Tag Archive for: Real estate investing

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Airbnb Investing with a DSCR Loan

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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.

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How to Retire Early with Real Estate

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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).

Chart of property costs, amount owed, and net worth. Total net worth is $500k.

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.

Chart showing loan amount and rate, monthly principal and interest, total expenses, and rent. Net cash flow is around $400 per month.

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!

Chart showing the math to find annual cash flow. Annual cash flow is $156k.
Read the full article here.

Watch the video here:

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What Does BRRRR Mean In a Down Market?

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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:

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Do Hard Money Lenders Check Credit?

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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:

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.

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Text: "Attention BRRRR Is Not Dead!"

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

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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.

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

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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

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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?

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.

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.

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The Pros and Cons of a DSCR Loan

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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.

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Text: "Real Estate Lenders and Loans During Inflation"

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

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

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

In real estate investing, there are three key lenders.

1) Banks and Credit Unions for Real Estate Investing

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

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

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

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

2) Hard Money Lenders

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

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

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

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

3) Real OPM Loans for Real Estate

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

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

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

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Text: "Gap Funding for Real Estate Investors"

Gap Funding for Real Estate Investors

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So, bridge loans are different from hard money loans. But where does gap funding fit into the mix for real estate investors?

Gap Funding vs Bridge Loans

Typically, true “bridge” loans are used for three specific situations in real estate investing:

  1. When you’re buying a new property and already have one listed for sale
  2. When you need to cover down payment on a new property
  3. When you find a great deal but your bank’s financing won’t be ready in time.

Bridge loans are about getting you from one property to another. Gap funding is more about filling in the gaps within a single project.

What is Gap Funding in Real Estate?

Bridge loans do bridge “gaps” in your investments. But “gap funding” is something different.

Gap funding is the small amounts that investors need throughout the course of a project in addition to the bigger loan. Examples of common gap funding situations are:

  • Down payments
  • Contractors and other fix-up costs
  • Carry costs before renting or selling
  • Interest, insurance, and other payments not included in the original cost of the property.

A bank or hard money lender will be funding the majority of your project. And when you don’t have other properties, you can use a lien (like you would for a bridge loan). But without another property, you need gap funding to cover the little costs that slip through the cracks of your primary financing.

Gap funding for real estate investors can be a loan that’s anywhere from $10,000 to $100,000. Whatever costs your primary loan and your own cash won’t cover will need to be filled by a gap lender.

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