Tag Archive for: fix and flip

Secured vs Unsecured Peer to Peer Lending

What is peer to peer lending, and what is the difference between secured and unsecured? Peer to peer lending is asking anyone that you know, or even people you don’t know, for money. While family and friends can be part of this, that is not what we are talking about. Instead we are referring to people in your community or those in the real estate community. These individuals want to make money, however, they don’t want to own properties. Roughly 98% of peer to peer money comes from these groups of people, not family and friends. So what is the difference between secured and unsecured peer to peer lending? Let’s take a closer look.

The struggles with budgets.

There are a lot of people right now who are struggling with their budgets. This is because everything has gone up, from taxes and insurance to the cost of gas. Everything is putting a strain on budgets. This is where peer to peer lending can help people to escape their financial struggles. Peer lenders, who have money in their IRA, are looking for better returns. At the same time real estate investors and business owners are looking for better lending options. By working with real people again, both the borrower and lender can benefit from peer to peer lending.

Peer to peer lending can replace traditional loans.

As investors, we want to replace some or all of the funding that we normally receive from traditional lenders. These traditional lenders include banks, hard money lenders, and private lenders. By replacing all of that with a peer to peer bucket of money, you can create a faster, easier, and cheaper lending option. There is no need to be fearful! Peer to peer has been around since before banks were even established. The only thing you need to keep in mind is to take the time to secure everything properly. This will give both you, the borrower, and the lender, the reassurance that the deal is secured with real estate vs unsecured.

Creating better returns.

Those who use peer to peer lending will in turn get better returns than they would in other situations. For example, banks will normally give someone 5% and then lend out 9%. This creates a 3% to 5% profit for the bank. When you borrow directly from me, you will get cheaper money, and I will also get a better return because it is secured. A secured return is one that is secured by a piece of real estate. By taking the bank out of the middle, it makes it faster, easier, and cheaper money. Thus creating a win win situation for both the borrower and the lender.

Keep it simple and be prepared.

When we are talking about peer to peer lending we are not talking about begging people for money. We are also not saying that you need to go out and convince people. Going through the process correctly provides more opportunities for future lending. Once you have one peer to peer lender, you can easily jump to more by showcasing how you treat your peer lender, showing that you pay on time, and paid it back. Those who treat it like a bank loan or a real business will be able to expand their peer to peer bucket of money at a much faster pace. For those who struggle with communication, you can create a quick presentation or video to explain everything with links. Don’t make things complicated! 

What do you need to do to be prepared?

Peer to peer lending requires less paperwork than a traditional loan. You also don’t have to worry about being denied because of your bank statements or credit scores. With the way things have changed and shifted over the years, the lending pools are shrinking as well. By taking the time to get everything secured, you will create a win win situation. Let’s take a closer look at what you need.

  1. We are going to secure this with a piece of real estate by using a deed of trust or mortgage.
  2. Everything is recorded by title. 
  3. Wire money directly to title for the closing.
  4. We are going to make it so secured that it will make them feel reassured.
  5. You are going to build a nice case to show them the property.
    1. Rental – Maybe it’s already fixed up and already rented. Then you can show that money is coming in.
    2. Flip- Here’s the flip and if it’s new, here’s what I’m going to do to the property. If you are experienced, then you can show what you have done in the past.
  6. When the property is refinanced or paid off, then the title company is going to pay the peer lender back directly.

Find people who are engaged or looking 

Peer to peer lenders are everywhere! Many are in their retirement age or in a retirement zone and just need more money to live. With the rapidly increasing cost of living over the past few years, many people are looking for something that will provide a better and more secure return. 

  • Self Directed IRA

This is a group of people who have their 401K or IRA in a self directed plan. A self directed plan is one they can use to invest in anything. Those with this type of plan are used to working with private places such as a business preliminary stock or deeds. 

  • Equity Trust and Direction IRA

They have meetups and groups that you can attend so that you can get connected with others in the community. An added benefit is that they have people who can take care of the paperwork for you while you decide where to invest.

Peer to peer helps the community.

By using peer to peer lending as opposed to traditional lending, you’re putting money back into the community. By living here, working here, and investing here, you can see the benefits of your hard work. From fixing up properties to renting properties, we are going to improve the community around us. People who are lending will feel that they are helping the community, plus they can see where their money is. 

Now is the time

2024 predictions are indicating that rates will decrease dramatically. Now is the time to use peer to peer lending for your real estate needs. It is important that investors set up their peer to peer bucket of money as soon as possible. Don’t waste time waiting for loan approvals from banks. Instead, think outside the box, find your peer to peer community, and take the time to get everything secured vs unsecured. Peer to peer lending creates the flexibility you need to make investing easier and more profitable for both the borrower as well as the lender.  

Here at The Cash Flow Company we can help you navigate peer to peer lending. We have created systems to help navigate the process for both the borrower, as well as the lender. Contact us today to find out more.

Watch our most recent video to discover more about How to Escape Financial Struggles with Peer to Peer Lending.

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What Do You Use Peer to Peer Lending For?

What is peer to peer lending and what can you use it for? Peer to peer lending is asking anyone that you know, or even people you don’t know, for money. While family and friends can be part of this, that is not what we are talking about. Instead we are referring to people in your community or those in the real estate community. These individuals want to make money, however, they don’t want to own properties. This unique lending creates the flexibility to use it for small amounts, fix up costs, monthly payments, large amounts, and so much more! Let’s take a closer look.

The struggles with budgets.

There are a lot of people right now who are struggling with their budgets. This is because everything has gone up. From taxes and insurance, to the cost of gas, budgets are being stretched more and more every day. This is where peer to peer lending can help people to escape their financial struggles. Peer lenders, who have money in their IRA, are looking for better returns. At the same time real estate investors and business owners are looking for better lending options. By working with real people again, both the borrower and lender can benefit.

Peer to peer lending can replace traditional loans.

Peer to peer is centered on finding people who are willing and want to get into a win win situation. As investors, we want to replace some or all of the funding that we normally receive from traditional lenders. These traditional lenders include banks, hard money lenders, and private lenders. By replacing all of that with a peer to peer bucket of money, you can create a faster, easier, and cheaper option. There is no need to be fearful! Peer to peer has been around since before banks were even established.

Peer to peer provides flexibility

Many investors and business owners wonder what they can use peer to peer lending for and what the dollar amounts are. The flexibility of peer to peer, unlike banks, allows you to use it for small amounts, fix up costs, monthly payments, large amounts, and so much more! The beautiful thing about peer to peer is that there is always funding available from $10K to 10 million. It all depends on what you need and who you work with.

Here is a list of common uses for peer to peer funds.

  1. Gap funding 
  2. Finishing a project 
  3. Paying off a credit card
  4. Lines of credit 
  5. Developing land 
  6. Auctions 
  7. Rentals 
  8. Flips
  9. Land
  10. Construction 
  11. Anything that looks like a good deal and has security
  12. Expansion
  13. Growth

Peer to peer helps the community.

By using peer to peer lending as opposed to traditional lending, you’re putting money back into the community. By living here, working here, and investing here, you can see the benefits of your hard work. From fixing up properties to renting properties, we are going to improve the community around us. People who are lending will feel that they are helping the community, plus they can see where their money is. 

Now is the time

Now is the time to make the switch to peer to peer lending!  Investors need to set up their peer to peer bucket of money as soon as possible in order to avoid missing out on amazing real estate opportunities. Don’t waste time waiting for loan approvals from banks. Instead, think outside the box and find your community today. The flexibility makes it easier and more profitable for both the borrower as well as the lender.  

Here at The Cash Flow Company we can help you navigate peer to peer lending. We have created systems to help navigate the process for both the borrower, as well as the lender. Contact us today to find out more.

Watch our most recent video to discover more about How to Escape Financial Struggles with Peer to Peer Lending.

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How to Escape Financial Struggles with Peer to Peer Lending

What is peer to peer lending? Peer to peer lending is asking anyone that you know, or even people you don’t know, for money. While family and friends can be part of this, that is not what we are talking about. Instead we are referring to people in your community or those in the real estate community. These individuals want to make money, however, they don’t want to own properties. Roughly 98% of peer to peer money comes from these groups of people, not family and friends. So how can peer to peer lending help to escape financial struggles? Let’s take a closer look.

The struggles with budgets.

There are a lot of people right now who are struggling with their budgets. This is because everything has gone up. From taxes and insurance, to the cost of gas, budgets are being stretched more and more every day. This is where peer to peer lending can help people to escape their financial struggles. Peer lenders, who have money in their IRA, are looking for better returns. At the same time real estate investors and business owners are looking for better lending options. By working with real people again, both the borrower and lender can benefit from peer to peer lending.

Peer to peer lending can replace traditional loans.

Peer to peer is centered on finding people who are willing and want to get into a win win situation. As investors, we want to replace some or all of the funding that we normally receive from traditional lenders. These traditional lenders include banks, hard money lenders, and private lenders. By replacing all of that with a peer to peer bucket of money, you can create a faster, easier, and cheaper lending option. There is no need to be fearful! Peer to peer has been around since before banks were even established.

Creating better returns.

Those who use peer to peer lending will in turn get better returns than they would in other situations. For example, banks will normally give someone 5% and then lend out 9%. This creates a 3% to 5% profit for the bank. When you borrow directly from me, you will get cheaper money, and I will also get a better return because it is secured. A secured return is one that is secured by a piece of real estate. By taking the bank out of the middle, it makes it faster, easier, and cheaper money. Thus creating a win win situation for both the borrower and the lender.

Keep it simple and be prepared.

When we are talking about peer to peer lending we are not talking about begging people for money. We are also not saying that you need to go out and convince people. While you do have to go through a process, if it’s done correctly, then you can easily get people involved in lending you money. Once you have one peer to peer lender, you can easily jump to more by showcasing how you treat your peer lender, showing that you pay on time, and paid it back. Those who treat it like a bank loan or a real business will be able to expand their peer to peer bucket of money at a much faster pace. For those who struggle with communication, you can create a quick presentation or video to explain everything with links. Don’t make things complicated! Remember to keep it simple and always be prepared.

What do you need to do to be prepared?

Peer to peer lending requires less paperwork than a traditional loan. You also don’t have to worry about being denied because of your bank statements or credit scores. With the way things have changed and shifted over the years, the lending pools are shrinking as well. By taking the time to get everything secured, you will create a win win situation. Let’s take a closer look at what you need.

  1. We are going to secure this with a piece of real estate by using a deed of trust or mortgage.
  2. It’s going to be recorded by title. 
  3. Wire money directly to title for the closing.
  4. We are going to make it so secured that it will make them feel reassured.
  5. You are going to build a nice case to show them the property.
    1. Rental – Maybe it’s already fixed up and already rented. Then you can show that money is coming in.
    2. Flip- Here’s the flip and if it’s new, here’s what I’m going to do to the property. If you are experienced, then you can show what you have done in the past.
  6. When the property is refinanced or paid off, then the title company is going to pay the peer lender back directly.

Find people who are engaged or looking 

Peer to peer lenders are everywhere! Many are in their retirement age or in a retirement zone and just need more money to live. With the rapidly increasing cost of living over the past few years, many people are looking for something that will provide a better and more secure return. 

  • Self Directed IRA

This is a group of people who have their 401K or IRA in a self directed plan. A self directed plan is one they can use to invest in anything. Those with this type of plan are used to working with private places such as a business preliminary stock or deeds. 

  • Equity Trust and Direction IRA

They have meetups and groups that you can attend so that you can get connected with others in the community. An added benefit is that they have people who can take care of the paperwork for you while you decide where to invest.

Peer to peer provides flexibility

Many investors and business owners wonder what they can use peer to peer lending for and what the dollar amounts are. The flexibility of peer to peer, unlike banks, allows you to use it for small amounts, fix up costs, monthly payments, large amounts, and so much more! The beautiful thing about peer to peer is that there is always funding available from $10K to 10 million. It all depends on what you need and who you work with.

Here is a list of common uses for peer to peer funds.

  1. Gap funding 
  2. Finishing a project 
  3. Paying off a credit card
  4. Lines of credit 
  5. Developing land 
  6. Auctions 
  7. Rentals 
  8. Flips
  9. Land
  10. Construction 
  11. Anything that looks like a good deal and has security
  12. Expansion
  13. Growth

Peer to peer helps the community.

By using peer to peer lending as opposed to traditional lending, you’re putting money back into the community. By living here, working here, and investing here, you can see the benefits of your hard work. From fixing up properties to renting properties, we are going to improve the community around us. People who are lending will feel that they are helping the community, plus they can see where their money is. 

Now is the time

Now is the time to buy! There are predictions that rates will decrease in 2024.  It is important that investors set up their peer to peer bucket of money as soon as possible. Don’t waste time waiting for loan approvals from banks. Instead, think outside the box and find your peer to peer community today. Peer to peer lending makes it easier and more profitable for both the borrower and lender.  

Here at The Cash Flow Company we can help you navigate peer to peer lending. We have created systems to help navigate the process for both the borrower, as well as the lender. Contact us today to find out more.

Watch our most recent video to discover more about How to Escape Financial Struggles with Peer to Peer Lending.

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What is Peer to Peer Lending and Why You Need It

What exactly is peer to peer lending and why do investors need it? Peer to peer lending, also known as other people’s money, is funding that is provided by family, friends, or individuals within the community to help you in your investments. Here at The Cash Flow Company, we have done about a billion dollars over the past 23 years using peer to peer lending. The majority of this money is not from family and friends, but instead from other people who are interested in making a good return. Investors and business owners are looking for other sources for their financial needs, which is where peer to peer lending can be an excellent alternative to traditional bank loans.

Who makes up the peer to peer lending community?

Peer to peer means that working with other people in the community who have just as big of a need as you do. These individuals might be in your church or individuals who are in retirement and need some extra income. They might have some money in a 401K, IRA, or extra savings that they would rather lend to you. Whether it’s 6%, 7%, or even 8% secured, it can help you with closing costs, while helping them get a better return on their money. 

Peer to peer is replacing banks.

We all know what is happening out there with affordability. The banks are starting to change their requirements, DSCR is getting into the 9% and 10% range, and fix and flip loans are anywhere between 11% and 13%. This lending squeeze is causing affordability, terms, and credit score requirements to all become tougher as well. Which creates the perfect opportunity to reintroduce peer to peer lending, which is something that has been around since before banking began. Peer to peer lending is taking out the banks and allowing people to begin working with humans again. 

Peer to peer gets deals done quickly.

Every good investor always has a few peer to peer lenders that they work with on a regular basis. These are individuals that the investors have built a good reputation with, and proved that they can produce quality work. By creating this foundation, it allows investors to act quickly on deals that come available instead of waiting for the bank’s approval. Peer to peer lenders also benefit because they are able to use money from their savings accounts or retirement accounts in order to get a better return that is something secured. It’s a great win-win situation for everyone!

Something for everyone.

Every investor or business owner should look into peer to peer lending. Even if it is just for a down payment, fix up cost, or any other expense in the real estate world. Businesses could also benefit from peer to peer lending for start up costs or unexpected business expenses. It doesn’t have to be $500K, but it could be! With lending becoming tighter, banks could require an additional 10%. In that case, where would you go for the additional money? The answer is peer to peer! There are all kinds of people out there with pockets full of money. You just need to find one that has what you are needing.

No need to make things awkward

Again, peer to peer lending is funding that is provided by family, friends, or individuals within the community to help you in your investments. While we all know that borrowing money can create an uncomfortable situation, there are three steps you should follow to prevent this from occurring.

  • Make sure you are putting them in good deals both now and in the future. 

These are deals that have a good chance of cash flowing. This can be done by making sure you have a good ARV or After Repair Value before jumping into a deal. 

  • Make sure you do the proper paperwork. 

Proper paperwork  includes a real note, a mortgage, or a deed of trust that’s secured on a property. If you do it right and secure it with real estate, then they are in a good position as a lender.

  • Get out there and mingle.

You need to get out there and talk to real estate groups.  Find out what they are doing, and who they are using for their peer to peer lenders. There are a ton of people who want to get into real estate, but they don’t want to get into the real estate game. Instead they just want a better return.

Start the process and do it right.

If you are a good keeper of other people’s money, then it will expand. You have to start the process, do it correctly, and come up with a good package to present to them. What should you include in your package or portfolio? Let’s take a look.

  • What the property looks like
  • Estimate of what the rent will be
  • Include comps and additional research
  • Proper documentation 
  • Your plans for the property (rent or keep)
  • How the investment will be secured

Don’t take the cheapest path.

People try to take the cheap way out by not wanting to pay for the title, or record a deed because it’s going to cost money. The truth is, that all of those things are going to happen if you use a traditional lender. However, banks are going to charge more with higher interest rates. The better you make your peer to peer lender feel on the first few deals, the better the process will be in the future. It is imperative that you treat them like a real lender so that everything is official and secure. If it is done correctly, it will build a bridge that may bring more friends later on. Just to clarify, more friends does not mean adding more people onto a single note. Instead, these additional peer to peer lenders can be used separately for future investment opportunities. 

Peer to peer keeps things simple.

We want to keep it simple and find the people that fit your needs. Not everyone needs $300K or $500K. They might just need $35K or $50K to get their business going. While they do have real estate to secure a loan, they might not have the income that the bank requires. That is where peer to peer lending comes in. Most peer to peer lenders don’t care what your income is. They want to know what the property looks like, if it will protect their money, and what you are going to pay them. Another way to look at peer to peer lending is like a personal DSCR. A DSCR doesn’t care about your income either. With the high interest rates of DSCR in this market, peer to peer lending is a comparable option for investors with rental properties.

Double your money!

Peer to peer is so important for those who are lending. They can easily make $8K on $100K. Banks on the other hand, would only have a return of $4K to $5K on the same amount if it were in a CD or savings account. Peer to peer lenders could easily double what they are making without having to worry about the inconsistency of the stock market. This is a time when things are tightening and people are having to look for new opportunities. Those who are prepared, ready, and have money, will succeed. 

Where do you start? We can help!

If you want to find out more about peer to peer lending and how to get started reach out to us. We have developed methods for both borrowers and lenders that will walk you through the process of getting started. We want to make sure that this market grows and that we get rid of some of the lenders and bankers out there. This will result in more money going into peoples accounts! The better it grows, the bigger it grows, and the more options people will have for their future. Our target is to make it a win-win for both peer to peer borrowers and peer to peer lenders. 

Contact us today to find out more about the lowest risk lending option with the best return! 

Watch our most recent video explaining What is Peer to Peer Lending and Why You Need It

We have created an excellent resource site for you to discover more about peer to peer lending. This information can be found at www.TheNoteShop.com.

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Why real estate investors need to understand escrow?

Real estate investors need to understand escrow for their business to be successful. Escrow is a portion of the loan that a lending company puts aside for repairs on the property. As a real estate investor, you need to understand the rules and regulations of the lender in regards of Escrow, in order to save both time and money.  When investors understand escrow, and what they are responsible for, it can ease their frustration, prevent a finance wall, and establish a foundation for cash flow.

1.Understand the rules of escrow

As a real estate investor, you need to understand escrow by researching the rules and regulations for your lender. Any misunderstandings can very easily stall or even jeopardize a project. Investors also need to construct their budget beforehand, to ensure that they stay within it during the process. There is no flexibility after the amount is approved by the lender. Without the ability to expand the Escrow, any additional expenses will come out of your pocket instead.  

2.Begin repairs to receive escrow

Lenders allocate a set amount to not only purchase a property, but also to fix it up in order to get it market ready. The only way to access Escrow funds when buying a fix and flip, or an undervalued rental property, is to submit proof. These can be in the form of receipts, photos, and other documentation sent to your lender to show that repairs are underway. 

3. Optimize profits by using escrow correctly

When real estate investors understand escrow, they can optimize profits and avoid missing the market when it’s “hot.” This is achieved by taking into account all repair costs, having the money set aside to complete repairs, and completing the work quickly. Remember the longer you’re on hold, the more it will cost you, plus it will delay paying contractors. By understanding the importance of cost and timeline, it will result in a larger profit. 

So, what are the other Major Roadblocks that cause burn out, financial hemorrhaging, and unfortunately defeat? 

Watch our latest interview to discover more about the 5 Major Roadblocks

Want more information on real estate investment roadblocks or have any other questions? Contact us today!

 

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The Real Estate Investor’s Battle: Hurdles and Solutions

Do you want to use other people’s money to generate cash flow? Wondering what hurdles you will face along the way? Unfortunately people tend to get greedy and let emotions take over their investing decisions. They begin purchasing multiple properties in a short period of time, which is not always a profitable method. Investing is all about the numbers and determining whether a property will create cash flow, or will instead create spiraling debt. By setting your business up correctly and not letting your emotions take over, the sky’s the limit for your success. Let’s take a closer look at the real estate hurdles and the solutions that will get you back on track. 

First, limit the number of properties

We see so many people who want to do 5 or 6 deals a year. In doing so, they tend to lose money on at least 2 if not 3 of those properties. Thus resulting in investors breaking even, as opposed to making money. By taking on too much too quickly, investors fail to grow their money. It is possible in 3 years to obtain good wealth, but achieving it in one year is very difficult. Be strategic to ensure that you’re making money on each deal!

Second, regulate your emotions

80% to 90% of people either take on too much, or they let their emotions drive their business. Even though they know their numbers going into a deal, many investors let their emotions drive the bidding. This causes them to become overextended and unfortunately results in little to no profit on the property. Real estate investment is designed for everyone, however it’s only profitable for those who can take their energy and put it back into the property.

Third, leverage

It is imperative that you leave your emotions out of the deal and instead focus your attention on the leverage that your investment holds. As an investor, you have to understand how to use leverage properly in order to create income and generational wealth. While not everyone has $300K to start investing, you need to make sure that the property can pay for itself. For example, if a property is bringing in $4K and is only costing $2K, then you can feel comfortable taking on another mortgage without facing financial strain.  

Fourth, do your research 

Whether you are house hacking or joining a fellow investor, you need to make sure that you are comfortable with the numbers before diving in. It is important to research and compare properties prior to investing to determine if the investment will be profitable. Another component in this process is evaluating the property for sellability. Unfortunately there are a number of properties that have been fixed quickly or had things covered up for a fast sale. In knowing what you are looking for, you can save time and money by investing in a property that people want to buy. 

In conclusion

There is a reason that it’s “simple not easy” in real estate investing. You have to follow the process and take the steps until you feel comfortable enough to eliminate the emotions. This in turn will prevent you from getting into a situation that could jeopardize your success. Finally, by getting help from realtors, designers, or even finding ideas online, you can ensure that you have something that your audience will love. We can help you tackle the hurdles and find solutions to the challenges that are holding you back from achieving cash flow.

Watch our most recent video to find out more about Real Estate Investment Hurdles and Solutions

If you have any questions on liquidity, fix and flip loans, or any other real estate investment questions, please reach out to us!

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How to Fund Your Fix and Flip

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When looking to fund your fix and flip, it’s important to understand where the money comes from.

In general, the money in your bucket comes from two places: lenders and your own pocket. It’s important to know how these funds work together to fund your project.

What Does “Lender Funding” Actually Mean?

When lenders talk about funding 90% of purchase or 100% of a renovation, it sounds like they’re paying for more than they actually are.

True, they’re taking care of a huge portion of the cost (that you will pay back eventually). However, you’re still going to encounter additional costs and fees that you’ll have to pay out of pocket to complete your fix and flip.

If you’re not prepared, it stalls your project, and you might end up paying even more than you otherwise would have.

Reimbursable Fix and Flip Costs

This is a sub-category of money you’ll need for your fix and flip. You should also have extra funds in your money bucket to pay for certain projects up front. Even for costs that will be reimbursed!

Because most lenders only reimburse you for completed work, you’ll need out of pocket money to fund the first one or two draws to keep the project going. 

These can be expensive and could cost around $15,000 each. You can find more information about how to pay for these first draws in this article from Hard Money Mike.

These draws will be reimbursed eventually, but you need the funds available up front to get your fix and flip moving. This isn’t technically an out of pocket expense, but it can feel like it while you’re waiting for those first renovations to be completed.

How to Fund Out of Pocket Costs

It can be overwhelming to look at the out of pocket costs adding up for your fix and flip. You can easily expect to pay an additional $20,000 in expenses alone, and that number can rise to $50,000 if you include the funding you’ll need for draws.

It’s best to have these funds available in a savings account, but you can also use gap financing

It’s also important to build your credit and be smart about how you’re using credit cards. Some business credit cards let you draw beyond the cash limits. This can be helpful in covering some out of pocket expenses. 

You can also look into hard money loans. Depending on your project, different loan options could better fit your needs. Shop around on the front end to avoid delays in your fix and flip projects. You can also use our loan cost optimizer to help you find the right deal for you.

Read the full article here.
Watch the full video here:

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How much in out of pocket costs should you expect for your fix and flip?

For every fix and flip or investment property you buy, money is going to come from two places: lenders and your own pocket. 

We know lenders can lend up to 90% to 85% of the purchase and 100% of the rehab. But even with these big numbers, it’s important to know what out of pocket costs you’re on the hook for as a real estate investor.

What Does “Lender Funding” Actually Mean?

When lenders talk about funding 90% of purchase or 100% of a renovation, it sounds like they’re paying for more than they actually are. 

True, they’re taking care of a huge portion of the cost (that you will pay back eventually), but you’re still going to encounter additional costs and fees that you’ll have to pay out of pocket.

We’re here to explain these costs so you’re ready for them. If you’re not prepared, it stalls your project, and you might end up paying even more than you otherwise would have.

So What Are Your Out of Your Pocket Costs?

1. Initial Deposit and Closing Costs

When you sign the contract, you’ll need to put down an initial deposit. This is part of what you see in a HUD-1 settlement.

Additionally, if a lender lends 90% of the purchase price and a 100% of the rehab costs, it looks like all you have to bring in is the remaining 10% of the purchase price.

However, you should also be prepared for additional closing costs and fees. Lenders will not cover those, and you’ll need to pay out of pocket.

2. Out of Pocket Lender Costs

Lenders also have additional fees. They often charge between 1% to 2.5% of the loan amount for appraisals, credit underwriting, and other services

For example, if the total purchase cost of a property is $200,000, and a lender covers 90% of that cost, you can expect to cover the remaining 10% ($20,000). Additionally, lender fees can quickly add an extra $2,800 to $5,600 that we owe to the lender as an out of pocket cost.

3. Title Costs

On top of that, we have title costs. Title costs are typically 0.5%f to 1% of the purchase price. 

Using the same example, if you have a purchase price of $200,000, title charges will likely be an additional $1,000 to $2,000 in out of pocket costs.

4. Mortgage Tax (In Some States)

Check your area to find out about your mortgage tax rates. You won’t have to worry about this in every state, but do your research so you’re prepared.

5. Insurance Costs

Insurance often costs somewhere between $1,000 to $2,000 and needs to be paid out of pocket upfront. 

6. Out of Pocket Monthly Interest

Interest rates depend on your particular loan. To add to our earlier example ($200,000 purchase price, covered 90% and $100,000 rehab price, covered 100%), let’s say your interest rate is 12% (1% a month). 

If you have a loan for $280,000 and they’re charging you interest on the full amount, you could expect a payment of $2,800 every month. If you have it for four months, that’s $11,200 out of your pocket. 

Essentially, after we add up all of these expenses, you can expect to pay a fair amount of additional out of pocket costs that the lender won’t cover. You should also look out for HOA fees or overages that will also have to come out of your own pocket.

Reimbursable Out of Pocket Costs

You should also have extra funds in your money bucket to pay for certain projects up front. 

Most lenders only reimburse you for completed work, and you’ll need out of pocket money to fund the first one or two draws to keep the project going. 

These can be expensive and could cost around $15,000 each. You can find more information about how to pay for these first draws in this article from Hard Money Mike.

These draws will be reimbursed eventually, but you need the funds available up front to get the project moving. This isn’t technically an out of pocket expense, but it can feel like it while you’re waiting for those first projects to be completed.

How to Fund Out of Pocket Costs

It can be overwhelming to look at the out of pocket costs adding up. You can easily expect to pay an additional $20,000 in expenses alone, and that number can rise to $50,000 if you include the funding you’ll need for draws.

It’s best to have these funds available in a savings account, but you can also use gap financing

It’s also important to build your credit and be smart about how you’re using credit cards. Some business credit cards let you draw beyond the cash limits. This can be helpful in covering some out of pocket expenses. 

You can also look into hard money loans. Depending on your project, different loan options can be a better fit. Shop around on the front end to make sure your projects won’t be delayed. You can also use our loan cost optimizer to help you find the right deal for you.

If you have a deal you’d like us to price out, we’d be glad to help. Just reach out to us at Info@TheCashFlowCompany.com

If you want more information about real estate investing in general, check out our YouTube channel.

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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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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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