Tag Archive for: fix and flip loans

Fix and Flip Loan Costs: Reserves Requirements

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There are a few key fix and flip loan costs: here’s a brief breakdown.

In addition to understanding LTVs and down payment amounts, there’s another important cost to know about for fix and flip loans: reserves.

Reserves Requirements

Reserves are the other amounts of money a fix and flip lender might require you to have. Here are the most common reserves requirements:

  • 6 months of interest payments in an account. They want to be sure if anything comes up, you’ll have the funds to make those payments.
  • Closing costs. You’re purchasing a property that’s going through a closing agent. You’ll have to pay the costs for that closing agent, plus any lending closing cost.
  • Monthly payments. Loan costs and other “carry costs” will come up monthly for the property while you’re fixing it up. Don’t forget to include these in your budget.
  • Other lender requirements. Every fix and flip lender might have slightly different cost and reserve requirements.

Know Your Fix and Flip Costs

Remember, if your lender tells you they’ll give you 70% of the ARV, there’s more to the story than that.

Know your actual fix and flip costs, and always look for the highest LTV lenders. 70% is the average in the current market, but some lenders can offer closer to 75% or give you 90%+ for the purchase.

Want to be able to compare these costs from multiple lenders at once? Download this free loan analyzer.

Have more questions about fix and flip loans? You can reach out at Info@TheCashFlowCompany.com.

Read the full article here.

Watch the video here:

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Fix and Flip Loan Basics: What Is ARV?

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When a lender decides your loan-to-value amount, what is ARV?

The first number to know in a fix and flip loan is called ARV, or after-repair value. This is the amount you could sell the property for after it’s been fixed up.

Why is this number so important? While loans on regular properties are based on the purchase price, fix and flip lenders loan based on the ARV.

For example, most fix and flip lenders in this market lend 70% of the ARV. As an example, on a property with an ARV of $200k, you could get $140k in your fix and flip loan (aka, 70% of $200k).

On a property that will be worth $500k after rehab, you could likely get a maximum of $350k on a fix and flip loan.

What Is ARV’s Other Requirements for Fix and Flip Loans

Generally, the loan you get is based on LTV. However, that doesn’t mean that’s the exact amount the lender is going to give you.

In a fix and flip, there are two major costs: the purchase price and the rehab costs. How much the property is and how much it will take to fix it up.

Your fix and flip loan will cover a certain percentage of these two costs.

For example, in this market, if you’re a seasoned investor, they’ll lend you 85% of the purchase and 100% of rehab. This means that with any project, you’ll have to find a way to fund a 15% down payment on the purchase. But the fix and flip loan will pay for all the rehab.

As a quick example, let’s look back at that $200k ARV house. The lender will give you 70% of that amount (so $140k), but they’re still restricting purchase to 85% and rehab to 100%.

So this example might play out like this:

  • ARV: $200k
  • Maximum LTV: $140k
  • Actual as-is purchase price: $120k
  • Rehab budget: $20k
  • Actual LTV for purchase: $102k
  • Actual LTV for rehab: $20k
  • Total actual LTV: $122k
  • Amount needed for down payment on purchase: $18k

Read the full article here.

Watch the video here:

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Fix and Flip Loans Explained: Get More Money For Your Deals

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How much do fix and flip loans cost? Here’s a quick breakdown.

There’s a way to set up a fix and flip project to minimize financial surprises.

It all comes down to your loans and understanding the money side.

Here’s a breakdown on how fix and flip loans work – and how you can get more money for your deals.

What Is ARV?

The first number to know in a fix and flip loan is called ARV, or after-repair value. This is the amount you could sell the property for after it’s been fixed up.

Why is this number so important? While loans on regular properties are based on the purchase price, fix and flip lenders loan based on the ARV.

For example, most fix and flip lenders in this market lend 70% of the ARV. As an example, on a property with an ARV of $200k, you could get $140k in your fix and flip loan (aka, 70% of $200k).

On a property that will be worth $500k after rehab, you could likely get a maximum of $350k on a fix and flip loan.

Other LTV Requirements for Fix and Flip Loans

Generally, the loan you get is based on LTV. However, that doesn’t mean that’s the exact amount the lender is going to give you.

In a fix and flip, there are two major costs: the purchase price and the rehab costs. How much the property is and how much it will take to fix it up.

Your fix and flip loan will cover a certain percentage of these two costs.

For example, in this market, if you’re a seasoned investor, they’ll lend you 85% of the purchase and 100% of rehab. This means that with any project, you’ll have to find a way to fund a 15% down payment on the purchase. But the fix and flip loan will pay for all the rehab.

As a quick example, let’s look back at that $200k ARV house. The lender will give you 70% of that amount (so $140k), but they’re still restricting purchase to 85% and rehab to 100%.

So this example might play out like this:

  • ARV: $200k
  • Maximum LTV: $140k
  • Actual as-is purchase price: $120k
  • Rehab budget: $20k
  • Actual LTV for purchase: $102k
  • Actual LTV for rehab: $20k
  • Total actual LTV: $122k
  • Amount needed for down payment on purchase: $18k

Reserves Requirements for Fix and Flip Loans

In addition to understanding LTVs and down payment amounts, another important cost to understand for fix and flip loans is reserves.

Reserves are the other amounts of money a fix and flip lender might require you to have. Here are the most common reserves requirements:

  • 6 months of interest payments in an account. They want to be sure if anything comes up, you’ll have the funds to make those payments.
  • Closing costs. You’re purchasing a property that’s going through a closing agent. You’ll have to pay the costs for that closing agent, plus any lending closing cost.
  • Monthly payments. Loan costs and other “carry costs” will come up monthly for the property while you’re fixing it up. Don’t forget to include these in your budget.
  • Other lender requirements. Every fix and flip lender might have slightly different cost and reserve requirements.

How to Maximize Your Fix and Flip Loans

Remember, if your lender tells you they’ll give you 70% of the ARV, there’s more to the story than that.

Know the actual criteria you need for each flip, and always look for the highest LTV lenders. 70% is the average in the current market, but some lenders can offer closer to 75% or give you 90%+ for the purchase.

Want to be able to compare these costs from multiple lenders at once? Download this free loan analyzer.

Have more questions about fix and flip loans? You can reach out at Info@TheCashFlowCompany.com.

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What Bad Credit Does to Real Estate Loans’ Costs

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Bad credit on real estate loans could cost you thousands over time. Here’s what you need to know.

There are multiple types of lender approaches to credit and real estate loans.

Some jack up the interest rate and leave loan fees alone, knowing you may not do the loan if you have to bring in extra funds. Other lenders keep rates low but add a lot of points. Some will add to both for bad credit.

You’ll have to talk to the lenders near you to find out what type they are. Let’s go through a couple examples and what to look for with credit and real estate loan costs.

What Costs Look Like for Bad Credit on Real Estate Loans

Here is an example of a lender who raises the interest rate and charges more points.

Firstly, the interest rate:

Secondly, here’s the additional fees based on credit score:

So with this lender, if you have a 699 credit score instead of a 740 for a fix and flip loan, then they will raise the rate by 0.5% and charge you an extra half a point.

Now, if your score drops down to 679, the rate goes even higher and the costs rise to 1 full point over your competitor with a 700 score.

How Much Does Bad Credit on a Real Estate Loan Cost You?

So let’s say we have a $300,000 loan. What does that one point difference on our credit score do if we have a 699 instead of a 700?

It costs us half a point on our rate (an extra $125 per month), plus $1,500 in closing costs ($300k x 0.5 points).

But if your score is just 21 points under 700, at 679, it will cost you $250 more per month, plus $3k in closing costs ($300k x 1 point).

Do 5 flips a year (with a 6-month turn) at a 679 score, and you would run up an extra $24k in costs over your competitors.

How to Help Your Credit for Investing

You can let your lender enjoy those funds or enjoy them yourself.

Every point counts. $24,000 a year is worth fixing your credit.

If usage is making your credit score go down, you can try these fixes.

You can also find other credit and real estate investing tips here.

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What Are Interest Rates for Fix-and-Flip Loans in 2022?

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Here are current interest rates for fix-and-flip loans – and how should you move forward because of them.

What do rates look like for fix-and-flip loans currently?

You can probably guess – rates for all loans have gone up.

Interest Rates for Fix-and-Flip Loans

At The Cash Flow Company, we represent about five or six capital funds. We’re always looking for the ones with the best rates, but still – there’s nothing much available in capital funds lower than a 10-12% interest rate.

Six months ago, you could find these same loans for closer to 7-8%. This is the squeeze. This is the tightening the Fed wanted when they raised interest rates. Now it’s affecting your loans for fix-and-flips, but you can still get prepared for better opportunities.

Advice on Flips for the Next Few Months

There are a few things we recommend to set yourself up for success with flips in the next few months.

  • Smaller Projects – Smaller, lower price point homes tend to sell better in this type of market.
  • Bigger Neighborhoods – Outlier, rural properties were popular in the midst of the pandemic. But now those same properties are sticking on the market for a long time. Keep your flips inside a big, good neighborhood.
  • Aggressive Funding – Be proactive and relentless in your search for funding sources (or have someone searching on your behalf). When great new deals come, you’ll be one of the few investors who is ready.
    • Consider getting a HELOC on your home now so you have available funds when you need them.
    • Call banks and other lenders to stay updated on their requirements.
    • Find OPM lenders. Especially in an economy like this, people with money want safe, secure returns. Getting those people to fund your investments can help you take advantage of upcoming low prices.

Read the full article here.

Watch the video here:

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Your Fix-and-flip Loans When the Fed Tightens Money

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What changes to expect on LTVs for fix-and-flip loans when the Fed tightens money.

There are a couple ways raised federal interest rates impact fix-and-flips.

In about six to twelve months, the market is expected to have another shift. Prices should come down, and better properties will become available.

However, your fix-and-flip loans when the Fed tightens money also get tougher to work with. To be ready for those upcoming opportunities, here’s what you need to know about loans for fix-and-flips now.

Fix-and-Flip Loans with Tightened Money

What does it mean for real estate investors when the Fed starts tightening money? Lenders start to pull back.

Lenders want to wait to figure out what will happen with the markets. Their money isn’t returned as fast as usual because investors’ properties take longer to sell. Less money becomes available overall.

This tightening of money results in many recent changes we’ve seen in loans for fix-and-flips.

Changes in LTVs

The loan-to-cost or loan-to-ARV on properties has lowered, and appraisals are being cut. The average LTV used to be 75%. Now, most lenders have pulled back to 65-70%.

Lower LTVs mean you need to bring more money into a deal. It’ll take more out-of-pocket to actually close on a property in the current market.

With low LTVs and lenders being picky with transactions, it’s important to only take fix-and-flips you can obviously turn a profit on.

Home Value Changes

While loan-to-values are going down, credit score requirements are going up. Typically, lenders’ credit score minimums start at 620 or 640. Now, many lenders won’t take anyone with lower than a 680 or 700 score. Six months from now, that could become even tighter.

If you’ve been investing for a while, you’ll need to change how you look at leverage. For the past ten years, lenders have been seeking you. Now, you’ll have to proactively find your money. It’s more important than ever to plan your funding.

Read the full article here.

Watch the video here:

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What is Happening with Loans for Fix-and-Flips in 2022?

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Loans for fix-and-flips are changing fast. Here’s what you need to know.

There are two ways you might be thinking about loans for fix-and-flips right now.

First, maybe you have a property on the market now you’re trying to get rid of.

Second, maybe you’re planning for what’s going to happen with flips in the near future.

In about six to twelve months, the market is expected to have another shift. Prices should come down, and better properties will become available.

To be ready for those upcoming opportunities, here’s what you need to know about loans for fix-and-flips now.

Money Tightening on Loans for Fix-and-Flips

What does it mean for real estate investors when the Fed starts tightening money? Lenders start to pull back.

Lenders want to wait to figure out what will happen with the markets. Their money isn’t returned as fast as usual because investors’ properties take longer to sell. Less money becomes available overall.

This tightening of money results in many recent changes we’ve seen in loans for fix-and-flips.

Changes in LTVs

The loan-to-cost or loan-to-ARV on properties has lowered, and appraisals are being cut. The average LTV used to be 75%. Now, most lenders have pulled back to 65-70%.

Lower LTVs mean you need to bring more money into a deal. It’ll take more out-of-pocket to actually close on a property in the current market. 

With low LTVs and lenders being picky with transactions, it’s important to only take fix-and-flips you can obviously turn a profit on.

Home Value Changes

While loan-to-values are going down, credit score requirements are going up. Typically, lenders’ credit score minimums start at 620 or 640. Now, many lenders won’t take anyone with lower than a 680 or 700 score. Six months from now, that could become even tighter.

If you’ve been investing for a while, you’ll need to change how you look at leverage. For the past ten years, lenders have been seeking you. Now, you’ll have to proactively find your money. It’s more important than ever to plan your funding.

Rates on Loans for Fix-and-Flips

What do rates look like for fix-and-flip loans currently? 

You can probably guess – rates for all loans have gone up.

At The Cash Flow Company, we represent about five or six capital funds. We’re always looking for the ones with the best rates, but still – there’s nothing much available in capital funds lower than a 10-12% interest rate.

Six months ago, you could find these same loans for closer to 7-8%. This is the squeeze. This is the tightening the Fed wanted when they raised interest rates. Now it’s affecting your loans for fix-and-flips, but you can still get prepared for better opportunities.

Advice on Flips for the Next Few Months

There are a few things we recommend to set yourself up for success with flips in the next few months.

  • Smaller Projects – Smaller, lower price point homes tend to sell better in this type of market.
  • Bigger Neighborhoods – Outlier, rural properties were popular in the midst of the pandemic. But now those same properties are sticking on the market for a long time. Keep your flips inside a big, good neighborhood.
  • Aggressive Funding – Be proactive and relentless in your search for funding sources (or have someone searching on your behalf). When great new deals come, you’ll be one of the few investors who is ready.
    • Consider getting a HELOC on your home now so you have available funds when you need them.
    • Call banks and other lenders to stay updated on their requirements.
    • Find OPM lenders. Especially in an economy like this, people with money want safe, secure returns. Getting those people to fund your investments can help you take advantage of upcoming low prices.

We Can Help with Loans for Fix-and-Flips

We’re always looking for the best loans. We spend time talking to lenders on your behalf, getting loans with the best terms and requirements, that best fit the current market.

If you have or want a flip, reach out to us. We have many sources that are still looking to lend – capital funds and hard money.

You can also bring us your questions on OPM – from finding lenders, to attracting them, to closing with them.

With any of these questions or more, email us at Info@TheCashFlowCompany.com.

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3 Ways to Refinance Out of a Fix-and-Flip

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This market can put your flips in a bad spot – here are 3 ways to refinance out of a fix-and-flip!

As a flipper, you’ve probably noticed the change in the market.

Properties are sitting on the market longer, and price decreases are not helping. When your flip lender comes calling for their money back, what are you supposed to do?

You have two options:

  • Take the price hit, sell, and cut your losses.
  • Refinance.

Often, refinancing can get you out of a bad spot and still let you come out with a profit. Let’s go over your options and review 3 ways to refinance out of a fix-and-flip.

Why Should You Refinance a Fix-and-Flip?

The most important thing about this market is that you use it to your advantage to prepare for the next market.

We anticipate that over the next 12 months:

  • The Fed is going to continue raising rates.
  • The economy will soften.
  • There will be great real estate deals like we haven’t seen in years.

You want to make sure you’re money-ready for those opportunities. You don’t want properties sitting on the market, taking up your time and energy, and tying up your funds.

So when you have a house that just won’t sell… What are you supposed to do?

Of course, there are traditional refinance methods. You can go to a bank and get a Fannie or Freddie non-conforming loan. But these loans need you to fit into a pretty small box. What if you own too many properties? Or you need your refinance loan fast? What if you don’t fit in the box?

That’s where these 3 unique loans to refinance out of a fix-and-flip come in handy.

1. DSCR Loan

Are you open to keeping your flip for a little longer term? Would you convert it to a rental in the meantime? If so, a DSCR loan is a great way to refinance out of a fix-and-flip.

A DSCR loan is a type of rental loan, based only on:

  • Your credit
  • Rental income from the property (not your personal income)
  • LTV (appraisals, listing price, etc that show the value of the home)

If you’re considering a DSCR loan, let’s look at the pros and cons of shifting gears from a flip to a rental.

DSCR Loan Pros

A DSCR lender will loan you up to 80% of the value of the home.

Cash Flow Opportunity for Your Flip

Your options for a DSCR loan product are broad. You can get anything from an interest-only to a 40-year loan.

With these options, you can spread the payments out. With lower payments and a potential tenant, you can match the cash flow to break even on the property (or maybe even bring in positive cash flow!).

This cash flow frees up your money to buy more flips and keep your business going. With that free money, you can jump on the good deals that will pop up in the next few months.

“Easy” Loan

Some of the biggest advantages of a DSCR loan is how easy it can be to apply and qualify.

For this type of loan, there are no income requirements. You just need good credit and rent that covers the monthly loan payment.

DSCR Loan Cons

There’s one important trick to refinancing a house that’s been on the market:

The appraiser is going to use the last price the house was listed for in their appraisal.

It’s tempting to drop the price when you have a flip on the market to try and attract a buyer. But once you decide to refinance, your house won’t appraise for higher than that lowest listed price.

So, it’s important to decide what you want to do with a flip ASAP. If you know you may want to refinance, you don’t want to keep lowering the list price, or it will negatively impact you.

Pre-payment Penalty

All DSCR loans have some kind of pre-payment penalty. Many are for around 3 years.

This means you have to keep the loan for that period of time, otherwise you’ll be charged a percentage fee for paying off the loan early.

If you want to keep this loan on your property for less than 3 years, you’ll be stuck paying that pre-payment penalty with a DSCR loan.

Not Available for Rural Areas

Also, DSCR loans are not designed for smaller towns. They can be great if you’re in a larger community, but they’re just not available in small ones.

And as money tightens up overall in the real estate lending space, DSCR programs are tightening up too. Rates will go up, LTVs will go down, and they will concentrate more on city centers. 

Most DSCR loan programs go as far as 25 miles from a city. But anything that shows up rural on an appraisal will likely not qualify for DSCR.

2. Bridge Loan

A bridge loan is a short-term loan that’s designed to give you flexibility on flips that are slow to sell.

With a bridge loan, you’re free to keep the house on the market, or convert it to a rental. The main purpose of a bridge loan is to get you out of a tough situation with the lender of your flip. What you choose to do with the house afterward is flexible with a bridge loan.

Bridge Loan Pros

Bridge loans are designed to help you refinance out of a flip. It gets you out of your original loan quickly –which is crucial when you’re getting calls from your lender. Plus, it helps you from paying high monthly payments with no cash coming in.

Additionally, bridge loans:

  • have no pre-payment penalty
  • can be interest only
  • close very quickly.

Bridge Loan Cons

Too Short-Term?

Bridge loans are short-term – varying between 1 and 3 years. 

In our market, we don’t expect interest rates to trend down for at least another year. If your bridge loan only covers you for a year, that might not be enough time to carry you into a better market.

You’ll want your refinance bridge loan for at least 2 years to give you some flexibility with the property.

You may need to shop around – 3-year bridge loans can be difficult to find, and many are limited to 1 year only.

Low LTV

Bridge loans are usually only 65% to 70% of the house’s current appraised value. 

Again, remember that your listing price will have a direct impact on that appraised value. If you slide the price down on the market to attract buyers, your refinance loan will be lower.

DSCR vs Bridge Loan to Refinance Out of a Fix-and-Flip

When we meet with a client about how to refinance out of a fix-and-flip, we weigh DSCR loans against bridge loans.

There’s always a tipping point – usually somewhere between the 14th and 17th month of a DSCR loan – where the pre-pay fee becomes cheaper than a bridge loan.

Bridge loans typically have 2% to 4% higher annual rates over a DSCR loan. Always analyze this tipping point, and choose the right loan for you based on the length you’ll need it.

3. Real OPM

When it comes to real estate investing, OPM is almost always the best choice.

OPM is Other People’s Money. You match up with a real person you know who has money. These are usually retired people, or people nearing retirement.

Inflation is hitting them as bad as it’s hitting you. If they have a lot of cash, they probably want to put it somewhere more stable than stocks and with a better return than a bank account.

If you can offer these people a 5% to 7% return, they may be willing to become your lender. OPM isn’t as concerned about typical loan qualification requirements. Done right, OPM is a win-win for both parties.

OPM is the fastest, easiest, cheapest way to refinance out of a fix-and-flip. Real OPM is what you need most now. Prioritize finding these lenders.

What Are Your Next Steps to Refinance Out of a Fix-and-Flip?

If you have a flip that’s in trouble, let us know. We can help you find your tipping point between DSCR or bridge loans.

We fund some loans ourselves, and we scour the nation looking for all the best loan products available. Let’s find the best debt for your position.

Send your questions to Info@TheCashFlowCompany.com. We’re happy to look at your loan, and if we can’t help you, we probably know someone who can.

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7 Fundamentals of a Real Estate Deal

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For a successful investment career, start with these 7 Fundamentals of a Real Estate Deal

Are you “money wise”? It’s not hard to get there. And it will save you a lot of cash down the line.

It’s like when a person who knows about cars goes to a mechanic – they have peace of mind because they understand what’s going on. If you’re not a “car person,” at the mechanic’s it’s harder to figure out if they’re telling you the truth, or just trying to sell you more than you need.

As a real estate investor, leverage is at the center of what you do. It’s like a foreign language when you first start out. But when you become money wise, the leverage in your real estate investment career is fully in your hands.

Here are 7 real estate loan fundamentals that will make you money wise.

Fundamentals of a Real Estate Deal

There’s certain information you’ll need to bring to your lender when you need a loan. If you know the answers to their questions, the time with your lender will be much more productive.

At the end of the day, lenders want to know: Do you have a good deal? (And you should want to know the answer, too!)

We’re going to dive into 7 main concepts to answer that question:

  • Strategy
  • Purchase Price / Contract
  • Scope of Work
  • Budget
  • Estimated Profit  / Equity
  • Comps / ARV
  • Exit Strategy

I. Strategy – What Is a Real Estate Strategy?

When your lender asks about your strategy, they want to know whether you’ll use the property as a

  • fix-and-flip
  • a rental
  • or if you’re not sure yet.

What is a real estate strategy dependent on? 1) your goals, and 2) the property.

You’ll have to know the numbers to know if the property will make a good flip with carry costs you can afford, or if it would cash flow well as a BRRRR-style rental.

But how do you “know the numbers”? Let’s start with the cost of the property.

II. Purchase Price / Contract – What Are the Fundamental Numbers of a Real Estate Loan?

Your lender could refer to this as purchase price, contract, or as-is value.

In real estate investment, there’s a distinction between what you’re paying for a property and what it’s worth. The purchase price isn’t necessarily what the value of the home is.

This is the number on the contract, the number you’ve agreed to buy the property for. And this number is foundational to whether or not your project will turn a profit.

III. Scope of Work – How Do You Fix Up a Real Estate Investment?

Many beginner investors mistake “scope of work” for the budget. Scope of work is what you’re going to do to the property, not the number of what that work will cost.

Will you add a bedroom? Re-do the garage? Are you going to convert the porch to additional square footage? Or add egress windows to the basement?

Scope of work is your rehab plan. Lenders need this info to find out what kinds of properties they should compare to yours to estimate an after repair value.

IV. Budget – What Is a Real Estate Budget?

During the conversation with your lender, have a high overview of your construction budget. You don’t necessarily need all the details ironed out quite yet.

For example, you can estimate that the kitchen will cost $10,000, siding $6,000, windows $4,000, and new paint $2,000. At this point, you don’t need to share a breakdown of the cost of each new appliance, labor and materials, etc.

You just need a realistic estimate of how much it will cost to get into the property. Having your scope of work lined out helps you with an estimated budget. When you know the purchase price an your budget, then you know how much the entire project will cost.

V. Estimated Profit (Flips) / Estimated Equity (Rentals) – How Much Will a Deal Make?

Estimated profit is what you expect to make on the transaction, between buying the property, fixing it up, and selling it again.

Equity is the difference between the amount you owe and what the property is worth. You build equity on your rentals by successfully refinancing after a flip and paying down the mortgage with rent income.

The number one reason to be in real estate investment is to make money and create wealth – it’s true for lenders, and it’s true for you. So, it’s important to both you and your lender that your properties make profit or build equity.

You’ll need your estimated profit / equity when you bring a deal to your lender.

V. Comps / ARV – What Does ARV Mean in Real Estate Investing?

ARV is the after repair value. It’s what the property will appraise for, or sell for, on the current market once the scope of work is completed.

You estimate a property’s ARV by looking at the prices of similar homes in the current market.

Comps (comparables) are those similar homes you look at. It’s important that your comps have the same value as your property.

For example, if your deal is for a 950 square-foot home, you’ll compare it to other 900 to 1,000 square-foot homes on the market, not a 2,000 square-foot one. A 2-bedroom, 1-bath house will be compared to houses of the same specifications, and not compared with 4-bedroom, 2-bath homes.

For your ARV to be accurate, you need to stay true to your scope of work. If you only repaint and re-carpet a house that needed much more work, you won’t get top-of-the-market value when you try to sell or refinance.

On the other hand, if your scope of work is a full remodel, your comparables should be homes that are fully remodeled, so you don’t miss out on any profit.

The money you put into fixing up a house isn’t a direct indicator of how much the house will be worth. What the property looks like when it’s finished has nothing to do with how much it cost to get it there.

To find the true profitability of a deal, your ARV and comparables help:

ARV – (Purchase Price + Budget) = Profit Amount

VII. Exit Strategy – How Will You Pay Your Real Estate Loans?

When a lender asks for your exit strategy, they want to know your plan for paying off the loan. For hard money loans, your exit should be fast.

If it’s a flip, your exit strategy is to sell the property, then pay off the loan.

If it’s a rental, your exit strategy is to refinance into a long-term loan, which will pay off the hard money loan.

 

The Why Behind Money Wise – Real Estate Investing Definitions

When you come to the table prepared, with strategies, numbers, and knowledge, you can speak the same language as your lender.

This is key to ensuring you have a safe transaction with a lender that is working in your best interest. 7 Fundamentals of a Real Estate Deal

Curious About Other Real Estate Loan Fundamentals?

If you have any questions, or want coaching through a deal, we’re happy to help. You can contact us here.

For more info on real estate loan fundamentals, keep up with our Hard Money 101 series on our blog, or visit our YouTube channel here.

Happy Investing

7 Fundamentals of a Real Estate Deal

7 Fundamentals of a Real Estate Deal

 

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Mortgage Investor Report 6 23 2020

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Mortgage Investor Report 6 23 2020

Conforming rates are hot, and underwriting is loosening up.

What are other current options available for investors?

Most of these type loans are slowly coming back.  Lets hope there is not another countrywide closure so they stay around.

We all need options.

Non-conventional loans for investors.

 

If you are an investor and your taxes don’t allow you to obtain a traditional standard conventional loan or any loan that requires returns, what do you do?

 

Look for the two most frequently used options for investors:

 

  1. Bank statement programs. These loans base your income on the last 12 to 24 months of personal or business banks statements.  Simply put they add up your deposits each month and average them over the number of months.  This will be the income they use for your qualifying for the mortgage.
    1. Rates are 2 to 3 points higher than a conforming loan
    2. The higher the credit score the better the rate
    3. The lower the loan to value the better the rate
    4. Cash out vs rate and term is 5% lower for cash out
  2. Investor cash flow. These loans use lease payments for the income.  They require a minimum of your lease payment covering all your monthly costs for the rental.  This includes mortgage payment, taxes, insurance, HOA, property management, utilities, etc…
    1. Better pricing for better credit scores
    2. Better pricing when your rent is larger than monthly costs
    3. Higher ltv based on how much more your rent payments cover your monthly costs

 

 

Note: The Cash Flow Company doesn’t currently lend in all states, but we are always happy to help and make sure you understand your numbers!

*All non-commercial and construction loans offered by TNS Loans NMLS #1719349

 

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