The Fundamentals of Real Estate Investing: Profit Breakdown

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When people first start flipping houses, they often think a lender simply hands them money to buy a property. However, that is not how a fix-and-flip loan works. Instead, money moves through several stages before, during, and after closing. That is why understanding The Fundamentals of Real Estate Investing: Profit Breakdown can help you avoid surprises and make better decisions. More importantly, it helps you plan your cash flow, protect your profits, and keep projects moving forward. Think of a fix-and-flip project like a series of money buckets. Some money comes from the lender. Meanwhile, some money comes from you. As a result, you need to know where every dollar goes before you start a deal.

In this guide, you will learn how funding works, what costs to expect, and how to calculate your real profit at the end of a project.

Understanding the Lender’s Role

Before looking at the numbers, it helps to understand what a lender typically funds. Most fix-and-flip lenders focus on two important numbers:

After Repair Value (ARV)

ARV is the estimated value of the property after all repairs are complete. As a general rule, many lenders want the total project cost to stay at or below 75% of the ARV. Therefore, this number helps protect both the lender and the investor.

For example:

  • ARV = $260,000
  • 75% of ARV = $195,000

If your purchase and rehab costs stay below $195,000, the deal may fit the lender’s guidelines.

Loan-to-Cost (LTC)

Loan-to-cost measures how much of the project the lender will fund.

For instance, a lender may offer:

  • 90% of the purchase price
  • 100% of the rehab budget

As a result, the lender may cover most of the project costs, but you still need money available for other expenses.

Furthermore, most fix-and-flip loans are:

  • Short-term loans
  • Usually 6 to 12 months
  • Interest-only payments
  • Designed specifically for renovation projects

Because of this, speed matters. The faster you finish and sell the property, the more profit you usually keep.

The Five Stages of Funding

Successful investors understand where money flows during every stage of a deal.

These stages include:

  1. Pre-Closing
  2. Closing
  3. Post-Closing
  4. Pre-Sale
  5. Sale and Profit Collection

Let’s look at each stage.

Stage 1: Pre-Closing Costs

Pre-closing happens after you put a property under contract but before you officially buy it. During this stage, several costs may appear.

Earnest Money Deposit

An earnest money deposit shows the seller you are serious about buying the property.

Example:

  • Earnest money deposit = $2,000

This money comes from your funds, not the lender’s funds.

Inspection Costs

Some investors order inspections to uncover hidden issues.

For example, an inspection may reveal:

  • Plumbing problems
  • Foundation issues
  • Electrical concerns
  • Sewer line damage

Example cost:

  • Inspection = $500

Property Valuation or Appraisal

Lenders usually require a valuation before approving the loan.

Example cost:

  • Valuation = $600

Total Pre-Closing Costs

In this example:

  • Earnest money = $2,000
  • Inspection = $500
  • Valuation = $600

Total:

$3,100 out of pocket before closing

Therefore, investors need available funds long before the lender provides financing.

Stage 2: Closing Costs

Closing is when ownership officially transfers to you. At this point, both you and the lender bring money to the transaction.

Example Deal

Let’s use the following numbers:

  • Purchase price = $150,000
  • Rehab budget = $40,000
  • ARV = $260,000

Total project cost:

$150,000 + $40,000 = $190,000

Since $190,000 is below the 75% ARV threshold of $195,000, the deal works within the guideline.

Lender Contribution

The lender funds:

  • 90% of purchase = $135,000
  • 100% of rehab = $40,000

Total loan:

$175,000

Investor Contribution

The investor provides:

  • 10% down payment = $15,000

Additional Closing Costs

Besides the down payment, investors often pay:

Loan Costs

These may include:

  • Origination fees
  • Underwriting fees
  • Processing fees

Example:

$5,000

Title and Closing Costs

These costs help ensure clear ownership.

Example:

$3,000

Insurance

Most lenders require insurance before closing.

Example:

$2,000

Total Closing Costs

  • Down payment = $15,000
  • Loan costs = $5,000
  • Title costs = $3,000
  • Insurance = $2,000

Total:

$25,000

When combined with pre-closing expenses, the investor has already contributed:

$25,000 + $3,100 = $28,100

Stage 3: Post-Closing Costs

Many new investors overlook this stage. However, these expenses can significantly affect profits.

Rehab Pre-Funding

Sometimes materials must be ordered immediately.

Examples include:

  • Windows
  • Doors
  • Roofing materials
  • HVAC systems
  • Cabinets

Although the lender may reimburse approved rehab expenses later, investors often pay deposits first. As a result, many investors keep access to:

  • 20% to 40% of the rehab budget

In this example:

  • Rehab budget = $40,000
  • Recommended available funds = $8,000 to $16,000

This money keeps the project moving.

Monthly Carrying Costs

Every month a property remains unsold creates additional expenses.

Common carrying costs include:

  • Interest payments
  • Utilities
  • HOA fees
  • Property maintenance

Interest Payment Example

Loan amount:

$175,000

Interest rate:

10%

Annual interest:

$17,500

Monthly interest:

$17,500 ÷ 12 = approximately $1,460

Utilities

Example:

$340 per month

Total monthly carrying cost:

$1,460 + $340 = $1,800

If the project lasts four months:

$1,800 × 4 = $7,200

Therefore, delays directly reduce profits.

Why Speed Matters in Real Estate Investing

Every extra month costs money. For example, if a project drags on for six more months, carrying costs continue to grow. Meanwhile, stress often increases.

Because of this, experienced investors focus on:

  • Fast renovations
  • Quick decision-making
  • Strong contractor management
  • Proper funding preparation

Simply put, speed protects profit.

Stage 4: Preparing to Sell

Before listing the property, investors often spend money on final touches.

These costs may include:

  • Cleaning
  • Photography
  • Landscaping
  • Staging
  • Minor repairs

Although these costs seem small, they can improve buyer interest and help properties sell faster. As a result, many investors view these expenses as investments rather than costs.

Stage 5: Selling the Property and Calculating Profit

Now let’s follow the money all the way to the finish line.

Sale Price

The renovated property sells for:

$260,000

Selling Expenses

Common selling costs include:

  • Agent commissions
  • Title fees
  • Transfer taxes

After these expenses, the investor receives approximately:

$247,000

Pay Off the Loan

The lender receives:

  • Principal balance = $175,000
  • Remaining interest and fees = $1,000

Total payoff:

$176,000

Remaining Funds

$247,000 − $176,000 = $71,000

At first glance, it may seem like a $71,000 profit.

However, there is one more step.

Subtract Your Cash Investment

Earlier, the investor contributed:

  • Pre-closing costs
  • Closing costs
  • Carrying costs

Total investment:

$35,300

Now subtract that amount:

$71,000 − $35,300 = $35,700

Final Net Profit

$35,700

This is the money left after all project expenses and loan obligations are paid.

What Is a Good Fix-and-Flip Profit?

Many investors aim for a net profit equal to roughly 10% to 15% of the ARV.

Using the example above:

  • ARV = $260,000
  • Target profit range = $26,000 to $39,000

The example profit of $35,700 falls within that target range. Therefore, the deal produces a healthy return.

Key Lessons from The Fundamentals of Real Estate Investing: Profit Breakdown

Successful investors understand more than just purchase prices. They also understand cash flow. As you evaluate deals, remember these lessons:

  • Budget for pre-closing costs.
  • Plan for closing expenses.
  • Prepare for monthly carrying costs.
  • Keep funds available for rehab deposits.
  • Track every dollar invested.
  • Focus on speed whenever possible.
  • Calculate net profit instead of gross profit.

Most importantly, treat every project like a business. When you understand where the money goes, you can make smarter decisions and avoid costly surprises.

Conclusion

The biggest mistake many new investors make is focusing only on the purchase price and sale price. However, real profit comes from understanding every stage of the funding process.

That is why The Fundamentals of Real Estate Investing: Profit Breakdown matters so much. When you understand pre-closing costs, closing costs, carrying costs, lender requirements, and profit calculations, you can approach each deal with confidence.

Furthermore, proper planning helps projects move faster. As a result, you can protect your margins, reduce stress, and build a stronger real estate investing business over time.

Watch our most recent video about: The Fundamentals of Real Estate Investing: Profit Breakdown

Hard Money: How to Sell Your House In Today’s Market

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Hard Money: How to Sell Your House In Today’s Market

If you are struggling to sell a house right now, you are not alone. In fact, many homeowners, landlords, and real estate investors are dealing with the same problem. Houses that need repairs or updates are sitting on the market longer than expected. Meanwhile, buyers want homes that are move-in ready.

That is why more people are turning to Hard Money: How to Sell Your House In Today’s Market as a solution. A hard money loan can help you update, repair, or finish a property fast so you can sell it quicker and often for more money.

Today’s market is different. Buyers have more choices. Because of that, homes that look clean, updated, and finished are still selling quickly. However, homes that need work often sit for weeks or months.

Why Some Houses Are Not Selling

Many properties are not selling because buyers do not want extra projects. Most families already have enough going on with work, kids, and daily life. Therefore, they want a home they can move into right away.

For example, imagine two homes on the same street:

  • House #1 needs flooring, paint, and a roof
  • House #2 is updated and ready to move into

Even if House #1 costs less, many buyers will still choose House #2 because it feels easier and safer.

As a result, homes needing repairs usually face:

  • Price cuts
  • Longer selling times
  • Buyer requests for concessions
  • More stress for the seller

Meanwhile, the holding costs keep growing every month.

What Is Hard Money?

Hard money is a short-term real estate loan that is fast and flexible. Unlike many traditional loans, hard money lenders focus heavily on the property and the equity in the deal.

Because of that, hard money works well for:

  • Homes needing repairs
  • Inherited properties
  • Rental property conversions
  • Fix-and-flip projects
  • Homes that did not sell as-is

Most importantly, hard money can help you fix the property before selling it.

Why Updated Homes Sell Faster

Even in slower markets, updated homes still attract buyers. In fact, many fixed-up homes are selling in days instead of months.

That happens because buyers love homes that feel complete.

Think about walking into a freshly updated property:

  • New flooring
  • Fresh paint
  • Updated kitchen
  • Clean landscaping
  • Bright lighting

Now compare that to a house needing:

  • Roof repairs
  • Old carpet
  • Broken windows
  • Plumbing issues
  • Outdated finishes

The difference is huge.

People save and share the updated home online because they can picture themselves living there. On the other hand, many buyers walk away from homes needing work because they fear surprise costs.

A Simple Example of Hard Money Working

Recently, one property owner had a house that would not sell. The home needed updates, so buyers kept asking for discounts.

Instead of cutting the price again, they used hard money to fix the property.

They spent around $50,000 on repairs and updates. After that, the home sold much faster and brought in roughly $150,000 more in value.

That is the power of improving the product before selling it.

The Hidden Cost of Waiting

Every month a property sits unsold, the costs keep piling up.

For example, you may still be paying:

  • Mortgage payments
  • Taxes
  • Insurance
  • Utilities
  • Lawn care
  • Security costs
  • Interest payments

Meanwhile, stress keeps growing too.

Therefore, fixing the property quickly can sometimes save money even if you borrow funds to do it.

A faster sale often means:

  • Fewer holding costs
  • Less stress
  • Fewer price cuts
  • More buyer interest
  • Better offers

Who Uses Hard Money to Sell a Property?

Hard money is helping many different types of people right now.

Inherited Property Owners

Many inherited homes have older finishes or deferred maintenance. Because of that, family members often struggle to sell them as-is.

A hard money loan can help update the property quickly before listing it.

Landlords Selling Rentals

Some rental homes have not been updated in years. While they may have worked fine as rentals, retail buyers usually want something nicer.

Therefore, many landlords use short-term funding to improve the home before selling.

Fix-and-Flip Investors

Sometimes projects go over budget. Other times, a lender stops funding repairs.

In those situations, hard money can help finish the project so the investor can finally sell the property.

What Makes a Good Hard Money Deal?

Most hard money lenders want deals with solid equity.

For example, many lenders prefer the total loan amount to stay around 70% loan-to-value or lower.

That means:

  • The property has equity
  • The numbers make sense
  • The updates can increase value
  • The exit plan is clear

For instance:

  • A house worth $300,000
  • Total loans after repairs = $200,000

That may work well because there is still strong equity in the property.

Why Hard Money Works Well in Today’s Market

Today’s market rewards clean, updated homes.

Buyers want certainty. They want less risk. They also want fewer surprise expenses.

Because of that, updated homes still move quickly while unfinished homes often sit.

Hard money helps bridge the gap.

Instead of selling cheap, many sellers are choosing to:

  1. Borrow short-term funds
  2. Update the property
  3. Sell faster
  4. Keep more profit

That strategy can make a huge difference.

Final Thoughts on Hard Money

Selling a home in today’s market can feel frustrating. However, you may have more options than you think.

Sometimes the answer is not lowering the price again. Instead, the better move may be improving the property first.

Hard money gives many homeowners and investors a fast and flexible way to:

  • Finish repairs
  • Improve the property
  • Sell faster
  • Reduce stress
  • Keep more money in their pocket

Most importantly, the goal is simple: create a property buyers actually want.

Because when the property looks great, buyers notice. Then the house stands out from the competition and sells faster.

Watch my most recent video to find out more about: Hard Money: How to Sell Your House In Today’s Market

Why a 12% Hard Money Loan Can Cost You LESS Than 8.5%

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At first, it sounds crazy. Why a 12% Hard Money Loan Can Cost You LESS Than 8.5% does not seem to make sense. However, once you break it down, it becomes very clear. The truth is, the interest rate is only one part of the total cost. You also have to look at fees, points, and most important, time. Because of that, a higher rate loan can actually put more money in your pocket on the right deal. So, let’s walk through a simple example to show you how this works and how you can use it to protect your profits.

What Is Hard Money (and Why It Matters)

Hard money is simple. It is a loan backed by real estate. However, it works very different than a bank. Instead of focusing only on your income, it focuses on the deal itself. Because of that, it can move fast, which helps you win deals that others miss. In addition, it stays flexible, so it can fit projects that do not fit inside a bank’s rules. So, while banks stay inside the box, hard money works outside the box. And because of that, it becomes a powerful tool for investors who want speed, flexibility, and more control over their deals.

The Big Myth: Lower Rate = Lower Cost

Most investors believe that a lower interest rate always means a cheaper loan. However, that is not always true. In fact, sometimes a 12% loan can cost less than an 8.5% loan. At first, that sounds backwards. But once you look at the full picture, it starts to make sense. The truth is, the rate is only one piece of the puzzle. You also need to look at fees, time, and how long you will hold the property. Because of that, focusing only on the rate can actually cost you money.

Real Deal Example (Simple and Clear)

Let’s walk through a real example so you can see how this works. In this deal, the purchase price is $450,000, and the rehab is $50,000. The after repair value is about $700,000. The lender will fund 90% of the purchase and 100% of the rehab. Now, there are three loan options to choose from. The first option is a hard money loan at 12% with one point and almost no extra fees. The second option comes in at 9.75% with higher points and added fees like draws and inspections. The third option has an 8.5% rate but includes even more fees and processing costs. At first glance, the lower rate looks better. However, we need to look deeper.

Now Let’s Look at Time (This Changes Everything)

Time is the key factor that changes everything. First, if the project takes about three months, the 12% loan actually comes out cheaper by about $2,600 to $4,000. This happens because you avoid many of the upfront fees and extra costs tied to the lower rate loans. Next, if the deal stretches to six months, all three options come very close in total cost. This is the break-even point where rate and fees balance out. However, if the deal goes longer, such as nine to twelve months, the lower rate loan becomes the better option. This happens because interest has more time to build, and over time, the lower rate saves more money.

The Simple Rule (Easy to Remember)

So, here is the simple rule you can remember. If the deal is short, a higher rate loan can often cost less. On the other hand, if the deal is long, a lower rate loan will usually win. Because of that, you always want to match your loan to your timeline. This one shift in thinking can save you thousands of dollars on every deal.

Why This Happens (Plain English)

Now let’s break down why this happens in simple terms. First, points are just prepaid interest. So, when you pay points, you are paying part of the interest upfront instead of over time. Next, fees like draw fees, inspection fees, and processing costs can add up quickly. Even though they may seem small, they slowly eat away at your profit. Finally, time multiplies everything. The longer you hold a deal, the more interest you pay, and the more those costs grow. Because of that, time plays a bigger role than most investors think.

A Quick Example You Can Feel

Let’s make this real. Imagine you expect to make $40,000 on a deal. Now, each extra month you hold that property costs you about $4,000. So, if your project runs three months longer than planned, you lose $12,000. That is a big hit. And in many cases, those delays happen because the funding was not set up correctly from the start. Because of that, having the right loan and enough funds ready can protect your profits.

Why Hard Money Can Be the Best Choice

Even though hard money often has a higher rate, it can still be the best choice for many deals. First, it allows you to move faster, which helps you finish projects sooner. Next, it reduces delays, which keeps your costs down. In addition, it often has fewer hidden fees, which means more money stays in your pocket. Finally, it allows you to complete more deals each year. And when you do more deals, your total profit grows.

Protect Your Profits with Better Funding

You may have heard this before: you make your money when you buy, but you protect it with your funding. What this really means is that you need to choose the right loan for each deal. You also need to match your loan to your timeline. In addition, you should always look at the total cost, not just the rate. Because every deal is different, your funding should be different too. When you take the time to do this right, you keep more of your hard-earned profit.

The Smart Move: Run the Numbers First

Before you move forward with any deal, take the time to run the numbers. First, compare at least two or three lenders. Next, look at the full picture, including rate, fees, and time. Then, test different timelines to see how the cost changes. When you do this, you can clearly see which loan is best for your situation. This is exactly why tools like a loan optimizer are so valuable. They help you make smart decisions based on real numbers, not guesses.

Final Thought

So, yes, a higher interest rate can actually cost you less. However, this only works when the deal moves fast. That is why smart investors do not chase the lowest rate. Instead, they focus on the best loan for the deal in front of them. Because when you choose the right funding, you do more than save money. You protect your profits and set yourself up for long-term success.

Watch our most recent video to find out more about: Why a 12% Hard Money Loan Can Cost You LESS Than 8.5%

The Importance of Comping Investment Properties

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Comping investment properties is one of the most important steps in real estate investing. It helps you avoid overpaying and ensures your deal has the potential for profit. Think of it as getting the right blueprint before you build. Without it, you could end up with a bad deal that drains your budget.

For example, let’s say a property in your target neighborhood is listed for $200,000. You might think it’s a great deal—until you look at comparable properties, or “comps.” If similar homes recently sold for $180,000, that listing is overpriced. On the flip side, if the comps show properties selling for $250,000, it might be a hidden gem!

Comping also gives you a reality check on rental income. If nearby properties rent for $1,500 a month, it’s unrealistic to expect $2,000 for yours. Without this info, you might miscalculate your cash flow.

In short, comping tells you whether you’re looking at a goldmine or a money pit. It’s your way to stay informed and confident about your investments.

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Is the potential property right for you? Contact us today to find out more about comping investment properties.

Free Tools For You! 

We also have free tools available! Download the Quick Deal Analyzer to see if your potential property will be a good investment.

Learn more!

Visit our YouTube channel to learn more about real estate investing and how you can get on the fast track to success! 

VRBO Investment Properties: A Smart Way to Grow Your Income

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Thinking about owning a vacation rental? VRBO investment properties are a great way to earn extra income while building long-term wealth. These properties allow you to rent out homes or condos to short-term guests, usually in popular vacation spots.

For example, imagine owning a cozy cabin in the mountains or a beachside condo. By renting it out on VRBO, you can earn nightly income while still enjoying the property yourself when it’s available.

One of the biggest perks? Short-term rentals often bring in higher income compared to traditional long-term leases. If your property is in a high-demand area, a few booked weekends could cover your mortgage payment for the month.

Of course, success with a VRBO property requires smart planning. Location is key. Travelers look for destinations that offer great attractions, beautiful scenery, or unique experiences. You’ll also need to think about property management, like cleaning and maintaining the home.

Done right, VRBO properties can be a game-changer for your financial future. They help you pay off debt faster and enjoy life more, giving you both cash flow and a fun asset you can call your own.

Ready to learn how to get started? Contact us today to find out more! We can walk you through the process from choosing the right property, to financing options, and even tips to maximize your profits. 

Contact Us Today! 

Is a VRBO right for you? Contact us today to find out more about investment properties!

Free Tools For You! 

We also have free tools available! Download the Quick Deal Analyzer to see if your potential property will be a good investment.

Learn more!

Visit our YouTube channel to learn more about real estate investing and how you can get on the fast track to success! 

Airbnb Investment Property

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What exactly is an Airbnb investment property and is it the right choice for you? Today we will be taking a closer look!

What is an Airbnb?

An Airbnb is a vacation rental as opposed to a long-term rental property. Think about a small cabin in a popular hiking town or a beachside condo. People are able to book short stays, which can bring in more money than a traditional rental. 

How can an Airbnb help me?

Airbnb properties also give you flexibility. You can use the property yourself or rent it out when you want. Some investors start by renting their home part-time, testing the waters, and seeing how much they can make. A well-located and nicely furnished space can attract guests, especially if you offer extras like a guide to local spots or cozy decor.

Check out an Airbnb as an investment property! 

There are challenges, of course, like dealing with cleaning, guest management, and local regulations. But with the right setup, many investors find it worth it. And since you’re earning nightly, the income adds up quickly, giving you cash for future investments. In short, Airbnb properties can be a solid way to build wealth through real estate.

Contact Us Today! 

Is a Airbnb right for you? Contact us today to find out more about investment properties!

Free Tools For You! 

We also have free tools available! Download the Quick Deal Analyzer to see if your potential property will be a good investment.

Learn more!

Visit our YouTube channel to learn more about real estate investing and how you can get on the fast track to success! 

Text: "Leverage Up!"

The Power of Leverage: Are You Losing Money?

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These simple examples show you the power of leverage in real estate investing.

Real estate investors know they need loans to buy properties. But few real estate beginners understand exactly how big of a difference leverage makes.

Leverage turns property-buying into a real estate investment career. It builds real money, and a portfolio of net worth that can create generational wealth.

In this article, we’ll use simple examples to break down the power of leverage in real estate – and how maximizing leverage skyrockets your real estate career.

What Is Leverage?

In short, leverage means buying with money that isn’t yours in order to make a profit.

Leverage takes the form of loans from lenders: banks, credit unions, hard money lenders, people you know.

The greatest tool for a real estate investor is leverage.

How to Find the Power of Leverage

Let’s look at some simple numbers to show the power of leverage.

We’ll look for two things:

1) How much income can you get from a rental?

2) How much equity will a property generate over time?

Note: We’re going to use $100,000 as our base number. That might be a lot more money than you have to start with. It’s also likely a lot less money than you’ll spend for your properties.

Regardless, it’s a simple number to show the power of leverage. These same principles will apply despite your starting number or your property costs.

Now, let’s dive in.

Income without Leverage vs with Leverage

Rent is the income you get from tenants. Net rent is that income after you’ve made any loan payments for the month on that property.

Net rent is the number that’s true cash flow for you. We’ll use this number to analyze real estate income with and without the power of leverage.

Income No Leverage

Say you have $100,000 to invest in real estate.

You could take this money and buy one rental property valued at $100,000. You can invest the full $100,000 and receive $1,200 of net rent income per month, or $14,400 per year.

Income With Leverage

Now let’s see how it plays out when you involve a lender rather than buying outright.

You could talk to a lender who might offer to loan you $75,000 if you put in the other $25,000. Now, instead of pouring all of your money into one rental property, you’ll only have to use $25,000. The $75,000 covered by the lender is considered leverage.

Using lenders like this, you could buy four properties, each with a $25,000 down payment. Because you’re paying a mortgage, however, your net rent per month goes down. Your net rent is now $750 per property. This brings in $3,000 per month, or $36,000 per year.

With leverage, you have the potential to make $1,800 per month more, or an additional $21,600 per year – just from using leverage.

Net Worth without Leverage vs with Leverage

Rent income isn’t the only financial outcome of buying and renting real estate. There’s also appreciation. 

According to the stats over the last 20 years, real estate goes up an average of 5.3% per year. Using this 5.3% number, one home increases value by an average of $5,000 per year. 

This isn’t a straight line (ie, exactly $5,000 per year). Some years may appreciate more, some less. But over the long-term, that’s the average yearly appreciation, so we’ll use this number.

Net Worth No Leverage

Let’s see how appreciation would impact our real estate portfolio had we bought the one home outright, with no leverage.

Our single rental would have $5,000 in equity after one year, $25,000 after five years, and $150,000 after 30 years.

Net Worth with Leverage

Now let’s see the equity of the four properties purchased with leverage. 

Each of the four homes increases in value by $5,000 every year. Multiply that by four, and your portfolio appreciates $20,000 per year.

Over a 30-year span, your four properties would add $650,000 to your net worth (compared to $150,000 with the single property).

Total Power of Leverage

Let’s put all these numbers together now.

Using leverage brought in an extra $21,600 of income per year,  plus a total net worth increase of $600,000 over 30 years.

This is the power of leverage: bringing in extra income and raising your net worth through equity.

By using other people’s money, you can take advantage of the true wealth in real estate.

Maximizing Leverage

Now, we’ll take this example one step further. Simply using leverage unlocks a lot of money. What happens when you maximize leverage?

We looked at an example of a lender giving you 75% ($75,000 on a $100,000 property). “Maximizing” that leverage would look like getting a bigger loan. Instead of 75%, another lender might give you 80-85%.

80% Leverage

Let’s go back to the original example, but say a bank gives you 5% more. Now, you get $80,000 per $100,000 transaction.

Income with Maximized Leverage

Your down payment per property is now only $20,000, so you can buy 5 properties. But since you borrowed more money, the mortgage payment is higher, and the net rent goes down.

At this point, it may seem like you’re set up to make less money since you’re paying more on your loan. But let’s see how it plays out.

Five properties with an income of $700 per month is $3,500 per month. This works out to be $42,000 per year. Annually, that’s $6,000 more than using a 75% loan, and $27,600 more than using no leverage at all.

Equity with Maximized Leverage

For five properties, after 30 years, equity appreciates by $750,000. All that money is added to your net worth.

Maximizing your leverage in this scenario would give you $42,000 in yearly income, plus $750,000 added to the value of your properties over time.

That’s the road to generational wealth.

How to Maximize Leverage

To maximize your leverage, focus on becoming the sort of investor that attracts lenders.

Have a great credit score. Make sure your income is in line. Know the numbers lenders will ask about. Be professional about your investment career.

Having all the right pieces in place will help your leverage take you further. The more leverage you use, the better returns you’ll see – both in the short-term income and long-term equity.

Harnessing the Power of Leverage

Now you can see how leverage impacts your real estate career. 

What are your next steps?

If you need an entry point into real estate investment, email Mike@HardMoneyMike.com. Ask about our 30-day fuel up challenge to learn how to maximize your leverage.

You can also join our weekly Leverage Up chat, on Thursdays from 1:15pm – 2:15pm MST at this link.

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Grow Your Airbnb Faster with OPM

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Getting loans for short-term rentals doesn’t always finance 100%. 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 for 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 by 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 a 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.

Read the full article here.

Watch the video here:

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What Are the Best Loans for Airbnb Investing?

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Which loans and terms are best for Airbnb investing? What should you look for?

Unfortunately, there’s no one “best loan” for investing in Airbnbs. 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

Firstly, 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

Secondly, 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.

Read the full article here.

Watch the video here:

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How to Get an Airbnb Loan Without W2 Income

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Do you need W2 income to get an Airbnb loan? How can you get it without one?

Many Airbnb 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 Get an 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.

Read the full article here.

Watch the video here: