Setabay Private Hard Money Lender

Friday, May 10, 2019

How to make more money with Arizona Hard Money Loans: Advice to Lower Your Tax Bill

Two things in life are inevitable, death and taxes. If you use Arizona Hard Money Loans to flip houses more than half of your profits might go to Uncle Sam. Learn some tactics to lower your tax burden so you can earn more money on your next flip.

Because of their short turn around, the profits from house flips are subject to the regular income tax rate, which could go as high as 37 percent. If you’re self-employed, you have an extra burden-FICA, which could add another 15 percent to your effective tax rate. We haven't even mentioned state taxes yet

So, if you’re a successful flipper how high could your tax rate be?

Consider a house flipper located in Taxifornia, say he earns 500 K each year solely from flipping houses. His income puts him in the top federal tax bracket, and because he’s self-employed he’ll also need to pay FICA, so his federal rate is 52.3 percent. We can’t forget state taxes; in California, the state will collect 11.3 percent of his income. So effectively 64 percent of his profits on any flip will go toward taxes.

Say he wants to flip a house, which could earn him 35 K in profits. 22 thousand dollars will end up going to Uncle Sam and the hippies in Sacramento.

Are there ways for our poor flipper to beat the system without risking incarceration?

With Arizona Hard Money Loans; consider using these tactics to lower your tax burden.

• Maximize deductions- Thankfully all of the soft costs involved in your project are deductible. You can deduct the cost of materials, labor and even the interest payments on your loan. To maximize deductions deposit all your hard money financing into a separate business account this will allow you to keep track of all your expenses so that you can deduct every penny you spend on your project come tax time.

But what if you want to pay a lower rate, well there is another method that can effectively cut your tax bill in half-

• Fix and Hold- If you hold onto a property for 13 months you'll end up paying the lower capital gains rate, and you won't need to pay those awful FICA taxes. Let's see what happens if our flipper decides to hold onto his property for 13 months, rents it out for 9 of those months and charges his tenant a rent of a thousand dollars a month:

• He’ll pay 20 percent in capital gains taxes, and 11.3 percent in state taxes, making his effective rate 31.3 percent.

• 35 K-11 K in taxes=24 K in profits+9 K in rental income=33 K in total profits.

By using the fix and hold strategy, he’s more than doubled his profits on this deal, and he's even earned extra rental income.

To use the fix and hold strategy you need to look for long term Arizona Hard Money Loans

One caveat if you're going to employ a fix and hold strategy is you need to be sure that your loan has a 13-month term. Unfortunately, most hard money deals don’t last that long. So, if you plan to employ the fix and hold strategy to lower your tax bill, you need to get long term hard money financing, before you start your project.

Regardless, if you maximize deductions or employ the fix and hold strategy, you can, beat the system and earn and earn a higher return from your next flip.

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.

Is speculative home financing a viable option for you?

Read further to learn how one person researched, evaluated and decided that this route was for her.

Margaret Dioss was comfortable—her children were grown and settled, her house was in top shape, her health was good and the money she her late husband had saved provided her with a decent living. She stuck to her monthly budget. But she was also bored—her mind kept returning to her early twenties when she worked for a realty company in San Francisco. No two days were ever alike and she learned a lot before getting married and moving away.

She kept thinking of a property outside of Whittier that was near the local mall. It sat on two acres containing a house and a couple of outbuildings. The home didn’t look old, but it was in need of a little renovation to make it more attractive.

Deciding to ‘just look’, she drove out, noting that the For Sale sign was not close enough to the street to be read accurately. I think I need a loan, she thought, and decided to contact people she already knew.

After one day’s appointments with the bank where she had accounts and two mortgage companies, one of whom she had done business with some years back, Margaret found herself at home both tired and disgusted. Not only had the first mortgage company said no, it had pointed out that her credit basically was non-existent since her bills were paid. The other one wanted a large amount of paperwork, some she wasn’t sure she could obtain. The bank was worse, saying that she didn’t really match up to other clients, and discouraging her from taking on the venture. “It’s a touchy business. Most of the fellows we know who are in it are always talking about getting out.”

She turned to the newspaper section on real estate and her eyes fell on an ad for speculative home financing through a company she had heard of, but didn’t know much about. She quickly headed for her computer to check out Trenton Finance Corporation’s page.

This type of loan, Margaret discovered, was basically financing done on unsold property. These loans were not a big part of the group normally made for construction, but still classed as a steady factor. She typed in spec loan requirements and found the following basics needed for any such venture.

Location played into getting the money—the house was near the mall and the highway headed downtown. She could have a partner to team up with or go on her own. The collateral that was required could be the equity in her house.

The following morning Margaret called the company that held the property. Following a look over, she called TFC and made an appointment for the next day to further check out speculative home financing.

In a very short time, Margaret had her loan and was actively engaged in what her husband would have called ‘sprucing up’ the property. “Well, Max, I’m not bored anymore,” she told her dog with a smile as she came in from working one afternoon.

What are your chances of doing what Margaret Dioss did? Everyone’s situation is different. Investigate both conventional financing and the non conventional as well, get the documentation showing your financial history and find out all the details on the prospective property. Find out if speculative home financing is the avenue you should take.

A private money lender is the proverbial needle in the haystack

In the real estate field, it would seem. They are difficult to locate, but they are out there and might be the answer to your funding problems, making them worth the search particularly if you are having difficulty in conventional funding areas.

The real estate field has always interested you—in college you took electives from the business department and made high grades. Once out, you tried to get into buying and selling properties. However one really great land purchase turned sour when the buyer had to pull out at the last minute. You had just paid the hospital for what was termed a small surgical procedure, but the bill was anything but small. The end result was your not being able to make the payments when the deal fell through and the bank foreclosed.

That made it difficult to deal not only with banks, but conventional mortgage lenders as well. Being basically self-employed without what was defined as a steady income was another mark against you when it came to traditional funding. Despite your being on your feet again with no large debts to pay off, it seemed that the holes in your financial history were all the conventional lenders wanted to look at.

The answer was always no and after the latest appointment, you were thinking about just giving up the entire dream of owning your own business and handling the large projects that everyone else seemed to be making money off of. On the way out, you nodded politely to the secretary who had been friendly, bringing you a cold drink when you came in and chatting amiably while you waited.

She motioned you to her desk and said quietly, “You should try a private money lender–they focus on other things besides a regular salary and a high credit rating. A lot of very respectable business people use hard funding.”

At that moment all you wanted to do was forget the whole thing, but you thanked her and went home to dinner and hopefully a good night’s sleep. The next morning, with no appointments scheduled, you checked into this funding area. It was a pleasant surprise finding out that hard money often covered a wide range of loans from business-only funding and commercial lending to rehab and bridge loans.

Further research showed that private money lenders arranged their funding using secured loans, concentrating on properties that could be bought, renovated and sold as quickly as possible following the needed work. Called by most a ‘fix and flip’ loan, the collateral involved kept the lender from losing the money invested if the borrower couldn’t pay back the loan due to illness, death or whatever other reason. When done correctly, this aided both borrower and lender. A fee, negotiable in most instances, was normally charged to the client by the financier.

Most of these type lenders, the general info section said, are called relationship-based investors since they can be a friend, relative or someone in the field that you know. Further reading pointed you to corporations whose business it was to set up these type loans. The average time seemed to be a year for repaying with small mostly interest payments and the principal remainder being due at the end of the time allowed.

Is a private money lender what you need?

Do the research and find out both the negative and positive aspects involved. That dream you had could be a reality very soon.

Thursday, May 9, 2019

Have you thought about trying a Arizona Hard Money Lender?

My neighbor Tom Barron asked when I complained about all the problems I was having getting funding for my real estate project.

My credit was decent, a glitch here and there in the early years I had been in the business of buying and selling apartment buildings. No nine-to-five income popped into my bank account every other Friday, but I had no huge debts either, just the usual for renovation on my latest building. It had not sold yet, but was being looked over by two different buyers out of town.

Still the way the mortgage lenders acted, one of whom I had successfully worked with before when I partnered up with someone, you would have thought I had holes in my credit you could jump though, no real income and my house (completely paid for) a month away from foreclosure. The bankers were much more polite, but they weren’t much help either.

Now here was Tom wanting me to get mixed up with people whom I had always heard were a bad taste in the real estate industry’s mouth. “I know of them,” I replied. “But I’ve always been told to steer clear of them, too.”

Tom grinned. “Well, let me tell you what happened with my latest deal.” He then proceeded to describe how no traditional lender would touch him on account of a large project that had gone south when his partner had had legal issues. “I checked around and the Arizona Hard Money Lenders have come a long way since the days when you just went without rather than go through them. How do you think I got my funding for the construction I’m working on right now? McCandliss & McCullough did it—they have an office by Riverside Bank and up from BestView Realty. Not only do they all get along well, but BestView referred me to M&M. The hard money folks aren’t bound by all the rules the everyday lenders have.”

I was hooked, at least as far as finding out more anyway. “What do they want someone to do when they apply for a loan through them?”

Over coffee in Tom’s kitchen, I found that these lenders basically work through private investors or independently-owned businesses and the would-be borrower acquires their funding via security connected to real property value. I would have to provide a very well-defined business plan for my project as well as show plainly how I intended to pay back any money they lent me. My payments, Tom noted, would probably be mostly interest and a bit of principle monthly, with the remaining total due at the end of the pay period. “And this is good, too,” he pointed out with another grin. “That repayment period can be a year–or five years. Do some digging and find out what you could gain using one of these lenders—maybe not M&M, but someone who could help with your type of situation.”

Hard Money Loans: a different approach to funding.

(Everywhere you look there are ads inviting you to borrow funds through traditional lenders—banks, mortgage companies and the like—but is the standard way the best choice? Find out if a non-traditional loan might be better.)

Financing is the biggest problem a would-be investor has when starting unless he/she has a considerable amount of personal funds to invest and most of us don’t fall into that part of the population. Let’s say you have tried to invest before and while it went smoothly for awhile, life changed things and they all requiredmoney. Plenty of it.

The next thing you knew you had declared bankruptcy in your business and downsized it and a block of land you had purchased was foreclosed upon by the bank. This all happened in the last five years and despite your landing pretty much on your feet, the business coming back and most of the bills paid, those two items burnt holes in your credit report and knocked a considerable number of points off your score.

The conventional lenders you have seen about a loan to purchase two apartment buildings were very nice—one was a bank and the other a mortgage company—but neither of them could do anything to help you.

As you went out the door of the mortgage company, the lender you had been talking to motioned you aside and said quietly, “Try the hard money lenders—those people aren’t tied up with all the restrictions we have, although they do cost more.”

What is a hard money loan? And is one right for you?

These loans are set up differently than conventional ones and are designed to aid the potential investor who has credit issues, low cash reserves, is self-employed, etc. The one thing that is needed here is collateral to back your getting the loan—the lender is much more interested in what you have to literally fall back on than your having a perfect credit score and a straight-line job that pays every two weeks. A lien will be placed upon the collateral by the lender to cover their interests in the event you cannot repay your loan.

A second positive point with hard money loans is the time it takes for one to be processed and closed—itcan be done in an average of two weeks’ time as opposed to a bank which can take six months easy. This is an especially good thing when you could end up taking all the time needed and getting required documentation for a bank, only to be told, “We’re sorry—we just can’t approve your application.”

Third, payment times and schedules can often be tweaked to favor your calendar rather than the lenders’. If you need five years to pay the loan back instead of two, a hard money lender can generally work with you on that.

A different loan may be helping hand you need. Get out there and look for the one made just for you.

Do what the mortgage lender advised—research the hard money people in your area, find several that are offering loans which appeal to you and set up times to talk with them. You’ll meet new people, learn things that could help you in the long and perhaps walk out the door with possible funding for your future project.

After a good night’s sleep, I began to do the research Tom suggested and it was just like he told me-- Arizona hard money lenders concentrate on the people whose lives don’t fit the standard 9-5 structured employment lines and have some difficulty obtaining loans through traditional lenders.

I put together a plan and six weeks later, I got my funding. These loans aren’t for everyone, but take a look like I did. Maybe this type loan can work for you, too.

Are 90% Arizona Hard money loans worth your time and effort?

Read on to find out that while these particular loans can take some hard work to obtain, they may be exactly what you need.

Your current project can be partially financed instead of having the entire effort funded through a lender. There are certain types of loans out there designed for investors who possess the ability to work with the rules and regulations attached to them. Make certain you do all the background work on a 90% hard money loan in order to not only know the outer lying picture, but the smaller details as well.

Termed Loan-to-Value (LTV), these loans are at the fix and flip area’s uppermost level, and while everyone’s situation is different, a set of basic structures and requirements cover most. An applicant for this particular loan needs a FICO credit score of 600 or above and to be very certain that the desired property in mind will sell within a year’s time. From there on it can look like this:

--You may apply for a loan beginning at $75,000 (although there are companies who start out at $25,000). The figure can be as high as $2M. If approved, the state of your real-estate portfolio will be one you can proudly show in future deals.

--Have a property appraisal done, not one that is costly and over detailed, however. Most percentage lenders concentrate on the value after repairs and improvements have been made as opposed to the startup value.

--Financing generally is for 12 months, but the repayment period can be longer—again it depends on the situation and the client. An added attraction is if you pay off the loan early, no prepayment penalty is attached.

The loan application process is usually completed within a short time and once approved, closing can be done in around a month on average.

What are the application requirements for a 90% hard money loan?

Unlike other unconventional financing, the documentation required for these loans is more similar to traditional loans made by mortgage companies and banks. The following things must be brought forward: tax returns for the past two years, the sales agreement, two months’ bank statements outlining savings and checking accounts, a report of your present-day commercial and residential properties and the proposed construction budget.

Other documents may be requested as well, but those listed above are the basics demanded by companies who provide this type financing.

While these loans do not cover owner-occupied properties, being mainly designed for the fix-and flip areas, they do stretch over a large number of investments in the real estate field, both residential and commercial.

Although the requirements are more difficult than some other areas of lending, if you have credit that is less than perfect and have tried the traditional loan companies with little or no positive result, looking into 90% Arizona Hard money loans may be the road you should check out. Talk to people you know and whose word you can trust. Then set up a few appointments with lenders who are in this type financing and find out if your on-paper dream can become a brick-and-mortar reality.

Arizona Hard money loans: why should you take on this kind of funding?

A wise man once said to me, “If you want something and you look hard enough, you’ll find it, even if folks tell you you won’t.” I wished I could talk to him when after my divorce and all the debts I incurred from said parting I couldn’t get any type of funding from the banks and mortgage companies to accommodate my latest project: a building that was just made to accommodate a fitness club in the right part of town, utilities installed and working and priced reasonably. It just needed a bit of fixing up and some good promotion.

The banks simply said that they simply couldn’t do it. “Not with your credit and debt-to-income ratio.” The mortgage companies asked for lots and lots of paperwork, but the first two had already turned me down while the other two were ‘still looking at things’. They had been looking for over three months. Someone else was going to get that building if I didn’t move fast.

As I sat watching my favorite television program after another frustrating day and trying to forget about my problems for awhile, I heard, “Need money for that real estate project? Been turned down by everyone you know? Come see us—we’re JJ & Company, the Arizona Hard Money Lenders. We say Yes when others say No.”

What have I got to lose, I thought, and reached for my laptop to find out what JJ & Company was all about. Once I was through reading, I bookmarked the site and made an appointment the next day. Just to see—I didn’t think the wise man would approve of this, but he would say take a look anyway.

“Do you know what a Arizona Hard money loan is?” the JJ representative asked me. When I replied that I didn’t know a great deal about them, he nodded and said, “Most people don’t. Let me tell you what we do.”

These loans apparently are set up for people with problems i.e. low cash flow, no real savings, self-employed, large debt with a long term showing, etc. But, he went on to say, they looked at the lender’s collateral than your dream credit score (which no one has, it seems) and a conventional job paying every two weeks without fail. “We do place a lien upon whatever you offer for collateral as a safeguard.”

But what he said next was the good part. “Processing, once you’re approved, and actual closing can be done in two or three weeks. The banks can take more than six months—that property will be gone if it’s good as you say it is. Second, we can fix your repayment schedule to suit your time—we’re not bound by all the rules and fixed payment dates like the banks.”

I went home--smiling for a change and once I appraised my situation thoroughly. I checked out the building again just to make certain it was as good as I thought and decided to go with this type funding. Maybe not with JJ & Company, but with someone after a few more appointments.

The wise man was right—he was my father, by the way. I had searched for what I needed and found something I was pretty certain could help. Do as I did if you have a problem involving real estate funding—an Arizona hard money loan may be just for you.