Tag Archive for: bank loan

How Interest Payments Work in Real Estate

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How Interest Payments Work in Real Estate

Today we are going to discuss how interest payments work in real estate. There are a lot of moving parts that you need to take into consideration when purchasing a property. Don’t run the risk of missing deals and missing transactions! Here at The Cash Flow Company we want to guide you through the process to ensure that you have what you need to be successful.

How does interest work?

In regards to mortgages, the biggest question is when is the interest paid when you make a payment? During closing the lender will be asking for a certain amount of interest that is collected arrears. For example, when you are making a July 1st payment, you are paying the interest for the month of June. Whether it’s amortized or interest only, lenders will collect the interest after it’s due. To clarify, the interest payment is arrears while the payment on the property is in advance.  

Interest only loans.

Interest only loans include short term loans, bridge loans, as well as fix and flip loans. When you make a payment, it will only apply to the interest of the loan. For example, if you have an interest only loan, you will only be paying the interest for the previous month. Your payment does not apply to the loan amount itself. Many chose this option so that they have more cash flow going into the business and less going toward the principal. Remember, cash is king in real estate! 

DSCR and 30 year loans.

When you make your monthly payment, you will not only pay the interest for the previous month, but you will also pay a little towards the principal as well.  

We are here to help!

Here at The Cash Flow Company we want to make sure that you have everything you need to be successful. By further understanding the lending process, you will save both time and money!  It is important that you feel comfortable with this process so you can do more deals, and make more money! Contact us today to find more about How Interest Payments Work in Real Estate

Watch our most recent video to learn more about: How Interest Payments Work in Real Estate

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Loan, Mortgage, and Deed: What’s the Difference?

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Loan, Mortgage, and Deed: What’s the Difference?

Many investors ask what’s the difference between a loan, mortgage, and a deed. There are a lot of moving parts that you need to take into consideration. Don’t run the risk of missing deals and missing transactions! Here at The Cash Flow Company we want to guide you through the process to ensure that you have what you need to be successful. Remember, leverage is king in real estate, you need money to make money! Where do you start? Let’s take a closer look.

1. Loan Agreement

A loan agreement is simply someone borrowing money from another person and the agreement between them. Some examples are a promissory note and credit cards. To clarify, credit cards are an unsecured loan because there is no collateral. Unsecured loans are often available at higher rates than secured loans. Whether it is secured or unsecured, a loan agreement states how the money will be paid back, as well as the terms. 

2. Mortgage or Deed?

People have either a mortgage or a deed, depending on the state. This secures the loan, by putting a lien on a property, and in turn gives the lender rights to the property. The documentation then goes on record with the county and shows that the property has a lien on it. To put it another way, the mortgage or deed provides the collateral for the loan.  

Mortgage:In states where a mortgage is used, a judicial process is used if something happens and the property forecloses.  

Deed:A deed of trust is an instrument that was established long ago and is controlled by a trustee. This trustee is a third party who holds the instrument and in turn protects both parties. 

We are here to help!

Here at The Cash Flow Company we want to make sure that you have everything you need to be successful. By further understanding the lending process, you will save both time and money!  It is important that you feel comfortable with this process so you can do more deals, and make more money! Contact us today to find more about Loan, Mortgage, and Deed: What’s the Difference?

Watch our most recent video to learn more about: Loan, Mortgage, and Deed: What’s the Difference?

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Why You Need Hard Money and Bank Funding

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Here’s how to use both hard money and bank funding to maximize your cash flow.

You can’t get by on just hard money or banks alone. Hard money and bank funding both have their place in your real estate portfolio.

Here’s an overview of the advantages of both types of leverage.

Speed with Hard Money

What if you have a great deal, but you’re required to close in 5-7 days? In that case, you need hard money.

You’ll meet sellers in your real estate career who just don’t want an extended closing. These sellers would rather you close quickly – and they’ll give you a better deal on the price if you can do it. Sometimes, taking too long to secure your financing can get you kicked out of a deal.

You can call your hard money lender and get leverage fast. There’s no hold-up for an appraisal or trudging through a lengthy underwriting process. Hard money is specifically designed for real estate investing.

Even seasoned real estate investors, who do dozens of deals every year, still require hard money from time to time. Every investor runs into deals where they need to close quickly. Whether it’s because your bank won’t be ready in time, you’ve maxed out your line with your hedge fund, or some other unexpected circumstance, you need a hard money lender in your portfolio for speed.

Fast closing can capture a lot of equity on a property. Despite hard money being one of the most expensive forms of leverage, purchase price savings on a quick close can far outweigh the cost of the loan.

Pricing with Banks

If hard money is for speed, then banks are for price.

Finding a bank that loves working with real estate investors is a valuable weapon. If you can build a relationship with the right bank, you can get a better rate and a better closing cost.

Some circumstances when you’d benefit from getting your leverage from a bank include:

  • Whenever you have the time to close. If you can afford to wait for appraisals and underwriting, your loan costs will be much cheaper.
  • If the rehab work will take longer than 6-9 months. When you close on a flip with hard money, you need to complete construction on the property within a month or two. If you use a bank loan, you can afford to spend longer fixing up the house.
  • Any time you want more cash in your pocket! Banks have half the interest rates of hard money lenders. Lower rates and fees mean more money in your pocket by the time your property sells.

Hard Money and Bank Funding

Hard money’s role is to save the day when you need a quick close. Banks are the stars if you need a slow and steady loan at low cost. Having just one or the other won’t cut it. You need both forms of leverage.

Read the full article here.

Watch the video here:

https://youtu.be/3_T81gqiZdk

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Busting Myths: How Hard Money Can Be Cheaper Than Banks

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Busting Hard Money Myths: How Hard Money Can Be Cheaper Than Banks

Busting Myths: How Hard Money Can Be Cheaper Than Banks

Let’s keep busting hard money myths and talk about how hard money can be cheaper than banks.

But, first, in case you missed our other hard money myth busting videos, check them out on our YouTube channel!

So far, we’ve busted common myths like “Hard money is too expensive,” and “Hard money is a trap.”

Now, let’s look at another common misconception about hard money:

“Bank lines are cheaper than hard money.”

Okay, on the surface, bank loans are cheaper. Yes, that part is technically true.

However, when you scratch below the surface, you’ll discover hard money can be cheaper. All because of one important factor that doesn’t get calculated into the equation at the start of a loan:

Timing.

Think about how long it can take to close a bank loan. You might get lucky and close within 30 days, but it often takes longer. Sometimes MUCH longer.

Hard money, on the other hand, moves much, much faster. You can usually close within two weeks, but it can be even faster. Some lenders can close in just a few days. When you close faster, you can get to work faster…which means you can complete your project faster. Faster projects mean more money in your pocket.

Another timing issue real estate investors fail to consider: The amount of time it takes to fund escrow.

AKA, your rehab.

If it takes longer to access those funds, then it’ll take longer to pay your contractor. And if your contractor isn’t paid quickly enough, they might move on to another value-add property project.

Not only does it take banks longer to approve escrow funds, but they have stricter guidelines. Let’s look at an example:

You want to withdraw $10,000 from your escrow account to pay your electrician. But when you get the invoice from your electrician, you realize you only needed $8,000.

However, your plumber suddenly also needs to be paid $2,000.

Unfortunately, the bank won’t care about your plumber. They’ll send you only what you need to pay your electrician since that’s what you originally asked for.

You’ll have to waste precious time sending in another request for the $2,000. Within that time, your plumber might take off and find a different project. They can’t wait around for you to pay them so they can complete their work.

That means you have to search for a new plumber…which means you waste time.

And time is money!

Hard money lenders respect that.

Most of them focus on moving fast, being flexible, and working with you to get you through your project as quickly as possible so you can tackle your next real estate deal.

So, there you have it. In the long the run, hard money can be cheaper than banks.

Again, it all comes down to timing. And, again, time is money in real estate investing.

Stay tuned for our next video where we talk about the biggest and most misleading myth of all:

Hard money is a curse.

Ready to chat about your hard money and other lending options? Great! Our team is excited to set you on a path that makes you the kind of money you need…to live the life you want.

Happy investing!

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