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Subject To Real Estate Investment Strategies to Build Your Portfolio

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It’s a big opportunity. What are some investment strategies to make subject tos happen?

With a subject to, you buy a property subject to the seller leaving their mortgage on the property.

There are several benefits of subject tos – but how do you make it work? What are the right investment strategies to successfully get a subject to?

Subject To Strategy #1: Going Through a Proper Closing

First of all, still go through a proper closing on subject tos. You want to make sure the owner doesn’t have any other liens you don’t know about. When you take ownership, you become responsible for any existing liens on the property.

At the very least, get a title report to verify there are no liens. If you want, you can get title insurance – an extra cost but potentially worth it.

Subject To Strategy #2: Adding Your Name and Avoiding Problems with the Mortgage Company

With subject tos, some people may say you’re not allowed to take ownership and make someone else’s payments. They fear the lender may call the mortgage.

But we’ve never seen a lender ever call a mortgage in this situation.

The main reason is because the lender usually doesn’t break even with the loan until year three or four.  When a lender originates the mortgage, they buy it, so it takes at least three years of payments to get their money back.

So as long as you pay on time and don’t cause friction, the mortgage company should have no problem with you taking over. They make money every time you make a payment, so they have no reason to call it off.

Subject To Strategy #3: Negotiating with the Seller

Sometimes you’ll have to negotiate with the seller for them to go through with a subject to.

Maybe they’ll need a payment of $5,000 – $15,000 to be able to leave. Maybe they’ll include terms that they’ll only keep the mortgage on for five more years.

It’s helpful to know when a seller is in a position that they’ll want a subject to. A subject to takes place because the seller, for whatever reason, needs to sell the house but can’t. They don’t want to be stuck with the property, and they don’t want a foreclosure or missing payments to ruin their credit.

If you make their payments for around 12 months, they can usually qualify for another mortgage on another property without this one hurting them.

For more details on real estate investment strategies and setting up subject to deals, reach out to us at HardMoneyMike.com. We have plenty of experience, and we want to help you build a real estate portfolio without worrying about your credit or income.

Read the full article here.

Watch the full video here:

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What Is the Meaning of BRRRR?

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BRRRR winners understand the meaning of BRRRR and, just as importantly, what it doesn’t mean.

We aren’t just talking about the literal meaning: Buy, Rehab, Rent, Refinance, Repeat. We’re talking about understanding the strategy behind the BRRRR method. Successful investors understand the money side of these investments.

Types of Properties that Win at BRRRR

Foundationally, BRRRR means buying undervalued properties.

These properties have a lot of rehab needed, causing them to be valued much lower than other homes in the area. These houses are problems for someone else but opportunities for you. You can fix them up and get them in your rental pool.

We often see people who want to use the BRRRR strategy, but they buy their properties at 90% or 95% of the ARV. They buy close to retail price, and once they put the time, money, and effort into fixing up the property… They can’t even really use BRRRR.

BRRRR’s Two-Loan Strategy

BRRRR means using a two-loan strategy. At the beginning of the project, closing with a hard money bridge loan. At the end of the project, refinancing a traditional loan.

Using this strategy on an undermarket purchase captures the equity of the home to use to your advantage. If you buy a property too close to its ARV, the whole system falls apart and you lose your refinancing power.

To be successful with this two-loan plan, you have to search for undermarket properties you can get for 75% or less of the ARV. With this 75% rule, you can complete a BRRRR project with little or no money out-of-pocket.

Buying undermarket and using two strategic loans is the meaning behind BRRRR that winners fully grasp. But there’s much more to it.

What should you really look for when you buy for BRRRR?

Read the full article on BRRRR meaning here.

Watch the video here:

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Why Gap Funding and Bridge Loans Will Grow Your Real Estate Business

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The difference between gap funding and bridge loans – and why it matters to your real estate investments.

Gap funding, bridge loans – they sure sound similar. What’s the difference? How are each of these types of funding going to improve your business?

Both gap funding and bridge loans have the power to smooth out your real estate career and grow it to new heights.

Here’s what you’ll need to know.

Bridge Loans vs Hard Money Loans

Some lenders will use these terms interchangeably. After all, they are similar concepts, and lingo varies from lender to lender. But it’s important to know the actual definitions so you understand these terms if a lender uses them this way.

Though similar, there are differences to know in a bridge loan vs hard money loan.

What is a Bridge Loan Used For?

A bridge loan is a very short-term loan – even shorter than the typical hard money loan. It helps you bridge the space between one project and another.

Let’s say you’re just finishing up a flip. The house is on the market, buyers are showing interest, and now you’d like to get another property bought so you can jump right in to your next flip.

Typically, you use the money from selling one property to buy the next one. But if you want to get that next property started before the current one is sold? That’s where a bridge loan comes in.

A true bridge loan covers up that gap between projects. It gives you the money to close on a new property before the first one is completely sold.

A bridge loan lets you overlap from an old project to a new one.

How 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 are paid off when your old property sells. Hard money loans are paid off 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.

Certain lenders do pure bridge loans, while others lump it all under “hard money.” Keep in mind as you’re learning the real estate investment game that bridge loans vs hard money loans serve different purposes.

3 Ways to Use a Hard Money Bridge Loan

Some lenders might talk about hard money and bridge loans as the same – that’s okay. But it will benefit you to know the particular uses for bridge loans.

The basics of a bridge loan are that they’re used to bridge you from one project to the next. Then you pay the loan off when the first property sells. 

1. Bridge Loans to Get from One Property to the Next

The most common use of bridge loans in the hard money space is to bridge you from one property to the next.

When you have a flipped property that’s almost complete – the work is done, it’s under contract, it’s almost sold – you might want to get started on your next project without waiting for the official close.

The problem is: How do you buy a new property without the money from selling the old one? A hard money bridge loan solves that problem.

A bridge loan allows you to use the property that’s about to be sold as collateral for a new loan for a new property. Once the first property sells, some of that money is used to pay off the bridge loan. Then you own the new property free and clear.

This way of using a bridge loan is especially useful if you have a lot of cash put into one property. You don’t have to wait to get that money back after selling to start on your next investment.

2. Bridge Loans to Cover a Down Payment on a New Property

You can use an advance of the equity on a current property as the down payment for the new property through a bridge loan.

Maybe you’re about to sell one property. And you’re able to get financing for your next one… Except you can’t cover the down payment. 

In this case, you’ll probably use a bridge loan in conjunction with a hard money loan. The hard money loan covers the property cost, and the bridge loan covers the remaining down payment cost. Then that bridge loan gets paid off when you sell the old property. 

3. Bridge Loans to Close Fast

Another way you could use a bridge loan is to close faster on a new property.

Maybe you plan on using more traditional financing through a bank, but the bank loan wouldn’t be ready in time. You can use a short-term bridge loan.

This loan bridges you from the closing to the refinance. A bridge lender will help you with the initial purchase. Then once your bank (or hard money) loan is completely ready – usually several weeks or a month later – that bank loan pays off the bridge loan.

Bridge Loans in the Hard Money World

Typically bridge loans are used for 3 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.

Gap Funding for Real Estate Investors

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

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.

Where Do You Find a Gap Lender?

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?

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.

Where Do You Find a Hard Money Bridge Loan Lender?

How about bridge lenders? Does every hard money lender do bridge loans?

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. 

Which Hard Money Lenders Do 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 like working with investors who provide good, safe returns. Bridge loans do exactly that.

Bigger hard money lenders do bridge loans, 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 lenders you know to find out their pricing and see if their bridge loans are worth it. You can use our free loan optimizer to find out if you can get a good deal on bridge loans near you.

Where to Go From Here

The best deals in real estate investment close quickly. Gap funding and bridge loans are important tools to have in your belt so you can do this.

Gap funding and bridge loans are useful for beginner and experienced investors alike. They can enable you to work on multiple projects at once and increase cash flow.

There’s money in the money. If you understand the money side of real estate, your business rises to the next level.

We can always help with your real estate investment education.

Watch more about funding advice with these videos.

Email or message us anytime at HardMoneyMike.com.

Happy Investing.

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Investing with Bad Credit: How Can You Raise Your Score Fast?

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Real estate investing with bad credit is tough. Here’s how you can raise your score.

Loans fuel your real estate investment business. The easier, faster, and cheaper you can get money, the more successful you’ll be. How can you guarantee you’ll get money from lenders easily, fast, and cheap? Having a great credit score is the best place to start. 

But if your credit score isn’t what it should be, how can you succeed?

Why is Your Credit Bad?

First of all, why is your credit bad? Knowing the answer to this question is the key to your investing success.

Who Won’t Succeed in Investing with Bad Credit

Habitual bad credit is a problem. If you’re the type of person who:

  • Doesn’t pay bills because you “don’t want to”
  • Refuses to believe that improving your credit score is important
  • Can’t or won’t keep track of personal finances

…then real estate investment probably isn’t for you.

The money side of investing is huge. If you’re unable to pay attention to the numbers, pay your debts, and prepare your money, you won’t succeed in real estate. And if you aren’t willing to improve your bad credit, it will be nearly impossible to get money to buy properties to begin with.

Who Can Succeed Investing with Bad Credit

However, many people have the potential for a great credit score. But maybe your credit was impacted by a major life event:

  • A divorce
  • Medical bills
  • Lack of credit education

Any number of life events can turn a responsible, willing individual’s credit bad – including never being taught the importance of credit.

Whatever your situation is, now is the time to focus on your credit score. You can come back from any dip in credit if you’re willing to put in the time and effort.

And if you want to invest in real estate, credit is vital. Your credit will either propel you to success, or drag your career down. Let’s get it fixed.

How to Raise Your Credit Score

Improving your credit score is relatively simple – anyone can do it, if they’re willing. All it takes is getting educated, then spending 30 to 90 minutes per week.

It could take you up to six months to bump up your score in the long-term. But if you don’t start now, it’ll keep getting harder to raise it. The best time to start fixing your credit is now.

Lenders look at credit to see how you paid people in the past as a clue to how you’ll pay them in the future.

If your credit is just “dinged up,” there are three quick solutions to improve it.

1. Get Your Credit Balances Down

We often see investors and contractors put all renovation costs of a job on their credit cards – especially for BRRRR projects. They use more and more of their credit, which drags their score lower and lower.

This is a tempting yet dangerous pattern as a BRRRR investor. You put your money into the property from your credit card, which you expect to get back with your refinance. But if your credit score is too low, the refinance might not go as planned. With bad credit, you won’t be able to get the refinancing loan as easily or for as much money as you expected. This will make it harder to pay off the card balances you built up during the rehab.

A tip to get around this problem is to go private. If you can get a private loan that won’t show up on your credit, you can use that money to pay down your balances. 

A better score will give you better rates for your long-term, credit-based financing. A lower credit score could make your loan rate a point or two higher, which could snowball into you paying an extra $50,000 to $70,000 over the life of the loan.

2. Get Authorized 

Another quick fix for a low credit score is using someone else’s good credit to help your bad credit. Find a family member or friend who has good, long established credit, and ask them to add you as an authorized user. Their good credit will show up on your report and boost your score.

3. Pay Your Bills on Time

If you can’t keep up with your bills, that may be a sign to get rid of some of your credit cards. Some of our clients have over 20 credit cards open! Consolidate your accounts as much as possible.

But when you stop using an account, don’t close it. As long as it has a good history, an open, unused credit account will continually add a little boost to your credit.

Turn Bad Credit to Good Today

To get into investing with bad credit, the best step is to focus on raising your score.

It can be overwhelming, but just dive in. Ask for help – from trusted family, friends, or Hard Money Mike.

Or, if you have major credit issues dragging you down for the long-term, you may need to reach out for advice from a professional. Spending a couple hundred dollars now will pay for itself later in your great real estate investments made with a high credit score.

To start working on your credit score today, download this free credit score checklist. 

Watch our videos on credit here.

Let’s fix your credit score fast! Happy Investing.

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3 Passive Ways to Make Money in Real Estate in 2022

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Maybe you feel like you want to use 2022 as an opportunity to tap out of the active flipping game. But, you also don’t want to lose the chance for real estate cash flow. We’ve got 3 good ways to make passive real estate money.

1) Subject Tos with Rentals

Subject to rentals will be a pretty safe bet for passive real estate income this year. With a subject to, the loan is still under the original financier’s name. You’re just making payments, so the mortgage won’t cloud up your credit.

It’s relatively easy to add 5 – 10 properties to your rental portfolio without adding more debt to your name. If you put these rentals in with a property management company, you can still make a good amount of passive cash flow.

2) Private Notes

Deeds of trust or private lending is a reliable, secured, passive way to put money to work in real estate. With notes, you lend your money to friends or other people in the markets who are looking for funding – and you don’t have to worry about doing any of the work on the property.

Instead of making 1-2% with a bank’s CD rate, you could double or triple that by lending privately. We’ve helped thousands of people successfully lend this way, so contact us for more information.

3) REITs (Real Estate Investment Trusts)

Real Estate Investment Trusts work a bit like a mutual fund. You pool your money with a bunch of other people, and the company uses that money to buy real estate. You’re just one of many investors, and everyone earns a return on the properties.

There are public REITs and private REITs. With public, you can trade on the open market. With private, you have a little more restriction; once you get in, you stay in.

REITs are a great option if you want to invest in real estate but want someone else to manage it. If you’re looking for passive real estate income, research REITs in your area.

Read the full article here.

Watch the video here:

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How Much Money Do I Need to Start Investing in Real Estate?

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How much money should you have if you want to start investing in real estate? It all depends on the deal.

No Money Down Investments

We regularly help people start with no money for a project.

BRRRR rental properties work great for this. Investors can invest in them without putting any money into the property purchase or the flip.

Another way we frequently see people succeed with zero down is when they have really, really good deals. It’s a rare find, but if you do come across a property for sale for 60% or lower of the ARV, you can get 100% financing. Smaller, local hard money lenders will jump at the opportunity for such a great deal.

How Much Money Should I Normally Expect to Bring In to Start?

Traditionally, when you’re starting out investing, you’ll use either hard money loans or a bank finance. It depends on your credit score and the amount of money you’re able to bring into a deal.

When you’re going into these loans, it’s good to expect to pay between 10% to 20% of the total cost of the project out-of-pocket. This includes 10% to 20% of the property purchase and 10% to 20% of the fix-up costs.

As an example, say you have a $100,000 purchase that will require a $50,000 rehab budget. If you’re bringing in 20%, you’ll need $20,000 as down payment for the house, plus $10,000 to cover construction – so $30,000 total out-of-pocket to start.

What Will My Financing Depend On?

How much you as a new investor will need to bring into a deal will depend on several factors:

  • The kind of deal you find
  • Your qualifications – with or without real estate experience
  • Your income
  • Your savings
  • Your credit score

Hard money lenders tend to lend based on your deal. Banks tend to lend based on you. A higher credit score will give you better chances at bank loans. And banks love lending to those who don’t need money. So if you already have a lot of savings and income, you can get 100% financing. But the more you put in, the cheaper it’ll be.

Overall, you can get involved in real estate investing with no money, especially for rental projects. But if you really want to get a running start, you’ll need some money for your investments.

Read the full article here.

Watch the video here:

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5 Ways Beginners Win at BRRRR

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Some people just win at the BRRRR method. How can beginners do it?

Cash-flowing rental properties… With little-to-no money down… That passively run themselves after fix-up… This is the stuff beginner real estate investors dream about. And it’s possible with BRRRR.

But there are a lot of ways to do BRRRR wrong that’ll wreck this beautiful dream.

How do successful investors make it work? Here are 5 ways beginners can win at BRRRR:

1. Understand the Meaning of BRRRR

BRRRR winners understand what BRRRR is – and just as importantly – what it’s not.

We aren’t just talking about the literal meaning: Buy, Rehab, Rent, Refinance, Repeat. We’re talking about understanding the strategy behind the BRRRR method. Successful investors understand the money side of these investments.

Types of Properties that Win at BRRRR

Foundationally, BRRRR means buying undervalued properties.

These properties have a lot of rehab needed, causing them to be valued much lower than other homes in the area. These houses are problems for someone else but opportunities for you. You can fix them up and get them in your rental pool.

We often see people who want to use the BRRRR strategy, but they buy their properties at 90% or 95% of the ARV. They buy close to retail price, and once they put the time, money, and effort into fixing up the property… They can’t even really use BRRRR.

BRRRR’s Two-Loan Strategy

BRRRR means using a two-loan strategy. At the beginning of the project, closing with a hard money bridge loan. At the end of the project, refinancing a traditional loan.

Using this strategy on an undermarket purchase captures the equity of the home to use to your advantage. If you buy a property too close to its ARV, the whole system falls apart and you lose your refinancing power.

 

To be successful with this two-loan plan, you have to search for undermarket properties you can get for 75% or less of the ARV. With this 75% rule, you can complete a BRRRR project with little or no money out-of-pocket.

Buying undermarket and using two strategic loans is the meaning behind BRRRR that winners fully grasp. But there’s much more to it. 

What should you really look for when you buy for BRRRR?

2. Set Yourself Up for the BRRRR Method

There are two ways beginners can set themselves up for success using the BRRRR method: focusing on the numbers and putting together a team.

Numbers for Beginners

The BRRRR method is all about numbers. Beginners sometimes fail because they make a deal emotional and bid the property up. When buying properties, you have to stick to the math.

Your North Star for BRRRR investments is the 75% rule – the best properties only cost 75% of the after repair value.

The reason for the 75% rule is because that’s the number banks will rate-and-term refinance a conventional loan for. When you can do this type of refinance, you can finish up the deal without putting any of your own money in.

It’s smart to shop around for banks for your refinance loan, though. Some banks may allow you to buy up to 85% of the ARV, under certain conditions.

Get a Team Together

So you need good, low-priced properties. And the best way to find them is to build a good team. Especially as a beginner, you’ll need to know several of these kinds of people:

Realtors and Wholesalers

Knowing wholesalers and realtors can help you locate better properties and close with better deals.

Lenders

You’ll need private lenders for bridge loans and another lender for the long-term refinanced loan. Having relationships with lenders ahead of time speeds up a closing and can earn you a lower price.

Contractors

Ideally, from closing to refinance, BRRRRs are completed in 90 days. This means you’ll need contractors at-the-ready who can work efficiently and reliably to fix up your properties.

Property Managers

If you want your BRRRRs to be passive after the refinance, find a good property manager. A common beginner’s mistake is to take the first tenant who shows an interest – without any background checks or other renting requirements. 

A good property manager can both find you better tenants and manage them for you. Many investors overlook this member of their team, but it can truly make or break your BRRRR experience.

Knowing several people from each of these categories gives you options to customize for each of your deals. Putting together a good and broad team will make the BRRRR method much easier and smoother — especially for a beginner.

3. Know What Makes a Good BRRRR Property

A good BRRRR property follows the 75% rule. But that’s not the only criteria you should follow. What else makes a good BRRRR property?

What to Look for in a BRRRR Property

Here are the factors successful BRRRR investors consider in their properties.

Single-family properties

For multi-family or commercial tenants, lenders have different requirements. They often need you to hold your loan for 12 months after purchase (or even 12 after tenants move in). That timeline doesn’t work well with the BRRRR method. You’ll have a much easier time with single-family homes.

Rent prices

“Knowing your numbers” also means knowing the rent prices in the area of a property. Cash won’t flow on your investment if you’re unable to charge enough rent.

Desirable Areas

Find properties people want to live in. If you wouldn’t want to spend time there, good renters probably won’t either.

Vacation Rentals

If you’re doing vacation rentals, do the research on:

  • What areas people want to visit
  • What the rates are in the area
  • What third-party booking sites would be most profitable
  • What fix up levels you’ll need
  • Whether there are good hosts or property managers in the area.

Don’t Rush into Bad BRRRR Properties

Beginners fail at BRRRR when they don’t choose properties wisely. Don’t just buy property to buy property. You can own ten bad rentals and make no money. BRRRR should be a system that builds cash flow.

We see people do one or two BRRRRs then stop because it’s not what they expected. They put too much money in, or the area isn’t good, or their renters aren’t paying, or the rent isn’t enough to generate cash flow. 

Those issues aren’t BRRRR’s fault. A prepared investor, beginner or experienced, can always succeed with BRRRR properties.

4. Know the Numbers of a BRRRR Deal – An Example

We always talk about “knowing your numbers.” But what exactly do we mean? Here’s an example of an ideal BRRRR property using the 75% rule.

Example Breakdown of a BRRRR Deal

After repair value (ARV) is the number the house should sell for once it’s all fixed up and on the market. This number is often dictated by what similar properties in the area are going for.

To get the best long-term rates, you refinance your second, permanent loan. In order for it to cover everything (i.e., you don’t have to put any money down), all your costs must be 75% or less of the ARV.

PURCHASE PRICE + REHAB + CARRY COSTS + LOAN CLOSING COSTS = 75% of ARV

Let’s say, for example, other properties in the area are selling for $200,000, so that’s your ARV. You want to spend 75% less than that, so we’ll do:

$200,000 X .75 = $150,000

When the ARV is $200,000, all costs of the job should only be $150,000 or less. This includes the closing price, carry costs, rehab costs, and any loan costs.

5. Know Good Lenders for 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.

You Can Win at BRRRR

Winners start as beginners.

This is a business. This is a way for you to make a living in real estate. Those who take the time to learn and get their team set up – those are the winners.

For help in setting up your team, going over your numbers, and getting your financing in order, reach out to us at HardMoneyMike.com.

You can also watch our videos on BRRRR strategies here.

Happy Investing.

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3 Ways to Invest in Real Estate with No Money Down

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These are the most tried-and-true ways to invest in real estate with no money. Some of these methods will sound familiar – but they’ll have a twist to ensure your success in the market we’re about to enter.

Other methods might be unfamiliar to you. They’ve fallen out of popularity the last 15 years, but rising interest rates will bring back their usefulness.

1) BRRRR with No Money Out-of-Pocket

Buy, rehab, rent, refinance, repeat. That process becomes easier the better your deals are. And as we see more foreclosures happen in the near future, and more people are sitting on the market, you’ll have the chance for better deals.

To get BRRRR properties with no money out-of-pocket in this market, though, you’ll need a good deal. What makes a deal good? One of the best guidelines is the 75% Rule. As long as the property costs 75% or less of the ARV, you can get into that property with zero money down.

(Even following the 75% rule, you’ll need to qualify for a bank loan, so you’ll have to be sure your credit’s good.)

We’ve had a lot of success helping people with BRRRRs in down markets. Around 2010, we would often do ten properties every year for couples. They built real estate portfolios with no money from their pockets.

2) Subject Tos with Zero Down

As properties get stuck in the market longer and interest rates rise, subject tos will become a great way to invest using no money.

A subject to is when you go on title, own the property, and take over mortgage payments – but leave the existing mortgage on the property, in the seller’s name.

What good does this do for you as the buyer?

  • Loans on subject to properties were originated two or three years ago, with 2.5-3% interest rates. Much lower than if you were refinancing for yourself in the current market.
  • You don’t have to refinance. It’s not on your credit, not based on your income, and you don’t have to go through underwriting.
  • The loan is probably already a few years into amortization. So every payment becomes lower – all without you needing to qualify for anything.
  • You can accumulate a large portfolio without the hassles of finding the money.

More on subject tos later in this article.

3) Owner Carry with No Money Down

Here’s another way to invest in real estate with no money that has been out of the picture for awhile: owner carries.

An owner carry deal is somewhat similar to a subject to, where the buyer gets ownership of the house without taking out their own mortgage. But in an owner carry, the buyer doesn’t pay the property’s existing mortgage. Instead, the owner owns the home outright, so the buyer gives them mortgage payments directly.

Owner carries can be especially beneficial when you’re the seller. But an owner carry is also a potentially good option to invest without putting much, or any, money down.

Here’s an example of a recent owner carry deal we helped with:

A client was selling their parents’ property. They were planning to put the money in the bank and live off the interest.

Instead of settling for the 1% or 2% interest they’d make in the bank, we helped them with an owner carry. So they:

  • Sold the property.
  • Put a lien on the property so they held the mortgage.
  • Received mortgage payments from the buyer at closer to a 4% or 5% interest rate.

You’ll probably have more luck finding subject tos than owner carries. Not many people own a house free and clear, or take over a property without a mortgage.

Read the full article here.

Watch the full video here:

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How to Start Investing in Real Estate: Beginner’s Guide to Private Money

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Where do you start with private money in real estate investing?

There are two pillars to successful real estate investing.

First, finding good, undermarket properties. And second, having the leverage to actually purchase those properties.

Private lending is the key to unlock that money side of investing. But when you’re just starting out, how do you get involved? 

How much money should you start with? How do you find the right loans for your situation?

Well, here’s your starting point:

How Much Money Do I Need to Start Investing in Real Estate?

How much money should you have if you want to start investing? It all depends on the deal.

No Money Down Investments

We regularly help people start with no money for a project. 

BRRRR rental properties work great for this. Investors can invest in them without putting any money into the property purchase or the flip.

Another way we frequently see people succeed with zero down is when they have really, really good deals. It’s a rare find, but if you do come across a property for sale for 60% or lower of the ARV, you can get 100% financing. Smaller, local hard money lenders will jump at the opportunity for such a great deal.

How Much Money Should I Normally Expect to Bring In?

Traditionally, when you’re starting out investing, you’ll use either hard money loans or a bank finance. It depends on your credit score and the amount of money you’re able to bring into a deal. 

When you’re going into these loans, it’s good to expect to pay between 10% to 20% of the total cost of the project out-of-pocket. This includes 10% to 20% of the property purchase and 10% to 20% of the fix-up costs.

As an example, say you have a $100,000 purchase that will require a $50,000 rehab budget. If you’re bringing in 20%, you’ll need $20,000 as down payment for the house, plus $10,000 to cover construction – so $30,000 total out-of-pocket to start.

What Will My Financing Depend On?

How much you as a new investor will need to bring into a deal will depend on several factors:

  • The kind of deal you find
  • Your qualifications – with or without real estate experience
  • Your income
  • Your savings
  • Your credit score

Hard money lenders tend to lend based on your deal. Banks tend to lend based on you. A higher credit score will give you better chances at bank loans. And banks love lending to those who don’t need money. So if you already have a lot of savings and income, you can get 100% financing. But the more you put in, the cheaper it’ll be.

Overall, you can get involved in real estate investing with no money, especially for rental projects. But if you really want to get a running start, you’ll need some money for your investments.

Where Can I Find Private Money Lenders?

We’re mostly focusing on private money lenders for beginner investors because that’s where you’ll naturally have to start.

The timeline of financing options for most investment careers goes:

Private Lending  →  Bank Financing  →  Cash

You’ll start with relying on private lenders and hard money. But you’ll be working your way toward less expensive methods of financing. As you gain experience, credit, and money, it gets easier to move toward cash and lower interest loans in your investment business.

So, people at the beginning of their real estate investment careers hard money lenders… But if you’re just starting out, you’re probably not sure where to find them.

Here are the basics for finding private money lenders:

1) Google

A simple Google search can help you find private lenders near you.

The majority of hard money lenders will be local investors or small companies lending in your area only. Google is a simple, reliable way to see who’s out there lending locally.

Read the Google reviews. You’ll feel more confident moving forward with a lender if you can see people who vouch for the company.

2) Ask Local Investors Online

Use resources like biggerpockets.com, connectedinvestors.com, or other online forums to learn from people in your area. See who they use, why they use them, and what some general costs are.

3) Meet-ups and Live Events

Talk to people in person. Chat with other investors to hear about their experiences with local lenders. Many events will give you the chance to meet those local lenders and get to know what they offer.

You’ll need a pool of options for money, so it’s good to know many companies and private individuals.

Communicate with banks, too. Even if you can’t get a bank loan right now, that’s the next step you’re working toward in your career. It’s never too early to build those connections.

Are Hard Money Lenders Safe?

A major question from people who are starting real estate investing is: Are hard money lenders safe? Are they just loan sharks who will take all the profits from my project?

Private Lending Business Model

Hard money is not built to be against you. Private lenders intend to: lend money, get it back, and get their interest. They only want a return on their investment; they don’t want to bleed you dry.

Granted, there is a potential for lenders to take advantage of you, and there are a small percentage of lenders like that out there.

Hard money lending is no different than any other business – there are good people in it and bad people. It’s your responsibility as an investor to be sure you’re working with good, safe people.

Finding Good, Safe Lenders

Just like anything else, it’s wise to shop around. The best ways to find good hard money lenders are:

  • Personal Experience
  • Asking about other people’s experience
  • Checking online reviews

You’ll be able to tell right away from other people’s experiences whether a lender is safe or not. You can even ask lenders for references of people who have closed with them in the past.

Doing your research should save you the trouble of trial and error with your local lenders.

Broaden Your Pool of Lenders

To successfully start in real estate investing, you’ll need to get a good list of lenders. Don’t be connected just to one. You’ll need them for different reasons, different deals, and different loans.

It’s good to have a lot of money options – something quick, something long-term, something with a lower rate, etc.

If you focus on building your base of lenders, you’ll feel safe. Spread your reliance over multiple lenders to be more confident in your real estate investing career.

What Are Private Lender Interest Rates?

You know you’ll have to buy the property, cover fix-up costs, and pay back the cost of the loan. But if you’re new to real estate investing, you also need to know what other costs will come with your loan. Like interest rates.

The biggest cost on your mind is probably: What interest rates do hard money lenders charge?

What’s a Typical Hard Money Interest Rate?

The rate depends on several factors, and interest rates will vary lender to lender.

Now, in July 2022, inflation is hitting, and the federal interest rates are rising. With these recent changes, you’ll find rates are between 9% and 11%. But just six months ago, interest rate averages where two percentage points less.

Always check on your local lenders’ rates. Especially at a time like this, they can change relatively quickly.

How Interest Works on a Hard Money Loan

We’ve had people come to us discouraged about interest rates – just because they misunderstood how interest works. 

For example, let’s say you need a loan for $800,000, but you only need it for three months. The lender gives you a 9% interest rate. Will you have to pay 9% of $800,000 for those three months? No, that’s not how interest works in hard money.

That percentage they give you is an annual rate. So in this case, you’d be paying that 9% in monthly chunks over the course of the year. If you only need that loan for three months, you’ll be paying closer to $18,000 in interest – much better than around $72,000, 9% of the full total.

Always make sure to shop around for the best deal. The more money you can put in, the lower your interest rate.

How Important Are Interest Rates?

Typically in real estate investing, it’s not just about the interest rate. It’s about how fast you can close.

We see speed make the difference for our clients all the time. Often, if someone can close a week or two earlier than other buyers, they get a better deal. 

In that case, interest rates become a non-factor. The bargain you can get on closing fast on a property can more than makes up for the interest charges.

Banks’ interest rates are generally 2% to 5% lower than private lenders. So if you can go to banks, you probably should for the better rate. But if you’re new to real estate investing, bank loans are typically out of reach, so hard money is the best way to start investing.

How Much Do Private Money Lenders Charge Overall?

Interest rates are just one of the costs to be aware of with hard money. With private lenders, there are two major costs to consider:

  • Interest rates
  • Fees and other charges

You’ll have to consider these two factors at the same time. Every lender is different. 

One company might offer a 14% interest rate but have low fees. Another may only charge 9.5% interest but their fees are much higher.

How do you calculate which loan will be the better deal for you? A simple way is to use this free loan optimizer tool. You can add in all the information from each lender, and this tool will help tell you which loan saves you the most money.

What Are the Other Costs Associated with Hard Money?

Fees can vary widely in the hard money world. There’s no standard; it’s up to each lender what they charge.

Origination Charge

The most common fee you’ll see is the origination charge. This is to guarantee profit for your lender or salesperson.

An origination fee is calculated as a percentage of the loan amount. It varies between 1 and 4 points. (A “point” is a “percentage.” So if you hear a lender say they charge 2 points for a fee, that’s 2%).

Other Fees

Some lenders have none of these fees, some have nearly all of them:

  • Processing charges
  • Underwriting fees
  • Appraisal charge
  • Legal fees
  • Title fees
  • Charges to set up an escrow
  • Charges to take draws on an escrow
  • And more.

The amounts vary widely. Some of these charges are a flat rate, and some are based on a percentage of the loan. One lender might have eight or nine of these fees, another may have just one or two.

How Do You Know Which Loan Is Best When You First Start Investing in Real Estate?

At the end of the day, you’ll have to find out what’s best for you. 

Don’t get too hung up on interest. Some people see lenders charge 10% when banks are charging 6%, and they assume it’s some sort of rip-off. Then they never use hard money, and their investment career suffers.

There’s no such thing as a loan that you don’t have to pay for. Every lender will have between one and eight additional costs besides simply paying the money back.

Sometimes people who start investing in real estate zoom in on a low interest rate from a private lender, then miss the bigger picture of fees and the length of the loan.

You’re responsible for the success of your loan. Most consumer loans will give you a detailed sheet with all the charges. Private lenders will give you that information, but it may not be in a nice little form.

This loan optimizer tool can help you understand which lender will offer the better deal for you.

Understanding these costs and loans will make or break your real estate deals. This side of investing where you’re spending money is the same side where you make money. 

Hard Money Mike Can Help You Start Investing in Real Estate

It’s a knack to find great properties, but it’s impossible to start investing in real estate if you can’t get the money to fuel those purchases.

We’ve done tens of thousands of transactions, billions of dollars in loans, in every kind of market, with any kind of deal. 

We don’t just lend our own loans. We help investors understand hard money, get help with bank loans, and be educated on the money side of real estate investment.

If you still feel unsure about the next steps to make your dream of real estate financial freedom a reality, reach out to us with your questions.

The people who understand the money side of investing are the ones who become more profitable, faster. Let’s make you one of those people.

Happy Investing.

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What is a Good Credit Score?

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What number is a good credit score goal for real estate investors?

Credit scores range from the 400s to 800s. But for the purposes of the lending world, that range shrinks to the mid-600s to upper-800s.

Over the past 6 months, with inflation and interest rates rising, big institution lenders have tightened their grip on loans. Not just anyone can get a loan – you’ve got to have a good score.

But what is a good credit score for real estate lenders?

Changing Definition of a Good Credit Score

Before this recent shift in the economy, the lowest score considered by a lender was 640. Now, most lenders won’t look at anyone under 680. And that 680 minimum could soon turn into 720.

Institutions raise credit score minimum requirements to cut investors from the loan pool. This means many of your competitors will be unable to find the same kind of money they could 6 months ago.

You don’t need to be one of the investors squeezed out of the lending space. But you’ll need to understand exactly where your credit is, how to improve it, and what range lenders will be looking for.

Make sure you’re credit-ready for these upcoming opportunities.

Read the full article here.

Watch the full video here: