# DSCR: Will You Be Able to Refinance Your BRRRR Property?

Today we are going to compare and contrast two properties in order to see how the differences can affect your ability to refinance. Here at Hard Money Mike we do a lot of 100% financing for both the purchase as well as the rehab on a BRRRR property. Before jumping into financing, we also make sure that the property will qualify for a long term loan. One thing that you need to keep in mind is that while you may qualify for a rate and term of 75%, the property may not qualify. Let’s take a look at some numbers to see what that means to you and whether or not you will be able to refinance your BRRRR property.

More and more people buy a property, get it all fixed up, and then expect to refinance it at 75% to 80%. Unfortunately, when they go to refinance they end up hitting a wall. Oftentimes the property doesn’t qualify for a refinance based on the DSCR ratio. We want to go over a quick example to make sure that you know how to run through the numbers before you purchase that BRRRR.

## What do we mean when we say that the property doesn’t qualify?

It is important to remember that the numbers have to break even when using the DSCR ratio. This will to keep the interest rates lower. Just to clarify, breaking even means that your rents equal your expenses. While your property and credit score might qualify because they break even, your property might break even at a lower LTV. Why would this occur and why is this different in different zones? Let’s look at the numbers!

Property has a valuation or ARV of \$200K

You are looking for a rate and term at 75%

That would be a loan amount of \$150K

\$200K x .75 = \$150K

You get into a BRRRR and you are all in at \$150K

Rate of 7.5% would be \$1,050 per month for principle and interest on a DSCR loan

## What are the rents for this property in different areas?

It is important to research the rents in the area to make sure that your property will break even. One property might rent for \$1400 while another would rent for \$1800. We want to find the maximum LTV before you purchase a property to see if the property qualifies. While you need to consider your mortgage payment, there are other factors that you need to consider as well. This includes the taxes, insurance, flood insurance (when applicable), and HOA (when applicable). These amounts all have to be added to your payment before comparing it to the rents.

 Property A Property B Taxes \$1800 \$3600 Insurance \$1200 \$3600 Flood/HOA None \$1200 Annual Cost \$3000 \$8400 Monthly Cost \$3000/12 = \$250 \$8400/12 = \$700 Total Monthly Amount \$1050 + \$250 = \$1300 \$1050 + \$700 = \$1750

## In conclusion,

Before you jump into a BRRRR, or before you find out if you can qualify for 100% financing, make sure that the property qualifies. It is important to find out where your rents are, as well as any additional expenses. These numbers will be helpful to see where the property breaks even. Then you so can make sure you can get the money that you are expecting

If you want to make this easy, reach out to us at Hard Money Mike! We are happy to run through the numbers with you to make sure that you’re able to refinance your BRRRR property.

Watch our most recent video DSCR: Will You Be Able to Refinance Your BRRRR Property?

# How to Quickly Calculate Must-Know Real Estate Numbers

Today we are going to go over some simple calculations that review what a point is, how to calculate monthly interest, Loan to ARV, and LTV. These are simple things that you will come across when you are talking to lenders about your lending needs. Here at Hard Money Mike we want to make sure that you not only understand what these are, but more importantly we want to show you how to calculate must-know real estate numbers.

## What is a Point?

First of all, you are going to hear lenders say that there is a point on this loan, or two points on the loan. What does that mean to you? A point is a percentage of the loan, This is the fee or charge that they have for the loan that you are taking out. You will see anywhere between 1 and 3 points. Meaning that they are charging between 1% (.01) and 3% (.03)  of the loan amount as an origination fee. It is important to know what this amount is because it will not only come out of your pocket, but it will add to your cost at closing.

### For Example:

Loan amount is \$200K

Lender charges 1.5 points (1.5% or .015)

\$200,000 x .015 = \$3,000 origination fee

## How do you calculate simple interest and what does that mean for a monthly payment?

If the lender says they are charging 10% (.10), that means that they are charging that amount as an annual rate. As an investor, it is important that you do the calculations in order to determine the monthly interest amount which is based on the loan amount. As an investor it is very helpful to have this broken down into months, because you may only have the property for 6 months instead of a year.

### For Example:

Loan amount \$200K

\$200,000 x .10 = \$20,000 (annual interest amount)

\$20,000 ÷ 12 (months in a year) = \$1,666.67

\$1,666.67 is the monthly interest amount

## Loan to ARV

Most lenders are going to give their maximum loan based on ARV. Just to clarify. ARV is the estimated after repair value for the property once it is all fixed up. It is important to know what the market estimates the property will be worth after all of the work is completed, and are based on current sales in the area. A lot of the lenders are going to give their loan or a loan max based on the ARV.

### For Example:

\$400,000 ARV (based on your comps)

Lender maximum loan to ARV is 75%

\$400,000 x .75 = \$300,000

\$300,000 is the maximum loan amount that the lender is able to lend you.

## What is Loan to Value?

A lot of lenders and banks are going to go off of the value of the property as opposed to the after repair value. When they talk about loan to value, lenders will take two things into consideration. They will look at the appraised value or purchase price, whichever is lower. Then they will lend a certain amount based on the current value.

### For Example:

Purchase price \$300K

Lenders maxim loan is 80%

\$300,000 x .80 = \$240,000

\$240,000 is the maximum loan amount that the lender is able to lend you.

## In conclusion

As an investor it is great to understand what a point is, how to calculate monthly interest, Loan to ARV, and LTV. By learning how to quickly calculate must-know real estate numbers, you will be able to find the loan that best meets your needs.

If you have any questions or would like us to run through some other numbers, contact us

Watch our most recent video to find out more about how to quickly calculate must-know real estate numbers.

# Hard Money Vs Banks: Which Lending Option is BEST?

Investors are always wondering which lending option is best for their needs and when is it better to use hard money instead of banks? Let’s start by identifying what is hard money. Hard money is asset based lending that real estate investors can use when their credit scores are not up to par with bank requirements. Unlike banks, hard money lenders aren’t looking at the credit scores. Instead, they are looking at the project and the property. Today banks are getting tighter and credit score requirements are increasing. As a result there is a decrease in funding. Have no fear! It is still possible to get 100% financing with a credit score below 700. Let’s compare hard money vs banks to determine which option is best for you.

## Who uses hard money?

Hard money is for everyone! From the new investor, to those who have 20 years of experience, everyone can benefit from using hard money. Hard money creates flexibility that many banks can not provide. Whether it’s a small deal in a small community, seconds, thirds, or even land, hard money can help you complete any translation that is asset based. As long as the property is good, with a good exit strategy, then you can negotiate to get hard money lending

## What can we do for you at Hard Money Mike?

Here at Hard Money Mike we are able to provide 100% financing on BRRRR and 100% financing on fix and flips, as long as the ARV is good. For clarification, ARV stands for the after repair value. A hard money lender looks at the value of the property and what it can become based on the ARV. That’s another big difference between hard money and banks. It doesn’t matter when you go to a bank, or what kind of a deal you are getting. Banks will only focus on the LTV or loan to value amount.

## Let’s look at an example of hard money vs banks:

 Property purchase \$300K ARV 600K Hard Money As a hard money lender, I would feel comfortable lending up to 100% on the deal because it’s a great deal. Hard money is better than banks when you are basing it on ARV Banks If you go to a bank, they will compare the ARV and the purchase price and determine which is lower. In this example, the banks would base their decision on the 300K purchase price. From that base amount of 300K, the bank will then require you to put in 20% to 25%.

When you are deciding between hard money and banks, always remember that hard money is best when you have good deals based on the ARV, and when you don’t want to put a lot of money in. This is also true for BRRRR, if you want to find that undervalued property and use a hard money lender to fund 100% of the rehab. Once again, if it’s a good deal based on the ARV in this market at 70% to 75%, and you can refinance it, then hard money has the flexibility that you need.

## Credit score requirements and limitations.

Most hard money lenders do not look at your credit score to make their decision. Instead, they might look at your score to make sure that you are paying, not in bankruptcy, and not in foreclosure. However, hard money lenders will not be concerned by high usage or low scores. These values are not a big deal for hard money lenders. Most importantly, hard money lenders will not kick you out the door because you have a 679 credit score instead of a 680.

## You don’t need to fit into a box.

While banks often have slightly lower rates and longer term options than hard money lenders, banks want you to fit into their box in order to lend. Whether that is meeting their credit score requirements, income requirements, or their coverage ratios, banks do not have the same flexibility as hard money lenders. Flexibility and uniqueness is where you go for your hard money lending. Especially if the property is based on ARV and the value is there.

## 3 instances where you should use hard money over banks

1. If you want to base your lending off of ARV and have a good deal.
2. If you have a credit score that does not hit into the 700s.
3. If your income just started or you aren’t 2 years out.
4. If you just write everything off.

## What do you need to look for in a hard money lender?

It is imperative that you get a hard money lender who is flexible enough to do your deals when you have a good deal. What is a good deal? A good deal is dependent on whether or not the market is good in the area, if you have a good exit strategy, and a great LTV. Another important factor to consider is if you have a bridge or a lender set up on the other side. Hard money lenders are not looking for deals that are 100% financing with 100% LTV.

## Where do you find hard money lenders?

### 1. A local person or company:

This is a local person or company who is lending true hard money. Make sure that they are well established and have a web presence before diving in. Wall Street has taken over the big loans and only accepts investors who can fit into their box. Hard money on the other hand has no box! It provides the flexibility to fit any investor no matter what the deal.

### 2. Real estate groups:

Connect with the investors in your real estate group. They all know some hard money people who they have worked with in the past. This is especially true if they’ve been in this business for more than three years. By connecting with people in the community, you will find hard money lenders who are reliable.

### 3. Real estate forums:

Real estate forums are an excellent place to go and ask questions to find out who the hard money lenders are in your area. There is always a need for hard money in real estate investing.

## What do you look for and what questions should you ask?

First and foremost don’t get involved with a hard money lender who has a lot of up front fees. Some may ask for \$1,000 to \$5,000 down. Don’t go down that path, because they are just collecting fees, not helping investors. Instead, look for people who have experience within your real estate groups and forums. Do your own research to make sure they are funding deals and have some flexibility with their lending. Whether it is a cross lien, second, or even commercial property. It is also important to ask what they will and won’t lend on. Finally, it is important to start working with them and building that bridge. This will help you in the future if you have another deal that needs hard money lending.

Watch our most recent video to find out more about Hard Money vs Banks to discover which lending option is right for you.

## Hard Money vs. Private Money Loans: What’s the Difference?

Sometimes these terms are used in similar situations, but what actually makes private money loans different from hard money?

One of the most beautiful and attractive aspects of real estate investing is its accessibility.

Anyone can enter the game and create wealth, provided they understand their available options and use other people’s money (in the form of loans, etc.) to fund their projects. This is called using leverage.

The best leverage for each deal might be a little different. Sometimes you need to close quickly. Sometimes you need to prioritize low interest rates.

Whatever the top priority, private money and hard money are tools to have in your investing toolbox.

# Private Money Loans vs. Hard Money Loans

Hard money loans have been around for a long time, but recently we’re seeing a rise in private money loans.

Knowing the differences between the two can help you find the best deal for the specific needs of your project.

### 1. Credit Scores

• Hard Money: Credit scores aren’t typically a factor.
• Private Money: Score based.

Instead of looking at your credit score, hard money lenders look at your financial history for things like bankruptcy, foreclosures, etc.

Additionally, not only is hard money not determined by your credit score, but hard money loans can also be used to help fix your credit score (something that private money isn’t necessarily designed to do).

### 2. Flexibility

• Hard Money: Super flexible and great for unique projects!
• Private Money: Less flexible, often better for larger communities.

If you have a project that’s a bit outside of the box, hard money is often the way to go since these loans aren’t restricted as much as traditional bank loans.

In contrast, private money tends to be best for projects that are a bit more “typical” in real estate investing. It can be tricky to get private money loans below \$125,000, so if you’re looking for a fast, small loan, hard money might be a better deal.

### 3. Loan to Value

• Hard Money: Up to 100% financing.
• Private Money: Typically maxes out at 70% of the repair value and 90% of the purchase.

Sometimes you can find private money loans with great terms, but typically hard money can offer higher LTVs.

### 4. Markets

• Hard Money: Local.
• Private Money: National.

Private money has the advantage over hard money when you’re looking in larger communities. Most hard money lenders have smaller areas (or two or three states) they specialize in, and they like to stay focused on those areas.

### 5. Pricing

• Hard Money: More expensive.
• Private Money: Less expensive.

If you’re in a large city, and you’re looking for the best pricing, private money will typically be less expensive than hard money.

It’s important to note that the difference in cost between these loans is often in the points, not the rate.

Often, hard money loans are anywhere between 2 and 3 points, with loans around 6-9 months. In contrast, private money loans are often closer to 1-1.5 and offer longer loans of 12-18 months.

## Which Loan is Better?

It depends what you need!

If you need a flexible, quick loan with higher LTVs that isn’t going to penalize you for a less-than-spectacular credit score, hard money is the way to go.

If you need longer terms, better points, and something that’s designed for larger communities and typical projects, check out private money loans.

## Explore Our Resources

Real estate investing is great, and both of these loans should be in your investing toolbox.

If you want to explore a hard money loan, feel free to contact us at Info@HardMoneyMike.com. We’re always happy to talk through a deal or help you figure out what sort of loans are right for you.

You can also check out the free tools on our website or our YouTube channel where we offer investment tips and tricks. Our #1 goal is that you feel confident and equipped to succeed as a real estate investor.

Happy investing!

## How Much Hard Money Can I Get? A Guide to Borrowing

How much hard money can you get from lenders? Here’s a brief guide.

Which hard money lenders lend the most?

That question may mean two things to two different investors.

Some people want to know: How much hard money can I get? Five million dollars? Ten million? For other people, the question is: What is the max loan-to-value I could borrow?

Let’s go through the 3 types of private money lenders, who lends the highest dollar amounts, and who offers the best LTVs.

## 3 Types of Hard Money Lenders

There are 3 types of hard money lenders:

• Local: Hard money lenders near your state, city, or region.
• National: Newer in the hard money scene. They’re backed by Wall Street and lend across the US.
• Real OPM: A real person you know who has cash they can lend to you for a return.

## How Much Does a Hard Money Lender Lend?

First, let’s look at who lends the most as far as dollar amounts.

How much hard money can you get? This comes down to the fund availability and lending capacity of the lender.

### National Lenders Loan Amounts

Which lender has the capacity to lend big dollar amounts? That will almost always be national lenders.

These lenders are backed by hedge funds. This means they have a seemingly endless supply of money for loans. (The catch is they only supply loans that fit inside their box, which tends to be fairly limiting).

Larger loans might be \$1-10 million and up, even as high as \$150 or \$250 million. National, hedge-fund-backed lenders will be your only option if you need these amounts.

### Local Lenders Loan Amounts

Regional lenders’ loans come in many sizes, but the majority only lend under \$1 million. The affordability sweet spot for these lenders, however, is between \$100,000 and \$300,000, depending on your area.

### Real OPM Lenders Loan Amounts

Remember that OPM involves a real person. This person has money stowed away in an IRA and other investment accounts. They want to lend to get a better return, but their pool of funds is definite.

Most OPM loans range between \$25,000 to \$50,000 – perfect for gap funding, but not always for a complete project. There are some individuals with \$500k to \$1M to lend, but ultimately, that cash runs out fast in investing.

An OPM lender will be the first one to run out of funds (and the one with the smallest dollar amounts to lend).

## What Is the Max LTV You Can Get for Hard Money?

When you think of lender loan amounts, you might think of the gross dollar amount. But you should also think of the LTV.

LTVs are very dependent on market conditions. Now, at the end of 2022, all lenders have tightened up LTVs.

• National hard money lenders have tightened the most on max LTVs. Hedge-backed hard money lenders will offer somewhere between 80% and 90% of the value of the project’s cost. This number will be dependent on your credit score, experience, and other criteria.
• Local hard money lenders offer the next best LTVs. At Hard Money Mike, for example, we understand our local markets and are still lending at high loan-to-values. It’s dependent on the loan-to-ARV number, but most local lenders are offering LTVs from 80% to 100%.
• OPM lenders tend to give the best LTVs. If they can cover the entire cost of the project, they likely will, with minimal requirements. OPM is more trust-based, so it operates more flexibly than actual loan companies.

You’ll certainly need all of these lenders to be successful in real estate. The right lender will be different for each project.

## How to Calculate How Much Hard Money I Can Get?

Download our free loan optimizer here. With this tool, you can enter the numbers from 3 different lenders to compare the cost of borrowing from each one.

We want you to find the right lender to make more on your project. There are some people who would like to charge you as much as possible to make maximum profit on each loan. We would rather see you have a successful deal and a long, happy real estate investing career.

Happy Investing.

## Hard Money Loans – Know the Basics

As a beginner investor, you need to know the basics about hard money loans.

The two most basic hard money answers you need are:

1. What’s the difference between loan-to-value and ARV?
2. How do you calculate them?

## Know the Basics: Loan-to-Value

Firstly, what’s Loan-to-Value? Loan-to-value, or LTV, involves the:

• appraised value of a property
• as it sits right now
• with nothing changed about it.

As a real estate investor, if a property costs \$100,000 as it sits, you know you’re going to put work into it and make it worth more. But that as-is value, the \$100,000, is what lenders base their loan amount on.

## Know the Basics: After Repair Value

Secondly is After Repair Value. After repair value (ARV) is used more by hard money lenders and the real estate investment world. Banks and traditional lenders more often use LTV.

Because in real estate investing, we’re basing our numbers on what you can do to the property. What can the value be once you fix it up? That’s the number that determines profit, so that number is more important for hard money lenders.

ARV is the target value of what the house will be worth after all your renovations. This ARV should always be higher than the current price of the house when you buy it.

## Calculating ARV and LTV for Hard Money Loans

Let’s say you found an undermarket property that’s selling for \$100,000. If a lender says, “We’ll loan you 75%,” that could mean two things, and you’ll want to know the difference.

First, if they’re a bank, they’re likely talking about 75% of the value. In this example, that would be:

\$100,000  ×  75%  =  \$75,000 loan

Hard money lenders will care more about the value of the home after repairs, so they go off ARV. If they loan you 75%, that would be:

\$150,000  ×  75%  =  \$112,500 loan

If a loan is based on ARV, lenders might want to know – what are you doing to the property? Different renovations will affect the value of the property in different ways. What you will do and the quality of your work will affect the ARV.

When you know the basics about LTV and ARV, your hard money loans will be much smoother.

Watch the video here:

## How to Invest in Value-Add Properties: Do It Right From the Start

### How to Invest in Value-Add Properties: Do It Right From the Start

Do you know how to invest in value-add properties so it’s done the right way from the start?

Like, how do you know it’ll be a good investment that generates positive cash flow?

Well, today, we’re going to break down some basic terms and offer some key tips to help you decide if a real estate property will generate cash flow…or break the bank.

One of the most important terms you need to understand before you begin investing in value-add properties is Loan to Value (LTV).

The LTV is the amount of the loan divided by the purchase price (or appraised value) of the property.

Let’s take a look at an example.

You’re looking at a house with a purchase price of \$200,000.00, and you need a loan for \$120,000. So that means the LTV equals 60%.

When you’re trying to figure out the amount of your loan, remember to factor in your rehab costs. You’ll need money to fix the property so you can flip or rent it.

Your rehab costs could make or break your deal’s cash flow, so it’s important you take the time to collect accurate numbers and calculate them correctly. The best way to determined your rehab costs is to get a written estimate from a trustworthy contractor or inspector.

Believe us, it pays to get a professional opinion.

### The ARV

It’s important to get an accurate renovation budget for your value-add properties because lenders will look at it and compare it to the after repair value (ARV).

Lenders need to make sure the cost of fixing the property doesn’t outweigh the value after it’s repaired.

Let’s take a look at another example.

So, you find a property for \$100,000. Your contractor tells you it’ll cost \$20,000 to renovate. Now you’re looking at \$120,000 for purchase and rehab.

The lender you want to use requires at least 10% down.

Next, you need to look at comparable properties in the neighborhood. These comps must have the same number of bedrooms and bathrooms, and be sized within 50 square feet of your property.

With the help of a realtor, you find out the comps come in around \$200,000.

So, now you know your property will be worth \$200,000 once you renovate it.

### Is it worth the risk?

So, how do you know if a property is worth the risk? Well, let’s do the math.

So then we can take that number and calculate your risk:

The basic rule of thumb is to stay under 65%, because it gives you wiggle room for unexpected expenses. If this percentage is higher than 65%, then you should consult with your lender. They might be okay taking a higher risk due to other factors.

But, in general, it’s all about how much risk is involved. The higher the risk, the more money you’ll need to front for your value-add properties.

It’s important to do your homework. So, make sure to check values over the last few years in the area you’re looking to purchase. Consider the neighborhood, city, and state.

Here are a few questions to ask:

• Are the properties holding their value?
• Have prices reflected a steady increase or decline?
• Did you check for pros and cons? Like busy streets, crime rates, schools, and nearby shopping? Remember, you’re looking for a short-term or long-term investment here. Whether you’re planning to fix and flip or rent, you want the highest dollar value for your deal.

And don’t forget to ask a title company to check for liens, easements, or exceptions against the property.

#### Inspection time!

You should also ask a trusted contractor or inspector to check the property for the following:

• Mold and or drug residue
• Asbestos, especially in homes built in the 1930’s-1950’s. This harmful building material was officially banned in 1977, but it’s still worth confirming it wasn’t used in your property.
• Lead paint. Beware of homes built before 1978.
• Leaky faucets/poor plumbing. Make sure it’s up to code!
• Electrical issues. Check for broken outlets, and, again, make sure it’s up to code.
• Roof age/leaks
• HVAC issues
• Broken appliances. These include the garbage disposal, garage door, doorbell, sprinklers, and kitchen appliances.
• Sticky/creaky doors or windows. Take a moment to open and close them to make sure they work.
• Signs of pests. Search for dead bugs, droppings, sagging floors, and small holes in wall or baseboards.
• Foundation! Look for cracks above doors and large gaps or cracks where walls meet. One trick is to take a ball and set it on the floors and in hallways. The ball should stay in same place. If it doesn’t, have the foundation checked. And, when in doubt, always have a professional take a peek.
• Fencing/landscaping
• Warranties and repair information that can transfer from seller to buyer.

#### How to find a good contractor

You’ll want to work with someone with a great reputation and quality work. So, it’s important to do your research before choosing your contractor.

Here are some tips for finding the right contractor for you:

• Ask friends and other investors for referrals. Be sure to ask them if they were happy with their work, reliability, communication, experience, and quality.
• Interview several contractors until you find the right one for you. Some good questions to ask during this interview include:
• How many employees do you have and how long have you been in    business?
• Do you have a referral list with current and past customers (and their phone numbers)?
• Are you insured? Ask for copy of their policy binder page showing their name and coverage. They should have General Liability and Worker’s Comp.
• Who will be doing the work? Will there be any sub-contracting or will you and/or your team being doing the work?
• Has your company ever been sued or had a lawsuit against it?
• Have you ever sued a client or filed lien against a property?
• Have you ever declared bankruptcy or had a company under a different name?
• If the project falls behind schedule, what happens?
• Has your company ever had a serious accident/hospitalization on the job?
• Who will be at my house and when? Ask if background checks have been completed, and if there’s a set schedule.
• May I have a written contract? You’ll want your attorney to review it before signing. Make sure the contract spells out timeframes, as well as how and when the contractor gets paid.

### Red flags and precautions

Before you get started, take some of these important precautions to heart.

• Do not EVER give your contractor large sums of money upfront, especially if you’ve never worked with them before.
• If your contractor asks or demands 25%-50% upfront, then find someone else. Because a good contractor will have reserves to get the job started on 20% or less down. And they’ll have pre-set dates for payments and money for materials.
• GET EVERYTHING IN WRITING! Because it’s your only resource if you need it later.
• Never assume anything.

A professional contractor should have enough reserves to cover minor expenses to get the job started, except for materials. As for those, you should order everything and have it delivered to your property.

If the contractor has a problem with this, take it as a red flag. Find another contractor or tell your current one to purchase the materials themselves (pre-approved by you, of course). You can always compensate them when the job’s done.

We suggest making a list of all the questions you wish to ask ahead of time. That way you won’t forget anything during the conversation.

At the end of the day, it’s all about having a contractor that will respect you and your property. They should:

• Be trustworthy and treat you fairly
• Complete the job on time
• Provide quality work

This might seem like a lot of work to do before the real work begins, but trust us, it’s worth it! If you take the time to find the right property, the right lender, and the right contractor, then your flip or rental project will be a lot easier.

Need help evaluating your next value-add property? Our team is always here to help!

Happy investing.