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Sunday, May 12, 2019

Using Arizona Hard Money Loans to Flip Commercial Properties without the Fix

If you use Arizona Hard Money Loans to flip commercial properties, you might not have to spend a nickel on a single nail to raise its resale value. Learn how you can use commercial property valuations to your advantage so that you can flip without the fix.

You’ve probably used hard money to flip residential properties. You secure an undervalued home, pouring months of blood sweat and tears into your project and then you resell it at a higher value. Residential flips take a lot of work because you can only add value, by improving or adding amenities. But flipping commercial properties is different. If you can raise rents on a commercial property, you can increase its resale value without doing any rehab.

You can use Arizona Hard Money Loans to flip commercial properties without the fix.

Commercial buyers don’t care about bathroom fixtures or paint colors; the one thing they care about is income. Consider how commercial properties are valued based on cap rate, where:

• property value= income/cap rate

So, if you can boost the revenue generated by a commercial property, then you can resell it for a higher value, and this might not take any rehab. If you don’t believe such a thing is possible, consider the following examples of rehab free commercial flips:

• Raising rent’s rehab free: Say there's a ten unit apartment building where the monthly rent is 750 dollars, for simplicities sake let’s assume a cap rate of 10 percent:

• 90,000 income/10% cap rate= the value of the property is 900,000 dollars. But let's say average rents in the area are 800 dollars, raising rents by a mere fifty dollars will allow you to earn a profit without doing any rehab work:

• 96,000 income/10% cap rate= resale value of 960,000 dollars. So, in this case, you’d earn 60,000 dollars without even lifting a finger.

• Adding tenants rehab free: let's assume that same ten unit apartment building is only half occupied, the rents and the cap rate are the same:750 dollars a month and 10 percent:

• 45,000 income/10% cap rate= property value of 450,000.Let's say the recent expansion of the university affords you the chance to bring in well even two extra tenants on board, under a four-year lease:

• 63,000 income/10% cap rate= resale value of 630,000 dollars. Once again without all the blood sweat and tears of a renovation, you’ve earned 130 K in income.

If you want to use Arizona Hard Money Loans to flip commercial properties look for these types of properties:

Given the above examples, you should use hard money financing to scout out locations in up and coming areas that are suffering from low occupancy, or find properties where rents are well below the average for the neighborhood.

The above examples are relatively conservative. Because, in reality, you might need to do rehab some work to justify rent increases or to attract new tenants. Nevertheless, given the way commercial properties are valued, it is possible to flip commercial properties without the fix.

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.

Saturday, May 11, 2019

Bad Credit Commercial Mortgage Lenders: Conduit Lenders vs.Hard Money

If your business's credit score has suffered from lagging sales due to a poor location, you’ve probably considered moving. You've likely looked into all sorts of bad credit commercial mortgage lenders, including conduit lenders and hard money. Learn why hard money might be a better option.

Hard money is any loan secured by the value of a hard asset. When it comes to qualifying the main factor these lenders consider is, “if this borrower defaults will I make my money back by reselling their property?”If the answer is yes, you can get a hard money mortgage, even if your business has gone through financial difficulties.

Conduit loans, on the other hand, are individual mortgages which are bundled into securities which are then sold off on wall street as something called “commercial mortgage-backed securities.” These lenders give loans to bad credit borrowers because the main thing they care about is, “how long can I keep this person making interest payments?”

When compared to conduit loans, hard money might seem far more expensive-but once you sign on to a conduit loan, getting out of it is next to impossible.

When it comes to bad credit commercial mortgage lenders, conduit lenders might offer lower rates, but there are strings attached.

Conduit loans are a bit like a loveless marriage, in that getting out of them is both messy and expensive.

If you want to get out of a conduit loan early, you’ll end up paying a premium so that the folks on wall street can continue to collect interest payments on your mortgage. If you want to pay off a conduit loan early, yield maintenance comes into play, and if you want to refinance, you’ll have to go through defeasance. In both instances, you give your lender money so they can buy treasuries so that they can continue to pay dividends to their investors.

Depending on the size of your loan, the costs of yield maintenance and defeasance could easily exceed a hundred thousand dollars. So if your business is facing short term financial difficulties don’t get sucked in by the low rates conduit lenders offer. Getting out of these deals once you’ve signed onto them could prove to be an expensive nightmare.

When it comes to bad credit commercial mortgage lenders, hard money is the better option.

Hard money providers encourage you to pay them back early.

So in the world of hard money, there is no such thing as yield maintenance or defeasance. If your sales are suffering because of a lousy location, hard money can help you secure a new storefront. As your sales pick up after a few months and your financial situation improves you can then refinance to a regular commercial mortgage. No strings attached.

So don’t marry a wall street bureaucrat for the next 30 years because your business is suffering due to short term financial difficulties. Hard money might charge more in the short term, but in the long run, it offers you something conduit lenders can’t: financial freedom, and who can put a price on that?

100 LTV Arizona Hard Money Loans: Tips to improve your eligibility

With 100 LTV Arizona Hard Money Loans, you won’t have to make a down payment on your next investment property. Some articles claim these deals are just too good to be true- but they’re wrong. Getting a 100 LTV deal is all about how you approach the subject with your lender, learn some talking points to follow to improve your chance of qualifying.

It’s hard enough getting a stranger to pay for your morning coffee, and with a 100 LTV loan your basically asking a stranger to buy your next investment property.

How on earth are you going to do that?

It all comes down to how you broach the subject with a potential lender. The first point that unless these it's being offered up front, don’t stumble into a lender’s office, asking for 100 LTV financing.

If you do that you could raise some red flags in your lender's mind.

What Arizona Hard Money Lenders might think if you ask for a 100 LTV loan right off the bat

• You're not committed- Money talks. If you ask a lender to cover the full cost of your next investment property you're basically saying to them:“I don’t really believe in my project enough to spend my own money on it.” So, your lender might ask themselves, “what's to keep this person from skipping town if something goes wrong, leaving me to foreclose on their unfinished building site?”

• You don't have money-By asking for 100 percent financing your lender could easily assume that you don’t have any money of your own. So, your lender might ask them, “If they don’t have any savings, how on earth will they keep up with payments if something goes wrong?”

• You lack experience- 100 LTV financing is so rare, that asking for it up front might make your lender think you’ve never closed a hard money deal before. So, your lender might ask themselves “If they’ve never done a hard money deal before, do they know what they're talking about?"

To close these types of deals, you need to answer these questions before your lender asks them, either to themselves or to you directly.

Follow these talking points to improve your eligibility for 100 LTV Arizona Hard Money Loans

• Prove your commitment- You could start the conversation by saying something like: “On this next deal, rehab’s going to be pretty extensive, so I’d rather use my money on rehab,” or something along these lines. The point is you need to thoughtfully explain the reasons why you’d like your lender to pay for the full cost of purchasing your property and assure them that you do intend to invest some of your own money in your project. Giving them such assurances will prove that you're committed to your project.

• Prove you have money- Then you could take out some documents, things like savings statements, tax returns, anything to prove your financially solvent. Point to these documents and say, “as you can see here I do have resources, so if something goes wrong I can carry the loan.” Prove to your lender that you're not asking for free money, just because you have no money of your own.

• Prove you have experience- Continue the conversation by saying, “I know I'm asking a lot of you, but I’ve done a lot of similar projects in the past. Here's how much money I’ve made on those deals,“ talking up your track record proves to a potential lender that you know what you're talking about and that you can bring your project across the finish line.

The above isn’t a word for word script. But if you carefully bring up the prospect of 100 percent financing, prove your commitment, financial solvency, and experience you'll be well on your way to closing that coveted 100 LTV hard money deal.

Arizona Hard Money Lenders: The Best way to Finance 1031 exchanges

Did you know you could pay nothing in taxes on the profits from your next real estate deal, and that you won’t go to jail? Such a thing is possible thanks to a provision known as 1031. Learn what 1031 is, the rules you need to follow and why Arizona Hard Money Lenders are your best bet when it comes to fueling the costs of 1031 exchanges.

What is a 1031 exchange? In IRS parlance it's also known as a like exchange. You roll the profits from one deal into another and use them to buy your next investment property. With 1031 exchanges you can defer paying capital gains taxes- indefinitely.

But of course there are some rules you need to follow with 1031 exchanges:

1. Your next investment property must be of equal or greater value: So you can’t earn 1 million in profits on one deal, spend 50 K on the next and then jet off to the Bahamas tax-free.

2. You need to hold onto the property for over a year:- Your property needs to be held for an “investment purpose.” No one knows how to define what it means to hold a property for an "investment purpose," but the basic requirement is you need to hold onto the property for 13 months or longer.

3. You need to close on your next investment property within 135 days: So if you need financing to settle a 1031 exchange, you’ll need to get your loan approved within that deadline.

Considering that deadline, going to a conventional bank to finance a 1031 exchange could put you at risk of incurring a massive tax bill.

Why you need to avoid the bank and use Arizona Hard Money Lenders to finance 1031 exchanges

135 days might seem like a long enough time to close a deal, but in the world of bank bureaucracy, 135 days is nothing. Even if you have perfect credit, it's going to take at least 30 days for the bank to approve your loan and that's in the best case scenario.

On average it takes 90 days for a commercial loan to get final approval from a conventional bank. That's 90 days after you’ve spent a few weeks finding your next investment property and gathering up the reams of paperwork that the bank requires. Weeks into this process, the bank could reject your application for some inexplicable reason. Which means you’ll have to start the application process over at another bank.

You don’t have that much time to waste with 1031 exchanges. Say you earned a million dollars on your last deal, then going to a conventional bank could cost you 200 K or more in taxes. However, if you go the hard money route instead, you take all such risk out of the equation.

Hard money deals usually only require an appraisal, meaning they can close within a week. After you get hard money, you secure your next investment property, apply for conventional bank financing, and refinance once the bank approves your loan.

With hard money, if something goes wrong with your application at the bank, you’ll still have your investment property under contract. Meaning you won't have to risk incurring a substantial tax penalty to complete 1031 exchange.

Arizona Hard Money Lenders can give you peace of mind when it comes to 1031 exchanges.

Don’t risk paying hundreds of thousands of dollars in taxes due to the nightmare of bank bureaucracy. If you need financing to close a 1031 exchange go the hard money instead.

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.

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.