stuck paying to get out.

And prepayment penalties can be up to 5% of the loan amount.

Let’s say you have a $200,000 loan with a 5 year pre-pay minimum. And you end up wanting to sell it after 2 years. Then you’ll have to pay the lender 5% of $200,000 – or $10,000 – just to get out of the loan.

Higher Rates Than Other Conventional Loans

Some DSCR loans have 5, 7, or 10-year ARMs that keep rates down. Still, DSCR interest rates will be 1.25 to 1.5 points higher than other conventional loans.

This will impact your cash flow, so a property has to have a strong cash flow for you to consider a DSCR loan.

Pros vs Cons: Are DSCR Loans Worth It?

Despite their drawbacks, DSCR loans can be a truly great option.

It’s a great portfolio loan for real estate investors. DSCR is perfect for people who want something easy, or who don’t have the income traditional loans need.

As long as your specific property fits the criteria and the cash flow is there, a DSCR is a great easy loan to build your portfolio without the hassle of underwriting.

Read the full article here.

Watch the full video here:

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Why Should You Do an Airbnb Investment?

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Do you think of an Airbnb as a good investment? You should.

Maybe when you think of an Airbnb your mind still goes to the classic model: a family with a guest house rents out to tourists for a little extra cash.

But short-term rental sites have evolved past that. Airbnb and VRBO properties can look a lot of ways, serve a lot of purposes, and generate a lot of income.

Airbnb Purposes

Airbnbs aren’t only for vacation rentals. The reasons people use short-term rentals are as diverse as the renters themselves.

Sometimes Airbnbs are used as an alternative to hotels for traveling professionals. Or insurance companies will use VRBOs as temporary housing for people displaced by a house fire. Or companies will host remote workers for onsite projects in an Airbnb.

Some renters will stay for one night, some for three months. Some come to experience the location, some to have a personal retreat, and some because they’re preferred to hotels for longer-term stays.

There’s a wide variety of ways and reasons to invest in an Airbnb, VRBO, or other short-term rental. They’re a worthwhile investment – as long as you know the best ways to finance them.

Airbnb Investment Income

Short-term rentals are also a great investment from a cash flow perspective.

Something like an Airbnb can quadruple (or more) the income you would make from a traditional monthly rental agreement.

If a traditional renter generates $2000 per month, short-term rates could make up to $4000 to $6000 per month on the same exact property.

So… How do you get the money to start?

Read the full article here.

Watch the video here:

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Loans for Real Estate Investing (And How Inflation Changes Them)

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Lenders to have on your team, loans to get for real estate investing, and what inflation has to do with it.

Who are the lenders for real estate investing? Here are the basics of each lender and how rising inflation and interest rates will affect your relationship with them as you invest.

In real estate investing, there are three key lenders.

1) Banks and Credit Unions for Real Estate Investing

National banks don’t usually have many options for real estate investors. But local banks and credit unions love real estate investors.

Even so, banks are the most conservative lenders. They’ll be especially tight with their money until they figure out the new normal with updated federal interest rates.

As a real estate investor, bank loans will be increasingly difficult to get. It’ll be more common for banks to lend 60-70% of the LTV with high credit score requirements.

In the last few months, we’ve been receiving four times as many calls as usual from investors who typically go through banks for all their money. Already, investors are getting turned away by banks.

2) Hard Money Lenders

There are two types of hard money lenders: national and local. Each type of lender will approach the change in the economy in a different way.

Much like banks, national hard money lenders will tighten up on their requirements and options. National lenders were known for offering up to 90-100% LTV. Now, they’ll only lend 80% and their credit score range requirements have gone up. The higher your credit score, the higher your leverage with national hard money lenders.

Local lenders won’t change nearly as much based on the economy. Smaller lenders make their income by loaning money, so they’ll never tighten too much. Local hard money lenders don’t typically have any credit score requirements.

Get to know the hard money lenders in your area. They’re a valuable asset to have in your portfolio of lenders, especially now, and especially if your credit score is outside of the range of traditional lenders.

3) Real OPM Loans for Real Estate

OPM is Other People’s Money – from family, friends, neighbors, or other people in a position to lend. You might think that normal people wouldn’t want to loan you their money at a time like this. But you would be wrong.

People with money in the bank are making around a 1% return. So getting a 5%, secured return from you is way more appealing. OPM lenders won’t care about credit – as long as you secure their money and ensure them a return.

All three of these lending sources will be important. You’ll need a mix of all of them. Putting them together in the right way will accelerate your real estate career.

Read the full article here.

Watch the video here:

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Now is the Best Time to Invest in Real Estate

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Don’t let a declining market get you down. Now is the best time for real estate investing!

Money is tightening. Inflation is up. Houses are staying on the market longer. So, why is this still the best time to invest in real estate?

This declining market will be one of the greatest opportunities to create generational wealth… as long as you’re ready for it.

Even as a beginner real estate investor, now is a great time to get prepared to make your first real estate investments.

Here’s where you can start.

Real Estate Investing In a Declining Market

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:

  1. Lenders will require more money down
  2. 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.

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.

Loans for Real Estate Investing with Tightening Money Policy

Tightening money policy is what we call it when central banks raise the federal funds rate.

When this occurs, what’s happening to the money? And what loans can you still get for real estate investing with tightening money policy?

Changes to Expect for Loans with Tightening Money Policy

If the pool of investors and borrowers for banks is a box, then tightening policy shrinks that box. Not as many people can get in. Lenders are more particular about who they’ll lend to and how much they’ll give.

There are a few main ways this will impact loans for real estate investing.

Credit Score & LTV

The two biggest changes are that lenders will offer a lower loan-to-value and require a higher credit score.

LTVs have lowered from 80% down to 75% on average. For example, let’s say you found a BRRRR property for $100,000. In the recent past, you could get an $80,000 loan fairly easily. Now, you’re more likely to get only $75,000.

At the same time, credit score requirements are going up. Many lenders are increasing their accepted credit score range by 20 to 40 points. If a 700 score could get you a good loan last year, you might need 720 or 740 for that same loan today.

What does this mean for you? With tightening money policy, here’s what you need to be prepared:

  • Higher down payments
  • A better credit score
  • Lower debt to income ratio
  • If possible, more investment experience.

Real Estate Investment Loans Moving Forward

In the short term, as LTVs go down, you’ll need to put more money into deals. As rates get higher, cash flow goes down.

But in the long term, buying now with housing prices low means higher profit once prices rise again.

Investors who can qualify for real estate loans now will have a huge advantage when the market shifts again.

Talk to other investors. Find out which lenders are still active in your area. Though banks have less money to go around, investors who can get themselves in a good position with credit, income, or a funding partner will be able to take advantage of the market.

Remember: now is the best time to create generational wealth through real estate investing.

How To Get a Loan For Real Estate Investing in 2022

You’ll want to take advantage of this best time to invest in real estate. But with money tightening in the second half of 2022, how do you get a loan for real estate investing?

Where’d the Money Go?

Over the past several years, a lot of money was flooding the market from hedge funds. Now, a third of those hedge funds have backed off. Banks interest rates are being tightened by the fed to have more reserves. Hedge funds and banks want to figure out where the market is going before putting more funds back in.

So, who is still lending during this time? Some banks, especially investor-friendly local banks, will still have some loans available. Other options, like private money also have more restrictions than usual but can still be a good option during this time.

New Real Estate Investing Lender Relationships in 2022

Things are changing in the real estate investing world. As an investor, you need to be more proactive. 

It was easy before – lenders would market to you to get their loans. But over the last few months, rates are skyrocketing, LTVs are plummeting, down payments have increased from 0-10% to 15-20%… and loans are fewer and further between.

It’s as if investors have had control over lenders – able to tell them what they want to do and when they need the money. Not so much now. Lenders have less money to put out, so they need to be pickier. For success, make yourself an investor they pick.

The Best Time to Build Your Team of Real Estate Investment Lenders

The best way to get a loan for real estate investing in 2022 is to build up an array of lending options. Spend time creating a larger pool of available funds. Now (before fund availability totally plummets) is the best time to create partnerships and positive relationships with the real estate lenders in your area.

Our prediction is by the first quarter of 2023, the really good deals will start to become available. Get prepared now with good relationships with small banks, local private money lenders, and OPM lenders.

Real Estate Investing Tips in This Market

Although this is the best time to invest in real estate, the typical investment strategies – fix-and-flips and BRRRR rentals – might be harder than usual in the upcoming market.

Our real estate investing tips for this market are to look into subject tos and owner carries.

Investing Tip: Subject Tos

Subject tos are coming back into fashion for real estate investors.

Some people recently got fix-and-flips, expecting prices to stay up and buyers to keep bidding. But soon, this easy market will come to an end, and sellers will have a harder time getting houses sold. Owners in this situation may be open to setting up a subject to.

A subject to is when you take over someone’s mortgage on a property. The owner can’t make payments, they can’t sell with a dropped market, and they don’t want to go into foreclosure. So you can take over the property and the mortgage – without the loan going into your name.

So instead of struggling to get a loan in this market, you can pay the loan that’s already on the property. You get better rates, and you can get a property with little to no money down.

Investing Tip: Owner Carries

Owner carries are a bit less common than subject tos because an owner carry requires no existing mortgage on the house.

In an owner carry, the seller needs to own the property free and clear (the most common example is when a home is willed after a family member dies). 

A client we worked with had a seller in this position. The seller was going to put the money from the sale in a bank account to gain interest on it. The buyer requested an owner carry instead, where she essentially made mortgage payments to the seller. 

The seller got a 5-6% return instead of the 1-2% they’d have gotten at the bank. And the buyer got the house without the struggle and high rates taking out a bank mortgage.

Now is the best time to invest in subject tos and owner carries. Everyone is looking for a better rate, and some people will be needing an exit strategy with their properties in this upcoming down market.

Invest in Real Estate with No Money Down in 2022

In the down market from twelve years ago, we helped several families buy ten properties at great values with no money down. Now, one of those people owns eight of those properties free and clear. Both the values and the cash flow on those properties have quadrupled. 

2022 will be another chance to swipe up some properties at a lower cost for zero down, if done right.

Set Up Money to Buy – Cash, HELOC, or OPM

When property values go down, interest rates go up. When it flips back, property values will go up, interest rates will come down, and you can refinance. 

Refinancing when the market picks back up increases your cash flow. It also increases the value of your asset and will enable you to take out more money later.

But before this market dip, you have to be prepared.

Put aside any cash you have. Get a HELOC now, if you have an existing mortgage. Set up partnerships with people you know who have money. 

People near retirement are hit with inflation just as much as you. They’ll get a higher return by lending securely to you. Having the power of other people’s money will give you the freedom to purchase properties during this time of opportunity.

Now is the best time to prep to invest in real estate… before property values go down.

Now Is the Best Time To Invest in Real Estate

This down market will likely be around for a couple years. It can be the best time for real estate investing – even for beginners. 

Start your prep now, keep an eye out for active lenders, and be ready when the market brings great opportunities.

If you can adapt with the markets and adapt to the new flow of money during these tight times, you’ll be able to have a successful, wealth-generating real estate investment career.

If you’re just starting out, or if the money side of investing is not your thing, let us help you!

Reach out at HardMoneyMike.com.

Happy Investing.

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Gap Funding for Real Estate Investors

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So, bridge loans are different from hard money loans. But where does gap funding fit into the mix for real estate investors?

Gap Funding vs Bridge Loans

Typically, true “bridge” loans are used for three specific situations in real estate investing:

  1. When you’re buying a new property and already have one listed for sale
  2. When you need to cover down payment on a new property
  3. When you find a great deal but your bank’s financing won’t be ready in time.

Bridge loans are about getting you from one property to another. Gap funding is more about filling in the gaps within a single project.

What is Gap Funding in Real Estate?

Bridge loans do bridge “gaps” in your investments. But “gap funding” is something different.

Gap funding is the small amounts that investors need throughout the course of a project in addition to the bigger loan. Examples of common gap funding situations are:

  • Down payments
  • Contractors and other fix-up costs
  • Carry costs before renting or selling
  • Interest, insurance, and other payments not included in the original cost of the property.

A bank or hard money lender will be funding the majority of your project. And when you don’t have other properties, you can use a lien (like you would for a bridge loan). But without another property, you need gap funding to cover the little costs that slip through the cracks of your primary financing.

Gap funding for real estate investors can be a loan that’s anywhere from $10,000 to $100,000. Whatever costs your primary loan and your own cash won’t cover will need to be filled by a gap lender.

Read the full article here.

Watch the video here:

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Subject To Real Estate Investing for Beginners: Opportunities for 2022!

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What are the opportunities available to you with subject to real estate investing as a beginner?

A “subject to” is when you buy someone’s property subject to them leaving the mortgage on the property. You become the owner, you receive the deed or title, and you take over the loan.

It’s still the same loan, in the original owner’s name. You’re not assuming, or refinancing. They keep the loan on the property, and you just make the payments.

Should You Do Subject To Investing?

How is a subject to beneficial for you? The property’s existing mortgage will likely have rates close to 2.5-3% – rather than the 6% rate you’d get on a new loan. Also, in a subject to, you assume no additional debt.

Most subject tos are made for rentals, lease options, or contractor deeds. A subject to property is not a great place to flip. When people are willing to do a subject to, the reason they’re not selling the property is they can’t get the price that they want at the speed they want. So they have to get rid of the property this way to avoid wrecking their credit for future loans.

The Money Side of Subject Tos

We’ve seen clients with 50 – 200 subject to properties. Subject to real estate investing is a great way to build a portfolio without using your credit, and without maxing out your loan opportunities with lenders.

Sometimes with subject tos, you’ll have to give the owner of the mortgage some money to give over the property. There are also occasional fix-up costs, depending on the condition of the property.

Why some people don’t want to jump into a subject to is because they don’t have the $5,000 – $15,000 start-up costs to get into it. We recommend looking into OPM as a way to cover these costs and take advantage of subject tos.

You’re getting the cheapest possible financing on a property, so it doesn’t matter much if the loan is still at 100%. Making monthly payments continually brings the loan down. And you’re free from many other financing and closing costs.

If you get a long-term renter, or someone who wants to do a lease option and put some money down, subject tos can become a great source of cash flow.

Subject tos are going to be hot as foreclosures pick up, selling times slow, and people can’t afford to fix up their properties. They are one of the best ways to take advantage of a down market and build a large real estate portfolio.

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How to Invest in Airbnb and Other Short-Term Rentals: The Money Side

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Here’s your funding guide to invest in Airbnb, VRBO, or other short-term rentals.

You’ll find plenty of guides online about how to find good Airbnb locations or how to manage VRBO properties. 

Our expertise is in financing those short-term rentals. 

How can you find the easiest, fastest, cheapest funding for short-term rental properties? Let’s look at how to invest in Airbnb and get the money side right.

Why Do Airbnb Investments?

Maybe when you think of an Airbnb your mind still goes to the classic model: a family with a guest house rents out to tourists for a little extra money.

But short-term rental sites have evolved past that. Airbnb and VRBO properties can look a lot of ways, serve a lot of purposes, and generate a lot of income.

Airbnb Purposes

Airbnbs aren’t always for vacation rentals. The reasons people use short-term rentals are as diverse as the people themselves. 

Sometimes Airbnbs are used as an alternative to hotels for traveling professionals. Or insurance companies will use VRBOs as temporary housing for people displaced by a house fire. Or companies will host remote workers for onsite projects in an Airbnb.

Some renters will stay for one night, some for three months. Some come to experience the location, some to have a personal retreat, and some because they’re preferred to hotels for longer-term stays.

There’s a wide variety of ways and reasons to invest in an Airbnb, VRBO, or other short-term rental. They’re a worthwhile investment – as long as you know the best ways to finance them.

Airbnb Investment Income

Short-term rentals are a great investment from a cash flow perspective.

If you invest in something like an Airbnb, it can quadruple (or more) the income you would make from a traditional monthly rental agreement.

If a traditional renter generates $2000 per month, short-term rates could make up to $4000 to $6000 per month on the same exact property.

So… How do you get the money to start?

How to Buy Your First Airbnb with No Money Down

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

Is it possible to buy your first Airbnb with no money down? What steps 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

A 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, you can set up an Airbnb for no money down. 

We’ve helped a lot of people use the BRRRR strategy to get into an Airbnb. 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 process is mostly the same as for a traditional BRRRR rental property, 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, 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 – 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

Later in this article, we’ll explore options for covering these down payments and other costs a loan won’t cover.

How to Invest an Airbnb Loan Without W2 Income

Many of these loans have income requirements. So what happens if you don’t have W2 income on your first Airbnb loan transaction?

If you need to get an Airbnb loan without W2 income, you can use a DSCR (Debt Service Coverage Ratio) loan.

Using a DSCR Loan to Invest in Airbnb

Maybe you started a business less than 2 years ago and you don’t yet have tax returns that qualify you for most loans. Or you just lost or left a job. Or maybe you recently moved.

In any of these circumstances, you probably won’t have the W2 income that qualifies you for most loans.

But DSCR loans will work for you because they only look at the potential or current rent for the property. Many, but not all, DSCR lenders will do Airbnb, VRBO, and other short-term rental loans. 

DSCR Airbnb Loan Requirements

With a DSCR loan for a short-term rental, however, you don’t use the actual income amount you receive from Airbnb or VRBO. Instead, you’ll use the average rent in the neighborhood to qualify for your loan.

This means you can get a DSCR loan if the standard, monthly rent in the neighborhood would cover the property’s costs. So, that average rent amount must be greater than or equal to the property’s:

  • Mortgage
  • Taxes
  • Insurance
  • HOA fees

If the property meets those requirements, you can get an Airbnb loan without all the W2 income documentation required by typical loans.

Find the Right DSCR Loan for You

With DSCR loans, it’s very important to shop around. Every DSCR lender will offer a slightly different type of loan, with slightly different requirements.

There is a loan that is perfect for your credit, your plan, and your property. You just have to find it.

What Are the Best Loans to Invest in Airbnb?

Which loans and terms are best to invest in Airbnb? What should you look for?

Unfortunately, there’s no simple answer. Your loan options for short-term rental investments will come down to your credit, your income, and your experience. 

Airbnb loans come in all shapes and sizes – 30-year fixed mortgages, adjustables, non-QM loans, interest-only, and more.

You’ll have to talk to lenders to see what’s out there. Here are a few things to keep in mind while you’re shopping around.

Down Payments

Every loan comes with different down payment requirements. These requirements are based on your situation, credit, income, location, size of property, and more.

Some Airbnb loans will only require 20% down, some up to 30%. If you’re not using BRRRR, you have to expect to put this extra money into the property.

Is that something you can afford? Will you be able to find alternative ways to fund that extra 20-30%?

Pre-pay Penalties

Most non-traditional loans and DSCR loans will come with pre-pay penalties.

You’ll agree to keep the loan on the property for, say, five years. So, if something comes up after two years and you sell, you’ll have to pay the lender an up to 5% penalty.

Getting a loan with a pre-pay can get you a better rate. But it becomes an expensive detail if you end up selling early.

Do you know how long you’ll keep the house? Is the rate on the loan with the pre-pay penalty worth it?

How to Get the Best Terms for Airbnb Loans

People get excited to invest in Airbnbs, but they fail to get sorted on the money side. You’ll have to search for the best terms. 

The easiest way to improve your terms is to have the income, and, more importantly, the credit score that lenders are looking for.

Good terms on your loans lower your cost of funds and increase your leverage. It leaves more money in your pocket and less to the bank. Good terms are vital if you want to expand your Airbnb and other investments into a business.

Grow Your Airbnb Faster with OPM

You can get short-term rental loans from banks and hard money lenders. But one of the best strategies for funding Airbnbs is to borrow money from real people.

Using OPM Loans to Invest in Airbnb

Other People’s Money comes from family, friends, or anyone else with money they’d like a better return on.

Maybe they’re only getting a 1% rate in their bank account and want more from a real estate investor. Maybe they’re nearing retirement and want to start getting their money out of the stock market. Whatever a person’s situation, there’s a lot of money out there looking for better returns. 

You can buy a VRBO with someone else’s money, then pay them back with interest at 5-6%. It’s cheaper for you, and double or triple what your lender would make keeping their money in a bank. Win-win.

OPM requires no credit or income qualifications, and it gives you a faster, more convenient money source to grow your Airbnb.

Setting Up an Airbnb Partnership with OPM

Instead of using OPM as a loan, there’s a way to structure it as a partnership. 

In this case, you have no debt requirements. You can return their money with a rate of 5%, but if there’s a bad income month, you’re not obligated to pay.

As far as cash flow, you can’t beat an OPM partnership or loan. It can help you invest in Airbnbs with no money out of pocket, no qualifications, and potentially no debt.

If you need help setting up the OPM process, we’ve done thousands of OPM transactions and can answer any questions you have.

Where To Go From Here

There are a lot of loan options to kickstart your Airbnb investment career. The less money you have to put into the property, the better off you’ll be.

There’s money in the money – for all investments, including short-term rentals. Getting the money right makes everything smoother and your profits bigger.

Contact us at HardMoneyMike.com with any questions about your Airbnb investment journey.

Happy Investing.

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What is a DSCR Loan?

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“The Easy Loan” – What is a DSCR loan all about?

DSCR stands for Debt Service Coverage Ratio, which is a term used in the mortgage industry.

In the real estate industry, a DSCR loan is more commonly known as an “easy loan.”

What is it that makes a DSCR loan so “easy”?

DSCR Loans’ Easy Reputation

DSCR loans are easy because they cut out 50 to 60% of the paperwork required for a typical loan of its kind. If you’ve ever done a loan for a rental property, you know the paperwork seems endless.

All a DSCR loan looks at is whether your property’s rent covers your monthly expenses. At the very least, your rent (income) needs to be higher than your expenses – payments, taxes, insurance, HOA, etc.

The only other consistent criteria for getting a DSCR loan is your credit score. But if you have a good to great credit score and a cash-flowing property, you can get one of these easy DSCR loans.

What Is Special About a DSCR Loan?

Every DSCR loan will be slightly different. You can find a DSCR loan in any shape or size.

Each lender puts their own nuance in their DSCR loans. There’s no national standard for underwriting for these loans. There are thousands of institutions offering these loans, so there are thousands of different versions of them.

For your investments, you can find DSCR 30-year loans, 3 to 7-year adjustables, interest-only loans, and more. DSCRs are useful for their range of options.

But you do have to shop around for each of your DSCR loans. Each lender will have different criteria, and your different rental properties will each meet a different set of criteria.

Take your time finding DSCR loans, and take advantage of their wide variety.

Other Common Requirements for DSCR Loans

As mentioned, DSCR loans can vary widely from lender to lender. But there are a few more common requirements for DSCR loans to keep in mind.

First, DSCR loans typically require 20% down for a purchase. Their refinance max is usually 75%. There are unique lenders out there that will offer more, but a lower down payment will be offset by higher interest rates.

Second, interest rates for DSCR loans are typically around 1.25 to 1.5% higher than other traditional conforming conventional loans.

Third – and this is an important one – DSCR loans almost always come with pre-pay penalties.

You have to keep the loan for a set amount of time, usually 3-5 years. Or else you have to pay the lender a penalty for paying it off early. That means if you sell or refinance, they’ll charge you a penalty.

Lenders will want these loans to stay on the property for a longer amount of time. So they penalize you for ending the loan before their minimum timeframe. Watch for these penalties, and be sure they fit into your guidelines for a project.

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