Tag Archive for: #rental properties

How Good Debt Can Make Real Estate Investors Rich

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How Good Debt Can Make Real Estate Investors Rich

How can good debt make investors rich? As real estate investors, it is important to differentiate between good debt and bad debt. You do need debt to create income, which in turn creates wealth. That is what real estate investing is all about! Learning how you can create wealth using other people’s money, also referred to as OPM.  You don’t have to be rich, have a college degree, or a PHD to succeed in this business. All you need to understand is how using other people’s money can create wealth and income. Today we will run through the numbers to give a clear picture of what to expect when purchasing a property and how you can get rich off your investment. 

Investors who Fix and Flip

If you’re a flipper and making $50K to $200K a year or more, then it’s very likely and very doable that you will create wealth. All you have to understand is what is good debt and what is bad debt. Good debt is debt that is going to create income and wealth. Real estate investing is all about using leverage, or other people’s money. It may take a little bit of your money, if any, to get started on this venture. In the end it’s all about finding really good properties, undervalued properties, and properties that people no longer want. By purchasing them correctly and using the right debt, you will in turn create income and wealth very quickly. 

Wealth and Income Example for Fix and Flip Investors

Let’s take a look at a normal purchasing situation for a fix and flip investor. This is someone who is doing 4 to 5 properties a year. Yes, you can get into 4 to 5 properties very easily if you are focused and understand your cash flow. In order to accomplish this, you need to use other people’s money for the majority of the expenses, if not all of them, depending on the deal. Keep in mind that a good deal is something that is under 70% all in.

ARV: Is the estimated value of the property after repairs have been completed.

Profit: An average of what you want to make of the sales price. Normally a range between 10% and 15%

ARV = $300,000

Profit at 12% = $36,000  

4 flips a year = $144,000

5 flips a year = $180,000

Numbers break down:

ARV = $300,000 at 75% means that you are all in at $225,000

All in total $225,000 broken down:

Purchase price = $175,000

Rehab budget = $50,000

National lenders: 

10% of purchase price = $17,500

They cover 100% of rehab = ($50,000)

After closing costs and interest you are into this for roughly $25,000 to $30,000 for each property

Now where else can you put in $20,000 to $30,000 and come up with $36,000 in a matter of months? That is money that you are bringing into your life just by using other people’s money, using debt, and doing it correctly. 

How do these numbers compare to other types of investments? 

The majority of investors are only investing in stocks and bonds. If they get 8% then they are happy with their investment. However, if they put in $30,000, then they may only get a $2,400 profit for the year. Compared to the $36,000 that you created in a matter of 4 to 5 months, their profit is just a drop in the bucket.

Wealth and Income Example for Rental Properties

Maybe you want to invest in rental properties also. There is a process out there called BRRRR, which stands for Buy, Rehab, Rent, Refinance, Repeat. These rentals are properties that you intend on keeping in your rental portfolio long term. They can not only create wealth, but will build equity and acquire a monthly income. You can get started by finding a property from a wholesaler or real estate agent that is a good deal. It may need some work, but real estate investing is all about finding undervalued properties and turning them into profitable investments.

Numbers break down:

ARV = $200,000 at 70% means that you are all in at $140,000

All in total $140,000 Purchase price and Rehab budget (normally less for rentals)

Refinance break down:

Refinance at 75% of $200,000 ARV  = $150,000 (what you owe)

Equity created = $50,000 net worth

There are some closing costs for both loans 

It’s all about getting into the right debt on the right properties. From purchasing the property to fixing it up, all of these expenses can be paid using other people’s money, a hard money lender, or even a private lender. Now it is time to use another form of debt. This is long term debt, such as a traditional loan, DSCR, or whatever loan is going to work best for your needs. If this is done correctly, you can then refinance everything including closing costs and payments, up to 75% or even 80% depending on the products that you use. 

In conclusion

All you need to get rich is a clear understanding of how using other people’s money can create wealth and income. Nowadays, we see more credit card debt and bad debt that is greatly impacting people’s ability to get rich. As real estate investors, we need to turn to more asset based debt, in order to create the lifestyle, income, and wealth that we want.

Watch our most recent video to find out more about how good debt can make real estate investors rich.

If you have a good deal at 70% or below the ARV, you can reach out to us! We would be happy to talk to you about your investments, provide a fix and flip loan, and help you find OPM.

How to Use the Quick DSCR Loan Calculator

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A DSCR loan calculator that shows the best loan to secure future cash flow.

There are two items you need to calculate DSCR: income and expenses.

Income is the rental income from the property. And for expenses, lenders only look at four costs: mortgage, taxes, insurance, and HOA. The debt service coverage ratio essentially compares the income to the expenses.

To make this calculation simple, we have a free DSCR calculator that you can use to find all this information.

Let’s go over an example of how to use this calculator to learn your DSCR and the best loan product for your property.

The Numbers You Need for a DSCR Calculator

The main numbers you’ll need to bring to the calculator to get an accurate DSCR are the property’s expenses and its income.

Mortgage

Firstly, we need to nail down the relevant expenses to input into our DSCR calculator. The first of these is the mortgage payment.

The two pieces of information you need to know are: 

  • What is the purchase price of the house?
  • What LTV will you qualify for?

The calculator finds out the mortgage payment for you. Let’s say our property is $300,000. You may need or qualify for an LTV anywhere between 65-85%, but we’ll just go with the average of 75% for our example. Our loan, then, is $225,000.

Let’s say we qualify for a 7% interest rate. You’ll also input that number. Then the DSCR calculator will show the total monthly payments on three different products: interest-only, 30-year amortized, and 40-year amortized.

Taxes, Insurance, HOA

For these final three expenses, you might already have the hard numbers available for the property. Otherwise, you’ll have to make an educated guess based on your area.

For our example, we used:

  • Property Taxes: $150
  • Insurance: $100
  • HOA (only applicable depending on your neighborhood): $150

Rent Income

Lastly: the property’s rental income. You may already have a tenant with a set rental rate. In that case, use that number. If you’re not currently charging rent, you’ll have to do some research on other housing in the neighborhood to see what you can realistically charge your future tenants.

In our example, we’ll say we get $1,700/month from this property.

The DSCR Loan Calculator’s Results

As shown below, the DSCR calculator shows you the costs, rents, and ratios of three possible DSCR products: an interest-only, 30-year AM, or 40-year AM.

This comparison gives you a look at different cash flows from different loan products. This can help you decide which loan you should apply for. You’ll have to consider both loan length and cash flow.

In our example, the interest-only loan is over 1, so that one will likely give us the best rate, best LTV, and highest cash flow.

The other two loan options are just under 1. There will still be some options on the market for DSCRs under 1, but you’ll have a higher interest rate.

Use a DSCR Loan Calculator for Your Property

If you need a DSCR loan for your property, you can find our DSCR calculator at this link.

Have more questions about DSCR? Interested in a loan? Send us an email at Info@HardMoneyMike.com.

Happy Investing.

Text: "BRRRR Method for Beginners"

The BRRRR Method for Beginners: Setting Up for Success

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There are two ways beginners can set themselves up for success using the BRRRR method: focusing on the numbers and putting together a team.

BRRRR Numbers for Beginners

The BRRRR method is all about numbers. Beginners sometimes fail because they make a deal emotional and bid the property up. When buying properties, you have to stick to the math.

Your North Star for BRRRR investments is the 75% rule – the best properties only cost 75% of the after repair value.

The reason for the 75% rule is because that’s the number banks will rate-and-term refinance a conventional loan for. When you can do this type of refinance, you can finish up the deal without putting any of your own money in.

It’s smart to shop around for banks for your refinance loan, though. Some banks may allow you to buy up to 85% of the ARV, under certain conditions.

Setting up a Team for the BRRRR Method

So you need good, low-priced properties. And the best way to find them is to build a good team. Especially as a beginner, you’ll need to know several of these kinds of people:

Realtors and Wholesalers

Knowing wholesalers and realtors can help you locate better properties and close with better deals.

Lenders

You’ll need private lenders for bridge loans and another lender for the long-term refinanced loan. Having relationships with lenders ahead of time speeds up a closing and can earn you a lower price.

Contractors

Ideally, from closing to refinance, BRRRRs are completed in 90 days. This means you’ll need contractors at-the-ready who can work efficiently and reliably to fix up your properties.

Property Managers

If you want your BRRRRs to be passive after the refinance, find a good property manager. A common beginner’s mistake is to take the first tenant who shows an interest – without any background checks or other renting requirements.

A good property manager can both find you better tenants and manage them for you. Many investors overlook this member of their team, but it can truly make or break your BRRRR experience.

Knowing several people from each of these categories gives you options to customize for each of your deals. Putting together a good and broad team will make the BRRRR method much easier and smoother — especially for a beginner.

Read the full article here.

Watch the video here:

How to Buy: Breaking Down BRRRR

How to Buy: Breaking Down BRRRR

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How to Buy: Breaking Down BRRRR

So, you’ve heard about the BRRRR method. You know it stands for Buy, Rehab, Rent, Refinance, and Repeat.

But do you know what each of these steps in the BRRRR method really mean? More importantly, do you know how to set each one up?

Because if you don’t, your success will be limited. Because you won’t be able to make as much money as you could by doing things right. Your monthly cash flow will be lower, your down payments will be higher…a lot higher…And your ability to repeat the process will much…much… slower.

So, let’s break things down, starting with the B in BRRRR.

As mentioned, the B in BRRRR stands for Buy.

But wait! Before you run out and buy the first property you find for sale, you need to know a few important—er, VERY important things. Because the B in BRRRR is one of the most crucial steps in the entire process. If you don’t buy strategically, then you might set yourself up for failure.

First you need to find under market properties that you can add value to.

Under market properties are not found on the MLS. They’re usually found through wholesalers and investor-friendly realtors. And they come at a nice, discounted price.

Just taking this step will do wonders for your wallet.

But it’s not the only thing.

You also need to work with the right lenders.

With BRRRR, there are two lenders involved. The first is for purchasing and renovating the property. The second is for refinancing into a cheaper, long-term loan.

For now, let’s focus on the first lender, for when you BUY the property.

Typically, this is a hard money or private lender. It’s not a bank or another traditional lender. Because those lenders usually require 10, 15, or even 20% down when you go to close. And, if you want the most bang for your buck, you should aim to put 0% down at closing. Because once you put money into a deal, it’s difficult to get it back out.

Hard money and private lenders can help you achieve this.

How? Because they let you maximize your LTV (loan-to-value) by lending up to 75% of the ARV (after repair value).

Ok, deep breath! We get it. This is starting to sound too complicated and confusing.

But trust us, it’s not. Just stick with it. You got this!

The right lender will give you a loan that is 75% of your ARV.

That means they will try to cover the full purchase price, plus part or all the rehab, closing, and holding costs. Basically, they will cover as much as the 75% allows so you don’t have to spend your own money.

And the less money you personally have to put into each deal, the faster you can repeat the BRRRR method. Because you’re not forced to wait until your bank account recovers to make another big down payment on another property.

Aiming for 75% of the ARV will also make a big impact on your refinance (the third R in the BRRRR method). But we’ll get to that later. Let’s stay focused on the B in BRRRR.

If you’re interested in trying the BRRRR Method, then it’s crucial you understand this first part of the process. If you buy an under-market property AND find a lender who can cover 75% of the ARV, then your success rate will be much, much higher. And your bank account will be a whole lot happier.

Happy investing!

3 Problems That Cause BRRRR Confusion

3 Problems That Cause BRRRR Confusion

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3 Problems That Cause BRRRR Confusion

Today, let’s talk about three big problems that cause many investors to experience BRRRR confusion.

Have you been thinking about investing in real estate using the BRRRR method? But you’ve hit a roadblock?

Unfortunately, you’re not alone.

A lot of real estate investors, both new AND seasoned, have heard about BRRRR, but haven’t used it.

Because they’re confused.

They’re confused about how to buy, rehab, rent, refinance…or all of the above.

So, to help unravel and debunk some of your confusion, let’s address some of the biggest questions we hear from our own clients about the BRRRR method.

#1: Is BRRRR real?

Yes. BRRRR is real.

There’s a reason why our team created this video for you. We’ve helped many clients succeed using the BRRRR method. But, just like you, many of those clients started their journey confused. Because they didn’t understand the entire process either.

And what they did understand wasn’t always accurate or true. Because they were working with bankers, lenders, or realtors who fed them misinformation or were simply out of the BRRRR loop.

#2: “Can you really find properties that work for BRRRR?”

Again, yes. Absolutely.

Even in our current, competitive market, there are properties that work perfectly for the BRRRR method. The trick is to find the right area to invest in. That might mean leaving your own town, city, or even state to find properties that produce solid cash flow.

And, trust us, those areas exist.

You can start your search by talking to wholesalers, investor-friendly realtors, or even other investors to see where they’re buying properties.

Of course, searching for cash flowing properties requires some time, effort, and patience.  But, if you think about it, all you’re doing is looking for one to four properties a year. Don’t you think it’s worth a little work to change your financial future? We think so.

#3: “How much money do I need to make BRRRR work?”

This is possibly the most crucial question we get. Not only is it a crucial question, but it also leads to the most confusion. Because it involves math, and most people don’t like math.

It also involves financing chit-chat, and again, a lot of investors don’t like talking about financing…even though the entire BRRRR process relies on good, solid numbers with good, solid loans.

But here’s the thing: once you grasp how to properly set up your BRRRR deal, then you can spend little to zero dollars on your properties.

Now, unfortunately, most investors don’t believe this, because, yet again, they’ve been fed misinformation by lenders, realtors, or other investors. So many people believe that have to bring a big down payment to closing.

And that’s because cash-out refinancing has been promoted as part of the BRRRR method. This isn’t a lucrative strategy. Not when there are other types of refinances that allow you to put little to no money in your deals.

The BRRRR method is an excellent real estate investment strategy. And, yes, it can be confusing when you get started. Because there’s a lot of chatter and misinformation flying around. Plus, nobody really likes math or financing. It’s true.

But if you’re willing to learn and do some work, then it’ll become easy. Very easy! And, better yet, lucrative. Because if done correctly, the BRRRR method can be repeated as many times as you want, as quickly as you want. Which means you’ll able to make the kind of money you want.

Happy investing!

Hard Money is Scary

Hard Money is Scary

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Hard Money is Scary!

So, you just found the perfect house to fix and flip, but the only way your bid will get accepted is if you can close within a week.

That means you need to team up with the much feared and misunderstood creature: Hard Money.

AHHHH!

You’ve heard many rumors of this being, like it’s a big, ol’ fat trap that’ll suck your bank account dry. But fear not! Hard money isn’t as scary as rumor has it, especially if you take three simple steps to protect yourself.

Ignore the rumors and do a little homework.

What is hard money? Really. Understanding this type of loan will save you tons of headaches in the future. Because those who have a scary run in with it do NOT use it correctly. They might treat it like a regular bank loan or accept the first hard money loan offered to them. Both spell trouble.

Understand the REAL costs and benefits.

If you only look at interest rates, then yeah, hard money is more expensive than bank loans. But bank loans come with other costs, like time, contingencies, and paperwork.

For example, if you’re competing against five other investors, you have the power to bid lower and still win. Because sellers of fixer uppers don’t want to deal with banks. Banks take too long to close and require appraisals and inspections. Therefore, cash buyers usually win even if they bid thousands of dollars lower than the next bid.

Learn the difference between hard money lenders.

Hard money lenders come in all shapes and sizes. It’s like buying new furniture. If you only go to one shop, then you get what you get. But if you go to multiple shops, then you can compare different styles, prices, and terms.

Hard money lenders are no different. If you only call one, then you get what you get. And that, again, spells trouble. You need to shop around so you can compare lenders and find out what they offer…and what they require. And if you come across a hard money lender who offers an interest rate that’s too good to be true, then be prepared to face the scary monster that you’ve heard about. Because junk fees might come spewing out of it.

Bottom line, turn on the lights. Hard money is only scary if you sit in the dark and hope for the best.

Happy investing!

How To Get 3 New Rental Properties In 2021

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