Tag Archive for: beginner investors

Text: "ARV & Comps: How to profit on your real estate investments"

What Does ARV Mean in Real Estate Investing?

To profit in real estate investing, you’ll need to know: What does ARV mean?

Real Estate Investing: What Does ARV Mean?

ARV is the after repair value. It’s what the property will appraise for, or sell for, on the current market once the scope of work is completed.

You estimate a property’s ARV by looking at the prices of similar homes in the current market.

What Are Comps?

Comps (comparables) are those similar homes you look at. It’s important that your comps have the same value as your property.

For example, if your deal is for a 950 square-foot home, you’ll compare it to other 900 to 1,000 square-foot homes on the market, not a 2,000 square-foot one. Similarly, compare a 2-bedroom, 1-bath house to houses of the same specifications – not to 4-bedroom, 2-bath homes.

How To Get an Accurate ARV

For your ARV to be accurate, you need to stay true to your scope of work. If you only repaint and re-carpet a house that needed much more work, you won’t get top-of-the-market value when you try to sell or refinance.

On the other hand, if your scope of work is a full remodel, your comparables should be homes that are fully remodeled, so you don’t miss out on any profit.

The money you put into fixing up a house isn’t a direct indicator of how much the house will be worth. What the property looks like when it’s finished has nothing to do with how much it cost to get it there.

What Does ARV Mean for Profit in Real Estate Investing?

Estimated profit is what you expect to make on the transaction between:

  • buying the property
  • fixing it up
  • selling it again.

Additionally, equity is the difference between the amount you owe and what the property is worth. You build equity on your rentals by:

  • buying properties with a low purchase price and a high ARV
  • successfully refinancing after a flip
  • paying down the mortgage with rent income.

If you want to find the true profitability of a deal, then use your ARV and comparables:

ARV – (Purchase Price + Budget) = Profit Amount

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Text: How your credit score impacts cash flow"

How Does Your Credit Score Impact Your Cash Flow?

Rates and cash flow depend on your credit score. Here’s just how much:

Let’s look at an example with real numbers to get a picture of just how seriously your can credit score impact cash flow on your real estate investments.

Comparing Interest Rates

Pretend you have a $300,000 loan. And you were able to get a 6% interest rate – a normal rate for today. Your monthly payment would be around $1,800.

But, for every 10 to 20 points your credit score lowers, your rate increases. This raises your monthly payments by $100 to $200.

So with a low score, you’d only be able to get a 9% rate on that $300,000 loan. You’d be giving $615 every month straight to the bank. That’s money other investors will be able to use to re-invest.

Chart showing your interest payment depending on your rate for a $300,000 loan

Interest Rates Over the Life of the Loan

This interest story gets worse when we consider the full life of the loan.

The person with a 6.5% interest rate pays a little under $1,200 per year in interest, or around $35,000 for the full 30-year loan.

The person with 9% pays over $7,300 yearly, and over $221,000 over the course of the loan!

Chart showing your yearly and 30-year interest payments depending on your rate for a $300,000 loan

We can take this example out further.

Let’s say we have a portfolio of 10 properties, not just one, each with $300,000 loans.

At 6.5%, you’ll spend almost $350,000 over 30 years between the interest of all the loans. At 9%, you’d pay $73,800 per year on interest alone for your portfolio. As a result, you’d shell out a grand total of $2.2 million in interest in 30 years.

Chart showing your total interest payments over the life of 10 $300,000 loans, depending on your rate.

Cash Flow & Credit Score Conclusion

As you can see, a low credit score is a major disadvantage. Properties that would cash flow for someone else, won’t for you. Your debt-to-income could disqualify you for DSCR loans. Your score itself can disqualify you for many other loans.

Look at the impact of your credit score on cash flow. Keep more money to do what you love and give less to the banks in the form of interest.

Above all other investment goals: raise your credit score.

If you need to work with a credit specialist to get everything in line, it’ll be worth your time. Do it ASAP – now is the time to get prepared as a real estate investor. Because in 2023, prices will come down, and you don’t want to miss those opportunities.

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Text: "What's BRRRR in a down market?"

What Does BRRRR Mean In a Down Market?

Does BRRRR mean the same thing in a declining market and a rising one?

Let’s start with the basics. What does Buy, Rehab, Rent, Refinance, Repeat mean? Your understanding of this real estate investment method will determine your success when inflation hits.

BRRRR comes down to two key factors.

1) Buying Undermarket Properties

Buying undermarket properties is the crux of BRRRR.

This important point has been confusing to people in the last few years. That’s because truly good undermarket properties have been hard to find.

We’ve been seeing people buy at 80-85% of a property’s ARV. In the near future, those values will come down.

Back in 2010, people were able to buy properties for 60-65% of the ARV. We’re hoping that’s where this next market will take real estate investors.

This method means buying undermarket properties. Inflation should make this part easier, with lower priced BRRRR properties coming back.

2) Using a Two-Loan Strategy

The other foundational concept in BRRRR is its two-step loan process.

The whole point of this method is to get into rentable properties with little to no money down. To do this, you need two loans – one to acquire it, and one to hold it long-term.

Once you own the property (using the first loan), you can refinance it using the appraised value (via the second loan).

If you can buy a property undermarket (with private money) and own it, you capture the equity of the house when you refinance it.

Instead of pulling more money from your pocket for your next deal, you can use the equity you create with one BRRRR to buy more real estate – even with inflation.

Learning More About What BRRRR Means

BRRRR means two things: buying undermarket real estate, and utilizing two loans to do it.

We’ve been doing this rental property strategy for over 15 years – before it even had the acronym to go with it! For more on BRRRR fundamentals, check out these YouTube videos, or reach out to us anytime at HardMoneyMike.com.

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Text: "Don't Let Bad Credit Stop You!"

What Credit Score Do I Need to Invest in Real Estate? (And What If I Don’t Have It?)

What do you need to do to invest in real estate with a low credit score?

60% of the calls we gotten in 20+ years in real estate lending involve the question:

“What credit score do I need to invest?”

And unfortunately, there are a lot of beginner investors out there who need to work on their credit. But until they increase their credit score, how can they get money to start their real estate career?

Right now is a great opportunity to start. A good credit score is crucial to take advantage of the kind of market we haven’t seen for twelve years.

The credit score you need to invest in real estate depends on who you’re getting money from. Let’s take a look at some of your funding options with different credit scores.

Do Hard Money Lenders Check Credit?

First of all, a question for many beginner investors is: “Do hard money lenders check credit?”

Yes and no.

In the hard money lending world, there’s a big split in lenders’ approach to credit scores.

National Hard Money Lenders – Credit Scores to Invest in Real Estate

On one side, there’s the national lenders, the big hedge funds, the major institutions. For them, it’s all about credit and experience. 

You end up being a number to these bigger companies – a data point. So they focus on the numbers that represent your success. The most important of these numbers is your credit score.

The larger the institution, the smaller the box they need you to fit in. So if you’re looking for money and your credit is below 680, you probably won’t fit in the box of national hard money lenders.

Local Hard Money Lenders and Credit

On the other side, there’s smaller, local hard money companies. These local lenders won’t base their loans on your credit score.

Most local hard money lenders look at you and your deal. They’ll want to know:

to see whether you have a good chance of making money from the deal.

If you’re investing while your credit score is lower, gear yourself toward these local lenders. There are plenty of these hard money lenders around – hundreds in the Denver market alone!

What Do Hard Money Lenders Require?

Most local hard money lenders won’t credit check, but they will look at a few other things.

What do they look for? How do you know if you’re the type of person they want to lend money to?

What Hard Money Lenders Generally Require

Local hard money lenders look at a combination of information about you:

  • Your experience
  • Whether you’ve done flips or rental properties before
  • The success of your past investments
  • How many you’ve done in the past three to five years

And if you’re new to investing, lenders will want to see that you’re working with people – realtors, contractors, etc. – who do have good real estate investment experience.

Cash Requirements By Hard Money Lenders

Hard money lenders will also require some cash.

It might be 10-20% down. Or maybe your deal is so good they won’t require any money to be put into the property. Either way, most lenders will still want to see that you have a little cash accumulated.

This backup money is considered reserves. If an unexpected rehab cost comes up, your lender will want to be sure you could cover it.

Also, the lender will simply want to ensure that you can make your payments. They want to build a great relationship with their clients, which starts with choosing investors that will make the process smooth.

All small lenders want is to lend money, then get it back with interest. If you can prove you can make that process happen as simply as possible, any local lender would be happy to work with you.

Credit Score Requirements to Invest in Real Estate with Local Hard Money

Local hard money lenders might not require your credit score, but they’ll still check your credit.

Your credit report will give them an idea of your financial habits – who they’d be getting into a money relationship with. They’re mainly looking for a history of bankruptcy, foreclosure, or lack of payments.

Why don’t local hard money lenders require credit scores? Real estate investors are credit-dependent in a credit-driven industry. A lot of our clients use credit cards to cover the cost of flipping. These high card balances result in real estate investors tending to have lower credit scores.

How to Find Loans for Fix-and-Flips and BRRRRs

As an investor looking for money for a fix-and-flip, you might be getting squeezed out by rising credit score requirements. As the economy changes and lenders get tighter: Who do you reach out to? How do you get loans for fix and flips?

If your credit score is outside of the current credit score requirements for lenders, here are some tips on how to find loans for fix-and-flips.

Local Hard Money Lenders and OPM for Fix-and-Flip Loans

As we mentioned, local hard money lenders will be the most likely to get you real estate investment loans under current credit conditions.

But there’s another major way we recommend to fund your fix and flips, especially during this market: OPM.

Real, average people who want a better return on their money than they’d get with bonds or stocks will be willing to lend to you during this time. If you can show people you can secure their money, they’re likely to lend to you.

BRRRR with Low Credit Score to Invest in Real Estate

Typically, when you buy an undermarket rental, you use two loans: a hard money loan and a long-term refinance loan. If your credit score isn’t where it needs to be for banks, you’ll need to look into OPM for the longer term loan.

You could still get bank loans with a low credit score, but they’ll likely have higher down payments.

If a 720 score could get a loan that requires 20% down, a 640 score might only get you a loan if you can bring in 40%. OPM can cover that down payment cost, or any other gap in funding for a BRRRR or fix-and-flip loan.

Other Options Beyond Fix-and-Flips

With rising interest rates and lender requirements, it just might not be the right time for you to do fix-and-flips. What are some other options to focus your investment career on?

Owner carries and subject tos can be a great option in this upcoming market. These are ways to obtain properties without needing to qualify for a loan through a bank. The homeowner either lends you money to take over the property, or keeps the mortgage in their name while you make payments.

Subject tos and owner carries are important options to consider when your credit score to invest is low.

What Is Real Private Money?

We’ve mentioned it several times in this article, and now it’s time to really dig in. What is real OPM? How can you set up and use real private money?

OPM When You Don’t Have the Credit Score to Invest In Real Estate

OPM is a tried-and-true method to get money when you have a bad credit score. It’s fallen out of popularity a bit in the last few years because there had been a lot of money flooding in real estate. With money so easy to get from banks, many investors devalued the power of OPM.

We believe you should always have OPM lenders in your portfolio, but especially in a down market.

What Is Real OPM?

OPM lenders can be family, friends, or other people you may not even know personally. Real private money can come from anyone looking for a better return on a large chunk of money. As long as you take care of someone’s money, you can always find people who want a secured, asset-backed place for their cash.

Once you prove to be a competent investor, you can build strong OPM relationships. It can be as simple as calling up your lender, telling them about a deal, then getting the money exactly when you need it.

Now is a great time to start finding these people. Especially if you don’t have the right credit score to invest in real estate in more traditional ways.

Get The Credit Score You Need To Invest In Real Estate

If you got into investing recently, maybe you’re not quite sure what to do now that lenders have raised credit requirements. You can start by looking at:

  • small private lenders
  • OPM
  • alternative investment methods like subject tos and owner carries.

But your number one goal should always be to raise your credit score. Raising your credit score to invest in real estate will automatically open up options for you, even as things are tightening overall. And the faster, easier, and cheaper you can find the money, the more you can take advantage of the next market.

If you need help getting your credit where it needs to be, check out these videos.

Download this free credit checklist.

Or reach out with your credit or hard money questions at HardMoneyMike.com.

Happy Investing.

Text: "Real Estate Investing In a Declining Market"

Real Estate Investing In a Declining Market

Should you bother with real estate investing in a declining market? YES.

You keep hearing that the fed is raising rates, inflation is hitting, and money is tightening. But what does this really mean for real estate investors?

Availability In a Declining Market

As inflation goes up, there’s less money for everyone. Including real estate investors.

This might feel like whiplash from the last ten years. Until recently, there was plenty of money for everyone in the real estate world. Rates were lower, loan-to-values on loans were higher, and money flowed fairly freely.

But now funds are tightening up. This will mean two main things for investors:

  1. Lenders will require more money down
  2. They will have higher credit score range expectations for borrowers.

Now is the perfect time to prioritize your credit score. Improving your credit score by thirty percent will put you in a fantastic position moving into this next market.

Real Estate Purchase Opportunities in a Declining Market

Rates are going up, money’s tightening… but inventory is growing. Soon, the cost of homes will drop.

You want to buy right at that moment, as money is shifting down but properties are shifting up. Sooner or later, the market will shift back.

When money gets easy again and prices go up, you increase your cash flow and net worth because you bought in the declining market.

Inflationary times are not a negative for investors. As long as you’re prepared, now is the best time to invest in real estate. If you can get money, you’ll be one of the few people out there looking for deals. Five to ten years from now, you’ll be reaping the benefits in big ways.

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Text: "Real Estate Lenders and Loans During Inflation"

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

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

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

In real estate investing, there are three key lenders.

1) Banks and Credit Unions for Real Estate Investing

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

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

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

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

2) Hard Money Lenders

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

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

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

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

3) Real OPM Loans for Real Estate

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

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

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

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Text: "BRRRR Method for Beginners"

The BRRRR Method for Beginners: Setting Up for Success

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

BRRRR 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.

Setting up a Team for the BRRRR Method

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.


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.


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.

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