How Does Credit Score Impact Fix and Flip Loans?

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How can your credit score impact fix and flip loans in the real estate investing world?

Credit score impacts investors potentially more than anything else. Lenders will adjust the rates and terms of loans based purely on the three digits of credit score on a person’s financial records. 

Leverage is the key to successful real estate investing, and understanding the impact of credit score is a critical facet of that leverage. 

This article uses real-life examples to illustrate the difference a good credit score makes in the investment world.

How Does Credit Score Impact Fix and Flip Loans?

Let’s compare two clients: 

  • One (Person 1) has a low credit score of 660
  • The other (Person 2) has a high score of 740

These numbers are based on real clients who have approached us for loans.

What Changes?

If you look at the way the numbers worked out in the chart above, you’ll notice that the actual interest rate is the same for both clients.

Obviously credit score can impact a rate, however it’s also common for the impact to be even simpler. In this situation, the lender simply gives less money to clients with lower scores.

In this scenario, the lender only offered 85% of the purchase price to the person with the lower credit score. The person with the higher score ended up having 85% of the purchase price covered as well as 100% of the rehab costs. 

The Cost of a Low Score

If we estimate the closing costs for Person 1’s project at around $7,500 and combine that with the leftover 15% of the purchase price and 85K rehab, the cost of a low credit score starts to take shape. In our example, Person 1 will need to find over $171,000 of additional funding simply because they had a lower score.

Even when the rates aren’t affected, a low credit score is going to cost more in the long run. It’s hard to do multiple projects when you have to bring in that much money on your own. 

Read the full article here.

Watch the full video here:

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Lenders Want To See Personal Investments

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Lenders want to see your own money going towards your projects through personal investments. 

In real estate investing, leverage comes from using other people’s money to generate wealth and income. 

The better your leverage, the easier and more profitable real estate investing becomes. 

But how do you find the right loans that can give you that leverage?

One of the things lenders look for is whether or not you’re personally invested in what you’re asking them to put money into.

Use Personal Investments to Demonstrate Commitment

If you’re also investing your own money in your project, lenders know you’re serious about the job. 

Using other people’s money (OPM) also demonstrates that your friends and family are willing to invest in your project. Lenders like to see you have skin in the game, even if it’s as simple as borrowing from a line of credit.

Especially if you’re a newer investor, the less you ask of lenders and the more at risk you take on, the more lenders will be attracted to you.

Personal investments demonstrate your commitment to follow through and finish a project — just what lenders are looking for!

Learn More

Read the full article here.

Watch the YouTube video here:

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Credit Score Impact: What You Need to Know About Loan Rates

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How can your credit score impact different types of loans in the real estate investing world?

Credit score impacts investors potentially more than anything else. Lenders will adjust the rates and terms of loans based purely on the three digits of credit score on a person’s financial records. 

Leverage is the key to successful real estate investing, and understanding the impact of credit score is a critical facet of that leverage. 

This article uses real-life examples to illustrate the difference a good credit score makes in the investment world.

How Does Credit Score Impact Fix and Flip Loans?

Let’s compare two clients: 

  • One (Person 1) has a low credit score of 660
  • The other (Person 2) has a high score of 740

These numbers are based on real clients who have approached us for loans.

What Changes?

If you look at the way the numbers worked out in the chart above, you’ll notice that the actual interest rate is the same for both clients.

Obviously credit score can impact a rate, however it’s also common for the impact to be even simpler. In this situation, the lender simply gives less money to clients with lower scores.

In this scenario, the lender only offered 85% of the purchase price to the person with the lower credit score. The person with the higher score ended up having 85% of the purchase price covered as well as 100% of the rehab costs. 

The Cost of a Low Score

If we estimate the closing costs for Person 1’s project at around $7,500 and combine that with the leftover 15% of the purchase price and 85K rehab, the cost of a low credit score starts to take shape. In our example, Person 1 will need to find over $171,000 of additional funding simply because they had a lower score.

Even when the rates aren’t affected, a low credit score is going to cost more in the long run. It’s hard to do multiple projects when you have to bring in that much money on your own. 

How Can Credit Score Impact DSCR Loans?

Using a similar example, let’s look at how DSCR loans can be impacted by a low credit score. We’ll use the same clients:

  • One (Person 1) has a low credit score of 660
  • The other (Person 2) has a high score of 740

We see a lot of clients looking at cash out refinancing, so we’ll look at that type of project.

What’s the Difference?

If Person 1 has a 660 credit score, not only will they likely struggle to find lenders, but 65% is about the best they could look for. This directly translates into less money out of that property.

In contrast, Person 2 with a 740 score should be able to fairly easily get 75%. The more money out, the better your leverage.

As you can see in the chart above, not only does the person with a lower credit score get less cash out, but their rate is also higher which raises their monthly payments. 

Credit Score Matters

Although at first glance, it’s tempting to just look at the monthly payments and think, “It’s not that big of a difference,” don’t fall into that trap!

The person with the higher score not only has a lower monthly payment, but because they also got a higher Cash Out % which gave them an additional $35,000 out. 

Having that good credit score makes it possible to keep cash flowing. If you’re serious about investing, your credit score matters.

How to Raise Your Credit Score

If you’re serious about real estate investing, you need to keep your credit score up. A low score is really going to cost you over time by strangling your cash flow. 

But how can you fix a bad credit score?

There are a lot of options that can help you raise your credit, including usage loans, credit card strategies, or various tips. 

If you’re interested in learning more about how credit scores affect investment opportunities or need help raising your score, reach out to us at Info@TheCashFlowCompany.com.

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How to Prepare for Real Estate Loan Applications

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It’s important to look ahead when preparing your loan applications in the real estate game.

In real estate investing, leverage comes from using other people’s money to generate wealth and income. 

The better your leverage, the easier and more profitable real estate investing becomes. 

But how do you find the right loans that can give you that leverage?

Before applying to various lenders, make sure you’re prepared for the basics.

Be Honest

This may seem basic, but it can be really tempting to slip in a few lies when you’re trying to get a deal. Don’t do it.

Lenders do background checks, look at credit, and generally get external confirmation for everything you tell them. Lying not only makes their jobs harder, but your lack of honesty can ruin your reputation with that lender.

Make sure you disclose if you’ve gone through bankruptcy or if you have any credit card debt. 

They will find out if you’re hiding information or stretching the truth, and you’ll get dumped to the bottom of the pile.

Especially About Your Credit Score

One of the first things lenders look at is credit score. That score can determine whether you even get considered for a loan.

It’s better to be honest about a bad credit score and have a detailed plan about how to fix it than to lie. 

If you have a bad credit score, work on fixing it before submitting loan applications.

If credit score is something you’re concerned about, there are ways to raise your score, including looking into usage loans. 

The better the score, the better terms a lender will offer. The better the terms, the better your leverage. 

If you have questions about raising your score or are interested in discussing a usage loan, you can contact us here, and we’ll be happy to discuss your options.

Learn More

Read the full article here.

Watch the YouTube video here:

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What Should New Investors Know About Loan Payments?

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New investors in the real estate game often struggle with the details of their first loan payments.

Real estate, like many fields, has its own vocabulary and rules. This can make it extra challenging for people who are trying to enter the real estate investing world.

So many people come to us confused, asking for guidance as they’re getting started.

Real estate is all about leverage. Understanding the lingo and how to calculate the most common rates will help you be money-wise and confident in your investment journey.

This is especially true (and important!) when it comes to paying off your loans.

What Should You Know About “Payments”

When do payments start? How much do they cost?

If you’re new to real estate investing, it’s a good idea to ask a lot of questions about payments so you know what to have in your budget before you begin.

A few terms to look out for:

“Arrears”

Product interest always shows up after the fact (in “arrears”). Basically, your July 1st payment is going to pay all of the interest for June.

Interest accumulates over the course of a month. Then the bill shows up after.

This how all mortgages are set up. So when you’re trying to figure out your payments and when they’re due, always look ahead 30-45 days after you close for the first payment.

Payments are typically due on the 1st or 15th of the month. Check with your specific lender to make sure you know your pay period.

“Simple Interest”

Above, we showed you how to calculate your monthly interest rate based on the simple interest rate of your loan.

When you start paying off your loan, you’ll see a big accumulation of interest. If you’ve taken time to calculate your monthly rate, this shouldn’t be a surprise to you. You can multiply that monthly rate by however long your project took to find your overall interest cost.

You need money to make money in real estate, but you want to know the cost ahead of time as closely as possible.

Take time to figure out these numbers up front so you don’t have any surprises.

 

Read the full article here.

Watch the full video here:

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How to Make Lenders Happy: 5 Real Estate Investing Tips

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Five real estate investing tips to make sure you get the leverage to finish your projects. 

In real estate investing, leverage comes from using other people’s money to generate wealth and income. 

The better your leverage, the easier and more profitable real estate investing becomes. 

But how do you find the right loans that can give you that leverage?

Here are 5 real estate investing tips from our experts at The Cash Flow Company to help get you where you need to go:

Tip #1: Tell the Truth

This may seem basic, but it can be really tempting to slip in a few lies when you’re trying to get a deal. Don’t do it.

Lenders do background checks, look at credit, and generally get external confirmation for everything you tell them. Lying not only makes their jobs harder, but your lack of honesty can ruin your reputation with that lender.

It’s better to be honest about a bad credit score and have a detailed plan about how to fix it than to lie. 

Make sure you disclose if you’ve gone through bankruptcy or if you have any credit card debt. 

They will find out if you’re hiding information or stretching the truth, and you’ll get dumped to the bottom of the pile.

Tip #2: Know Your Real Estate Lingo

This can be tough for new players. We recently created a list of some of the most common real estate lingo that new investors will encounter. 

Knowing terms like LTV, ARV, DSCR, Prepayments, etc. before you meet with prospective lenders shows that you’ve put in the time to educate yourself. 

Understand the numbers that go into making profits, including realtor fees, interest, and escrows. You should have a basic understanding of everything that goes into a project before seeking a lender. 

Resources like our YouTube channel or Investopedia can also help you learn the ins and outs of real estate jargon.

Tip #3: Raise Your Credit Score

One of the first things lenders look at is credit score. That score is often a determining factor in whether you even get considered for a loan.

If credit score is something you’re concerned about, there are ways to raise your score, including looking into usage loans. 

The better the score, the better terms you’ll be offered. The better the terms, the better your leverage. 

If you have questions about raising your score or are interested in discussing a usage loan, you can contact us here, and we’ll be happy to discuss your options.

Tip #4: Be Personally Invested

If you’re also investing your own money in your project, lenders know you’re serious about the job. 

Using other people’s money (OPM) also demonstrates that your friends and family are willing to invest in your project. Lenders like to see you have skin in the game, even if it’s as simple as borrowing from a line of credit.

Especially if you’re a newer investor, the less you ask of lenders and the more at risk you take on, the more lenders will be attracted to you.

Tip #5: Shop Around For Good Deals

The 2024 real estate market is setting up to be a profitable one for investors. 

Shop around and be selective so you pick the best deals. It’s better to find two really good deals in a year that you can complete than to overextend and not follow through.

This step can take a lot of time and effort, but it’s worth it. Just as lenders are selective with the investors they back, you should also be selective as you look for properties and lenders. 

How We Can Help

As we said earlier, leverage is key.

Knowing these real estate investing tips can help you make your lenders happy so you can start productive cash flow:

  • Be honest
  • Learn the language
  • Work on your credit score
  • Keep it personal
  • Hunt for the right deals

Real estate investing takes time and hard work, but it’s a great way to create generational wealth. 

We have a ton of free tools to download that will help you prepare for these investment opportunities.

If you have questions about these tips or how to get leverage, we’re happy to help. Just reach out to us at Info@TheCashFlowCompany.com.

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Mythbusting Business Credit Cards

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A lot of people are afraid to make the switch to business credit cards because they’re unfamiliar. These are the three most common concerns we hear from our clients who need to make the switch to business credit cards for real estate.

1. “It’s a huge switch from my current system and is going to take forever.” 

FALSE

People hear terms like “corporate credit” or “business credit card” and think it’s going to be a massive change that they’re going to need to get done at Bradstreet.

That’s not the case at all!

Essentially, you’re going to look for the same credit cards you have now—ones with 0% APR, cash back, travel miles, or whatever you like. Look for a credit card with the perks you enjoy and open it in your business’ name. 

Sure, it’s technically a “business credit card,” but you shop around the exact same way as you would for a personal card. 

2. “Business credit cards still affect my personal credit scores.” 

FALSE*

Here’s the great news: so long as you’re paying it off on time, your business credit card will never report on your personal credit score.

*Unfortunately, if you have a few late payments, it will start reporting. Also, there are a few business credit cards that do report on your personal score. Always read the fine print so that you can avoid these cards and companies.

Therefore, if you pick a good card and are good about paying off your balances, this shouldn’t be a huge concern. So long as you pay on time, it will never report your balances or usage. This protects your personal credit score for real estate investors which is the whole goal of getting a business credit card.

If you need help figuring out which cards are best for your business, contact us!

3. “I need to have an actual business for a business credit card.”

TRUE

Yes, it’s true, but don’t panic if you’re not set up for this yet! 

You do need a business, an LLC, and a business checking account. 

If you already have a business set up, obviously making the change will be super easy. However, if you need any help getting these items in order, let us know, and we’d be happy to help.

A poor credit score is a huge inhibitor for investors. It’s worth doing a little extra work on the front end to set up something that’s going to open doors for you and fix one of your biggest weaknesses.

Read the full article here.

Watch the full video here:

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What is a Point in Real Estate Investing?

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What is your lender talking about when they mention points on your loan? What is a point in real estate investing?

Real estate, like many fields, has its own vocabulary. This can make it extra challenging for people who are trying to enter the real estate investing world.

So many people come to us confused. Sometimes they don’t even know what to ask because the language is so unfamiliar.

Real estate is all about leverage. Understanding the lingo and how to calculate the most common rates will help you be money-wise and confident in your investment journey.

What is a “Point”?

When your lender mentions that something is “one point” or maybe “one and half points,” they’re talking about out-of-pocket cost. So what is a point in real estate investing?

“Points” are a percentage of the loan that the lender is going to charge you.

Hypothetically, let’s say your lender says your loan is a “two point” cost to you. That means they’re going to charge you 2% of the total loan amount.

  • Total Loan Amount: $200,000
  • Points: 2 (meaning 2% or 0.02)
  • Calculation: 200,000 x 0.02 = $4,000
  • Out-of-pocket Cost for the Loan: $4,000

The lower the points, the lower the cost; the higher the points, the higher the cost. Also, remember that the points are calculated off the loan amount, not the purchase price.

Always remember to look out for fees. Points are often only part of the upfront charges from your lender.

Make sure you ask ahead of time about additional fees, appraisals, underwriting, escrows, and escrow draws. 

 

Read the full article here.

Watch the full video here:

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Real Estate Lingo Explained: Understanding Your Lender

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Learn the meaning behind your lender’s real estate lingo so you always know what’s going on.

Real estate, like many fields, has its own vocabulary. This can make it extra challenging for people who are trying to enter the real estate investing world.

So many people come to us confused. Sometimes they don’t even know what to ask because the language is so unfamiliar.

Real estate is all about leverage. Understanding the lingo and how to calculate the most common rates will help you be money-wise and confident in your investment journey.

1. “Points”

When your lender mentions that something is “one point” or maybe “one and half points,” they’re talking about out-of-pocket cost. So what is a point in real estate investing?

“Points” are a percentage of the loan that the lender is going to charge you.

Hypothetically, let’s say your lender says your loan is a “two point” cost to you. That means they’re going to charge you 2% of the total loan amount.

Real Estate Lingo Explained: Understanding Your Lender

  • Total Loan Amount: $200,000
  • Points: 2 (meaning 2% or 0.02)
  • Calculation: 200,000 x 0.02 = $4,000
  • Out-of-pocket Cost for the Loan: $4,000

The lower the points, the lower the cost; the higher the points, the higher the cost. Also, remember that the points are calculated off the loan amount, not the purchase price.

Always remember to look out for fees. Points are often only part of the upfront charges from your lender.

Make sure you ask ahead of time about additional fees, appraisals, underwriting, escrows, and escrow draws.

2. “Rate”

Lenders talking about interest rates can get very confusing very quickly.

The common real estate lingo of saying you have a “10% rate” does not mean you have a flat 10% interest regardless of how long you keep the money out.

“Rate” refers to the simple interest rate over a year, NOT your monthly interest rate.

To find your monthly interest rate, divide by 12.

Real Estate Lingo Explained: Understanding Your Lender

  • Total Loan Amount: $200,000
  • Rate: 10%
  • Calculation: (200,000 x 0.10) / 12 = 1,667
  • Monthly Interest Rate: $1,667

Essentially, if you have your loan for six months (half a year) and you have a 10% rate, you’ll end up paying 5%.

3. “Payments”

When do payments start? How much do they cost?

If you’re new to real estate investing, it’s a good idea to ask a lot of questions about payments so you know what to have in your budget before you begin.

A few terms to look out for:

“Arrears”

Product interest always shows up after the fact (in “arrears”). Basically, your July 1st payment is going to pay all of the interest for June.

Interest accumulates over the course of a month. Then the bill shows up after.

This how all mortgages are set up. So when you’re trying to figure out your payments and when they’re due, always look ahead 30-45 days after you close for the first payment.

Payments are typically due on the 1st or 15th of the month. Check with your specific lender to make sure you know your pay period.

“Simple Interest”

Above, we showed you how to calculate your monthly interest rate based on the simple interest rate of your loan.

When you start paying off your loan, you’ll see a big accumulation of interest. If you’ve taken time to calculate your monthly rate, this shouldn’t be a surprise to you. You can multiply that monthly rate by however long your project took to find your overall interest cost.

Real Estate Lingo Explained: Understanding Your Lender

You need money to make money in real estate, but you want to know the cost ahead of time as closely as possible.

Take time to figure out these numbers up front so you don’t have any surprises.

4. “Prepayments” or “Prepay Penalties”

You’ll likely see real estate lenders use lingo like “prepays” on products like DSCR or non-QM loans.

“Prepayment penalties” are fees some lenders charge to guarantee a loan is out a certain amount of time.

Essentially, if you pay off a loan during the prepay period, the lender will charge an added fee to ensure they’re making a profit.

Prepays come in all shapes and sizes but often show up in either a 3- or 5-year period. We recommend checking out this previous post to learn more about the intricacies of prepay penalties.

In terms of types of penalties, there are straight and declining prepay options:

  • “Straight Prepay” means that you will pay an agreed-upon percentage if you pay of the loan anytime during the prepay period. For example, if you have a straight 5-year 5% prepay penalty, you will be charged 5% whether you pay it off after 1 year or 4 years.
  • A “Declining Prepay” might start with a higher percentage, but the penalty gets smaller the longer you keep the loan until it disappears altogether. The first year, the penalty might be 5%, 4% the next, etc.

It’s always a good idea to check the prepayment penalties. Sometimes you can buy them down. But you should always make sure that higher fee is actually worth it. Often the trade-off comes in the form of a higher interest rate.

Don’t fall into a trap of paying a much higher interest rate for a slightly lower prepay penalty.

Using Real Estate Lingo With Your Lender

When you’re talking to lenders, knowing the real estate lingo can help you feel confident about your deals.

When you know what points are and how to calculate interest rates, you gain leverage with the ability to negotiate professionally.

The more you understand, the better pricing and terms you’ll be able to find.

Here at The Cash Flow Company, we have a free Loan Cost Optimizer tool. This, in addition to the formulas you learned above, can help you in your real estate journey.

Knowledge is leverage, and leverage is the key to unlocking your real estate investing potential.

Reach out to us at Info@TheCashFlowCompany.com with your questions.

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How Personal Credit Cards Tank Credit Score for Real Estate Investors

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It’s time to stop using your personal credit cards which can ruin your credit score for real estate investors.

Personal credit cards are not only costing you opportunities, but also time, frustration, and cost. And here’s the deal: it’s easy to fix personal credit score issues by switching to a business credit card. 

Why Are Personal Credit Cards Dangerous for Real Estate Investors?

It all comes back to credit score.

The vast majority of people who call us for advice in the real estate investing journey have issues with credit. 

Credit usage is confusing for a lot of people. If this is something you’ve also had questions about, we recommend checking out our previous article about basic credit scores.

In essence, credit scores are based on a ratio that compares usage to available balance. If you’re using personal credit cards for real estate investing (a job that requires a lot of large transactions), it drives your usage way up.

When your usage skyrockets, your credit score will go down even if you’re still paying off the card on time. Basically, personal credit cards are not designed for business-level usage.

With a poor credit score, you’re going to have a much harder time leveraging the best deals, terms, loan to values, and flexibility. 

Real estate investing is all about using the investments of others (including the credit card company’s) to get your work done so you can pay them back and turn a profit. If your credit score is low, you’re going to struggle. You won’t be offered the best terms which drives up the overall cost of your projects.

Very little matters as much as credit score for real estate investors.

Switching to Business Cards Helps Your Credit Score!

At The Cash Flow Company, we are more than happy to help you make the transition to business credit cards.

We can…

  • Get you a private usage loan to raise your personal credit score so you’re eligible for more business card options.
  • Help you figure out which business credit card is right for you.
  • Help you set up your investment work as a business to protect your personal credit score.
  • You can also look into our partner company Hard Money Mike that offers hard money loans that you could use to raise your score as you look for business cards.

We want to make sure you’re prepared for opportunities even before they come your way. Real estate investing is a time-sensitive field, and the fewer obstacles you have to work through, the more successful you’ll be.

Read the full article here.

Watch the full video here:

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