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Tag Archive for: Real estate investing

The Power of Leverage: Are You Losing Money?

September 22, 2022/in Beginners, Blog, Making Money

These simple examples show you the power of leverage in real estate investing.

Real estate investors know they need loans to buy properties. But few real estate beginners understand exactly how big of a difference leverage makes.

Leverage turns property-buying into a real estate investment career. It builds real money, and a portfolio of net worth that can create generational wealth.

In this article, we’ll use simple examples to break down the power of leverage in real estate – and how maximizing leverage skyrockets your real estate career.

What Is Leverage?

In short, leverage means buying with money that isn’t yours in order to make a profit.

Leverage takes the form of loans from lenders: banks, credit unions, hard money lenders, people you know.

The greatest tool for a real estate investor is leverage.

How to Find the Power of Leverage

Let’s look at some simple numbers to show the power of leverage.

We’ll look for two things:

1) How much income can you get from a rental?

2) How much equity will a property generate over time?

Note: We’re going to use $100,000 as our base number. That might be a lot more money than you have to start with. It’s also likely a lot less money than you’ll spend for your properties.

Regardless, it’s a simple number to show the power of leverage. These same principles will apply despite your starting number or your property costs.

Now, let’s dive in.

Income without Leverage vs with Leverage

Rent is the income you get from tenants. Net rent is that income after you’ve made any loan payments for the month on that property.

Net rent is the number that’s true cash flow for you. We’ll use this number to analyze real estate income with and without the power of leverage.

Income No Leverage

Say you have $100,000 to invest in real estate.

You could take this money and buy one rental property valued at $100,000. You can invest the full $100,000 and receive $1,200 of net rent income per month, or $14,400 per year.

Income With Leverage

Now let’s see how it plays out when you involve a lender rather than buying outright.

You could talk to a lender who might offer to loan you $75,000 if you put in the other $25,000. Now, instead of pouring all of your money into one rental property, you’ll only have to use $25,000. The $75,000 covered by the lender is considered leverage.

Using lenders like this, you could buy four properties, each with a $25,000 down payment. Because you’re paying a mortgage, however, your net rent per month goes down. Your net rent is now $750 per property. This brings in $3,000 per month, or $36,000 per year.

With leverage, you have the potential to make $1,800 per month more, or an additional $21,600 per year – just from using leverage.

Net Worth without Leverage vs with Leverage

Rent income isn’t the only financial outcome of buying and renting real estate. There’s also appreciation.

According to the stats over the last 20 years, real estate goes up an average of 5.3% per year. Using this 5.3% number, one home increases value by an average of $5,000 per year.

This isn’t a straight line (ie, exactly $5,000 per year). Some years may appreciate more, some less. But over the long-term, that’s the average yearly appreciation, so we’ll use this number.

Net Worth No Leverage

Let’s see how appreciation would impact our real estate portfolio had we bought the one home outright, with no leverage.

Our single rental would have $5,000 in equity after one year, $25,000 after five years, and $150,000 after 30 years.

Net Worth with Leverage

Now let’s see the equity of the four properties purchased with leverage.

Each of the four homes increases in value by $5,000 every year. Multiply that by four, and your portfolio appreciates $20,000 per year.

Over a 30-year span, your four properties would add $650,000 to your net worth (compared to $150,000 with the single property).

Total Power of Leverage

Let’s put all these numbers together now.

Using leverage brought in an extra $21,600 of income per year, plus a total net worth increase of $600,000 over 30 years.

This is the power of leverage: bringing in extra income and raising your net worth through equity.

By using other people’s money, you can take advantage of the true wealth in real estate.

Maximizing Leverage

Now, we’ll take this example one step further. Simply using leverage unlocks a lot of money. What happens when you maximize leverage?

We looked at an example of a lender giving you 75% ($75,000 on a $100,000 property). “Maximizing” that leverage would look like getting a bigger loan. Instead of 75%, another lender might give you 80-85%.

80% Leverage

Let’s go back to the original example, but say a bank gives you 5% more. Now, you get $80,000 per $100,000 transaction.

Income with Maximized Leverage

Your down payment per property is now only $20,000, so you can buy 5 properties. But since you borrowed more money, the mortgage payment is higher, and the net rent goes down.

At this point, it may seem like you’re set up to make less money since you’re paying more on your loan. But let’s see how it plays out.

Five properties with an income of $700 per month is $3,500 per month. This works out to be $42,000 per year. Annually, that’s $6,000 more than using a 75% loan, and $27,600 more than using no leverage at all.

Equity with Maximized Leverage

For five properties, after 30 years, equity appreciates by $750,000. All that money is added to your net worth.

Maximizing your leverage in this scenario would give you $42,000 in yearly income, plus $750,000 added to the value of your properties over time.

That’s the road to generational wealth.

How to Maximize Leverage

To maximize your leverage, focus on becoming the sort of investor that attracts lenders.

Have a great credit score. Make sure your income is in line. Know the numbers lenders will ask about. Be professional about your investment career.

Having all the right pieces in place will help your leverage take you further. The more leverage you use, the better returns you’ll see – both in the short-term income and long-term equity.

Harnessing the Power of Leverage

Now you can see how leverage impacts your real estate career.

What are your next steps?

If you need an entry point into real estate investment, email Mike@HardMoneyMike.com. Ask about our 30-day fuel up challenge to learn how to maximize your leverage.

You can also join our weekly Leverage Up chat, on Thursdays from 1:15pm – 2:15pm MST at this link.

7 Real Estate Loan Fundamentals – Hard Money 101

September 20, 2022/in Beginners, Blog

For a successful investment career, start with these 7 real estate loan fundamentals.

Are you “money wise”? It’s not hard to get there. And it will save you a lot of cash down the line.

It’s like when a person who knows about cars goes to a mechanic – they have peace of mind because they understand what’s going on. If you’re not a “car person,” at the mechanic’s it’s harder to figure out if they’re telling you the truth, or just trying to sell you more than you need.

As a real estate investor, leverage is at the center of what you do. It’s like a foreign language when you first start out. But when you become money wise, the leverage in your real estate investment career is fully in your hands.

Here are 7 real estate loan fundamentals that will make you money wise.

Fundamentals of a Real Estate Deal

There’s certain information you’ll need to bring to your lender when you need a loan. If you know the answers to their questions, the time with your lender will be much more productive.

At the end of the day, lenders want to know: Do you have a good deal? (And you should want to know the answer, too!)

We’re going to dive into 7 main concepts to answer that question:

Strategy
Purchase Price / Contract
Scope of Work
Budget
Estimated Profit / Equity
Comps / ARV
Exit Strategy

1. Strategy – What Is a Real Estate Strategy?

When your lender asks about your strategy, they want to know whether you’ll use the property as a

fix-and-flip
a rental
or if you’re not sure yet.

What is a real estate strategy dependent on? 1) your goals, and 2) the property.

You’ll have to know the numbers to know if the property will make a good flip with carry costs you can afford, or if it would cash flow well as a BRRRR-style rental.

But how do you “know the numbers”? Let’s start with the cost of the property.

2. Purchase Price / Contract – What Are the Fundamental Numbers of a Real Estate Loan?

Your lender could refer to this as purchase price, contract, or as-is value.

In real estate investment, there’s a distinction between what you’re paying for a property and what it’s worth. The purchase price isn’t necessarily what the value of the home is.

This is the number on the contract, the number you’ve agreed to buy the property for. And this number is foundational to whether or not your project will turn a profit.

3. Scope of Work – How Do You Fix Up a Real Estate Investment?

Many beginner investors mistake “scope of work” for the budget. Scope of work is what you’re going to do to the property, not the number of what that work will cost.

Will you add a bedroom? Re-do the garage? Are you going to convert the porch to additional square footage? Or add egress windows to the basement?

Scope of work is your rehab plan. Lenders need this info to find out what kinds of properties they should compare to yours to estimate an after repair value.

4. Budget – What Is a Real Estate Budget?

During the conversation with your lender, have a high overview of your construction budget. You don’t necessarily need all the details ironed out quite yet.

For example, you can estimate that the kitchen will cost $10,000, siding $6,000, windows $4,000, and new paint $2,000. At this point, you don’t need to share a breakdown of the cost of each new appliance, labor and materials, etc.

You just need a realistic estimate of how much it will cost to get into the property. Having your scope of work lined out helps you with an estimated budget. When you know the purchase price an your budget, then you know how much the entire project will cost.

5. Estimated Profit (Flips) / Estimated Equity (Rentals) – How Much Will a Deal Make?

Estimated profit is what you expect to make on the transaction, between buying the property, fixing it up, and selling it again.

Equity is the difference between the amount you owe and what the property is worth. You build equity on your rentals by successfully refinancing after a flip and paying down the mortgage with rent income.

The number one reason to be in real estate investment is to make money and create wealth – it’s true for lenders, and it’s true for you. So, it’s important to both you and your lender that your properties make profit or build equity.

You’ll need your estimated profit / equity when you bring a deal to your lender.

6. Comps / ARV – What Does ARV Mean in Real Estate Investing?

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

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

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

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

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

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

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

To find the true profitability of a deal, your ARV and comparables help:

ARV – (Purchase Price + Budget) = Profit Amount

7. Exit Strategy – How Will You Pay Your Real Estate Loans?

When a lender asks for your exit strategy, they want to know your plan for paying off the loan. For hard money loans, your exit should be fast.

If it’s a flip, your exit strategy is to sell the property, then pay off the loan.

If it’s a rental, your exit strategy is to refinance into a long-term loan, which will pay off the hard money loan.

The Why Behind Money Wise – Real Estate Investing Definitions

When you come to the table prepared, with strategies, numbers, and knowledge, you can speak the same language as your lender.

This is key to ensuring you have a safe transaction with a lender that is working in your best interest.

Curious About Other Real Estate Loan Fundamentals?

If you have any questions, or want coaching through a deal, we’re happy to help. Reach out at HardMoneyMike.com.

For more info on real estate loan fundamentals, keep up with our Hard Money 101 series on our blog, or visit our YouTube channel here.

Happy Investing.

Text: How your credit score impacts cash flow"

How Does Your Credit Score Impact Your Cash Flow?

September 19, 2022/in Blog, Credit

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

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

Comparing Interest Rates

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

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

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

Interest Rates Over the Life of the Loan

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

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

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

We can take this example out further.

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

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

Cash Flow & Credit Score Conclusion

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

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

Above all other investment goals: raise your credit score.

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

Read the full article here.

Watch the video here:

https://youtu.be/sa9iCDxJFnk

Text: "Using a DSCR Loan for Airbnb Investing"

Airbnb Investing with a DSCR Loan

September 15, 2022/in Blog, Lending Options

Can you use a DSCR loan for investing in an Airbnb?

Short answer: yes. However, you may come across a few obstacles.

Using Standard Rental Rates for DSCR Loans

Typically, to refinance an Airbnb, a lender requires 2 years’ history of rents and expenses for the property.

If you can’t provide that, a DSCR loan could be an option for your short-term rental.

But to get the DSCR loan, you need to use the standard rental rates for a standard rental property in that area. Without a longer history, you can’t use your Airbnb rates as the income for the property.

This can be a major hurdle.

A property that’s successful with short-term rentals (Airbnb, VRBO, etc.), probably makes more money than a standard monthly rental in the same area. In fact, the monthly income from an Airbnb can be 3-4x the standard rents in an area.

But a DSCR will require you to use the number for standard rents. So it’s possible that even though your short-term rental is cash-flowing, it might not qualify for a DSCR loan.

Lenders and Airbnb Investing

DSCR loans vary from lender to lender. Three-quarters of DSCR lenders will be open to loaning for Airbnb properties. The other quarter will want nothing to do with it.

Some lenders look at Airbnb as a riskier investment. Cash-flow has the potential to be higher, but there are a lot of moving parts. Also, some municipalities put restrictions on short-term rentals, making them a more unpredictable investment in lenders’ eyes.

It’s still worthwhile to research a DSCR loan for investing in your Airbnb. You should always shop around – you’re bound to find the right lender with the right loan for your project.

Read the full article here.

Watch the video here:

How to Retire Early with Real Estate

September 13, 2022/in Beginners, Blog

Our time-tested, actionable plan to retire early with real estate investing.

Here’s the plan we give to people who want to start investing in real estate at 40:

Buy ten properties in three years.

This simple plan can let you earn over $150,000 per year during retirement. Here’s exactly how.

The Timeline

Year One: Buy two properties. You’re learning the ropes this year, so you take it slow. Take this year to learn how to do everything right, build relationships in the industry, and prep for the coming years.

Year Two: Get three more properties. After the initial experience of your first year, it’s a reasonable stretch to do one more property. By the end of year two, you’re halfway to your goal of ten properties.

Year Three: Do the remaining five properties. By this time, you’re in the swing of things, you know the right people, and buying five properties in one year is very manageable.

What Type of Properties to Buy

These ten properties should be BRRRRs or subject tos. Both of these real estate investment methods are ways to:

1) Gain properties with little to no money down

2) Create rental properties that will generate cash flow.

So when we say “buy 10 properties,” it’s not with money out of your pocket. It’ll be with debt leverage and investment strategies that will help you reach your goals quickly (without dipping into retirement savings or hurting cash flow).

Understanding the Numbers to Retire Early with Real Estate

In this example, we’ll look at properties with a value of $200,000. That number is spot on for some regions, and very low for others. Remember, you can use these same equations and concepts no matter what actual price range you’re dealing with.

Loans and Net Worth

Let’s say we’re using BRRRR and looking at $200,000 properties. You can get a loan for $150,000 per property (which means you only owe $150,000 on each house).

Each property adds $50,000 in net worth to your portfolio. So ten properties in three years automatically builds you $500,000 in net worth.

Also, these rental properties will add up to $800/month in cash flow (more on cash flow in the next section).

Calculating Cash Flow

Let’s look at an example property that has a loan for $150,000 and an interest rate of 6%.

In this case, your monthly principal and interest payment will be $899.33.

Once you add taxes, insurance, and other costs, you’ll be at $1,184.33 in expenses.

If you’re in an area where you’re finding a $200,000, 3-bedroom 2-bath property, you should be able to reasonably rent for $1,600.

With that rent, we’d have a net total of $415.67/month coming into the property.

How Should You Use Cash Flow?

If you’re nearing retirement age and don’t need to pocket the cash flow on your new properties, there are some options to make that money work for you.

By using the income from your rentals, you can get the properties completely paid off. So once you finally retire, you’ll have several options:

Sell off the houses
Take out equity loans to buy more real estate or supplement retirement income
Get higher cash flow on each property with no loan payments

How to Increasing Cash Flow to Retire Early with Real Estate

If you use the cash flow on properties pre-retirement to pay down the mortgages, you can retire early (and with more money!).

Let’s round our $415.67/month net income down to $400. So instead of taking that $400 and putting it in your pocket, let’s see what it looks like to pay down an extra $400 on your mortgage every month.

Instead of paying around $1,200 toward your loan plus insurance and taxes, you’ll be doing around $1,600/month total.

This will cut your mortgage down to 14 years. So even if you’re 50, you can own these properties free and clear by the time you’re 65.

And once all the houses are paid off, you’ll automatically have:

$2 million in equity.
$1,300/month income per property. (You no longer have to pay principal or interest, just taxes and insurance.)

$1,300/month per property equals $13,000/month total across 10 properties. That’s an annual income of $156,000/year. While being retired!

Read the full article here.

Watch the video here:

https://youtu.be/k3FDgD-gwPU

What Does BRRRR Mean In a Down Market?

September 9, 2022/in Blog, BRRRR

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

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

BRRRR comes down to two key factors.

1) Buying Undermarket Properties

Buying undermarket properties is the crux of BRRRR.

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

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

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

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

2) Using a Two-Loan Strategy

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

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

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

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

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

Learning More About What BRRRR Means

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

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

Read the full article here.

Watch the video here:

Text: "Which hard money lenders check credit?"

Do Hard Money Lenders Check Credit?

September 6, 2022/in Blog, Credit

A question for many beginner investors is: “Do hard money lenders check credit?”

The answer? Yes and no.

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

National Hard Money Lenders and Credit

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

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

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

Local Hard Money Lenders

On the other hand, there’s smaller, local hard money companies. These local hard money lenders won’t check credit as the basis for the loan.

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

what you’ll do with the property
what the house is like
what the numbers are

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

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

Read the full article here.

Watch the video here:

BRRRR Is Not Dead: How to Invest in Real Estate in an Inflation Market

September 1, 2022/in Blog, BRRRR

When inflation hits, BRRRR does not die.

Real estate investment in general is extremely money-dependent. BRRRR in particular totally relies on the availability of funds.

So does that mean BRRRR dies when inflation hits and money tightens?

Absolutely not. You can be successful with BRRRR even during times of uncertainty. But that doesn’t mean BRRRR will look exactly the same as it did in a hot market.

Here’s what to know about BRRRR investments during inflation.

What Does BRRRR Mean?

First, let’s start with the basics. What does BRRRR mean? Your understanding of BRRRR will determine your success when inflation hits.

BRRRR comes down to two key factors.

1) Buying Undermarket Properties

Buying undermarket properties is the crux of BRRRR.

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

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

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

So, what does BRRRR mean? First of all, it means buying undermarket properties. And with inflation, lower priced BRRRR properties will be coming back.

2) Using a Two-Loan Strategy

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

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

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

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

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

Learning More About What BRRRR Means

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

We’ve been doing BRRRR for over 15 years – before this strategy was even called “BRRRR.” For more on BRRRR fundamentals, check out these YouTube videos, or reach out to us anytime at HardMoneyMike.com.

BRRRR In an Inflationary Market

For real estate investors, including BRRRR, inflation means money tightens up.

Money tightening means there’s less money for all real estate investors. The federal government makes money harder to get to slow down spending.

So how can you expect these effects of inflation to impact BRRRR?

How an Inflationary Market Changes BRRRR Lender Requirements

In the lending world, money tightening looks like lower loan-to-values. Maybe your hard money lender used to give you 75% of the anticipated value of the home, but now they’d give 70%.

LTVs are tightening not just on the front-end BRRRR loan, but the back-end refinance as well. Lenders are:

Tightening their cash out requirements
Offering lower LTVs
Raising income requirements
Expecting higher down payments
Requiring just plain better deals.

A big qualification to focus on is lenders’ credit score requirements. The minimum acceptable credit score has gone up by 20-40 points.

If your credit is on the border, your main priority should be to raise your score. There’s less money out there. You want to be one of the people who can get leverage once property prices go down.

BRRRR Lenders and Equity in Inflationary Times

Lenders want to make sure they’re lending to the best of the best. They’re concerned with equity.

Prices are going down. So if they lend at 70% LTV, then in 6 months home prices go down 10%, but then that 70% is no longer 70%.

So lenders will be more conservative with their LTVs. Money in general will be more conservative during this time. Eventually, we’ll land at a “new normal,” and everyone in the money world can work off the same level. For now, things are heading down in an unpredictable way, so money will be harder to get.

If you’re investing in BRRRR in an inflationary market, stay aware of the constant changes. Rates have more than doubled this year, LTVs are going down, and the cash flow on your rental properties will take a hit.

New BRRRR Lending Options with Inflation

With rates so good over the last three to four years, all BRRRR investors were looking at one loan product – the 30-year fixed mortgage.

With rates increasing, however, you might need to look beyond the 30-year fixed loan to get into good BRRRR properties. Here are some options that can bridge your properties until rates go down.

ARMs (Adjustable-Rate Mortgages)

You can get three-, five-, or seven-year ARMs. Whichever time length you pick, the rates will be fixed during that period. Afterward, the rates become adjustable.

In rising markets, these loans aren’t that great. In declining markets, though, they can be the perfect loan to bridge you into a rental property.

You can get an ARM for .5-2% lower than a 30-year fixed mortgage. These lower rates can cash flow a property until either prices go up and you can sell, or rates go down and you can refinance.

Interest-Only Loans

With the interest-only BRRRR lending option, you don’t pay any principal for the first ten years.

An interest-only loan is appealing right now because it keeps cash flowing. Your loan amount doesn’t go down, so it’s not a great option for the long-term. But it is a good lending option to get you into a property during this next market.

40-Year AM (Adjustable Mortgage)

A 40-year AM spreads the loan payments over 40 years instead of the 30 with a traditional fixed mortgage. This adjustable mortgage gives you lower monthly payments… and more cash flow.

What To Keep In Mind with These BRRRR Inflation Lending Options

ARMs give lower rates, 40-year AMs offer lower payments, and interest-only loans postpone the principle.

Keep in mind: these loans won’t help your equity or get a property paid down quickly. But they are good options to get into properties while values are low and funding is tight.

Remember that conditions of BRRRR are ever-changing. Get plugged into the money side of investing, and talk to lenders to see what’s available for you in inflationary times.

BRRRR Loan Requirements with Inflation

BRRRR has two loans – hard money to buy, long-term to refinance. With inflation, both BRRRR loans can expect lower LTVs. What else can you expect?

Hard Money BRRRR Loan Requirements

Many private money companies – particularly bigger, national lenders – are requiring 20% down.

Hard Money Mike is a little different. We fund using real private money, so our loans aren’t as dictated by federal rates. We still go up to 100% on financing, as long as you’re approved for your long-term loan up-front.

Smaller lenders can give you a better advantage with BRRRR during inflation. But you should still expect many private lenders to offer lower LTVs.

Bank BRRRR Loans with Inflation

Long-term loans are decreasing, making it harder to cash out. Traditional lenders could go down to 70% or 65% LTVs, or just have tougher requirements.

Money is shrinking, so the pot of money available to you on either BRRRR loan is shrinking.

The Plus Side of BRRRR and Inflation

What’s the good in all of this? If you’re in a bad financial position, you’ll have a hard time continuing your real estate career in inflationary times.

But, if you’re in a good position, you’ll be able to find fantastic properties in your pricepoint. And you’ll be able to find them for 20-40% less money than you could a year ago.

Don’t fight what’s happening with the economy – figure out how to use it.

Understand lending requirements now. If you get into a BRRRR, fix it fast and refinance fast. Figure out your BRRRR’s long-term loan first before you look for a short-term loan.

Things are changing rapidly in the real estate investment world. Get yourself in the best position to be able to work with it.

Alternatives to BRRRR in 2022

We’re probably three to six months out from the really cheap homes getting on the market. How can you finance BRRRRs as values go down?

BRRRRs are about getting into value-add properties with little to no money down. But as we’ve mentioned, getting into the properties will be the hard part with money tightening.

Will there be any good alternatives to BRRRR in 2022?

Subject Tos As an Alternative to BRRRR with Inflation

Here’s another way to look at rental properties with a BRRRR spirit:

What if you could take over someone’s loan and house with no money down, no credit or other requirements, 100% financing, and a great rate?

That’s what subject tos are.

You’ll see more and more subject tos popping up soon. Maybe someone bought their home at 100% last year, but values have come down 10-15% so they can’t sell without losing money or putting more in. People don’t want to go through foreclosure, so in a situation like this, they’d be interested in a subject to.

You can take over the mortgage and put the home in your name. You can do it properly, through title, and create a rental property using someone else’s financing.

This method doesn’t require your income, your credit, or any other qualifications. It only requires a secure set-up, and for you to make the payments on the mortgage.

This is a great way to purchase rental properties as an alternative to BRRRR in 2022 if you don’t have leverage.

Owner Carries in 2022

An owner carry can happen when the seller owns a property free and clear. In this situation, the owner takes on the mortgage.

The seller would likely plan to invest the money they get when the house sells. But the stock market is up and down, and banks only offer 2% maximum interest rates in CDs and accounts.

For the owner, carrying the mortgage when they sell to you is a way to double or triple their interest rate, secured by an asset they already know.

For you, an owner carry is easier, cheaper money. You won’t find a 5% interest rate, with 100% financing and no credit check anywhere else.

Open-Minded Financing Alternatives During Inflation

There’s creative financing available in the real estate investment world.

Whether it’s subject tos, owner carries, or OPM relationships, it’s important to look always into your options for doing zero down investments. Especially now that BRRRR loans are less likely to cover 100% financing.

BRRRR Is Not Dead During Inflation

BRRRR isn’t dead! But it may look different.

This is the best time to get prepared – before the housing market completely dips. We can help you get ready.

Whether you have questions about setting up subject tos, or you’re wanting to jump into BRRRR when prices drop, we can help.

Reach out to us on Facebook, or email us at info@hardmoneymike.com

Use us as a resource – this is the time to be money prepared.

Happy Investing.

Text: "Loans for Investing with Rising Inflation"

Loans for Investing with Rising Inflation: What Should You Expect?

September 1, 2022/in Blog, Lending Options

With rising inflation, how will your loans for investing be impacted?

In the past few years, everyone with money rushed into the real estate industry. All that money flowed freely, making real estate investing relatively easy and cheap.

But with rising inflation, that money is now leaving. Here are some changes you can expect around loans for investing.

What Does a Rising Federal Fund Rate Mean?

To combat inflation, the Fed has started raising their rates. They do this to raise the cost of credit, making less money available across the board.

And obviously, this affects us as real estate investors.

When interest rates rise, money tightens up. There’s less of it available for everyone, and lenders adopt stricter requirements.

While this makes loans for investing harder to get, it also means there will be less competition. Many current investors won’t be able to qualify for loans for investing with rising inflation.

What Will Investing Look Like with Rising Inflation?

It’s hard to say when money will start coming into the real estate market again. Lenders don’t know where exactly home prices are going. And property values are one of the main factors that decides the availability of funds.

But while everyone else is running out of the real estate market, you want to be running in. Why? Because that’s when prices will be the lowest. If you have the leverage to get into properties at low prices, you can refinance when interest rates come down. This is how you capture the wealth real estate investing offers.

This is the time you want to buy, yet it’s also the time where loans for investing are hardest to come by.

You’ll need to be prepared and qualified to take advantage of the upcoming market.

Read the full article here.

Watch the video here:

Text: "Inflation! Why You Should Still Invest in Real Estate

Real Estate Funding When Inflation Hits: Loans for Real Estate Investing

August 25, 2022/in Blog, Lending Options

You have to adapt to the changing market. Here’s what you need to know about real estate funding when inflation hits.

Real estate investors need to be in debt. We need leverage. We need the easiest, fastest, cheapest money, no matter what.

So when inflation hits and money tightens, where do you find real estate funding?

Is it possible to take advantage of this time as an investor? Here’s what you’ll need to know about loans when inflation hits.

Loans for Investing with Rising Inflation

In the past few years, everyone with money rushed into the real estate industry. All that money flowed freely, making real estate investing relatively easy and cheap.

But with rising inflation, that money is now leaving. Here are some changes you can expect around loans for investing.

What Does a Rising Federal Fund Rate Mean?

To combat inflation, the Fed has started raising their rates. They do this to raise the cost of credit, making less money available across the board.

And obviously, this affects us as real estate investors.

When interest rates rise, money tightens up. There’s less of it available for everyone, and lenders adopt stricter requirements.

While this makes loans for investing harder to get, it also means there will be less competition. Many current investors won’t be able to qualify for loans for investing with rising inflation.

What Will Investing Look Like with Rising Inflation?

This is the time you want to buy, yet it’s also the time where loans for investing are hardest to come by.

You’ll need to be prepared and qualified to take advantage of the upcoming market.

Getting Real Estate Investment Loans When Inflation Hits

Two of the main players putting money into real estate investment are hedge funds and banks.

Where Money Goes During the Rise of Inflation

During inflation, hedge funds step away from real estate and take their money with them. They won’t jump back into the real estate market until it’s clear where prices will land.

Banks are required by the Fed to raise rates and step back from the real estate investment world for now, too.

Without Banks, Where Do You Get Real Estate Funding When Inflation Hits?

With federal requirements, banks are backing out of the real estate investment market. They’ll only be able to lend to the top percentage of real estate investors.

Banks are lowering their loan-to-values, which increases down payment requirements. Or they’re squeezing investors out of loans altogether with higher credit, income, and experience requirements.

nvestors who used to always be bank-approved are now in greater need for gap funding. Those who primarily relied on bank loans previously are being pulled down to hard money.

Private Lending During Inflation

Private lenders will have more real estate investment loan options than banks during inflation.

Hard money won’t just be for fix-and-flips anymore. Many of these lenders will expand to offer loans that appeal to the typically-bank-approved investors who are shifting down.

And what does this all mean for you?

In your real estate investment career, you’ll have to start expanding.

If you only worked with one or two banks before, now you might need to find six to get the real estate loans you need. And if banks can’t lend at a fast enough rate for you, you should start getting to know the hard money lenders in your area – even if you traditionally don’t go the hard money path.

Lending options will narrow soon. Start expanding your options now to prepare.

Loan Options to Fund Your Investment

When inflation hits, you need to expand your options for real estate funding. This means partnering with a broader pool of lenders. But it also means understanding your loan options to fund your investments.

In the last five years or so, we’ve been in a refinance and mortgage boom, focused on traditional loans like 30-year fixed mortgages.

But when inflation hits, other loans that have always been around will be popular again. Let’s look at a few of these loan options to fund your investment.

Adjustable-Rate Mortgages (ARMs)

Adjustable-rate mortgages, or ARMs, are fixed for five or seven years, then become adjustable. They allow you to get into a property with a .5-1% lower interest rate than a 30-year mortgage.

A lower interest rate with an ARM means better cash flow for your investment.

Interest-Only Loan

With the interest-only loan option, you just pay interest for the first ten years – no principle. This benefits cash flow for investors because you’re not making a loan payment every month.

Interest-only loans work for some strategies but not others. If you’re prioritizing cash flow on properties you know you’ll refinance later, this type of loan could be a great option.

40-Year Amortizations

40-year amortizations are not as popular, but they’re still an important option to consider. A 40-year amortization is an alternative to the 30-year fixed mortgage. Your payments are spread across a 40-year span instead of 30, so your payments are lower.

Using this loan allows you to get into a property with increased cash flow while you wait for home values to rise so you can refinance into a more traditional loan.

Adjust To the Market To Fund Your Investment

For these loan options to work, you have to start getting ready now. Prices will come down soon, and the faster you adjust to the new-normal, the better.

The market will be different than it has been for awhile. Look at different loan options from the past, and work with as many lenders as you can who understand and fund these loans.

No Money Down Investing Options in 2022

When inflation hits, real estate funding constricts. With banks lowering LTVs and raising down payments, your no money down investing options will look different in the remainder of 2022.

Traditional no money down investing options will be harder to come by with limited bank funding. Here are three options to adapt to the changing market if you want to invest with no money out-of-pocket in 2022.

Subject To Properties

Subject tos have been out of favor for a while, but they’ll offer great opportunities in the near future.

When market prices are high and someone can sell a house for whatever price they want, they don’t need the “escape” of the subject to.

Now that prices are coming down, more people will be stuck with properties they can’t sell and/or can’t pay for. More people will be open to you taking over their mortgage so they don’t wreck their credit or foreclose.

Owner Carries

An owner carry is when someone owns a house free and clear, and they carry the mortgage instead of going through a bank. You make mortgage payments to them directly.

They get a better rate than if they sold and kept the money in an account. And you get a better rate than you would trying to take out a traditional loan from a bank when inflation hits.

With owner carries, you usually don’t have to worry about credit, income, or, oftentimes, even down payment. Closing a deal with an owner carry is easier, cheaper money.

OPM Partnerships

Real OPM will be crucial to real estate funding when inflation hits. With LTVs coming down, you’ll need to bring in more money for deals. A HELOC can be helpful, but if you truly want to take advantage of low prices and buy 10 or more properties, it’s wise to partner with real people’s money.

People can get better, more stable returns in a secured real estate note than they would in either the stock market or a bank account. You can set up a win-win deal to receive a loan from a normal person rather than a lending institution.

Real Estate Funding Options in 2022

2022 is the time to expand your real estate investing options beyond the traditional loans.

As banks tighten up, OPM loosens up. Regular people with money will be searching for options to get a decent return during inflationary times.

OPM – Your Top Real Estate Funding Option When Inflation Hits

At Hard Money Mike, we’re major proponents of using OPM for your real estate funding. Especially when inflation hits, and especially as the market shifts.

We’ve specialized in OPM over the past 15 years. You need money in real estate investing, but it doesn’t have to be your money.

Utilizing other people’s money truly benefits both lender and investor alike.

You can approach a family member or friend with all their money in an IRA and offer them a better return. You need a plan, with the right numbers and a secured set up. But as long as you treat their money carefully, people will not only lend to you but recommend you to other OPM lenders too.

When traditional lenders are lowering LTVs and requiring higher down payments, OPM is how you’ll be able to fill in the gaps to actually buy these properties at their upcoming low prices.

How Do You Set Up an OPM Deal?

The secret to OPM deals is making them a win for both parties. It’s not hard to do, you just need to know where to start.

We’d love to help you set up your OPM agreement. We have a lot of experience with OPM, and we want to see it accelerate your real estate career during this market.

Reach out at HardMoneyMike.com, and download our free OPM Checklist here.

When Inflation Hits, Your Real Estate Funding Doesn’t Have To Stop

Many investors don’t understand the money side of real estate investing. Leverage is a huge part of this industry. When inflation hits, it can be scary when you don’t know the right steps.

Learn how to get faster, cheaper, easier money, and how to partner with lenders.

To get help with your real estate investment career during this market, reach out with your questions at HardMoneyMike.com.

Happy Investing.