Tag Archive for: lending options

Text: "Where to Find HELOCs"

Where To Find HELOCs with the Best Terms

Start using your HELOC today. Here’s where to find HELOCs.

There are three main places you can look to find HELOCs.

Where to Find a HELOC

A HELOC is a lien against a property that is set up much like a credit card.

A financial institution will set it up for you with a:

  • Credit limit – the maximum you can borrow from the HELOC.
  • Term length – the amount of time the HELOC is available and the limit is locked in (usually around 10 years).
  • Methods to access the money how you can borrow the money (bank wire, debit card, etc.).

1. Credit Unions

Firstly, look for a HELOC at a credit union. Credit unions will have the best HELOC rates and terms. We’ve found that to be universal state-to-state.

Shop around at local credit unions. Make sure the lender you’re working with likes real estate investors. Each lender has their own niche. One may prefer doing car loans, but another will prioritize HELOCs.

You’ll find the best deal from a credit union, but you should still shop around for the right one.

2. Local Banks

Secondly, look into a local bank.

Local banks usually like to work with real estate investors. They’ll have more products available as far as HELOCs for rental properties and HELOCs on multiple properties.

3. National lenders

Thirdly, look for a HELOC with national lenders.

Now that the refi-boom is settling down, national lenders and mortgage brokers are starting to offer HELOCs. Going through a national lender will open you up to more products, but the cost is almost guaranteed to be higher.

Consider all three of these options to find the best deal you can. For a HELOC, the “best” deal involves not just rate but LTV.

Read the full article here.

Watch the video here:

https://youtu.be/MoUp2CAht0A

Text: 'Primary vs Secondary HELOCs"

Primary vs Secondary HELOCs – A HELOC for Your Rental??

There are two types of HELOCs, primary vs secondary. Here’s what you need to know about them.

You can get a HELOC from two sources: the house you live in, and, potentially, some of your rental properties.

Primary Home – Primary vs Secondary HELOCs

HELOCs are calculated using LTVs and CLTVs (combined loan-to-values).

To calculate this, the bank looks at the loan balance for your first mortgage, plus what the HELOC will add to it. Then they divide that by the value of your home to get to the combined loan-to-value.

Most banks and credit unions will go up to 90% CLTV, but some do 100% on primary homes.

Using a HELOC unlocks all the equity you’ve established on your home as home values go up over the years.

Rental Properties – Primary vs Secondary HELOCs

Rental HELOCs are a little more limited. They have different LTV/CLTV requirements.

For rental properties, there are some banks, credit unions, and mortgage brokers that will allow HELOCs in second position that go up to a CLTV of 65% to 75%.

Different lenders will limit the amount of secondary HELOCs differently, but most will give you one or two properties.

When To Get a HELOC

Start using your HELOC now, before home prices go down.

If you have a lot of equity in your rental properties or home, you can tap into that now while the market’s still high. This limit will be locked in for 10 years, even as your home value will likely come down 5-10% in the next six to nine months.

If you wait to take out either primary or secondary HELOCs you’ll lose more of your available funds.

Read the full article here.

Watch the video here:

https://youtu.be/MoUp2CAht0A

Text: "What is a HELOC?"

What Is a HELOC for Real Estate Investors?

As a real estate investor, it’s important to know: What is a HELOC?

It stands for Home Equity Line of Credit. But what exactly is a HELOC?

It’s a Lien

A HELOC is a lien against a property.

It can come as a first, second, or sometimes even third mortgage. If you don’t owe anything on your house, you can put a HELOC in first position. With an existing mortgage, it’s put in second position.

It’s a Line of Credit

A HELOC is set up kind of like a credit card. The bank sets a limit they’ll lend and a term for how long.

A HELOC can pay for almost anything related to your projects. You can go to Home Depot and get materials, you can pay your contractors, you can make a down payment. It can take the form of a bank wire, a debit card, or whatever other option your bank gives you.

At the end of the month or the end of a project, you pay the HELOC off, and all the credit is freed up. You can use it again, pay it down, then use it again for as long as the term is active.

Typically, the bank will set a 10-year term. So for 10 years, you can use and re-use it up to the limit they set. If your property goes up in value during that time, it’s possible to get a refinance for a higher limit.

It’s a Faster, Easier, Cheaper Source of Money!

Any expenses you can put on a HELOC frees up your investment experience. When you borrow from other places (hard money lenders, banks, etc), there’s more paperwork and more cost.

HELOCs are easier, faster, and cheaper. A successful investor uses every leverage tool at their disposal, so it’s important to tap into this one.

Read the full article here.

Watch the video here:

https://youtu.be/MoUp2CAht0A

Text: "What is a HELOC?"

What is a HELOC? A Real Estate Investment Must!

Here’s what a HELOC is and why you should be using it as a real estate investor.

More and more investors have been calling us to ask about HELOCs.

With traditional, non-traditional, and hard money loans, why would a real estate investor need a HELOC?

In times like this with money tightening, it’s hard to get all the money you need for a project from a lender.

Let’s talk about what a HELOC is, how to get one, and what to do with it to leverage your real estate investments.

What Is a HELOC?

It stands for Home Equity Line of Credit. But what exactly is a HELOC?

It’s a Lien

A HELOC is a lien against a property. 

It can come as a first, second, or sometimes even third mortgage. If you don’t owe anything on your house, you can put a HELOC in first position. With an existing mortgage, it’s put in second position.

It’s a Line of Credit

A HELOC is set up kind of like a credit card. The bank sets a limit they’ll lend and a term for how long.

A HELOC can pay for almost anything related to your projects. You can go to Home Depot and get materials, you can pay your contractors, you can make a down payment. It can take the form of a bank wire, a debit card, or whatever other option your bank gives you.

At the end of the month or the end of a project, you pay the HELOC off, and all the credit is freed up. You can use it again, pay it down, then use it again for as long as the term is active.

Typically, the bank will set a 10-year term. So for 10 years, you can use and re-use it up to the limit they set. If your property goes up in value during that time, it’s possible to get a refinance for a higher limit.

It’s a Faster, Easier, Cheaper Source of Money!

Any expenses you can put on a HELOC frees up your investment experience. When you borrow from other places (hard money lenders, banks, etc), there’s more paperwork and more cost.

HELOCs are easier, faster, and cheaper. A successful investor uses every leverage tool at their disposal, so it’s important to tap into this one.

Benefits of a HELOC

The uses and benefits of a HELOC for a real estate investor are broad and huge. This line of credit is one of the best ways to tap into your existing money to create more money.

Let’s take a look at a few of the ways you can utilize your HELOC to benefit your real estate investments.

Down Payment

You can use a HELOC as a down payment on any loan – hard money or long-term. Anytime a lender requires a down payment, you can take the money off your home equity line of credit, and bring it to closing.

For down payments on rental properties, your lender will still require the money borrowed from your HELOC to be included in your debt ratio.

Construction Costs

For a flip or a BRRRR, you can use money from your HELOC to cover the costs of construction. 

Money from a hard money lender or bank comes at a higher price. If you’d prefer to use your HELOC to cover construction costs, you can lower the amount borrowed from a lender.

A HELOC will be some of the cheapest money you can find out there – especially now with money tightening. Using it helps lower your overall costs.

Another benefit of a HELOC is the speed and flexibility. If you don’t have time to wait for your lender’s escrow process to pay your contractor, you can just pull the payment off your HELOC.

Carry Costs

Carry costs include monthly interest, HOA fees, mortgage payments, some materials and construction, and any other regular cost associated with owning the property.

These costs can turn into a burdensome expense on a flip. You can pull from your line of credit to cover carry costs, and when your flip sells, you can put it all back in.

Buying Properties at Auction

There will be more foreclosures coming up soon. To take advantage of this turn in the market, you can use money from your HELOC to buy a foreclosed property at auction.

The benefit of a HELOC here is that you don’t have to get lender approval or meet lender requirements before placing a bid on a property. You can pull from it, pay for the property (or at least the down payment), and refinance later if needed.

Buying Wholesale Properties

You can also buy properties from wholesalers or the regular marketplace when you otherwise couldn’t. You close with a HELOC, then go back and refinance with a hard money or bank loan.

With this strategy, you can close on a deal faster than anyone else. You don’t have to sift through the paperwork and red tape of a loan; just go to the bank and wire out the funds.

Bridge Loan

Some investors use their HELOC to bridge between properties. 

They have one flip for sale, but they’re ready to buy their next one. They use a HELOC to cover the down payment, then pay it back when the other property sells.

You can create your own bridge loan by using a HELOC.

Lend to Other People

You can also use it to lend to other people in the real estate investment community at a profit.

You can borrow from a HELOC at a rate of 5-6%, and you could charge someone else up to 10-12%. (But of course, always be careful and protect yourself when lending to other people).

Overview of the Benefits of a HELOC

  • Using your HELOC allows you to use your money, without taking anything from your savings or 401k
  • You can tap into the equity that’s already at your disposal
  • It keeps projects going while typical loans are tightening up
  • You can get into properties quickly and refinance a few weeks later
  • You can avoid the higher rates of external lenders by borrowing from your HELOC.

Primary vs Secondary HELOCs

You can get a HELOC from two sources: the house you live in, and, potentially, some of your rental properties.

What is a HELOC on a Primary Home?

HELOCs are calculated using LTVs and CLTVs (combined loan-to-values). 

To calculate this, the bank looks at the loan balance for your first mortgage, plus what the HELOC will add to it. Then they divide that by the value of your home to get to the combined loan-to-value.

Most banks and credit unions will go up to 90% CLTV, but some do 100% on primary homes. 

Using a HELOC unlocks all the equity you’ve established on your home as home values go up over the years.

What is a HELOC on a Rental?

Rental HELOCs are a little more limited. They have different LTV/CLTV requirements. 

For rental properties, there are some banks, credit unions, and mortgage brokers that will allow HELOCs in second position that go up to a CLTV of 65% to 75%. 

Different lenders will limit the amount of secondary HELOCs differently, but most will give you one or two properties.

When To Get a HELOC

Start using your HELOC now, before home prices go down. 

If you have a lot of equity in your rental properties or home, you can tap into that now while the market’s still high. This limit will be locked in for 10 years, even as your home value will likely come down 5-10% in the next six to nine months. 

If you wait to take out your HELOC, you’ll lose more of your available funds.

Where To Find HELOCs

There are three places you can look to find HELOCs.

1. Credit Unions

Credit unions will have the best HELOC rates and terms. We’ve found that to be universal state-to-state.

Shop around at local credit unions. Make sure the lender you’re working with likes real estate investors. Each lender has their own niche. One may prefer doing car loans, but another will prioritize HELOCs.

You’ll find the best deal from a credit union, but you should still shop around for the right one.

2. Local Banks

Local banks usually like to work with real estate investors. They’ll have more products available as far as HELOCs for rental properties and HELOCs on multiple properties.

3. National lenders

Now that the refi-boom is settling down, national lenders and mortgage brokers are starting to offer HELOCs. Going through a national lender will open you up to more products, but the cost is almost guaranteed to be higher.

Consider all three of these options to find the best deal you can. For a HELOC, the “best” deal involves not just rate but LTV.

What Is a HELOC and More

You can use a HELOC to take advantage of what’s happening in the market in 2022.

If you need more guidance with a HELOC of your own, reach out to HardMoneyMike.com.

For one-on-one help, send us an email at mike@hardmoneymike.com. We’re happy to coach you through any real estate investment questions.

Happy Investing.

Text: "DSCR loan: down payment & refinancing

Does a DSCR Loan Require a Down Payment?

What is the down payment requirement for DSCR loans? What does refinancing look like with this type of loan?

Down Payments for Different Types of Properties

Your typical DSCR loan will require 20% down, but as interest rates are rising, you may see that that tighten up to 25%. So, if you’re buying a $100,000 property, they’ll loan you 80%, or $80,000. But you’ll have to come up with the remaining $20,000.

If you go from a single-family to a four-plex (some DSCR loans work for up to six-plexes!), you may be required to put in more like 25-30%. As your “doors” go up, so does your down payment.

But always check around! DSCR loans are the wild west. You’ll have lots of choices, every lender likes having slightly different requirements.

Refinancing with a DSCR Loan

For a rate and term refinance, a DSCR loan will typically cover 75%.

So you’ll need 25% equity in the property on a DSCR loan to do rate and term.

Cash out refinancing is a little tighter. Most are at 70%, but you could find outliers between 65 and 80% (but the higher ones will raise your interest 2 or 3 points).

For true, good DSCR loans, you’ll be maxed out at 75% for rate and term, 70% for cash out.

Let’s say you’re looking at a property that’s worth $100,000. On the cash out, you can only get $70,000, and you’ll need $30,000 in equity. For rate and term, the max loaned is $75,000.

At the end of the day, it’s impossible to give a one-size-fits-all answer about DSCR loan amounts. There are so many options, and your properties will each require different loans. You’ll have to talk to brokers and lenders in your area to find the best rates for you.

Using DSCR with BRRRR

If you’re lucky, the rental property you’re getting into is a BRRRR property. You can use a DSCR loan like any other traditional conventional loan to refinance.

If you buy the property at 75% or below its ARV, you can use a DSCR loan and buy a rental property with zero money down.

Read the full article here.

Watch the full video here:

Text: "DSCR Loans Pros and Cons"

The Pros and Cons of a DSCR Loan

Every loan in the world has its pros and cons – DSCR loans are no exception. The important thing is to be able to evaluate whether it’s right for your property.

DSCR Loan Pros

No Income Requirements

The biggest advantage to a DSCR Loan is that there are no income requirements.

You don’t have to work a W2 job, or be self-employed for 2 years. The application won’t ask where you work or what you do.

This is helpful if you’ve just started a new job, become recently unemployed, or have more unconventional income.

The number one requirement for a DSCR loan is the income from the property itself.

Business-Friendly Financing

DSCRs are considered business loans since the properties are non-owner-occupied. The majority of them allow you to finance in an LLC or other business name.

They also do loans in different states. If you have properties in Colorado and Florida, you can go to one lender and they can lend both places.

Minimal Paperwork

If you’ve ever done a traditional loan, you know the paperwork is a giant hassle. DSCR loans have very minimal paperwork. They’ll need to look at your:

  • Credit score
  • Loan-to-value
  • Rent

And that’s it.

The majority of lenders won’t ask for info on your other properties. They just want to know the other properties are current, and that shows up on your credit report. Even if you have other rental properties with negative cash flow, it won’t impact your ability to get a DSCR loan on a positive cash-flowing one.

As long as you have a property that’s making money, you can get this loan for very little paperwork.

DSCR Loan Cons

Prepayment Penalties

DSCR loans almost always come with pre-pay penalties. You have to keep the loan for a minimum timeframe of around 3-5 years to avoid a fee for paying off early.

So, if you get a DSCR loan, then a year later you find someone who wants to buy, or some other unexpected event comes up and you have to sell the property… You’re stuck paying to get out.

And prepayment penalties can be up to 5% of the loan amount.

Let’s say you have a $200,000 loan with a 5 year pre-pay minimum. And you end up wanting to sell it after 2 years. Then you’ll have to pay the lender 5% of $200,000 – or $10,000 – just to get out of the loan.

Higher Rates Than Other Conventional Loans

Some DSCR loans have 5, 7, or 10-year ARMs that keep rates down. Still, DSCR interest rates will be 1.25 to 1.5 points higher than other conventional loans.

This will impact your cash flow, so a property has to have a strong cash flow for you to consider a DSCR loan.

Pros vs Cons: Are DSCR Loans Worth It?

Despite their drawbacks, DSCR loans can be a truly great option.

It’s a great portfolio loan for real estate investors. DSCR is perfect for people who want something easy, or who don’t have the income traditional loans need.

As long as your specific property fits the criteria and the cash flow is there, a DSCR is a great easy loan to build your portfolio without the hassle of underwriting.

Read the full article here.

Watch the full video here:

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.

Read the full article here.

Watch the video here:

Text: "How to Invest in Airbnb and Other Short-term Rentals"

How to Invest in Airbnb and Other Short-Term Rentals: The Money Side

Here’s your funding guide to invest in Airbnb, VRBO, or other short-term rentals.

You’ll find plenty of guides online about how to find good Airbnb locations or how to manage VRBO properties. 

Our expertise is in financing those short-term rentals. 

How can you find the easiest, fastest, cheapest funding for short-term rental properties? Let’s look at how to invest in Airbnb and get the money side right.

Why Do Airbnb Investments?

Maybe when you think of an Airbnb your mind still goes to the classic model: a family with a guest house rents out to tourists for a little extra money.

But short-term rental sites have evolved past that. Airbnb and VRBO properties can look a lot of ways, serve a lot of purposes, and generate a lot of income.

Airbnb Purposes

Airbnbs aren’t always for vacation rentals. The reasons people use short-term rentals are as diverse as the people themselves. 

Sometimes Airbnbs are used as an alternative to hotels for traveling professionals. Or insurance companies will use VRBOs as temporary housing for people displaced by a house fire. Or companies will host remote workers for onsite projects in an Airbnb.

Some renters will stay for one night, some for three months. Some come to experience the location, some to have a personal retreat, and some because they’re preferred to hotels for longer-term stays.

There’s a wide variety of ways and reasons to invest in an Airbnb, VRBO, or other short-term rental. They’re a worthwhile investment – as long as you know the best ways to finance them.

Airbnb Investment Income

Short-term rentals are a great investment from a cash flow perspective.

If you invest in something like an Airbnb, it can quadruple (or more) the income you would make from a traditional monthly rental agreement.

If a traditional renter generates $2000 per month, short-term rates could make up to $4000 to $6000 per month on the same exact property.

So… How do you get the money to start?

How to Buy Your First Airbnb with No Money Down

If an investor decides to use short-term rentals as an income stream, ideally, they wouldn’t want to pay a bunch of money up front for the property.

Is it possible to buy your first Airbnb with no money down? What steps does it take to get 100% financing on a property to convert into an Airbnb?

Using the BRRRR Strategy to Invest in an Airbnb with No Money Down

A possible way to get a short-term rental with zero money down is to use the BRRRR strategy

If you can buy a property undermarket, fix it up within budget, and refinance, you can set up an Airbnb for no money down. 

We’ve helped a lot of people use the BRRRR strategy to get into an Airbnb. They keep the purchase and rehab costs at 75% or below the ARV, then get into a long-term conventional loan or DSCR loan.

The process is mostly the same as for a traditional BRRRR rental property, with a few slightly different requirements.

Long-term Loan Requirements to Invest in Airbnb

You’ll find conventional lenders that will lend for an Airbnb. But they may require that you have:

  • Two years of experience with Airbnbs
  • Other real estate investment history
  • The income for the loan (from a W2 job or your own business) without any income from the property.

If you’d need a loan with fewer requirements for your first Airbnb, a DSCR loan may be right for you. A DSCR loan’s only major requirement is that the income from rent covers the expenses of the property.

What If You Can’t Get an Airbnb for Zero Down?

If you land a good BRRRR opportunity – find a property you can buy and fix up for under 75% of the ARV – you can get it with zero down. 

Otherwise, you’ll be asked to put 20-30% down, depending on:

  • Your credit
  • Your income
  • The income potential of the property

Later in this article, we’ll explore options for covering these down payments and other costs a loan won’t cover.

How to Invest an Airbnb Loan Without W2 Income

Many of these 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 Invest in 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.

What Are the Best Loans to Invest in Airbnb?

Which loans and terms are best to invest in Airbnb? What should you look for?

Unfortunately, there’s no simple answer. 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

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

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.

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 to Invest in 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 buy 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 an Airbnb 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.

Where To Go From Here

There are a lot of loan options to kickstart your Airbnb investment career. The less money you have to put into the property, the better off you’ll be.

There’s money in the money – for all investments, including short-term rentals. Getting the money right makes everything smoother and your profits bigger.

Contact us at HardMoneyMike.com with any questions about your Airbnb investment journey.

Happy Investing.

Text: "What is a DSCR Loan?"

What is a DSCR Loan?

“The Easy Loan” – What is a DSCR loan all about?

DSCR stands for Debt Service Coverage Ratio, which is a term used in the mortgage industry.

In the real estate industry, a DSCR loan is more commonly known as an “easy loan.”

What is it that makes a DSCR loan so “easy”?

DSCR Loans’ Easy Reputation

DSCR loans are easy because they cut out 50 to 60% of the paperwork required for a typical loan of its kind. If you’ve ever done a loan for a rental property, you know the paperwork seems endless.

All a DSCR loan looks at is whether your property’s rent covers your monthly expenses. At the very least, your rent (income) needs to be higher than your expenses – payments, taxes, insurance, HOA, etc.

The only other consistent criteria for getting a DSCR loan is your credit score. But if you have a good to great credit score and a cash-flowing property, you can get one of these easy DSCR loans.

What Is Special About a DSCR Loan?

Every DSCR loan will be slightly different. You can find a DSCR loan in any shape or size.

Each lender puts their own nuance in their DSCR loans. There’s no national standard for underwriting for these loans. There are thousands of institutions offering these loans, so there are thousands of different versions of them.

For your investments, you can find DSCR 30-year loans, 3 to 7-year adjustables, interest-only loans, and more. DSCRs are useful for their range of options.

But you do have to shop around for each of your DSCR loans. Each lender will have different criteria, and your different rental properties will each meet a different set of criteria.

Take your time finding DSCR loans, and take advantage of their wide variety.

Other Common Requirements for DSCR Loans

As mentioned, DSCR loans can vary widely from lender to lender. But there are a few more common requirements for DSCR loans to keep in mind.

First, DSCR loans typically require 20% down for a purchase. Their refinance max is usually 75%. There are unique lenders out there that will offer more, but a lower down payment will be offset by higher interest rates.

Second, interest rates for DSCR loans are typically around 1.25 to 1.5% higher than other traditional conforming conventional loans.

Third – and this is an important one – DSCR loans almost always come with pre-pay penalties.

You have to keep the loan for a set amount of time, usually 3-5 years. Or else you have to pay the lender a penalty for paying it off early. That means if you sell or refinance, they’ll charge you a penalty.

Lenders will want these loans to stay on the property for a longer amount of time. So they penalize you for ending the loan before their minimum timeframe. Watch for these penalties, and be sure they fit into your guidelines for a project.

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Text: "How to Invest When Inflation Hits"

How to Invest in Real Estate During Inflation: Your Credit Score Matters

Let’s unpack what it means to invest in real estate during inflation.

Inflation is rising. Interest rates are rising. Lenders are looking at risk and reward, and they’re becoming much less lenient than they’ve been in the recent past. 

Think of this time like 2010: investors who aren’t ready will have a hard time continuing their business. Investors who are ready can jump in and take advantage of chances to build generational wealth. 

What will be the key to preparedness for this downturn in the market? Credit scores.

Let’s look at lender credit score requirements, lending options, and how to invest in real estate during inflation.

What Is the Credit Score Range?

Credit scores range from the 400s to the 800s. Lenders, though, look for 620 to 800 credit scores. 

Credit Score Ranges and LTV Expectations

In recent times, 640 used to be an average minimum score for lenders. But in the last several months, that’s risen to an average of 680.

Lenders are prioritizing quality over quantity in who they lend to, dropping off 15-20% of available borrowers.

In addition to changing credit score requirements, many lenders are also changing how much they’ll lend. 

We know some lenders who have raised their requirements from 640 to 680, and they’ll only loan out 65% LTV. To get 80% LTV, they used to require 690-700; now, that credit score range is 720-740.

How Interest Rates Impact Lender Credit Score Ranges

With rising interest rates, it will be harder to get cash flow on properties. If your rate goes from 3% to 6%, that’s doubled the amount of interest you pay every month.

Lenders will be concerned with cash flow. They want to make sure they lend to solid people who have a good history of making their payments.

As rates and inflation go up, you need to be prepared to take advantage of what will happen in the market as you invest in real estate. 

You’ll need to know what credit score range lenders are looking for, and you’ll need to know your score.

How Do I Check My Credit Score?

A good credit score is necessary for successful real estate investing. So it’s important to answer the basic question: How do I check my credit score?

Does Checking My Credit Affect My Score?

How can you check your credit without it impacting your score? If your credit is checked in the wrong way, it can impact you by 3-5 points. Not a big deal, right?

But if your lender requires a 680 credit score, and you go down to a 679… you just got squeezed out of the loan.

There are two kinds of credit checks: hard inquiries and soft inquiries. A hard inquiry will knock your score down temporarily. Luckily, most methods of checking your credit online are soft inquiries and shouldn’t impact your score.

Where Can I Check My Score?

You can start somewhere like CreditKarma.com and sign up for a free account. Even though it’s not FICO-score-driven, it can give you an idea of where you’re at. It’s a good way to check your credit score without affecting your credit.

You can also visit AnnualCreditReport.com for a yearly free copy of your credit report. Also, some banks and credit card companies will offer a free credit checking service with your account.

Use these free, online checks that don’t bother your credit to keep a pulse on your score. Check these three months before you need a loan. That gives you time to take (or avoid) certain actions to raise or maintain your score for when you apply for the loan.

Know Your Score to Get Ahead

We’ve been spoiled in the last decade with low rates, easy money, and wide options. That’s all slowly coming to an end. Lenders will be pickier, with higher rates and fewer options. 

But that means there will be fewer investors out there buying, so the opportunities are even better for you. As long as you’re credit-ready.

Loans for Real Estate Investing Amidst Inflation

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

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

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.

Credit Score Requirements for Fix-and-Flip Loans

During inflation, how does your credit score impact the flow of money to invest in fix-and-flip real estate?

We monitor a few national wholesale companies that have raised credit score requirements 40 points and dropped their LTVs by 10%. And it will only get tighter.

These lenders will charge higher rates too. One of these companies used to have 7% interest rates. Now, they’ve already risen to over 10%.

What does this mean for you?

You’ll need to raise your credit score to have a chance at these loans. And between lower LTVs and higher interest rates, you’ll have to expect to put more money down.

Use these tricks to raise your score while applying for new loans.

BRRRR Loans and Credit Score Requirements

During inflation and rate-rising, cash flow can take a huge hit. This means you’ll need to be much more careful with BRRRR loans.

BRRRR’s Two-loan Strategy with Rising Requirements

We’ve mentioned how traditional bank loans are changing. But even DSCR loans – loans based on rental income from property – are raising rates up to 9% and requiring credit score minimums.

You’ll have to be much more intentional with your BRRRR loans.

In BRRRR, there’s two loans, and you’ll need good credit scores for both. The first is a hard money loan (where national lenders require higher scores). The second is long-term, either a traditional bank loan or a DSCR (which are all raising requirements).

Upcoming price drops and foreclosures will be perfect opportunities for BRRRR properties. Investors who can get approved for financing will be the first to take advantage of these opportunities.

Fewer investors will be able to keep their business going. You need to know your credit score so don’t lose out on funding!

Be Credit-Ready

Your credit score is an important part of your business. You’ll need to be better at credit than ever before in your real estate career.

You can take advantage of this dip! Be credit-ready to invest in real estate during inflation.

Download our credit score checklist here.

Watch our videos on credit preparedness here.

Happy Investing.