Setabay Private Hard Money Lender

Wednesday, May 22, 2019

How to Evaluate GRM & Cap Rate When Securing Texas Hard Money Loans

If you’re using Texas Hard Money Loans toward the purchase of a rental property, understanding GRM and cap rates is essential. Though they measure slightly different things, both can help indicate what the overall profitability of the project will be.

Securing Texas Hard Money Loans may be easier than traditional financing options, but lenders are still concerned about protecting their investments. Of course, profitability matters to you as well, which is why you should be familiar with your own GRM and cap rate numbers before getting to the financing stage.

Cap rate, which is short for “capitalization rate,” is the ratio of net income generated from a property against its purchase price. Let’s say you’re purchasing a single-family home and charging the tenants $1,000 per month to rent it. Your annual gross income is $1,000 x 12 or $12,000. For the purpose of cap rate, however, you’ll need your net income, which means subtracting all fees from the initial total. This includes everything from property management through insurance and taxes. If, for example, those fees come out to $3,000 annually, your net income is $12,000 - $3,000 or $9,000. Under this example, we’ll say you paid $100,000 for the home. To calculate cap rate, you’ll use the formula $9,000 (net income) / $100,000 (purchase price) = 0.09, which is a 9% cap rate. It’s also worth noting that if you’re operating a multi-family property with other revenue sources besides rent, such as laundry facilities, a game room, or vending machines, the revenue should be added to your income and the expenses of maintaining them should be deducted with your costs.

GRM, which is short for “gross rent multiplier,” is a straightforward formula. You simply divide the sales price by the annual gross rents. Let’s use the same numbers as before; you purchase a $100,000 home and rent it for $1,000 per month or $12,000 per year. The formula is $100,000 (sales price) / $12,000 (annual gross rent) = 8.33. It will take 8.33 years for the property to pay for itself. GRM can also be used backwards. If, for example, you know a good GRM is 5, then you can calculate how much to charge for rent or how much to try to talk down the seller when you’re striking a deal.

Learn the Benefits and Pitfalls of GRM and Cap Rates

It’s important to note that there’s no universal ideal GRM or cap rate. It’s location specific and varies based upon the type of property as well as other factors. That said, cap rates can be helpful when choosing between two properties and, if you know your area’s average GRM and cap rate, you can identify if a purchase is a good deal or not. Although you won’t always be asked for these numbers when you apply for Texas Hard Money Loans, you will likely be asked to provide rental income information and details about the costs, which ultimately gets extrapolated into these figures for the purpose of evaluating the risk of the loan.

Remember: if you’re evaluating properties, your calculations are only as good as the numbers you start with.

As the old saying goes, “garbage in, garbage out.” Particularly when you’re dealing with detailed numbers like net income, you’ll need to dig deep to ensure they’re accurate. You’ll also need to have solid comps when evaluating rental income too. Double check these numbers or have someone with experience crunch them before you apply for Texas Hard Money Loans or make offers on any given property.

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.

Tuesday, May 21, 2019

How to Stretch Your Hard Money Loans When Marketing Properties

Most people think about how to stretch Arizona Hard Money Loans in terms of revamping a property. However, in certain niches, crafting and maximizing a marketing budget is essential too.

Realistically, not everyone who leverages Arizona Hard Money Loans for their fix-and-flip projects or spec homes will need to market that property. A few folks, either by luck or savvy locale choices, will garner interest in the property even before it’s complete simply by being present and active. Some chat up neighbors while they’re on site and others place a sign in front of the home letting people know when it will be available and who to contact. Leaving flyers outside the property for people to pick up is helpful too. However, those working in suburban and rural areas don’t have the same benefit of foot traffic and, as the value of the project goes up, the behavior of buyers changes too. Ergo, if you’re working on high-end projects, you’ll almost certainly require a marketing campaign.

The question then becomes how to market the property on a shoestring budget and how to minimize the time between finishing the project and closing on your sale. One technique is to finish the exterior of the home first. From there, you’ll be able to snap photos and get the home listed in newspapers or online ads. Mailing postcards to people in the area may be beneficial too. Oftentimes, current residents have friends and family members who would like to relocate to the area. This can also help you build up rapport with the neighbors who sometimes offer tips for future projects or request information on similar properties.

Harness the Power of Digital and Work at Home

If you’re using Arizona Hard Money Loans to fund some of your marketing efforts, free and cheap options are even better. For that, the Internet is golden. Run searches for neighborhood websites or local groups on Facebook. Maintain a list of people who have made inquiries on this and other properties and send out emails. You may also be able to purchase email lists specific to the zip code you’re working in. Once repairs are complete, you can save time and money by creating virtual tours, which let potential buyers know exactly what the property’s like without ever setting foot inside. The tour can be listed on real estate sites or, if you’re particularly tech savvy, can be placed on a dedicated website which gets updated as the project progresses to build up hype.

Get advice from real estate agents and develop a strong network.

Connecting with real estate agents, brokers, and others in the field can be beneficial too. Even those you’ve sourced your Arizona Hard Money Loans from may know of potential buyers. Consider hosting an open house or event to connect with others in the industry—not just for this single project, but as part of an ongoing strategy. Send them information about deals and customers who may need their services, and chances are they’ll do the same for you.

How to Evaluate a Trust Deed Investment Opportunity

Trust deed investment opportunities can be quite lucrative, but they’re not all created equally. Once you learn the background of the process and what these opportunities are all about, it’s easier to determine if a certain prospect fits within your level of risk tolerance and may be right for you.

When someone wants to purchase property, there are generally two ways their loan may be secured. Most of us are familiar with a mortgage. When a loan is secured with a mortgage, the borrower accepts responsibility for paying the loan via signing a promissory note. If he or she doesn’t follow through, the lender has the option of going through the judicial foreclosure process. With a deed of trust, the borrower signs a note as well, but also signs security documents which link the loan to the property being purchased. Following this, a notice of lien is recorded. If the borrower doesn’t make good on the loan, the lender does not need to go through the courts to sell off the property.

There are benefits to each. For example, with a mortgage, the lender has the option of suing the borrower after foreclosure if the auction of the property doesn’t yield enough to cover the debt. However, this method can also be time consuming and also gives the borrower a “right of redemption,” meaning he or she still has options to make good on the loan even after a foreclosure sale. The guidelines for this vary by state.

Ergo, with trust deed investments, you are the lender on a piece of real estate, and you have the right to liquidate the property without going before a judge if the borrower doesn’t make good on the loan. The process is much quicker and easier than it would be if you were offering mortgages.

With all this going on in the background, you may ask yourself why a borrower would do anything but a mortgage. Much of the time, this comes down to the speed of funding or outright inability to get bank a bank loan. Banks typically specialize in loans with longer terms as well, and they cater to a specific type of borrower.

Risk Less by Being Involved and Aware

There are many things which naturally make trust deed investment a safe bet. First and foremost, your outlay is secured by the property. In prior markets, values skyrocketed, which made almost every opportunity a safe one, no matter how much you were funding. In today’s market, values do not rise at the same rates, so you reduce risk by lending less. In most cases, it’s best to stick to funding 30-70% of the value of a property, though if you’re working with someone who has a really good track record and a wealth of experience, you may opt to do more. As an investor of real estate, you also have the option of physically examining the property as well.

Work with a successful broker to increase your returns.

Generally speaking, returns for a trust deed investments range from 9-29%, though experienced teams usually bring in around 12%. This is where working with a successful broker comes in handy, as you can determine your level of risk tolerance, and likely bring in more, or opt for safer bets. Naturally, borrowers with lower credit, those who request higher values, and those who present with other factors pay more to borrow. That increase gets paid to you, even though you have a high degree of certainty because the deal is backed by property.

Can You Get 90% Hard Money Loans for Distressed Properties?

Foreclosed properties can make fantastic fix-and-flip projects and deliver amazing ROI. However, you’ll have to connect with the right people if you’re looking for Arizona 90% hard money loans to fund them.

Distressed properties run the gamut. These are the little gems being sold mortgagee or lender. More often than not, it’s because the homeowner stopped making payments, though lenders will sometimes sell off a property if they discover the homeowner wasn’t honest on his mortgage application or for other reasons. Technically, homeowners can sell a distressed property too. This could be the case during a short sale, divorce, or relocation.

Obviously, lenders aren’t in the business of holding properties and, when the seller needs to move quickly for personal reasons, they need to unload the property fast too. They’re often willing to let them go at rock-bottom prices to be free of them. However, these homes often have everything from cosmetic damage to plumbing, roofing, and electrical issues. Those are things you’re going to have to deal with if you’re buying it to flip it.

Some flippers relish in the challenge or specifically select properties which only have cosmetic issues, but in either case, funding can be an issue. Banks usually sell off these properties as “cash only” or they don’t qualify for traditional financing due to the disrepair. Ergo, finding Arizona 90% hard money loans, or at least coming as close to it as possible, is essential.

Learn How to Evaluate ARV and LTV

It’s really difficult to find Arizona 90% hard money loans when it comes to LTV, or loan-to-value. This involves appraising the property in its current condition and then dividing the loan amount against it. For example, if your appraiser tells you the home is worth $100,000 and you’re asking a lender for $95,000, your LTV is 95%. It’s probably not going to happen. Chances are, you’ll get offered somewhere between $60,000-70,000, though. And, the good news is, a distressed property may well sell in that range too, so it’s easy to get 90 LTV. On the flip side, ARV is after-repair-value, or what the property will be worth when it’s fixed up and ready to be sold. Let’s go back to our $100,000 home example. That’s a distressed property and it needs a lot of help. Imagine when you fix it up, you’ll be able to sell it for $200,000. The purchase price is still $70,000 and you’re going to sink $50,000 into it, bringing your total financial need to $120,000. In short, you’re ARV is 60% of the loan amount. This also falls in line with what lenders will typically do, as it falls below 70% ARV. Although you’re only getting 60% of the ARV in this example, you’re still hitting the 90-mark and then some on your purchase.

Increase your eligibility for financing by reducing risk.

Despite all this, Arizona 90% hard money loans, when we’re speaking of the property’s current value, only go to well-qualified buyers. So, the best avenue is always to demonstrate that your project is a safe bet for those financing it. You can do this by getting a really great deal on the property to start with or by using other techniques, such as bringing flippers with a solid track record on as partners in your project. An experienced broker can walk you through the options available to you now, help you find the best deal, and let you know if you’re missing things that could get you an even better deal.

Monday, May 20, 2019

Do Arizona 100 LTV Hard Money Lenders Really Exist in 2019?

Many people believe Arizona 100 LTV hard money lenders went the way of the dinosaurs after the economic collapse. It is harder to find the real deal now, but you can still buy real estate without having a massive chunk of cash if you’re connected with the right people.

When we look at the consumer market, there are tons of programs to help buyers get into homes without a down payment. Most commonly, they’re through government agencies like the Federal Housing Administration (FHA), United States Department of Agriculture (USDA), or Department of Veterans Affairs (VA). Although the agencies don’t directly administer the loan, they offer banks and other financial institutions a guarantee on some or all of it, so the lender can offer loans to people who wouldn’t ordinarily qualify or provide more favorable terms.

While that sounds like a fantastic deal, and in some cases, it really is a boon, most people don’t realize there are still costs. They’re paying for the privilege of getting a loan this way. For example, the loans don’t cover closing costs, which is usually 2-5% of the sales price. Ergo, most people have to come up with a little over $3,500 to seal the deal. In addition to this, there’s usually a stipulation that says the buyer has to have mortgage insurance, which tacks on close to $100 per month for a typical homebuyer.

So, even in the consumer market, there’s not really a way to get into a home without having some cash, but in the commercial sector, it becomes even more challenging. Those government programs don’t exist for investors, which is why people start looking for Arizona 100 LTV hard money lenders.

Set Realistic Expectations if You’re an Investor

While searching for Arizona 100 LTV hard money lenders, you’re sure to find that most aren’t really offering you 100% of the value of the property. Chances are, you’ll fall in the 60-70% range or perhaps even lower. They want you to have some skin in the game because it reduces the chance you’ll default and makes the deal less risky for them if you do. Would you lend someone $50-100k or more if that party wasn’t as invested as you are or if you could lose money on the deal? Probably not. As you explore your loan options, be realistic about what you’re bringing to the table and be mindful that you’re creating a win-win situation for you and your lending team.

A seasoned broker can lend a helping hand if you’re struggling to find the right financing.

There are ways Arizona 100 LTV hard money lenders legitimately get you the full amount of your real estate venture. For example, you could explore cross-collateralization or try to negotiate a lower price on the property. If it’s valued at $100k and you get the seller down to $70k, you’re right in the sweet spot. Some sellers are motivated to do this if they want to avoid a foreclosure or you’re willing to split some of the profits after you sell. If these solutions don’t work for you, speak with a broker who specializes in the area who can explore alternate options to get you what you need.

Top 3 Differences: Stated Income vs. Arizona commercial private loans

When the banks say, “No,” business owners still have options; namely stated income and Arizona commercial private loans. Each serves people in a unique way, so it’s important to know the differences and how they work before getting on board with one.

1. Stated income options don’t require tax returns. Although most other forms of lending require at least a couple years of tax returns to prove income, stated income options do not. However, it is worth noting that lenders usually request other forms of income stream verification as well as proof of assets and liabilities. Because of this, they tend to be more popular with those who have a ton of business write-offs on taxes, which can sometimes make it look like they aren’t earning. Unfortunately, the consumer market was previously leveraging them, and they weren’t actually earning, which contributed to the economic collapse. Ergo, stated income options are only available to business owners now.

2. The length of the loans is usually different. Arizona commercial private loans, also referred to as hard money, usually have terms somewhere between 3-60 months. Most do not have pre-payment penalties, though there are exceptions to this. Stated income options generally range from 3-10 years and are often paired with hefty pre-payment penalties.

3. Your credit score matters for stated income. Although some with fair credit may be approved, good or better may be required for this option. With a hard money loan, you can have rotten credit and still be approved. Lenders care more about the value of your project, your plans, and your capabilities, than they do about your credit.

Beware of Hidden Costs and Additional Hassles with Stated Income

It’s important to remember that the terms are longer for stated income, so even if the interest rate on a loan is lower with this option than a hard money option, you’re probably going to wind up paying more to borrow overall. If you hope to pay off early, chances are you will be hit with a large penalty fee with a stated income option, which may eliminate any benefit to early payoff anyway. In addition to this, stated income lenders usually require additional documentation, and it generally takes six weeks or more to close. With Arizona commercial private loans, you can measure closing in days, not weeks.

Speak with a broker if you’re not sure which one is right for you.

Despite the benefits of Arizona commercial private loans over stated income options, they’re not right in every situation. For example, if you’re planning to do a fix-and-hold real estate project, stated income may be better. Again, though, that’s not always the case. You’ll need to crunch the numbers to see what you’ll pay over the lifetime of each loan to determine which the most economical choice in your situation is. If the decision isn’t obvious based on your situation, the qualifications for approval, and the overall cost, speak with a broker who can help find you the best deal for your needs.