Setabay Private Hard Money Lender

Wednesday, April 17, 2019

How Texas Private Money Lenders and Flippers Calculate ARV

Most Texas Private Money Lenders who finance fix-and-flips want to know what your after-repair value, or ARV, will be. It’s important to know how to calculate it and what the final number means to your financing and profit.

In the fix-and-flip business, you’ll hear a lot about LTV and ARV. LTV stands for loan-to-value. It’s the amount you’re requesting from your Texas Private Money Lenders in relation to the current value of the property. For example, if you’re purchasing a property worth $200,000 and requesting $100,000, your LTV is 50%, though it’s sometimes represented as 50 LTV.

ARV, or after-repair value, is more concerned with what the property will be worth after you’ve finished repairs and the home goes on the market. You’ll calculate this by adding the purchase price to the value of renovations. For example, if you pay $100,000 for a home and the repairs and upgrades you make will increase value by $50,000, your after-repair value is $150,000. This gets taken a step further in lending, particularly as it pertains to the total amount of your loan. Most will not provide loans that are higher than 70% of what the home will be worth. This is represented as 70 ARV or 70% ARV. If you’re new to flipping or the deal is riskier than others, expect to receive much less than 70% ARV.

It’s also worth noting that getting an accurate ARV usually requires bringing an appraiser on board. Those who attempt to go it alone are likely to find the process time-consuming and tedious and will probably produce an inaccurate ARV. Furthermore, many Texas Private Money Lenders don’t use ARV because it’s not a guarantee. Instead, LTV will be used.

Get Advice from an Appraiser When Calculating ARV

How much value does a Jacuzzi tub in the master bedroom add? What about a farmhouse sink in the kitchen, a built-in in the living room, or ceramic tile throughout? The reality is, most people cannot answer these questions off the top of their head and research may be inconclusive or steer you the wrong way. It takes many flips to gain a grasp of value, so you’ll want to work with an appraiser to help determine how much value your upgrades and repairs are adding. Your appraiser will also tell you what the property is truly worth before the repairs, which is the other big component of ARV. You can’t rely on Zillow or similar for this because the services know nothing about the condition of the property.

Your flips will be more successful if you use the 70% rule

Even when the Texas Private Money Lenders you work with don’t use ARV to calculate loan terms, the concept is still worth keeping in your toolkit, particularly as it pertains to the 70% rule. In short, this guideline involves subtracting your repair costs from the total expected sales price, and then capping your bid on the property at 70% of what’s left. For example, if your home will sell for $150,000 after putting $50,000 into it, you don’t want to spend more than $70,000 on the purchase of the property. (150,000- 50,000 = 100,000; 100,000 x 70% = 70,000) The formula is often considered the gold standard of flips because it ensures you have money to cover expenses and will make a solid profit, even if you run into minor issues on the flip, but it isn’t the end-all. You’ll want to consider any fees, permitting costs, appraisal costs, and so forth as well, as this paints a better picture of the value of your work and what you’ll really earn when your project concludes.

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.

Why Do Texas Hard Money Lenders Prefer to Work with LLCs?

If you’ve worked with Texas Hard Money Lenders before, you know how they operate, but if you’re applying for a loan the first time, it can be difficult to know what to expect. Arm yourself with the information you need to spot a bad deal, so you can have a successful venture.

Outright scams are incredibly rare when it comes to Texas Hard Money Lenders. The only news-worthy case in recent history involves investors who believed they were funding deals and unfortunately lost $1.2 billion, according to a Mortgage Professional America report. On the borrower side of things, similar events are largely unheard of, but the story highlights a major point. When you’re borrowing from Texas Hard Money Lenders, you’re usually being funded by private individuals. The regulations regarding the loans are different compared to what you’d find with a traditional business loan and the approval process is unique too. How can someone with little experience stay protected in uncharted waters?

For starters, it pays to watch for offers that promise way more than others are doing. For example, ultra-low interest rates can signify there are hidden fees or a promise that the group will fund any deal should raise red flags. Realistically, no investor could fund all deals because not every borrower is a safe bet.

Secondly, serious investors are going to investigate you and your proposals. More often than not, people turn to alternative funding because a bank loan isn’t going to cut it, so investors must be incredibly diligent about checking into things before funding. If they don’t personally check out a property or business site or send someone out whom they trust prior to approving, that’s also a red flag. They should be going over your application with a fine-toothed comb too. If you have a broker helping you through this process, you might not notice any hitches because he or she will likely catch anything before an application is submitted, but it’s something to be aware of if you’re going it alone.

If You Can Run a Web Search, You Can Identify the Real Deal

Thankfully, it’s usually easy to tell who’s legit and who’s not. Authentic Texas Hard Money Lenders will have an established web presence going back many years. Anyone who isn’t doing business on the up-and-up can’t keep using the same name because it will get tarnished fast. While every company that’s been in business for an extended period of time will likely have a couple negative remarks purely because they’re coming in contact with the general public, you should be able to identify an overall trend in the business reputation.

A reputable financing team will find a win-win solution.

Whether you’re working with a broker or directly with your investors, the aim is always to cultivate lasting relationships. When you’re successful, they’re successful, so they want to fund your deal and have you come back again. Even if a team cannot help you this time, they will still treat you with respect with the hopes that they can help you the next time.

How to Pay Less to Arizona Private Money Lenders for Their Cash

Obviously, it’s important to develop a good relationship with any Arizona Private Money Lenders you work with, but you also want to keep your fees as low as possible too. Use these tried-and-true methods to reduce your costs when you go for your next loan.

Before getting into how to reduce fees, it’s important to understand what types of fees Arizona Private Money Lenders charge. To begin with, each loan will have an interest rate and points. The interest rate is straightforward. You’ll pay a percentage of the loan to borrow the cash, just as you would with any other loan. However, in this case, you’ll probably make interest-only payments until the term ends, and then you’ll pay the principal.

In addition to this, you’ll also see points, which are common with this form of lending and also with traditional mortgages. These are sometimes called “up front points” because you pay them with your closing costs. Each point is equal to 1% of your loan. Generally speaking, the riskier it is for an investor to finance you, the more points your loan will have. However, other things may come into play too, like what region you’re operating in and how much competition there is for the investor.

After points and interest, additional fees will vary based upon the investor. Although not all will charge these fees, a few common ones include an underwriting fee, processing fee, and doc prep fee. You may see referral fees and loan servicing fees as well.

You’ll want to watch for fees which could emerge later in the deal too. For example, it’s common to see late fees, foreclosure fees, and renewal fees listed on the paperwork. Although you may never have to pay these fees, provided you make your payments on time and can pay off the balance of the loan before the term is up, it’s a good idea to be aware of what you could be charged should issues arise.

When You Create a Win-Win Solution, Your Fees Will Be Less

One of the biggest things you can do to keep your costs low is to reduce risk for your Arizona Private Money Lenders. Bear in mind, this is an industry that’s not particularly concerned with your credit, but with how solid the deal, itself, looks. Than means keeping the loan-to-value (LTV) low. You can do this by putting more of your own money into the project or by finding a screaming deal on a property. There’s also reduced risk when financing people who are experienced in the biz. If you’re a flipper, expect to pay more the first few times or bring someone who has several successful flips on board. The same is true if you’re in construction, doing fix-and-holds, or are in virtually any industry.

Talk with a few companies, so you’ll know the real deal when you see it.

On a final note, some companies simply price themselves more competitively. Gather rates from a couple different companies and be sure to ask which fees are part of their packages. That way, you can compare apples to apples—you won’t think you’re paying lower rates just because the interest is lower or there are fewer points, but can tally up the whole cost to borrow money. From there, it’ll be easier to identify which Arizona Private Money Lenders have the best rates overall, so you can keep more money in your pockets.

Tuesday, April 16, 2019

3 Biggest Danger Zones to Avoid with Arizona Spec Home Financing

Most lenders will only offer Arizona Spec Home Financing to experienced builders, simply because being cautiously optimistic about a deal is not enough. You must have firsthand knowledge of what can go wrong and be able to pivot when you see a danger sign looming in order to have success in the industry.

1. Missing the timeline or budget. The vast majority of issues homebuilders cope with relate to missing the timeline or budget. These areas are incredibly sensitive and must be monitored throughout the project. If you realize your budget is sliding, you need to make concessions, find safe ways to cut costs, or find other ways to bring in money to complete the project, and it’s important to do this before the money is tapped out. The same is true of the timeline, though a rogue schedule may sometimes be tamed by rescheduling contractors or finding one with better availability. If either of these things aren’t addressed when they’re small, they will snowball and could result in you having to pay fees to extend your Arizona Spec Home Financing term or having to find a way to pay it off before the property is sold.

2. Having property value decrease during the build. It’s important to keep an eye on the markets before and during the build to make sure there aren’t large fluctuations. If there’s a significant dip, you may want to consider pivoting to a build-and-hold strategy until the market recovers. You could also see reductions in value if your contractors aren’t doing quality work. Obviously, the best way to avoid this is to vet your contractors carefully before hiring and then to make sure you’re upholding your end of the agreement and seeing to their needs. However, even the best people are capable of slipping up, so monitoring progress and quality of work is a must.

3. Not having an alternate exit plan. Although this was touched on a bit above, its importance cannot be underscored. The typical exit strategy is to complete the house, sell it, and pay off the loan. However, if you’re unable to follow through with this process for any reason, you’ll need to know what it will cost you to extend your loan and if you’ll qualify. Conversely, you can also look into options such as traditional loans and bridge loans, depending on what your Plan B is. In any case, know what it takes to get approved well in advance.

Know How Your Draw Schedule Works in Advance

If you haven’t used Arizona Spec Home Financing before, you’ll need to familiarize yourself with draws. Rather than giving you funding in one lump sum, loans are typically portioned out into smaller allotments available when you hit specific milestones. In an effort to reduce risk, lenders usually have the first draw come from you. That’s your down payment. Following this, you’ll get a preset amount, perhaps 10-20% of the loan, at specific points, such as when the foundation is poured or the framing goes up.

If bank eligibility is a problem and/ or you have rotten credit, consider working with a hard money lender.

Banks are wary of doing Arizona Spec Home Financing because it can be riskier than other ventures. If something goes wrong and you don’t finish the project, you’re leaving them with an unpaid bill and mess to clean up too. Because of this, denial rates are fairly high, but Arizona hard money lenders often help when banks do not, simply because they’re willing to look over your plans and experience. Plus, they put more stock in the value of your asset than they do your credit score. This opens doors for many, though you’ll still need to be mindful of the danger zones throughout your project.

Why Do Texas Hard Money Lenders Prefer to Work with LLCs?

Some Texas Hard Money Lenders will only work with LLCs or Limited Liability Companies as opposed to consumer borrowers. The good news is this doesn’t have to be a barrier to your success; establishing an LLC is easy.

Consumer loans are subject to different regulatory guidelines than commercial loans are, so it’s quite common for Texas Hard Money Lenders to focus on just one area. By homing in on the commercial sector, it’s easier to work deals without getting caught up in governmental red tape and success rates are improved. In fact, there’s actually a huge difference in the outcome between consumer and commercial loans. Data gathered by the Federal Reserve Bank of St. Louis concludes that 3.01% of consumer mortgages default, while 2.49% of personal credit card accounts do as well. When it comes to the commercial side, defaults drop down to just 1%, so it makes fiscal sense for investors to apply their funds to an area that’s more likely to give them the return they expect.

Whether you’re doing home rehabs, working commercial projects, opening an Airbnb, or launching another type of business, operating under an LLC demonstrates that you’re a professional and makes it clear you’ll be using whatever funds you receive for business purposes.

There are also benefits to you for getting established as an LLC. The most obvious is that it limits your personal liability if something goes wrong with the business. You’ll also get to choose whether you’re taxed as a “C” corporation or an “S” corporation. As an “S,” earnings are taxed only once, whereas with a “C,” earnings are taxed before being divvied up amongst owners and upon receipt, so the right structure can minimize your tax burden as well.

Starting an LLC is Easy, But Get Advice from a Pro If You Haven’t Done It Before

You’ll need to file your LLC’s articles of organization. The paperwork is straightforward, though you’ll need to have your name and a registered agent (person who will receive all communication) selected. Fees vary by state for filing, but most range from $50 to a less than $150 for the initial filing and then have a small annual fee to maintain it. You will also likely have to publish a notice in the newspaper and obtain any necessary permits or licenses to operate. From there, it’s typically just a matter of opening up a business bank account, so you can keep your personal and business funds separate. Once you have these steps taken care of, and have your business plan ready, you should be able to approach Texas Hard Money Lenders with confidence. If you get stuck along the way, touch base with an attorney who specializes in business law or talk to an accountant about which designations are right for you.

If you can use a computer, you can start an LLC.

Most states provide the paperwork for starting an LLC online, so getting yours going is really only a matter of ticking off a few boxes once you’ve chosen a name and keeping up with the annual renewal. If you’re serious about starting a business or taking on a new project with the help of Texas Hard Money Lenders, getting an LLC set up is a simple and smart first step.

Getting Started with Real Estate Investing

You watch television, listen to your neighbors chat, and read about it— fixing and flipping properties. And from everything you see and hear it looks and sounds glamorous and like the fastest track to wealth.

Glamorous? Probably not. It takes a lot of sweat and tears to become successful in the real estate investment game. Fast track to wealth? It’s definitely a track to wealth, but how fast you get there is up to the time you have to give and how quickly you learn. The first thing as an investor you have to do is find a distressed property that you can fix up and sell for a profit. The second thing you have to do is find financing.

So, you search hard and find a perfect investment property. You have never done this before and you need a loan—so, where do you go? Duh, the bank of course. Unfortunately, after meeting with the loan officer you learn that banks frown upon lending to investment properties. It is just too large of a risk. Enter Arizona Hard Money Lender.

Arizona Hard Money Lenders are the knights in shining armor for investors.

Arizona Hard Money Lenders are not banks. They are firms or individuals that have borrowed money from other investors. They lend this money to real estate investors on short-term loans. Arizona Hard Money Lenders, unlike banks, will loan on any property—no matter how distressed it is. They are in this business with you. Arizona Hard Money Lenders can look at a shack and see a cozy fairytale cabin. They are able to see what banks can not.

Banks will require a large down payment—Arizona Hard Money Lenders lend on an LTV (loan to value) or an ARV (after repair value). The LTV ratio is calculated by dividing the amount borrowed by the appraised value of the property as a percentage. If you find a property that appraises at $200,000 and make a $20,000 down payment, you will be approved for $180,000 resulting in an LTV of 90%. An ARV estimates the future value of a distressed property after it has been repaired. If you find that same property that appraises at $200,000, but after repairs it is assessed to sell at $300,000. The Arizona Hard Money Lender approves 75% ARV—that means the loan amount would be $225,000. That leaves you with $25,000 to put towards repairs.

Each Arizona Hard Money Lender will have different terms and handle each deal differently. They are not banks that treat their customers as a number, they realize you are human. Investors have a one-on-one relationship with their lenders. Because they are private money lenders they have flexibility. What that means is they can work with you. When things come up, call them— talk with them and find a solution together.

Arizona Hard Money Lenders have gotten a bad reputation as sharks that charge outrageous interest rates and hunt down borrowers after one late payment.

In reality that couldn’t be further from the truth. Investors and Arizona Hard Money Lenders form unique relationships. No one wants the investor to succeed more than the lender because that equates repeat business for the lender and security for the borrower.

Setabay Private Hard Money Lender

Wednesday, April 17, 2019

How Texas Private Money Lenders and Flippers Calculate ARV

Most Texas Private Money Lenders who finance fix-and-flips want to know what your after-repair value, or ARV, will be. It’s important to know how to calculate it and what the final number means to your financing and profit.

Get Advice from an Appraiser When Calculating ARV

Your flips will be more successful if you use the 70% rule

Why Do Texas Hard Money Lenders Prefer to Work with LLCs?

If You Can Run a Web Search, You Can Identify the Real Deal

A reputable financing team will find a win-win solution.

How to Pay Less to Arizona Private Money Lenders for Their Cash

Obviously, it’s important to develop a good relationship with any Arizona Private Money Lenders you work with, but you also want to keep your fees as low as possible too. Use these tried-and-true methods to reduce your costs when you go for your next loan.

When You Create a Win-Win Solution, Your Fees Will Be Less

Talk with a few companies, so you’ll know the real deal when you see it.

Tuesday, April 16, 2019

3 Biggest Danger Zones to Avoid with Arizona Spec Home Financing

Know How Your Draw Schedule Works in Advance

If bank eligibility is a problem and/ or you have rotten credit, consider working with a hard money lender.

Why Do Texas Hard Money Lenders Prefer to Work with LLCs?

Starting an LLC is Easy, But Get Advice from a Pro If You Haven’t Done It Before

If you can use a computer, you can start an LLC.

Getting Started with Real Estate Investing

Arizona Hard Money Lenders are the knights in shining armor for investors.

Arizona Hard Money Lenders have gotten a bad reputation as sharks that charge outrageous interest rates and hunt down borrowers after one late payment.

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