Wild, Wild Flip

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When you think of Grand Junction, Colorado, do you think of a wild, wild flip? More likely, you think of the beautiful, wild wild west. The arts, the culture, and the rustic yet charming lifestyles. That’s precisely why Ted has set down roots here in Grand Junction and has a roaring fix and flip business. He’s one of the best in town, and he turns rundown homes into jaw-dropping beauties.

Let’s take a look at this 1,720 square foot home on Indian Creek Road. It was built in the late 70’s and looks like it hasn’t been updated since. Ted saw this 3 bed/2 bath home for what it’s potential was and got right to work. He purchased this home for $262,000 and set his budget to be $30,000.

Fortunately, the structural integrity of the home was not bad. So, Ted put all of his focus on remodeling the home by bringing it back to life by way of new floors, new paint, and a new layout. You can see the living room here. It looks drab and dull, with not much life. This room needed some brightness. He put hardwood floors in, painted the room white, smoothed out the ceiling and added pocket lights for a more modern appeal. And the best part, he replaced the windows, took down those old curtains, and let the sunshine do the rest.

Additionally, the kitchen needs a facelift, but only in its design. The floors and appliances needed replacing, and the cabinets needed fresh paint. It’s not much work but look what a difference it makes!

After only 3 months, Ted ending up selling this home for $385,000! This is just another example of how fix and flippers are changing our world for the better. They’re turning these rundown homes into beautiful SFHs that people can be proud to live in. Grand Junction will always be the wild, wild west, even with this wonderful wild, wild flip.

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money 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.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

Fix and Flipped Into the 21st Century

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Take a minute and imagine a 19th century home. Are you picturing an old, dark, creaking, small house? Well, this 2,545 square foot home in Colorado Springs just got fix and flipped into the 21st century. Christian saw this old home and saw nothing but potential. He purchased it for $347,500 with a loan for $397,500. With a $50,000 budget, he had a lot of work ahead of him!

 

Not only was the house full of 50+ year old plumbing and electrical, but the design aspects needed some serious updates. The flooring throughout the entire home needed to be replaced. The kitchen needed to be rearranged for a more open floor plan. The exterior of the home needed new paint, a new porch, and new siding. And overall, the home needed to be modernized and brightened up.

Look at this vanity choice for the master bath that Christian chose. It has a modern feel, yet it holds old-worldly charm. An excellent choice for potential buyers who want the home to still have a touch of 19th century grace.

Check out how he opened up this kitchen by lining up everything on the one side, and he brightened up the entire room with white cabinets and countertops. He had to install a smaller window to accommodate the new floor plan, but it was well worth it.

In just 6 months, Christian was able to completely renovate and revitalize this home and ended up selling it for $565,000. Overall, Christian flipped this 19th century home into a beautiful, appealing 21st century home while still holding onto the elegance and finesse that this home most assuredly had when it was first built.

 

Do You Need a Hard Money Loan?

With hard money loans, it’s very important to shop around. Every hard money 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.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

When NOT To Use Hard Money For Real Estate Investing

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Every form of leverage has its time and place. Here’s when not to use hard money.

You need all kinds of leverage as a real estate investor. Different investment problems will call for different kinds of debt solutions.

Hard money, banks, private equity, and OPM all have their time and place. However, there are times when certain lending methods just aren’t smart.

Hard money has a lot of important uses, but when should you not use hard money?

1. When It Costs More

The main time when not to use hard money is whenever it’s the more expensive option.

You get into real estate to make money. Saving money on the leverage for a deal is a top priority.

Hard money is one of the most expensive forms of leverage. If using hard money costs you more than any other lending option, that’s your first sign not to use hard money.

When Is Hard Money More Expensive?

Private equity funds and hard money lenders typically have around the same pricing. The real gap comes when you compare bank loans to hard money.

In a previous article about when you should use hard money, we went over an ideal situation for hard money. In this example, the speed of a hard money loan can get you such a good deal on a property that you wind up saving money.

However, that doesn’t always happen. The cost of the property might not change whether you have a hard money loan or bank loan. You might have plenty of time to wait for the cheaper but slower loan from the bank. In those cases, you almost always should not use hard money.

The interest rate and origination fee for hard money will almost always make it the more expensive loan. Here’s a side-by-side comparison of a hard money loan vs bank loan for the same property.

As you can see, when all else is equal, a hard money loan would cost you over $9,000 more.

Always, always go with the cheapest source of funds. In typical situations, bank loans and OPM will be cheaper than hard money or private equity.

2. When You Have Time

If speed isn’t a factor in getting a good deal, that’s a sign when not to use hard money.

Sometimes, speed at closing can mean the difference between getting a property and not getting it. Or, closing fastest could mean saving tens of thousands of dollars on a deal. Hard money is a good option then.

However, that’s not always the case. Sometimes a seller is willing to wait several weeks for a bank loan to clear in order to take a higher bid.

If time isn’t a consideration, then you probably shouldn’t use hard money.

3. When You Have Real OPM

OPM is money you get from real people you know. If OPM is available to you, you should always use it instead of hard money.

This form of leverage combines the speed and flexibility of a hard money lender with the price (or cheaper) of a bank loan.

If you can source and secure an OPM loan for a project, then there’s usually no reason to get hard money.

4. When You Already Have Money

It’s never smart to use a hard money loan when you already have cheaper funds available – especially when you have cash.

There’s no reason to pay a 9% interest rate when you could pay with a 0% rate, or use a cheaper line of credit like a HELOC.

A time when not to use hard money is when you have an equally flexible funding source that costs way less. In general, when you have cash available, stay away from leverage at all.

How Else Do I Know When Not to Use Hard Money?

What’s the right leverage for you? Are you doing it right? Are you using the best funds for your project?

Join our weekly call-in here, every Thursday at 1:15 PM to 2:15 PM MST to find out! Bring a specific question about a deal, and we can talk through the best option for you.

Happy Investing.

Fix and Flip in Pueblo

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It is so inspiring to see a successful flip, especially when the house is run-down and in dire need of some upgrades. When you can look at the before and after photos and truly be in awe at what has been accomplished, it sure does feel good!

A Fix-and-Flip in Pueblo

When Dave and Justin saw this home in Pueblo, Colorado, they didn’t see a weathered, broken home. They saw a fantastic opportunity, especially with a low purchase price of $92,720.

It’s a small home, only 955 square feet, 2 beds and 1 bath. The previous owners had the house packed full of stuff, with hardly any living space. But once it was cleared out, these guys had their work cut out for them. The bathroom needed a full remodel, the kitchen needed a facelift, the bedrooms and living space needed new carpet and paint, and the exterior needed a new roof, shutters, and paint.

That sounds like quite the scope of work, but with limited labor cost (Dave and Justin doing the work themselves), they set their budget at$10,000 and got to work.

They completely gutted the bathroom and finished it off nicely with a black and white theme and a laminate wood floor. The vast improvements in the kitchen included nice stainless-steel appliances, wood floors, black granite countertops, and crisp white cabinets. The exterior of the home was perhaps the biggest improvement of the whole project. With freshly painted siding and shutters, a new sleek roof, and an eye-grabbing new design for the front yard landscaping, these guys really made the home look as charming as ever.

Incorporating neutral colors and clean lines into a renovation can have broad appeal and attract a wide range of buyers. The design decisions these flippers made paid off in the $180,000 sale of this Pueblo property.

 

What To Do When Your Flip Is Stuck on the Market

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It’s all too common in times like these – your flip is stuck on the market. Here are your options to save your money.

You got a great deal on a property a couple months ago. You worked hard to fix up the house fast. And now… it’s not selling.

This problem is happening to investors daily. We’re getting a lot of calls from our clients (and other people’s clients!) asking for help.

So, what do you do with a sticky flip?

Your Options When Your Flip Is Stuck on the Market

Obviously, the ideal goal with a flip is to sell at a profit, quickly. That may not be possible under current conditions. If your flip is stuck on the market, you might need to strategize a different exit plan.

Your main options are to:

  1. Keep dropping the price until it sells. Cut your losses and just get rid of the property.
  2. Refinance your flip’s loan. Make your lender happy, but keep the house on the market to try to salvage some profit.
  3. Convert the flip into a rental. Refinance your flip, then hold onto the property for a couple more years, until a good market returns. You can keep a tenant and get some rent income in the meantime.

Which option is right for you? That depends on your goals, willingness to rent, and financial situation. Let’s go over some of these options in detail to help you decide.

First Step in Converting a Flip to a Rental

First of all, if you decide you’d rather turn the flip into a rental, stop lowering the market price immediately.

You can’t drag out this decision, lowering the price “just in case” while exploring rental options.

When you refinance your fix-and-flip, the appraiser looks at the market history. They see the last price the house was listed for. They have to base their appraisal off that number, regardless of whether the house sold or not.

If the last listed price is lower than what they would have appraised the house for… they still have to go with the listed number.

So every time you drop the price, it lowers your potential appraisal. This directly hurts your loan-to-value on a refinance.

Loan Options for Your Flip Stuck on the Market

Once you’ve made the (quick) decision to refinance the property, what are your options?

Typically, you’d go to a bank to get a conforming or traditional loan. But banks are slow, and this refinance needs to happen quickly. Also, with money tightening, bank loans are harder to get than ever.

Here are 3 other options we’d steer you toward:

1. DSCR Loans

The DSCR loan is the easiest, fastest way to get a longer-term rental loan. The core requirements for most DSCR loans are:

  • A good credit score – 680 minimum, with a higher score meaning the better the rates and terms.
  • Rent income – If your rent covers your monthly payments on the loan transaction, you’ll qualify. Some DSCR products will still take you if you lose up to 25% on the loan payment with rent.

If you decide you want to turn your flip into a rental, a DSCR loan should be the first option you consider.

Beware the Prepayment Penalty

All DSCR loans have a prepayment penalty. The standard timeframe is 3 or 5 years. The longer the term for your prepayment penalty, the better the rate.

Prepay penalties are like exit fees. For example, if your term is 5 years, and you decide to pay off the loan during year 3, they’ll charge you 3% of the loan as an exit fee.

2. Bridge Loans

If your flip is stuck on the market, but you want a short-term refinance, then bridge loans could be the better option.

Bridge loans typically last about 1 to 2 years. There are a couple directions you could go with a loan like this:

  • You can keep the house on the market and just use the bridge loan to get out of your original flip loan.
  • You can convert it to a short-term rental (think Airbnb) to bring in some cash flow.
  • You can turn it into a traditional rental while you wait out the market.

Bridge loans are good because they’re fast, interest-only, and have no prepay penalty. The downside of bridge loans is that they’re limited to 70% of the value of the home. Plus, they tend to have higher interest rates.

If your flip is stuck on the market for too long, your original lender will start asking for their money back – potentially raising rates or threatening foreclosure. A bridge loan is a great exit.

DSCR vs Bridge Loan to Refinance Out of a Fix-and-Flip

When deciding whether to go with a DSCR loan or bridge loan, you should consider the “tipping point.” Bridge loans have 2% – 4% higher annual rates. DSCR loans have a prepayment penalty.

Depending on how long you want to keep the loan on the house decides which type of loan will be cheaper for you. This tipping point usually lies somewhere between the 14th and 17th month of a DSCR loan. That’s when the pre-pay fee becomes cheaper than the rates on the bridge loan.

3. Real OPM

Lastly, real OPM is always the ideal funding source to get you out of difficult situations.

Real OPM is real people – family, friends, folks in local real estate groups – who want to put their money in a safe place with an easy return.

An OPM lender can get a 6% to 7% rate of return lending to you over a 2% or 3% rate keeping their money in a bank. You can use OPM to pay back your original lender  and free you up to make the best decision for your flip stuck on the market.

OPM is win-win.

More Help for a Flip Stuck on the Market

We’d be glad to help you find the best loan for your needs.

Reach out now! Rates are only going to rise, and now is the perfect time to get prepared for a market with more opportunities.

Email us at Mike@HardMoneyMike.com.

Happy Investing.

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Where To Find HELOCs with the Best Terms

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Start using your HELOC today. Here’s where to find HELOCs.

There are three main places you can look to find HELOCs.

Where to Find a HELOC

A HELOC is a lien against a property that is set up much like a credit card.

A financial institution will set it up for you with a:

  • Credit limit – the maximum you can borrow from the HELOC.
  • Term length – the amount of time the HELOC is available and the limit is locked in (usually around 10 years).
  • Methods to access the money – how you can borrow the money (bank wire, debit card, etc.).

1. Credit Unions

Firstly, look for a HELOC at a credit union. Credit unions will have the best HELOC rates and terms. We’ve found that to be universal state-to-state.

Shop around at local credit unions. Make sure the lender you’re working with likes real estate investors. Each lender has their own niche. One may prefer doing car loans, but another will prioritize HELOCs.

You’ll find the best deal from a credit union, but you should still shop around for the right one.

2. Local Banks

Secondly, look into a local bank.

Local banks usually like to work with real estate investors. They’ll have more products available as far as HELOCs for rental properties and HELOCs on multiple properties.

3. National lenders

Thirdly, look for a HELOC with national lenders.

Now that the refi-boom is settling down, national lenders and mortgage brokers are starting to offer HELOCs. Going through a national lender will open you up to more products, but the cost is almost guaranteed to be higher.

Consider all three of these options to find the best deal you can. For a HELOC, the “best” deal involves not just rate but LTV.

Read the full article here.

Watch the video here:

https://youtu.be/MoUp2CAht0A

Fixer Upper in Southern Colorado

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Let us walk you through this fixer upper in Southern Colorado. There are certain areas that just need fix and flippers. The homes are 40+ years old, run down, and they are ready for some TLC. When Eric found this property in Pueblo, CO, he saw the potential and put in an offer right away. It’s not a large home, only 1,240 sq. ft., but it makes up for it in charm. Eric purchased this property for $130,000 and estimated a $30,000 budget. The home didn’t need a complete renovation, but the hardwood floors needed refinishing, the carpet and paint needed to be replaced, the kitchen needed a good gutting and a facelift, the bathrooms were in dire need of some serious updates, and on top of all that, the roof needed repair.

 

The last time this home was updated was very likely in the 70’s. The kitchen had a brown linoleum floor, pale yellow cabinets, and green walls. Talk about a fixer upper! Eric decided to go with a clean, white look. With a white subway tile backsplash, crisp white wood cabinets, and a snow-white quartz countertop with eased edging. Best of all, the kitchen was modernized with energy efficient stainless-steel appliances.

Both bathrooms were stripped of their pink, grungy tile, and upgraded to the modern black and white look. The exterior of the home was repainted, the windows were replaced and shuttered, and would ya look at that! It’s much more inviting and charming and is just begging for a new family to move in and enjoy the upgrades. He was able to flip this home into something beautiful in just 4 months, and he sold the home for $230,000. The community and surrounding areas just got that much closer to moving out the “we need fix and flippers” category, and into the “you know you want to live here” category.

Do You Need a Hard Money Loan?

With Hard Money Loans, it’s very important to shop around. Every Hard Money 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.


Contact us for a Hard Money Loan

Check us out on YouTube

Hard Money Mike funds loans in Colorado, Oklahoma, and Texas.

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Ways to Secure a Gap Loan & How to Do It

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For your lender to feel comfortable, you need to know the ways to secure a gap loan.

When you hear the advice to “secure” your gap loan, what does that mean? How do you secure a gap loan? And why?

Ways to Secure a Gap Loan with Two Lenders

Securing your loan involves both your hard money lender and your gap lender.

Your friend or family member is giving you a fairly large chunk of money. They’ll want to know how you’ll secure it for them.

Securing your gap lender’s loan involves putting a lien on the property. Does your hard money lender allow this? Not all lenders will.

If Your Hard Money Lender Doesn’t Allow a Lien

If your hard money lender does not allow a lien on the property, you’ll have to secure the loan with a different property.

You could either put the lien on your own home, or you could use another rental or investment property.

If They Do Allow a Lien

If your hard money lender does allow a lien on the property to secure a gap loan, it’s best to do during closing with the mortgage and deed. This way title records it, and you have evidence for your gap funder that it’s recorded.

Many gap lenders – especially if they’re family or friends – won’t be educated enough about the real estate world to understand how to secure  their money. As the investor, it’s your responsibility to keep your lenders’ money safe.

Securing the Gap Loan

No matter which property has the lien, you’ll have to take a few important steps to secure the gap loan.

You’ll need a note – a promissory note between you and your gap lender – and a lien, either a mortgage or a deed of trust. And you’ll have to record all this with the county.

To make sure the loan is concerned, be sure to check all these boxes. It’s important to do this thoroughly so your lender will:

  • Get their money back
  • Feel comfortable with the deal
  • Want to lend to you again
  • Recommend you to their network

Read the full article here.

Watch the video here:

What Is the Best Real Estate Loan For Investing?

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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.

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Primary vs Secondary HELOCs – A HELOC for Your Rental??

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There are two types of HELOCs, primary vs secondary. Here’s what you need to know about them.

You can get a HELOC from two sources: the house you live in, and, potentially, some of your rental properties.

Primary Home – Primary vs Secondary HELOCs

HELOCs are calculated using LTVs and CLTVs (combined loan-to-values).

To calculate this, the bank looks at the loan balance for your first mortgage, plus what the HELOC will add to it. Then they divide that by the value of your home to get to the combined loan-to-value.

Most banks and credit unions will go up to 90% CLTV, but some do 100% on primary homes.

Using a HELOC unlocks all the equity you’ve established on your home as home values go up over the years.

Rental Properties – Primary vs Secondary HELOCs

Rental HELOCs are a little more limited. They have different LTV/CLTV requirements.

For rental properties, there are some banks, credit unions, and mortgage brokers that will allow HELOCs in second position that go up to a CLTV of 65% to 75%.

Different lenders will limit the amount of secondary HELOCs differently, but most will give you one or two properties.

When To Get a HELOC

Start using your HELOC now, before home prices go down.

If you have a lot of equity in your rental properties or home, you can tap into that now while the market’s still high. This limit will be locked in for 10 years, even as your home value will likely come down 5-10% in the next six to nine months.

If you wait to take out either primary or secondary HELOCs you’ll lose more of your available funds.

Read the full article here.

Watch the video here:

https://youtu.be/MoUp2CAht0A