How to Get That Property Done: The “Finish a Project” Loan

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4 “finish a project” loan case studies.

One of our most popular loans is what we call a “finish a project” loan.

We call it that because… That’s exactly what it does! We want to help you finish your real estate project no matter what comes up.

Local hard money lenders like us are different than private money or banks. We finance things no one else will.

Let’s go over a couple examples of how this loan has worked with our past clients to see if it’ll fit with your current project.

Finish a New Construction Project

Once a new build is started, banks don’t like to give out more loans partway through. This is the situation our client James found himself in.

He was building a house for himself. After he bought the property and got started, he became boxed in and ran out of money. He told the bank, “I have a property on five acres. It’s going to be worth $800,000. I only need $250,000 to finish it.”

But none of the banks would lend to him, for several reasons:

  • The project had already begun. Banks never like funding a project that’s already started.
  • His income didn’t meet their requirements. The property itself didn’t matter to the bank because James’s income was lower than they were willing to lend to.

So, James came to us instead. The project was only stalled because of money. He needed the $250k to finish the project in 5 to 6 months so he could get his family out of the trailer they were staying in on the property in the meantime.

Here’s what we did: we gave him the money out in escrows, or draws. He got $70k from us up front, then another $70k later, then another $80k, and so on.

We didn’t need to pull his credit score, scrutinize his income, and make sure he checks every box. We just needed the property to CO.

Finish a Bootstrapped Project

When any sort of flip is sitting stale for too long, sometimes the owner needs extra outside money to get things moving along so the property will start generating income.

Our client CW was a realtor who was finishing a project by turning a traditional rental into a short-term one. He had been bootstrapping the project (aka, funding it from his own resources).

His funds were slowing down with the change in the market, and Airbnb season was quickly approaching for the area. He needed a last $50k to finish the project.

So, he came to us, and here’s how it worked for him:

  • He kept his mortgage on the property.
  • We gave him $50,000 in a second-lien position on the same property.

He was able to get the house finished up and fully booked out for 6 months – generating plenty of income to pay off his loan with us.

Finish a Project That Goes Over Budget

With certain types of loans, banks can halt part of the funding if the project goes over budget. Here’s how it played out for our client John.

He had a construction loan with a bank. It was a great deal: they gave him all the money to build the property, then in the end it converts into a permanent loan at 3%.

However, he went over budget… so the bank stalled it. He needed $60k to get the project back on track and keep that 3% loan.

Here’s how John did it:

  • We gave him $60k.
  • He finished the project.
  • He could lock in the 3% bank loan for a 5-year term.
  • He took out a HELOC and paid off his loan with us.

Finish a Flip!

This fourth “finish a project” loan is our most common: working with fix-and-flippers.

Our client, PS, had a flip. Or rather, he had too many flips going at once. This one had been sitting for over 6 months, and he just needed $25,000 to finish up the rehab.

For those 6 months, this property was eating up funds. He was making mortgage payments, hard money interest payments, taxes, utilities, and everything with zero inflowing cash.

He had another hard money loan on the property, so we were able to come up behind him and get him the $25k.

Within 3 weeks, the project was complete and put on the market. Four weeks later, it sold, and he paid both loans off.

Why We Do These Loans

Big lenders won’t do deals like this for you. But as long as we’re in a safe lien position, we love being able to help you with these project finishes.

A couple of tens of thousands of dollars right when you need it can save you years of financial recovery.

Do you need a “finish a project” loan? Feel free to reach out at Info@HardMoneyMike.com. We’d love to see if we can help.

Happy Investing.

The $1.8 Million Dollar Mistake: DSCR Loan Interest Rates

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DSCR loan interest rates vary like crazy. Here’s exactly how to avoid a costly mistake.

DSCR loans are unlike any other loan out there.

Traditional loans are standard – every lender will have the same interest rates, terms, points, and closing costs. There is one system, one set of brackets that decides loan prices, and one approval process.

Not so with DSCR loan interest rates and other terms. This style of loan is the Wild West of underwriting.

With so much variance between DSCR loans, it’s more important than usual to shop between lenders. Let’s go over the $1.8 million mistake some investors make with DSCR loan interest rates.

Current DSCR Loan Interest Rates

We’d like to share a couple of examples we see in the DSCR loan world.

As a mortgage broker, we have a program that allows us to look at different rates from different companies. Every day, 10 to 15 different lenders put their rates on this search engine.

We search the same information daily to get a picture of the rates on these loans. We put the same:

  • Credit score
  • Debt service coverage ratio
  • Loan-to-value

Yet every lender offers a different rate. On the same 30-year DSCR loan, interest rates have looked like this:

  • The best: 7.04%
  • The worst: 9.46%
  • The average: 7.9% – 8.25%

These differences are not based on credit score, experience, property size or type, or debt ratio. These are the options for the same person calling around for the same deal. They could find anywhere between 7.04% and 9.46% – all depending on the lender.

The DSCR loan market is extremely segmented. And that is why it’s vital to shop around.

We want to break down the difference in DSCR loan interest rates for you. How much money do you lose on the worst DSCR interest rate vs the best?

How Much Different Interest Rates Cost You

Let’s say we have a $300,000 deal we want a DSCR loan for. We’ll look at 3 common interest rates: the high end (9.46%), the low end (7.04%), and the average (7.99%).

In this example, we have the same credit score, same rent income, same property expenses, and the same loan amount. These interest rate differences are purely about the lenders we’re using.

Low-End DSCR Interest Rates

With the lowest available rate, 7.04%, on a $300k, 30-year loan, payments are $2,003.

At the exact same time, with the exact same parameters, a 7.99% interest rate (average range) has payments of $2,199.

So, this is a difference of $195. Doesn’t seem like a big deal? If your rent is $2,100, a lower rate could mean the difference between positive cash flow and negative – or qualifying for the DSCR loan or not.

High-End DSCR Interest Rates

What’s this comparison at the other extreme?

Lenders with higher DSCR loan interest rates are usually the ones who take advantage of the segmented nature of this market. They raise their rates high, then raise their marketing budget too. They push their product hard to be the first option borrowers see; when they don’t shop around, they’ll settle for the higher rate.

And with this higher rate, a 9.46%, your monthly payment would be $2,513. That’s $509 more per month than the lender with the 7.04% rate!

All for the same property, same LTV, same credit score, but different lender.

Impact on Real Estate Investors

The monthly cash flow difference from DSCR loan interest rates will hurt everyone’s pockets. However, it’s especially rough for investors. What happens if you have three properties? Five? Ten?

If you got stuck with a 7.99% rate for all of your investments (rather than 7.04%), that’s $70k extra in interest over the life of the loan. How does that multiply with more investment properties?

  • 3 properties → $210k extra in interest
  • 5 properties → $350k extra in interest
  • 10 properties → $700k extra in interest

Let’s make the same comparison with the higher-end interest rate of 9.46% compared to the low-end 7.04%. Over the life of the loans you’d be paying:

  • 3 properties → $550k extra in interest
  • 5 properties → $917k extra in interest
  • 10 properties → $1.8M extra in interest

That money is all additional interest that could have been avoided. It’s going into the bankers’ pockets because you didn’t shop around for a better rate that’s easily available.

But what exactly do we mean when we say shop around?

How to Shop Around for DSCR Loan Interest Rates

The spreads on DSCR loans are large. But shopping around for any large purchase is no fun.

When you’re talking with any sort of salesperson, it’s nerve-wracking to not know whether they have your best interest in mind. What if you don’t know what questions to ask to get the right information? What if they try to take advantage of you?

We want to give you a couple of questions to ask to get the information you need to make an informed decision on your DSCR loans.

Questions to Ask DSCR Lenders

Firstly, a piece of advice: if a company won’t quote you a general range in a simple phone call, then keep calling. Find the ones that will.

Secondly, prepare all of your information ahead of time, and be sure to give every lender the same information. You’ll want to have the following information ready before you contact anyone:

  • LTV
  • Credit score
  • Is it a purchase or refinance?
  • Zip code of the property
  • Type of property (single-family, duplex, etc)
  • Rent (or estimated rent)

Next, you’ll want to have a set of questions to ask each lender. Even if you don’t have the property yet, coming with a specific example gives you an idea of who the good lenders are.

What to ask DSCR loan lenders:

  • What interest rate could I get?
  • Is there a prepay penalty? How long is it and how much? (The pricing of a 5-year prepay will always be better than a shorter-term prepay. But if you know you’ll want to sell the property within three years, you’ll need to keep a shorter prepay in mind).
  • What are your closing costs?
  • What’s your appraisal process for underwriting?
  • Is this a 30-year product? 40-year? Interest-only?

How to Analyze the Price of Different Lenders

Now, once you have all the information and numbers from your different lenders, you have to make sure you’re comparing apples to apples. One lender may have a lower interest rate but an extra 1-2 points.

What’s important is the final number you’ll have to pay. You can download our free analyzer here for an easy way to figure that out.

We want to get you the lowest rate to keep your investment business turning. Rates have been fluctuating like crazy, though. 

If you want a regular report on conventional and DSCR loan interest rates, LTVs, credit requirements, and more, ask us about it at Info@HardMoneyMike.com.

Happy Investing.

What Are DSCR Loans? 7 FAQs

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7 frequently ask questions we get, answering the question – what are DSCR loans?

The easy answer to, “What are DSCR Loans?” is: they’re loans designed for real estate investors that are approved based on the property’s rent income alone.

But that doesn’t answer all the questions you have about DSCR loans. Here are 7 of the most frequently asked questions we get about this type of loan.

1. Are DSCR Loans Long-Term or Bridge Loans?

DSCR loans are typically long-term hold loans. They are usually 30-year fixed, although they do come in different forms.

This isn’t a bridge loan that you’ll refinance out of or sell in a few months to a year. DSCR loans are designed as long-term options for investors. You get them, and then you stay put.

2. Can You Use a DSCR Loan to Buy and Flip a Property?

Technically, you could use a DSCR loan to buy and flip a property, but it will cost you more money. DSCR loans come with some unique features, such as prepay penalties.

They’re also not set up to be fix and flip loans because they require you to put 20% down, no matter what the value of the property is. 

So if you bought a property to flip with a DSCR loan, you would have to put 20% down and cover all the costs of rehab on top of that. Plus, the interest rates and points involved in DSCR loans are not profitable as a short-term fixed loan.

The DSCR loan has its time and place, but if you need to flip a property, there are better loans designed for that.

3. What Is a Prepay Penalty?

Most, if not all, DSCR loans come with a prepay penalty.

A prepayment penalty is a fee charged by lenders when a borrower pays off their loan before the agreed-upon term ends.

If you have a three-year prepay and sell or refinance your loan before the end of the term, you may be charged a fee. These exit fees are usually between three and 5% of the loan amount. For instance, a $200,000 loan may cost you up to $10,000 in exit fees.

DSCR loans typically have a prepay period of 3-5 years.

4. How Do You Calculate DSCR?

All a DSCR calculation looks for is whether income (rent) covers expenses. The calculation looks like:

Rent  ÷  Expenses  =  DSCR

When they’re looking at expenses, they’re only looking at your mortgage, your taxes, your insurance, and any HOA fees. They’re not going to take into account property management or maintenance.

They’re just looking at those four things. The DSCR calculation just wants to make sure your rents are equal to or higher than your expenses.

5. How Long Do You Have to Be in Business to Get DSCR Loans?

Some banks and conventional loans require you to be in business for two years or have some other proof of experience.

For DSCR loans, however, there are no business requirements. Even if you started the business yesterday, you can close on a DSCR loan. Underwriting for DSCR loans doesn’t look at your personal income or your business experience. Just the rental income from the property.

6. Is a DSCR Loan or Conventional Loan Better?

A DSCR loan is not always better than a conventional loan, but it is in certain circumstances.

For example, if you just started in business and can’t go the conventional or bank route, DSCR loans wouldn’t care. They also don’t care if you write everything off or want to pay the IRS as little as possible. In addition, DSCR loans will finance up to an eight-unit property, whereas conventional loans only go up to four units.

DSCR loans usually won’t have better rates, but they’re overall easier to qualify for.

7. How Do You Get Approved for a DSCR Loan?

#1: Credit score. You’ll typically need a score of 680 or higher to be eligible for a DSCR loan. The higher your score, the better your terms, including your down payment, loan-to-value ratio, interest rate, and cost.

#2: The property’s income. To qualify for the best rates, rent must exceed your expenses. While some products allow for negative cash flow, these loans don’t offer good rates.

#3: Loan-to-values. The more equity you have in the property, the better chance you have of being approved with more favorable rates and terms. 

Making DSCR Loans Simple

Have a question about DSCR loans that we didn’t cover? Send us an email at Info@HardMoneyMike.com.

We’d also like to offer a free DSCR calculator here for you to download and use on your deals. The calculator will help you find out if the property will cash flow before you get to your lender.

Happy Investing.

Real Estate Success: Investing by Numbers, Not Emotions

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The #1 mistake failed investors make (and how to achieve real estate success instead).

Playing by the numbers: the tried-and-true way to make money in real estate.

After helping with thousands of transactions, we’ve seen in action that the number one way to make money is to invest by the numbers rather than by emotions.

Real estate success is determined by who goes by the numbers, and who goes by emotion, greed, and delusion.

So, what are the numbers that get you this success? Let’s go over what numbers you’ll need to purchase, rehab, and sell the property to profit every time.

What Are the Numbers for Real Estate Success?

Let’s look at an example of a full fix-and-flip process for a property with an ARV of $300,000.

Before we buy this property, we have to get some estimates to find out if it’ll really make us money.

Two numbers in particular will help us out:

  1. If you want to make money off your flip, your project’s total expenses must stay under 85% of the property’s ARV.
  2. Specifically, the purchase price and the rehab price combined should cost no more than 72.5% of the ARV.

Keeping that in mind, here’s how much each portion of this project should cost if the ARV is $300,000:

  • Purchase – 60% ($180,000)
  • Rehab – 12.5% ($37,500)
  • Realtor – 4.5% ($13,500)
  • Cost of Money – 5% ($15,000)
  • Miscellaneous (insurance, closing, etc) – 3% ($9,000)

But what if the purchase of the property is going to cost you 62%? Do you have to throw the whole deal out the window? Not necessarily. If you need to add 2% in one category, you just have to subtract the same amount from a different one.

For example, a 62% purchase will work just fine in this instance if you can bring the rehab cost down to 10.5%.

Keeping everything under 85% leaves us a healthy profit margin of 15% – or in this example, $45,000.

If you follow these numbers, and you do three investments per year, you can make $135,000 in profit total from properties that sell at $300,000.

Where Investors Go Wrong – A Failed Investment

Simple enough. But obviously… Real estate investments go wrong for people sometimes. Do the numbers lie?

In our experience, it’s never the numbers and always the emotions behind the numbers that make an investor lose in real estate.

You may know that you can only afford 60% on the purchase of the property. But then maybe you really like the house, and you still take it for 63%.

And then, your contractor talks you into some cool upgrades that would put your rehab budget up at 15%.

You’re already above your 72.5% for this portion of the project, then the rest of the categories slip away from you too, until the project looks something more like this:

  • Purchase – 63% ($189,000)
  • Rehab – 15% ($45,000)
  • Realtor – 5% ($15,000)
  • Cost of Money – 7% ($21,000)
  • Miscellaneous – 5% ($15,000)

Where did our 15% profit go? Somehow, we’re left with only $15,000 at the end of this project – or 5% of the total sale price.

If we keep making these emotional mistakes in our investments, after three properties, we’ve made only $45,000 (rather than the $135,000 we could have made for the same effort while staying within our budget).

This minimal profit is what frustrates new investors out of the industry.

How to Achieve Real Estate Success By Investing with Numbers

Bottom line: if you invest by the numbers, you’re going to profit. When you bring too much emotion into your investing business, you end up broke and frustrated. 

To help you stay on track with your numbers, you can download our free deal analyzer tool here.

Have more questions about sticking with the numbers in your fix-and-flip budget? Send us an email at Info@HardMoneyMike.com, or check out our YouTube channel for more info.

4 EASY Ways to Win in a Volatile Real Estate Market

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In a volatile real estate market, here are 4 important places to get funding.

Raised rates, tightened money. Lenders are lending you less now. You’ll have to bring in more money to every closing. Where does that money come from? How do you win in this market?

Let’s go through the roadmap we use with all of our clients in this situation. Where you’re at with credit and assets helps determine your best strategy to get the money you need to fund gaps. Here are the 4 options for funding in a volatile real estate market, whatever your situation.

1. Good Credit and Assets

This first strategy is best for someone who has good credit and a real estate asset. This could be their owner-occupied home or a rental or commercial property.

If this is you, we always suggest starting with a line of credit. For a single-family property, this could be a HELOC (home equity line of credit). Or for a commercial property, just a bank line of credit.

This can be the best pool of gap funding because there are no transaction fees, and the money is always available.

There is a huge disclosure we remind all our clients of when we recommend any type of credit. Always treat credit like a loan. This means a couple of things:

  • Never use this money for your personal use.
  • This money should be used for your real estate project only.
  • Always pay credit back completely as soon as you have the funds.

Not following those 3 rules is the quickest way to lose at the real estate game.

2. Good Credit But No Assets in a Volatile Real Estate Market

What’s your option if you have good credit, but no real estate? We usually recommend unsecured lines of credit or 0% credit cards.

For these products, you could take money off them to use toward down payments, the fix-up, etc. You can get these from local banks or national companies.

Make sure any credit card you use for real estate investing is 0%. An unsecured line of credit will be close to 10-18% simple interest (still cheaper than hard money or other gap funding if needed for one project).

We help our clients get these kinds of products all the time. If you have any questions on these, please reach out.

3. Real Estate Assets But Poor Credit

What happens if your credit is not so good but you do have real estate?

Then you can come to someone like us – a local hard money lender. We do this all the time for business owners, real estate investors, and whoever needs a gap loan of any kind. Credit doesn’t matter as much to most local hard money lenders, as long as you have equity in your real estate.

4. Poor Credit and No Assets

This fourth option is a catch-all secret: it works if you have no assets and bad credit… But it should also be a tool in every investor’s belt.

We call this funding method “real OPM.” OPM comes from real people who want to invest their money but not their time in real estate. They don’t come from a lending institution – this is your neighbor, your family, your old college friend.

Banks are offering low savings interest rates right now, and lending to you could get an average person a much better return. These OPM lenders don’t necessarily care about your credit, your income, or what assets you have.

All the top real estate investors, regardless whether it’s a volatile market or not, always have OPM partners who help them fill gaps and fund transactions.

Winning in a Volatile Real Estate Market

To be a successful real estate investor, you need leverage. 

The key to winning in a volatile real estate market is to understand your situation, find the right strategy, and always treat your financing as a loan.

For guidance on OPM, download our free OPM checklist here.

Any other questions on gap funding or investing in a volatile market? Send us an email at Info@HardMoneyMike.com.

DSCR Loan vs Hard Money Loan: Which Is the Better Option for You?

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8 easy ways to learn whether you need a DSCR loan vs hard money loan for your real estate investment.

If you’re new to real estate investing, you’ve got to start somewhere.

Many of the hundreds of calls we get every month ask a simple question: “What’s the difference between loans? Which is right for me?”

You may not know the difference between a hard money loan and a DSCR loan – more importantly, you may not know which one is right for your deal.

Let’s go through the differences between a DSCR loan vs hard money loan and talk about when each one may be right for you.

What Is a DSCR Loan vs Hard Money Loan?

Firstly, let’s give a brief overview of each type of loan.

A DSCR loan, also known as a debt service coverage ratio loan, is a long-term loan for rental properties. This type of loan is based on the income (rent) to expenses ratio on a property.

A hard money loan, on the other hand, is a short-term loan typically used for flipping houses. This type of loan is often based on the ARV of an under-market property.

Both loan types are designed with real estate investors in mind. Now, let’s break down a DSCR loan vs hard money loan so you can make an informed decision about your investments.

1. Term Length: Short-Term or Long-Term

One key difference between a DSCR loan vs hard money loan is the length of the loan term. 

DSCR loans are long-term, while hard money loans are short-term. This means if you’re looking to buy a rental property and hold it for years, a DSCR loan may be the better option. On the other hand, if you’re planning to flip a house quickly, a hard money loan would make more sense.

2. Credit: Requirements for a DSCR Loan vs Hard Money Loan

Credit is another important factor for distinguishing the right loan for you.

There are two credit paths with hard money lenders. Local lenders generally don’t care about credit score. They only check your credit report to see if you have any bankruptcies or other major red flags. National hard money lenders, however, almost always take your credit score into account.

Credit for a DSCR loan is also a must. The higher your credit score, the better your terms (including a lower down payment and better rates).

3. Income: Personal or Business Income Requirements

Income is another important consideration.

Hard money lenders don’t check income, so it doesn’t matter what’s on your tax returns or your W-2s.

DSCR lenders also have no requirements about your personal or business income. However, they do require the property to have rental income.

4. Loan-to-Value: How Much Money You Can Get

Loan to value is another factor that distinguishes these two types of loans.

In this market, at the end of 2022, hard money lenders may lend up to 90% of the purchase price and 100% of the rehab costs. Meanwhile, DSCR lenders may lend up to 80% of the as-is value of a rental-ready property.

5. Rehab Costs: DSCR Loan vs Hard Money Loan for a Fix

Which of these two loans will help you with rehab costs?

This is the hard money lender’s niche. Most hard money will cover the rehab of a property 100%.

DSCR loans, though, do not cover any rehab costs. This means you’ll need to purchase a property that is already in rentable condition if you’re planning to use a DSCR loan.

6. Experience: What You Need To Know

How many flips, BRRRRs, or other real estate projects have you done? Experience is a factor that will change how a lender looks at you.

Neither DSCR or hard money lenders would deny you a loan based on lack of experience. However, both types of lenders may require more money down.

7. Property Types: What You Can Get with a DSCR Loan vs Hard Money Loan

The type of property you can buy with the loan is also a key difference here.

Hard money lenders will lend on almost any type of real estate – from land to commercial buildings to flips.

DSCR loans, on the other hand, are only available for one type of property. This is a rental-ready unit, such as single family homes, duplexes, fourplexes, or anything that generates an income.

8. Rates: Interest Rates for a DSCR Loan vs Hard Money Loan

Finally, let’s talk about rates. These are vital to your cash flow and profit on any real estate investment. Interest rates vary widely depending on market conditions. Let’s look at where they sit right now, at the end of 2022, into 2023.

Hard money loans are ranging from 9.5% to 12%, while DSCR loans have rates between 6.5% to 9.5%. Your exact interest rate will depend on your credit score and experience.

How to Get These Real Estate Investment Loans

If you’re curious which type of loan is right for you, try this free DSCR calculator, or download this loan optimizer to compare hard money loans.

You can also email us at Info@HardMoneyMike.com with any questions. We’d love to hear from you, help you understand real estate investing, or talk about a loan.

Happy Investing.

How to Price a Property When Interest Rates Rise

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Interest rates are changing, and buying power is changing with it. Here’s how to price a property.

“We started looking at this property back in early 2022 when the sale price could have been $800,000… But now what do we do?”

A wholesaler who has a property with us called with this question.

This client isn’t the only one stuck in this situation. If you bought a house earlier this year with a certain price in mind… What should you do now that it won’t sell at that price anymore?

Let’s look at how to price a property when buying power changes.

Interest Rates Change Buying Power

Our client purchased a property in early 2022 with the intent to sell it for $800,000. Unfortunately, 8 months later, that price is very unrealistic for the property.

Right now, they have the property listed at $650k. They’re doing showings but are frustrated with zero offers. Does no one want this property? How much farther will they have to drop the price?

Interest rates have affected buyers’ buying power. Let’s look at some of the numbers at play here.

What Is the Current Buying Power?

Back in the spring, someone looking at a house for $800k could have gotten a 4% interest rate, leaving them with a $3,819 monthly payment.

Now, interest rates are up to 7%. That same $800k property just jumped to a $5,322 monthly payment. If rates climb to the expected 8% next year, that becomes $5,870/month.

In the first quarter of this year, people could buy comfortably at a $800k price tag. Now, due to interest rates, those same people probably can’t even qualify for a loan that large.

How to Price a Property Based on Buying Power

You have to look at it this way: The monthly payment for this property increased by about $1,500 in a matter of months. That’s a 39% increase. Next year will be a 54% increase from early 2022’s buying power! This puts a major strain on the DTI of a buyer trying to qualify.

But what does this all mean when it comes to how to price the property?

Let’s keep working with our previous example. We have the same buyer wanting to keep the same down payment, same monthly payments, and same DTI. Here’s how their buying power changes:

At the beginning of this year, they could afford a $800,000 home.

Now, those same people could only qualify for $575,000.

Next year, only $520,000.

This reality of buying power needs to inform your listing price.

Deciding Listing Price

We recommended our client to sell for $575,000 – the current buying power of their target buyers.

If this client still has this property into next year, they may need to drop the price all the way to $520,000, just to find a buyer who can qualify.

Example at a Lower Price

The trouble with buying power isn’t specific to higher-value homes. Let’s look at an example from a lower price point.

A $250,000 house, at the beginning of 2022, would have cost a homeowner $1,193/month. Now, that same house would cost the same person $1,663. That’s a 39% increase. From earlier this year to early next year, the monthly payments will have gone up by 54%, to $1,834/month.

These numbers are still probably cheaper than rent for a comparable property. However, that doesn’t necessarily mean buyers will be able to qualify with lenders.

If someone could buy a $250,000 house at the beginning of 2022, now the same exact person could only afford $180,000. By next year, they can only afford $162,000.

Since 2021, buyers have lost 60% of their available purchasing power. The market isn’t the same as it used to be, and unfortunately, your selling expectations need to be adjusted.

Affordability and Quality Decide a House’s Value

Two main things decide how much you can sell for: affordability and value.

Affordability changes for buyers when interest rates change. People qualify for loans and choose houses based on what they can truly afford. If you have a house on the market, you have to sell it for what people can financially manage.

Quality also impacts price point. People expect a different level of quality from an $800k house than a $500k house. Our client could keep the $800,000 price tag if the quality of the house matched that number. In that case, the property begins appealing to a different tier of buyer, whose purchase power can get them that house.

We’re still seeing some of our clients selling properties at high numbers. But it’s because their quality is outstanding, and they’ve gone above and beyond to add value. A poor to average house or flip means a minimum of a 10-20% price cut in this market.

Selling Options In This Market

If you’re struggling with a property on the market, there are a few things you could do.

  • Price based on buying power. You need to think about payment sensitivity, purchase power, and whether your target buyers could qualify for a loan. Use the numbers we looked at in this article to determine how to price the property.
  • Use a DSCR loan. If you don’t want to sell at a loss, this is a good option for you. Take the property off the market, hold for 3+ years with a DSCR loan, and turn it into a rental in the meantime. Put it back on the market when buying power improves.
  • Buy down the rate. If you pay to bring the rate down, you can attract buyers at a slightly higher listing price. Buying down the rate might cost $10,000, but it could save you from discounting the list price by $50k.

Help for How to Price a Property

Do you want a second opinion on the pricing numbers for your property? Are you curious about what a DSCR loan might look like for your property?

Send us an email at Info@HardMoneyMike.com, and we’d be glad to help.

For other real estate investment information, check out our YouTube channel here.

Happy Investing.

What Is a Transactional Loan?

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Many wholesalers need to use transactional funding. Here are the basics – what is a transactional loan?

There are many different types of hard money loans. One less talked about loan is transactional funding.

A transactional loan facilitates funding when someone, usually a wholesaler, is buying a property and selling it the same day.

Here are the basics of transactional funding – what a transactional loan is, when you should use it, and where you can get one.

What Is a Transactional Loan and When Should You Use It?

In the real estate world, transactional funding is a very short-term loan, lasting 1-2 days. Most people who use transactional loans are wholesalers. They have a property under contract, and they need to close on it and sell it to someone else on the same day.

Why Use a Transactional Loan?

Normally in a situation like this, the wholesaler would simply sell the contract. A transactional loan comes in when they can’t easily do that. There are 3 common instances when this might happen.

  1. The contract is not assignable.
  2. Financing for the end buyer does not allow the contract to be transferred.
  3. The wholesaler’s transactional fee is high, and they’d rather not show the end buyer their profit amount.

Example of Transactional Funding

Let’s break down a brief example of a situation that needs a transactional loan.

A wholesaler has a property under contract for $100,000. They have also sold it to someone else for $150,000. They don’t really want their buyer to see that they’re making $50,000. And the person buying might not be happy knowing the wholesaler is making such a steep profit.

The price of the transactional fee can matter to one or both of the parties involved. This is where a transactional loan comes in. Using a loan prevents the buyer from seeing the original price paid for the property.

At the end of the day, both parties ideally make a profit off the property, so the fee amount “shouldn’t” matter. However, everyone has different reactions to money, and using a loan is a safe way to keep the transaction smooth.

What Is a Transactional Loan’s Terminology?

There are a few important terms you’ll hear in the midst of a transaction like this.

The main point of a transactional loan is that it’s used in one day. A lender will fund and be paid back usually within a few hours. In that time, ownership transfers from the original seller to the wholesaler, then from the wholesaler to the end buyer.

With these two transactions happening almost simultaneously, the title company needs a simple way to keep everything straight.

So, they label the person who is originally selling the property the “A” person. The wholesaler is the “B” person. And the “C” person is the end buyer.

Using these labels, a transactional loan has two sides: AB and BC. The AB transaction is the first part, from owner to wholesaler. The BC side is the second half, from wholesaler to buyer.

What Is a Transactional Loan Closing Like?

There are a couple steps that happen on closing day with the typical use of a transactional loan.

First, the lender sends the typical closing documents and the wire on the same day. The lender lets the title company know they won’t fund the loan until the end buyer and their funding is verified. The lender will only approve funding once they’re certain the end buyer will actually complete the process.

A one-day closing requires all three parties to be present and prepared. The AB transaction happens first. Then, a few minutes later, the wholesaler completes the BC transaction with the end buyer.

After everything is signed and completed, the title company does their thing. They complete the paperwork, clear the wires, and send the money back to the transactional loan lender.

By the end of the day, the end buyer owns the property. Plus, the wholesaler made their profit without any potential conflict about the fee.

What Does a Transactional Loan Cost?

Transactional funding costs depend on your LTV, the length of the loan, and your lender.

There are some transactional loans that merge into bridge loan territory and take up to 30 to 60 days. But true transactional funding happens in one day (maximum two). The typical cost is about 1 to 1.5 points for a transactional loan.

If a wholesaler needs a loan for $100,000, then the loan fee would be between $1,000 and $1,500. In the example we used earlier, this would allow the wholesaler to safely charge their $50,000 fee and get around $49,000 of profit.

However, a transactional loan is much less helpful when the wholesaler fee is smaller. If they buy the house for $100,000 and sell for $105,000, then the fee would leave them with a total profit of $3,500 to $4,000. In that case, it’s more worthwhile to sell the contract rather than do a transactional loan.

Transactional deals are for:

  • When the margins are good on a deal.
  • When financing for the end buyer requires it.
  • In a special case where a contract is non-assignable.

Who Does Transactional Funding?

You can get a transactional loan from a hard money lender.

Large lenders typically only loan 80-85% of the original purchase price. Smaller lenders, like Hard Money Mike, typically loan 100%.

We’ve been doing transactional loans for over 20 years. We expect to start doing even more as the economy changes.

If you have a deal, send us an email. We’re happy to look at it, price it out, and see if it’s something we can do. At the very least, we can help walk you through the process. Reach out to us at Info@HardMoneyMike.com.

Happy Investing.

Text: "Best Real Estate Investments in 2022"

4 Real Estate Basics to Make Money in 2022

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The best real estate investments are the evergreen basics. Here are 4 consistent ways of creating cashflow — if you do it right based on your market.

1) Flips

Buying, fixing, and then selling properties is a common investment strategy. But to make fix-and-flips your best real estate investment in 2022, you’ll have to focus carefully on the numbers. Flips make money in one lump sum, not in a steady cash flow over time. So in tougher markets, it’s important to make that large sum count.

This year especially, we recommend staying in the medium to lower price range for your flips. We’re still seeing people selling well in the medium price range. Larger properties, however, are feeling a lot of pressure in this market.

For flips, focus on the numbers and stick to medium price ranges.

2) BRRRR Investments

Buying and fixing up rental properties is another of the best real estate investments. But BRRRR is taking a bit of a hit right now due to interest rates. Interest rates have more than doubled since the beginning of 2022, which will seriously impact your cash flow.

You can still make money from BRRRR properties this year, but you’ll have to be extra careful with numbers. Know your credit score, know your interest rates, and know the rent prices for your area.

3) Subject Tos

A “subject to” is when you buy someone’s property, take over their mortgage, and make all payments, but you don’t assume the loan. The property is in your name and you have ownership, but it stays financed by the seller.

Subject tos will be great opportunities in 2022. You can walk into a property where the rate on the mortgage is still 2.5% – 3%, potentially with renters in place. This will bring a much higher cash flow than if you started from scratch on the open market, where interest rates are almost double that.

Using subject tos is a great way to grow a big portfolio using someone else’s financing.

4) Notes

Another great tactic for real estate investors this year is to use your money in deeds of trust or other private lending.

Rates have gone up, but banks still haven’t really raised CD rates. If you have some money sitting in an account, notes are a good way to get a higher return. You can lend to other investors through gap funding or a more long-term agreement. Notes are becoming big in real estate again, especially with the market in 2022.

For More on the Best Real Estate Investments in 2022

Read the full article here.

Watch the full video here:

Hand holding house keys. Text:"How to Start with a BRRRR Real Estate Investment"

Where to Start with a BRRRR Real Estate Investment

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The first step in a BRRRR real estate investment happens before you even look at a property. It’s important to sit down and think about what you want out of your real estate investing experience.

Answer questions like:

  • Where am I in life now? Where do I want to be?
  • Why do I want to invest in real estate?
  • Where do I want to invest?
  • Is the BRRRR method the best path for my goals?
  • How many properties do I want?
  • How much cash flow do I want to generate from BRRRR?

Before you take any action, find your answers to all of these questions. This will show you where to start, how to go about it, and when to stop. You’ll get much more out of your BRRRR real estate investment when you know where you’re going and why.

Launch into the BRRRR Method

Buy, Rehab, Rent, Refinance, Repeat. That’s the BRRRR method in a nutshell.

Many investors use this method to generate monthly cash flow and build a real estate empire. Following BRRRR is one of the best ways to build a rental portfolio with little to no money out-of-pocket.

Once you understand your real estate goals, you can follow the BRRRR map to reach financial freedom.

How do you find that map?

Read the full article here.

Watch the full video here: