Setabay Private Hard Money Lender

Saturday, February 23, 2019

Bridge Loans: Fueling the Costs of 1031 Exchanges

1031 exchanges allow you to defer the payment of capital gains taxes by reinvesting your profits into another similar investment. Most industries lost out due to last year's tax overhaul, but not the real estate industry. Real estate investors can still indefinitely defer payment of income taxes on profits earned from their ventures so long as they roll those profits into the purchase of another investment property. But, there is a deadline you have to meet to qualify. If you need financing to purchase your next investment property, you might want to think twice about going to the bank. Learn why bridge loans are perhaps the best way to finance 1031 exchanges.

1031 exchanges are IRS policies and therefore regulated by perhaps thousands and thousands of opaque guidelines. For this article we are only going to focus on one: You have to secure the purchase of your next investment property within 120 days for your next purchase to qualify as a 1031 exchange.

With Bridge Loans you risk less when it comes to 1031 exchanges

Going to the bank could cost you dearly when it comes to 1031 exchanges. Remember that you only have 120 days to close on your next investment property. Day by day you lose assurance that you'll be able to acquire your new investment property on time.

For example, if you are an active investor in single-family homes and your recent sale just closed, you might consider investing in a small apartment complex. Of course, the sale of a house isn't going to cover the cost of purchasing an apartment complex, so you need financing.

You go to the bank, and the loan officer points out your lack of experience in this area. They ask for more documentation. Days plod by, documents pile up, and sure enough, the 120-day window closes. Now, you are on the hook to the IRS.

If the 120-day window passes, you will have to pay capital gains taxes on the profits you earned from that last resale. Depending on your earnings, this could end up being a significant expense.

If you need financing to secure the purchase of your next investment property to complete a 1031 exchange, spare yourself the worry and the hassle and go to a bridge lender instead.

Bridge loans offer real estate investors the flexibility and certainty needed to complete 1031 exchanges.

• Certainty: Bridge lenders underwrite their loans based on the value of the property you want to purchase, which simplifies the application process. When it comes to bridge lenders, loans can close in as little as a week, well within the 120-day time limit imposed by the IRS.

• Flexibility: Bridge financing is just that: a "bridge" between the initial purchase of an investment property and its eventual refinancing. You secure funding from a bridge lender, purchase your next property, complete the 1031 transaction on time, and then refinance to a cheaper permanent loan.

Banks aren't going to move any faster just because you have a critical deadline, and when it comes to 1031 exchanges, going to a bank could cost you dearly, so approach a bridge lender instead.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Bridge Loans: Tactics to Increase Eligibility

If you've had a difficult time securing financing for your next commercial investment property because the property is half-occupied or it is in decrepit condition, you should consider the benefits offered by bridge loans. Learn why this type of financing might be the help that's right for you and some approaches to improve your eligibility.

Conventional lenders don't like deserted or distressed properties. This isn’t the case with bridge lenders. Bridge lenders secure their loans based on a borrower’s experience and the potential of a property.

Bridge financing allows real estate investors to capture the long term and short term income potential of poorly-managed or distressed properties. Using bridge financing, an investor could purchase a half-occupied apartment complex, improve its condition, and increase occupancy. Once most of the units are occupied, the investor can then refinance to a conventional mortgage.

These loans also benefit developers who intend to resell distressed properties. The capital given by a bridge lender allows the investor to improve a property’s condition and then resell it for a tidy profit.

However, when it comes to bridge lenders, you need to do all in your power to prove the potential of your project and your experience as a developer.

Can you meet these basic eligibility standards when it comes to commercial bridge loans?

• Net Operating Income: The annual income of your intended property must be able to cover the cost of the loan on a yearly basis, so you need to have on-hand income and expense statements from the property’s current owner, as well as rent rolls and current lease agreements.

• Experience: Most of these loans exceed a million dollars, so not just anyone can qualify. You need to either have a resume on hand or be able to discuss your track record of previous real estate development projects.

• Savings: Having decent savings on hand is a must. Your lender will want assurance that you can carry your loan should things not go according to plan.

• Net Worth: Along those lines, your net worth should be at least equal to the amount of money you intend to borrow. Even if you aren't pledging your personal property as collateral, these lenders want assurance that you have assets on hand to carry your loan if things go south.

• Credit: Credit is only a factor if you intend to refinance. If this is the case, generally a minimum credit score of 650 is needed to qualify.

But above all else, bridge lenders are concerned with one thing: your exit strategy.

When it comes to commercial bridge loans, talk up your exit strategy.

Bridge financing is just that: a bridge. It is designed to be paid back either through refinancing or resale, so being able to discuss your exit strategy is crucial. Consider the following talking points to assure your bridge lender about your exit strategy:

• If you plan to refinance: Talk up unrealized income potential. Half-occupied commercial properties suffer due to low cash flow, and this means conventional lenders refuse to finance such deals. Talk up your plan to improve cash flow from the property you want to invest in, and have a clear strategy to increase occupancy either by making specific improvements or through better property management. Having a specific plan along these lines will give your prospective lender confidence that you will be able to refinance before the loan comes due.

• If you plan to resell: In this case, a bridge lender will be interested in your plan to bring the property back to marketable condition. Have a clear budget and timeline specifying the improvements you want to make, and cite comparable sales to give your lender concrete assurance that the final resale value will pay back the outstanding loan.

Talking up your exit strategy with these tips and keeping the basic eligibility standards in mind will ensure that you can take advantage of the unrealized potential of neglected or distressed properties with the help of bridge financing.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

Thursday, February 21, 2019

How to Read Search Results for Arizona Hard Money Lenders

When it comes to finding Arizona hard money lenders, maybe you’re overwhelmed by your search results. Learn how to read between the lines of a lender’s web page so you can find the help that's right for you.

The first step in reading a lender is finding one first. Because it is the 21st century, Google "hard money…" and before you know it, you should have plenty of results. Make a list of potential lenders in your area, but before you read the lenders’ websites, read some customer feedback and cross lenders with negative or with little to no customer reviews off your list.

After narrowing down your list of potential Arizona hard money lenders, find lenders whose recent deals match your specific vision.

You've found several lenders who have decent customer feedback. Should you go ahead and apply? No, you've got a bit more reading to do to narrow your list further.

Check to see if your potential lenders have a list of recently funded deals. Do the properties match your vision? If you intend to flip a house, you should not approach a hard money provider who specializes in commercial properties. You want a lender who can offer insight when it comes to your specific project. Find lenders who specialize in funding your specific investment and then look out for some red flags.

When it comes to reading Arizona hard money lenders, don't ignore these red flags

• Read initial terms offered. Beware of pie in the sky deals. If a lender's initial terms are too good to be true, more than likely, they are. Avoid lenders whose conditions aren't anything close to what you've found on other hard money websites.

• Read the lender’s basic qualifications. If all that's needed to close your deal is your name and a handshake, be wary. Reputable hard money providers will at least glance at your basic financial situation. If a lender sets the bar so low that just about anyone can qualify, more than likely their only interest is in collecting your interest payments. Erase lenders off your list whose standards don't match the standards of other lenders.

• Read the lender’s website, but don't just look at the words. Is a potential lenders website well-designed, professional and appealing, or does it like it hasn't been updated since 1997? Cross a line through lenders whose websites are poorly designed and don't offer a lot of specific information.

• Read the lender’s physical location. If a quick Google search for "A2Z Hard money's," address reveals that their offices are located in a car wash in New Mexico, beware: you might end up laundering money for Walter White. Cross out lenders who don't have a physical office.

After following these steps, you should have a list of lenders who:

1. Have decent customer reviews.

2. Specialize in the type of project you want to pursue.

3. Have reasonable loan terms and borrower standards.

4. Have a professional website and a physical office.

You can perform all this due diligence from the safety of your laptop. Learning to read your search results for "hard money," will save you time and effort while protecting you from sheisters.

Arizona Hard Money Loans: A Win-Win for Your Cannabis Business?

Arizona cannabis business loans are hard to come by. So what if you run into a crippling business expense? The bank isn't an option, equity is expensive, and crowdfunding offers no guarantees. So how do you find the help that's right for you?

A hypothetical grower already has a dispensary lined up to buy his first crop, but then, the utility company raises his electricity bill, doubling his cost of electricity per kilowatt hour. Since it's his first crop, he's strapped for cash.

It is a catch 22; until his first crop comes in he won't be able to pay his electricity bill, but if he doesn't have electricity, he can't grow his first crop. He’s stuck between a rock and a hard place. He needs a quick injection of cash, a small loan which he can pay off in 70 days after his plants mature.

Let's assume he only needs $50,000 to cover the cost of electricity. Given his excellent credit score, he considers getting a personal loan from a bank first. All is well, but he hears a vague alert chime on the loan officer’s computer.

Without any explanation security officers escort him out of the building.

What are some other sources of Arizona cannabis business loans

Our poor grower isn't interested in selling ownership to an equity partner. Selling 10 percent of his business just to pay his electricity bill is not a reasonable proposition for him.

So, he eagerly makes his plea on Kickstarter. It's crickets from the peanut gallery, as his loan sits unfunded on the site. He can't wait much longer as his little seedlings will wither and die if he doesn't get money fast.

He hears from a friend about another type of alternative financing, one that might solve all his troubles.

Arizona hard money loans can help fuel short-term costs in your cannabis business.

He approaches a hard money provider. They offer him a loan on the condition that he pays it back in 120 days. He will also have to pledge his grow facility as collateral. The loan is a little expensive for his taste, but its either hard money or bust, so he goes ahead and closes the deal. The funding comes through in short order, and within 70 days his crop is in full bloom ready to be harvested and sold to a nearby dispensary.

With these funds, he's able to pay back his loan quickly, and he earns enough money to cover his utility costs until his next harvest.

Because he already had a buyer lined up and he knew exactly when his crop would come in, he didn't put much at risk by pledging his grow house as collateral. Hard money got him the funds he needed without having to sell ownership in his business or wait on the much over-hyped kick starter. If you are looking to "grow your business," and run into an unexpected expense, hard money can help.

Arizona Hard Money Loans: Tactics to Pay Less

Arizona Hard money lenders invest in risky deals that banks won't touch, like house flips. In browsing the terms offered by various hard money providers, the double-digit interest rates might shock you. Take a deep breath, as there are some tactics you can use to lower the cost of your loan.

You ask why the cost of hard money is so high.

• It is short-term: No wants to pay 14% interest on a $250,000 loan for five years. This high rate incentivizes you to pay your loan back as quickly as possible. But why do these lenders want their money back so quickly?

• High risk: Because of the risk involved with flips, there's no guarantee for you or your lender that you are going to make money. The high rate ensures the lender their going to make some return on their investment.

Because of the risk involved, hard money is expensive, but what if you could avoid paying such a high rate in the first place?

Tactics to pay lower interest when it comes to Arizona hard money loans

You can employ the following tactics to help you negotiate a lower interest rate.

• Find a lucrative, low-risk deal: The rule here is to find a house which you can secure at a low price and then assure your lender about its potential using comparable sales. For example, say you found a foreclosed house which you can get at a steep discount. The house might be selling for $150,000 while similar homes in the area are going for $300,000. A quick walkthrough reveals that it doesn't need much work. You estimate the cost of repairs will be about $15,000. The house needs a few repairs, and its resale value is backed up by hard data. These are some talking points you can use to negotiate a lower interest rate with your lender.

• If you have experience, talk about it: Given all the risk that comes with flips, lenders prefer those who have a proven track record of successful projects. Talking up your expertise or even offering your lender business in the future might help you get a lower initial rate.

But even if your hard money provider doesn't offer you a lower rate, here is a little rhyme that can help you

• Pay it back ASAP: Finish work in a few months and you can minimize the cost of your loan. Remember, you pay interest on a monthly basis, so if you finish work in a couple of months you reduce the cost of your loan, regardless of how high the initial rate is.

Don't let the high interest charged on Arizona hard money loans scare you out of the flipping business.

Hard money is really your only option if you want to flip houses. Almost every flip is funded by hard money, and on average every flip earns a tidy $30K in profits, even though these lenders charge double-digit interest rates. You can make hard money less expensive by negotiating a lower rate with the strategies above in addition to paying it back ASAP.

Wednesday, February 20, 2019

Is an Arizona Bridge Loan a Win-Win for Your Business?

Before taking out Arizona commercial real estate loans, you need to ask yourself a few questions. "Will income from the property pay my mortgage on a monthly basis?" and "how do I intend to generate a return? With quick profits from resale or do I want to earn a steady income over the long haul?"

Let’s consider the first question, "Will income from the property pay my mortgage on a monthly basis?" Hopefully, the answer is yes, but you aren't buying a property to make mortgage payments. In the end, you want to make money.

Before taking out Arizona commercial real estate loans on short term investment properties, ask yourself these questions:

• What condition is the property in? When it comes to making a quick turnaround, you want to boost the property’s value as soon as possible while at the same time spending as little money as possible. Scout locations that require minimal work. Better yet, find properties where you can boost cash flow, and therefore raise the resale value without spending any money at all. If a property does need some work, lower your initial offer to account for these costs. For example, if a location needs $10,000 in repairs, you should reduce your initial offer by $20,000. That way, you earn a dollar in profit for every $.50 you spend bringing the property up to code.

• How occupied is the property? Properties with less than 85% occupancy don't sell. A half-occupied apartment complex could take many months to reach that 85% benchmark. Securing new tenants will hinder resale and prevent you from achieving a rapid return on your investment. Save yourself some time and purchase properties that are as close to full occupancy as possible. Otherwise, have a clear plan in place to bring in new tenants before you invest.

Before taking out Arizona commercial real estate loans on long term investment properties ask yourself these questions

• What are the tenants like? If a prospective property is full of deadbeats who don't pay rent on time, it is probably not worth your time. A wave of evictions coupled with the time it takes to find new tenants means you might not be able to keep pace with your monthly loan payments. Ask to look at the rent rolls before investing in a property, which will tell you whether the current tenants are paying rent on time.

• What is the neighborhood like? Earning an income from a property over the long haul requires two things: gradual rent increases and a steady uptick in property values. An area that is on the decline indicates declining rents, occupancy rates and declining property values. Before investing for the long term, get a sense of the neighborhood, or better yet, get some real data to see if property values in the area are on the up and up.

In short, before taking out a loan to invest in commercial property ask yourself a few basic questions:

1. Will income from the property at least initially pay for my loan?

2. How do you intend to earn a return?

3. And consider any factors that could prevent you from earning a return.

Answering these questions for yourself will give you a sense of whether taking out a loan on an investment property is worth your while.