Tag Archive for: dscr

Does Your Real Estate Loan Cover All of Your Costs?

Does Your Real Estate Loan Cover All of Your Costs?

Hey everyone, it’s Mike with Hard Money Mike! When you’re planning to invest in real estate, one of the most important questions to ask is: does your real estate loan cover all of your costs? Today, we’ll dive into what goes into your loan, how to verify it, and how you can make sure you’re covered.

What Goes Into Your Loan Amount?

When you’re dealing with real estate loans, it’s easy to know your loan amount. But the real question is, what can fit under that loan amount? Let’s break down what could be included to ensure you’re not caught off guard by unexpected costs.

The Basics: ARV and LTV

Two key numbers determine the maximum loan available for your property:

  1. After Repair Value (ARV): This is the value of your property after all repairs and improvements. It’s the price you expect to sell it for or its value when you refinance.
  2. Loan-to-Value Ratio (LTV): This is the percentage of the ARV that a lender is willing to lend you. Most lenders offer between 70% to 75% of the ARV.

Example:

Let’s say you have a property with an ARV of $200,000. If your lender offers an LTV of 75%, they’ll lend you $150,000 (which is 75% of $200,000). Now, the question is, will that amount cover everything you need?

Breaking Down the Costs

To figure out if your loan will cover all your costs, you need to look at the expenses involved in your project. Typically, these costs include:

  • Purchase Price
  • Rehab Costs
  • Closing Costs

Let’s see how these add up in a real-world scenario.

Real-World Example: Are You Covered?

Imagine your total costs look like this:

  • Purchase Price: $100,000
  • Rehab Costs: $40,000
  • Closing Costs: $5,000
  • Total Costs: $145,000

With a maximum loan amount of $150,000 based on your ARV and LTV, you’re in good shape! Your total costs of $145,000 fit comfortably under the loan amount, so you won’t need to come up with extra money out of pocket.

But what happens if your costs increase?

What If Costs Go Up?

Let’s say your purchase price jumps to $120,000 while keeping the rehab costs at $40,000 and closing costs at $5,000. Your new total cost is $165,000. Since your loan maxes out at $150,000, you’d have to cover the extra $15,000 on your own.

Make Sure You’re Prepared

Understanding what fits under your loan amount can make a huge difference in your project’s success. If your costs exceed what your loan covers, you’ll need to have additional funds ready.

Tools to Help You

At Hard Money Mike, we offer free tools like the Loan Cost Optimizer to help you run these numbers. Use it to make sure your loan covers everything, so you’re not surprised by out-of-pocket expenses.

Have Questions?

We know this topic can be tricky, so if you have any questions, drop them in the comments below. We’re here to help you run through the numbers and make sure your next project is a success!

Stay Connected!

For more tips and tools to make your real estate investments easier and more profitable, check out our website at: HardMoneyMike.com. Don’t forget to like, comment, and share this article with other investors! 

Watch our most recent video to find out more!

Small Town Investing: How to Energize Your Real Estate Deals

Small Town Investing: How to Energize Your Real Estate Deals

Why Invest in Small Towns?

Today we are going to take a closer look at how you can energize your real estate deals when doing small town investing. Small towns often get overlooked by big banks and private lenders. However, investing in these communities can be a goldmine. Most importantly, you’ll help the community grow as well. Here at Hard Money Mike we have the flexibility to help you accomplish your real estate investing goals! Let’s take a closer look! 

Financing Options for Small Town Investors

1. 100% Financing

If you find a great deal, you might not need any money upfront. We can finance up to 100% of the purchase as well as the rehab costs.

2. Fix and Flip Loans

These loans cover both the purchase and renovation costs. Therefore these loans are perfect for properties that need a little love.

3. DSCR Loans

Don’t have a high income or perfect credit? No problem. DSCR loans instead focus on the property’s income, not yours. We offer these loans for properties for as low as $50,000.

4. Finish-a-Project Loans

Stuck with an unfinished project? We provide loans to help you complete it.

Example: A Success Story from Oklahoma

Imagine buying a house for $40,000, putting $30,000 into renovations, and then having a property worth $120,000. This isn’t just a dream. We helped an investor do just that in a small town in Oklahoma. She bought several properties, renovated them, and either rented them out or sold them. In just 18 months, she turned her initial investments into a thriving portfolio.

Steps to Start Investing in Small Towns

First, Find the Right Property

Look for undervalued properties. These can be homes that need a little TLC or rentals ready to go.

Second, Get Financing

Don’t worry if big banks turn you down. Look for lenders who specialize in small town investments. They offer flexible options and don’t always require perfect credit.

Third, Renovate and Improve

Fix up properties to make them attractive. A well-renovated home can bring new residents to the town.

Finally, Rent or Sell

Decide whether to keep the property as a rental or sell it for a profit. Both options can be lucrative in small towns.

Making Money While Helping Your Community

Fixing up homes does more than fill your pockets. It revitalizes the community. Updated homes attract new residents, which boosts the local economy. Plus, it brings life back to once-vacant houses.

Why Choose Us?

We understand small towns because we come from them. We offer:

  • Flexible Loans: Not based on your credit score or income.
  • Quick Approvals: Get your project moving fast.
  • Personal Touch: We’re here to help you succeed.

Ready to Invest?

If you’re ready to start investing in small towns, reach out to us at The Cash Flow Company. We have tools like the Deal Analyzer to help you find and finance the best deals.

Watch our most recent video to find out more about:Small Town Investing: How to Energize Your Real Estate Deals

Bridge Loans 2024: Real Estate Investing Must-Know

Bridge Loans 2024: Real Estate Investing Must-Know

Investors wonder what a bridge loan is and how it can help them achieve their real estate investing goals. Today we will discuss bridge loans and what every real estate investor needs to know before jumping in. To clarify, a bridge loan is a short term need for money until some other event happens. This includes selling a property, refinancing a property, and so much more! Start by asking yourself what you can use the money for and how can you make money?

Bridge loans for usage loan.

A usage loan is needed when someone has too much debt on their personal credit cards. Once these cards are paid off, the investors credit score will increase. We did three usages loans last month! For example, one customer used a bridge loan to pay off their credit cards. After their credit score went up, they refinanced with a DSCR. The money from the refinance was used to pay off credit cards. Bridge loans are an excellent tools that will open doors that were previously closed. They will also provide opportunities to get a better rates on long term loans.

Bridge loans for fix and flips.

Bridge loans are a great way to bridge the gap between fix and flip projects. It is important that they keep their crews working and their business going during this transition. In regards to the property that is listed or getting ready to list, it holds the equity that is needed to move onto the next investment. That is where a bridge loan can help. It puts a lean on the property that you’re selling in order to help you buy the next property. Once the property sells, the bridge loan can then be paid off and your next project is helping you to move forward. 

Bridge loans to finish a project.

Investors often need additional funds in order to finish projects. This could include a pop top, scraping, construction loan, or even a fix and flip. Whether the escrow won’t pay out until you hit a certain amount, or you just ran out of money, a bridge loan can help you achieve whatever you need.Once again, a bridge loan is a short term solution to get investors onto the next step. Don’t let your property stall! Remember you still have to pay your contractors, laborers, taxes, insurance, and interest on the first mortgage. We have done bridge loans for $11K to $180K. The loan amount is based on what the property will be worth in the end. Do you need to finish a project before spring season, but don’t have the extra money? Contact us today to find out more! 

Bridge loans to buy a good deal quickly. 

Many investors use a bridge loan to help them buy a property that is a really good deal prior to getting the financing lined up, or delayed purchase financing. In most cases investors are not getting their finances secured before the hard close date. Here at Hard Money Mike we can come in and do a 3 month bridge loan to ensure that they won’t lose the property. In this situation, a bridge loan would allow them to secure the property until they get their financing in order.

Not your traditional loan.

Unlike traditional lenders, we are not looking for appraisals or asking you to validate your income. A bridge loan’s primary purpose is to fill a lending gap to get you to a better spot. Don’t confuse this loan with a DSCR loan. A DSCR loan is a 30 year fixed loan, however, a bridge loan is a 3 to 6 month term. Do you need gap funding or down payment money for your next project? Find out how a bridge loan can provide the funding you need without needing to find a partner. Instead, we can use the other properties you have to get the bridge loan that you need. 

We are here for you! 

Do you need financial flexibility and a loan that can bridge the lending gap? A bridge loan could help you today! Contact us at Hard Money Mike to find out more! 

Watch our most recent video to learn more about Bridge Loans 2024: Real Estate Investing Must-Know.

Secure 100% Financing for Your BRRRR Investment

Secure 100% Financing for Your BRRRR Investment

Today we are going to discuss how to finance a BRRRR at 100%.  That means no money out of your pocket for the purchase, rehab, closing or even carry. For the past 14 years we have been helping people get 100% financing for BRRRR. It all comes down to one thing, making sure that the people are purchasing good properties at 75% or less. How can you secure 100% financing for your next BRRRR investment? Let’s take a closer look!

How can you achieve success in this current market?

There are a lot of opportunities for real estate investors right now. Just the other day we had a client who had bought a property in the Denver market for $300K. After putting in $50K in rehab, the property was worth $550K in the end. There are many other real estate investors who have been successful in similar situations in spite of the challenging market. How do they achieve such success? The answer is getting the correct upfront loan. While predictions indicate that there will be more opportunities in 2024 and 2025, now is the time to invest. Now is the time to jump in.

Selecting the right loan for you.

Remember that conforming conventional loans have restrictions that prevent investors from refinancing properties within the first year. However, a rate and term loan, such as a DSCR or conventional loan, allows investors to refinance immediately after getting an appraisal. By having a great hard money lender for your purchase, you will be able to refinance and get cash out of the property quickly and easily.

Find the right hard money lender.

It is crucial that real estate investors work with a hard money lender who can get up to 75%. Just to clarify, the 75% is based on the amount that you can refinance. Here at Hard Money Mike we say 75% because most clients can refinance into a conforming or DSCR at 75%. However, if you’re only able to finance up to 70%, then we will have to match whatever you qualify for on the long term or take out loan. It is important to remember that a BRRRR includes a buy, which is the first loan, and then there is a refinance. The refinance dictates how much a lender on the buy can give you. By finding the right hard money lender you will be on the path to success.

Let’s look at some numbers on the buy side.

The first calculation that needs to be done prior to purchasing a property is determining the maximum loan amount. This can be found by multiplying the ARV by 75% or .75. Once the max loan value is determined, real estate investors can then calculate if the property will be able to qualify for 100% BRRRR financing. 

Calculating Max loan amount.

Purchase price: $120K

ARV: $200K

Max loan: $200K x .75 = $150K 

Will it qualify for 100% financing?

Purchase price: $120K

Rehab: $20K

Closing costs + Carry costs: $10K

It is important to remember that closing costs are not only on the buy, but they are on the refinance as well. Also, carry costs should be added to the total in order to cover a few months of monthly payments, taxes, and insurance on the property until it can be rented. In most cases, investors are able to get the property rented before refinancing, which will in turn lower the carry costs. By keeping the purchase price, rehab costs, closing costs, and carry costs all under the maximum loan amount, real estate investors can finance a BRRRR at 100%. 

Finance a BRRRR at 100% today!

In order to finance a BRRRR at 100%, you need to make sure that all of your costs are less than the max loan amount. It is important to have a hard money lender who understands BRRRR’s. Here at Hard Money Mike we can help you run through numbers to make sure that you are in line to get 100% BRRRR financing. 

Watch our most recent video to find out more about how you can Secure 100% Financing for Your BRRRR Investment.

Why You Shouldn’t Use a DSCR Loan for a Fix and Flip

A DSCR loan is great for rentals, but why don’t they work for flips?

DSCR loans definitely have their place in the real estate investor’s arsenal. But if you’re trying to do a fix and flip, this loan might not be the right fit for you.

How Does a DSCR Loan Work?

DSCR stands for Debt-Service Coverage Ratio and is a loan particularly suited for rental properties. Like any other traditional loan, a DSCR is able to fund up to 80% of the purchase price or appraisal, whichever is lower.

For example, if you have a $200,000 property, the DSCR will cover up to $160,000 (80% of the total purchase price). This leaves $40,000 left for you to cover on your own.

As mentioned above, this loan is very well-suited for properties that generate steady cash flow (like a rental), but they can be more difficult to work with in the fix and flip game.

Why You Shouldn’t Use DSCR for Flips

You Need to be Rent Ready to Get a DSCR

In order to qualify for a DSCR appraisal, a property must be rent ready. This creates a lot of hurdles in the fix and flip world since many flippers are doing more than basic cosmetic repairs. 

DSCRs Have Prepayment Penalties

Most DSCR loans come with prepay penalties. These penalties typically come in 3- or 5-year plans. Again, in a rental market where you’ll be holding onto the property for longer amounts of time, you typically don’t need to worry about the prepay. 

However, the fix and flip market moves quickly. DSCRs penalize investors who pay off these loans quickly, something fix and flip investors often work towards.

You’ll Pay More For Rehab

In addition to the remainder of the purchase price, DSCRs don’t cover renovation costs. This means that even more money will need to come out of your pocket. 

Make Sure Your Loan Fits the Project

DSCRs are a great product for rental properties. However, if you’re looking at doing a fix and flip, take a look at other types of loans.

The most flexible loans are going to be hard money (also called private money) loans. 

We have a ton of free tools on our website that can help you find the right loan to fit your project. We’re also happy to chat with you about any particular deals or questions you have. 

Just reach out to us at Info@HardMoneyMike.com.

BRRRR Strategy: Successful Real Estate Investing with Hard Money and DSCR

How can you combine a BRRRR strategy with hard money and DSCR loans to win in the real estate game?

It’s amazing that there are options out there that let you build a real estate portfolio using little to no money. Using the BRRRR strategy with resources like hard money and DSCR loans lets even new investors get ahead. 

Using BRRRRs, hard money, and DSCRs together lets you do your fix and flips with little to no money in. 

Although this takes work, it is a tried-and-true method of generating wealth with solid resources and hard work. 

What is the BRRRR Strategy?

BiggerPockets launched this acronym a few years ago. BRRRR (Buy, Rehab, Rent, Refinance, Repeat) centers around fixing and flipping discounted properties.

BRRRR is all about buying properties with built-in equity that can be renovated to raise the value. We’ll likely start seeing more discounted properties in 2024 as foreclosures rise. This will provide a perfect landscape for BRRRRs. 

We recently helped a client buy seven properties this year thal all fit in these guidelines. They bought the properties with private money, and they’re refinancing them with a DSCR product. 

But it all starts with the Buy: look out for discounted properties. Yes, it takes work to rehab, rent, refinance, and repeat. However, by using the BRRRR strategy, you and clients like the one above are able to maximize profits in your real estate investment journey. 

Where Does Hard Money Come into Play?

Beginning the BRRRR process with buying a new property typically requires a lot of money. But don’t panic!

At the beginning of the article, we told you that you could use the BRRRR strategy with little to no out of pocket costs, and we’re about to tell you how.

Hard money loans are the key to making it all happen. Hard money is super flexible so you can use those loans to not only purchase, but also rehab or even cover closing costs. 

At Hard Money Mike, we specialize in hard money loans.

Hard money lenders typically look at your loan to value (LTV). It’s great if your LTVs can be close to 75%, but you’re welcome to reach out if you have any questions or concerns about whether you might qualify for a hard money loan.

Using DSCR to Refinance Your BRRRRs

Getting your property refinanced is a crucial step in the BRRRR strategy. 

DSCR (Debt Service Coverage Ratio) was specifically developed for real estate investors. The benefit of DSCR is that lenders aren’t concerned with your business’s income. 

Instead, they look at the specific property to see if it has positive cash flow. If it does and you have good credit, you’ll likely be able to refinance your hard money loan 75%-80% of the current appraised value.

If you bought at a discounted rate but rehabbed the property, the new value should be closer to everything else in the neighborhood.

BRRRR Strategy + Hard Money + DSCR = Success!

You need all three of these to really be successful at building your real estate wealth from little to no money.

Beginning your real estate investing journey can be a slow process. The first year, you might only complete the BRRRR strategy for one or two properties. 

But the longer you do this, the easier it gets. As you understand more, you develop contacts, and everything gets easier. 

Realistically, if you’re looking to build wealth from real estate investing but don’t have extra cash on the front end, you could likely use the BRRRR strategy on up to ten properties over the next three years.

By using the resources available (like BRRRRs, hard money, and DSCRs) you can build up your portfolio and wealth with hard work.

Time to Make Some Deals

Remember, it all starts with buying discounted properties with hard money loans. Then, keep using hard money for rehab, and refinance with DSCRs. 

If you want to learn more, we have a ton of free tools that can help you in the real estate game. 

If you have questions about hard money or want to discuss a deal, just reach out to us at Info@HardMoneyMike.com

You can also check out our YouTube channel for more real estate investment strategies and tips. 

Happy Investing.