Real Estate Investing: Points and Interest Explained

Today we are going to explain what points and interest are in regards to real estate investing. This is something that needs to be considered when you are applying for a loan in order to ensure that you get the best deal. Whether it’s a hard money loan, a private loan, a bank loan, or even OPM (Other People’s Money)? Each situation is different! It’s essential to know what works best for you. Let’s get started!

Factors to Consider

Speed of Funding

In real estate, speed can make or break a deal. Sellers prefer buyers who can close quickly with no hassle. So, you need to know which lender can fund the fastest.

Down Payment

Down payments can vary. With hard money, you might get 100% financing, but usually, you’ll need 10-20% down.

Example: If you’re buying a $300,000 property, a 10% down payment means you need $30,000 upfront.

Points and Interest Rates

Points are fees paid to the lender, usually as a percentage of the loan amount. Interest rates can range from 10% to 12% or more.

Example: On a $270,000 loan with 1 point, you’ll pay $2,700 upfront. At 12% interest, you’ll pay $2,700 monthly.

Additional Fees

Lenders may charge other fees like escrow fees, draw fees, underwriting, and appraisal fees. These can add up, especially on smaller loans.

Example: A $200,000 loan might come with $1,900 in fees, affecting your overall cost.

How to Choose the Best Loan

1. Compare Costs: Use our free Loan Cost Optimizer tool on our website to compare lenders and see who offers the best deal.
2. Check Funding Speed: Make sure your lender can close the deal quickly to avoid losing it.
3. Evaluate All Fees: Look at points, interest rates, and other fees to get the full picture.

Conclusion

In sum, the best loan for your fix and flip is the one that costs you the least and funds on time. At The Cash Flow Company, our goal is to help you get the best lending options available. If you have a question or a deal to discuss, reach out to us. Visit our website, download our Loan Cost Optimizer, to not only compare lenders, but to also find the best deal for you.

Watch our most recent video to discover more about: Real Estate Investing: Points and Interest Explained