Tag Archive for: LTV

NOW is the Most Valuable Time to Invest in Real Estate Investing

Now is the time to invest in real estate! As the Fed is tightening up and banks are lending less, it creates better deals for real estate investors.  There are going to be good deals coming up that will help you to not only create the income you need but the generational wealth you want. By getting into it now and understanding the different components, it will help you in the long run. This includes setting up your realtors, finding deals, and calculating ARV. Now is the most valuable time to invest in real estate! Don’t miss out on this opportunity!

If things are tightening up, why does that create more opportunities?

When the Fed shrinks the money pool, it in turn decreases what’s available for everyone. This causes lenders and banks to swim upstream in order to look for the best of the best. Banks are being pushed to the point that they can only lend a portion of what they could before. Let’s take a closer look at the money side as a customer, and as an investor, to explain why these times are creating more opportunities. The customers are the ones who own their homes and are going to give it up for a discount. While investors are looking at the property as money to invest. Once again, leverage is the key to real estate investing and why we can make money from nothing. Anybody can do this and create generational wealth if you are set up correctly and financially prepared

How lending has changed.

One of the largest private lenders used to lend on ARV. ARV stands for after repair value. Lending based on ARV allows investors to get more money, create more leverage, and buy more deals. So if you’re in real estate investing you need to focus on purchasing undervalued properties, fix them up, and either keep it or sell it. This will in turn create wealth for you to reinvest in another property. In today’s market however, lenders are lending off of LTV, or loan to value, instead of ARV. This is often a $50K to $75K difference from what they were lending before the market changed. 

Let’s look at an example of ARV vs LTV

Purchase a house for $250K with a rehab of $50K
Worth when all said and done Percentage Amount they will lend Amount lenders  want you to put in 
ARV $400K $400K at 75% Close to $300K 10%
LTV Lenders don’t looks at this  $300K at 75% Close to $225K 10% to 30% 

It is clear to see what a big difference it makes when lenders switch from ARV to LTV. They are becoming tighter on their lending, lending less, and charging more. This creates a smaller pool of investors, because many can no longer qualify for those deals. While the deal flow might remain the same, only 20% to 30% of investors are prepared to continue buying in this market. There are going to be better deals for those who can buy and buy quickly.

Now is the most valuable time!

It is one of the most valuable times to get into real estate investing. This is because the Fed is tightening up and banks are starting to lend less. In doing so, it creates better deals that will in turn create wealth and income in the near future. One of the most important things to remember is that when there is fear in the street, that is when people start running. These are the times when you need to make your move. Make sure that you have some money available, a good credit score, and a good business history to ensure that you are a client that is attractive to lenders.

At The Cash Flow Company we can help you find the funding you need and guide you through this market. 

Watch our most recent video to find out more about why NOW is the Most Valuable Time to Invest in Real Estate Investing.

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Why You Need to Understand the Lender Pie

Real estate investors often find that the biggest hurdle they face is learning the lending side of real estate. For over 23 years I have been working with investors. Many of them are just starting out and are learning how to build both income and wealth. Wealth in real estate investing is achieved by using other people’s money for leverage. It is important that you understand the lending pie, what it looks like, and how you can make it work for you. This in turn will also help you to better understand how to play the game and win in real estate. 

All lenders are looking for three things that make up their decision if they are going to lend to you. This includes your credit score, LTV, and your income.

1. LTV 

LTV stands for the loan to value. It is determined by evaluating how much money you have in a property, how much equity you have, and what is your piece of this property. Remember if your LTV or credit score is not the perfect piece of the pie, then you may have to compensate for that with a higher rate. We want to make sure that you understand this so that you pay the least amount when you’re investing. Investing is all about creating more wealth and income by paying less on the money that you are borrowing.  

2. Income and Reserves

Income and reserves can either come from you or from the property. If you’re looking at a DSCR or fix and flip, and you are going to sell it, then it is the income that the lenders will evaluate. Reserves include the amount of money you have put away in case something comes up. In regards to rental properties, it is how many months of reserves you have in case the property goes unrented for 3 to 6 months. If you’re a flipper, the reserves can help you make payments over the next 6 to 9 months until your property is sold. Depending on the situation, lenders may want a lower LTV, or may require a higher credit score to help balance things out.  

3. Credit score 

Lenders will evaluate your credit score and how you have paid people in the past before considering loan approval. Lending is primarily based on algorithms, and your credit score is a big determining factor. It is vital to your success as a real estate investor. The higher credit score will get you more money, a higher LTV, and it will provide more flexibility on income requirements. It is imperative for new investors to get their credit score as high as possible because it will lower the interest rates, the lower the mortgage payment, and decrease the amount of income you will need.

In conclusion

It is important that real estate investors understand the lending pie and how it impacts their success. While the lending pie is a mix between credit score, LTV, and income, the pieces are not always equal. This is because everyone’s pie is just a little bit different when lenders are looking. While LTV and income are more difficult to change, your credit score is a place where you can make the biggest impact. Be on the lookout for future videos that focus on credit and easy ways to raise your scores. 

Our goal is to make sure that you are as successful as possible. Contact us to find out more about the lending pie and how you can raise your credit scores. 

Watch our most recent video about The Lender Pie: 3 Key Loan Qualifications in Real Estate to find out more.

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Master These 4 Key Real Estate Loan Calculations

Today we are going to look at a few examples in order to help you visualize and master the 4 key real estate loan calculations. These 4 key calculations include how to calculate a point, simple interest, loan to ARV, and loan to value. It is important that you understand this when you are in real estate investing, because they will impact both your cash flow and closing costs. Grab your calculator, paper, and a pen! 

What is a point?

When a lender says that they are going to charge you 1 or 2 points, what exactly does that mean? A point in the lender world means percent. Therefore, 2 points for example equals 2%. To clarify, it’s 2% of your loan amount, as opposed to your purchase price. This percentage is the amount that you are paying in the origination to the lender and it is included in your closing costs. The closing costs will also include down payment, appraisal, just to name a few. Let’s jump into an example to see how to calculate point.

For example:

Loan for $150,000

They will charge you 2% 

Origination fee = $3,000

$150,000 x .02 = $3,000

You need to understand how to calculate a point because it will impact your closing cost and your overall cost of doing business. 

How do you calculate your interest rate?

Not only does DSCR have some interest only options, but private money and hard money do as well. Today, we are looking at how to calculate the monthly interest rate on a simple mortgage. Just to clarify, monthly interest and simple interest are one in the same. So, if a lender says that you are going to be charged 11% or 12% on your loan amount, what does that mean? First and foremost, that 11% or 12% is an annual amount not a monthly amount. Let’s jump into an example to see how you calculate the interest rate.

For example:

Loan for $150,000

Lender says the interest rate is 11% (this is an annual amount)

$150,000 x .11 = $16,500  (this is the interest that is charged on an annual basis)

Now we have to divide it by 12 to determine the monthly interest cost.

$16,500 ÷ 12 = $1,375 monthly interest cost

It is important that you know how to calculate your interest rate because that is the monthly amount that is coming out of your pocket.

How do you calculate loan to ARV?

ARV, which stands for the after repair value, is also referred to as the anticipated amount. To put it another way, this is what you estimate the value of the property to be after you have finished your flip. The ARV is based on comparables and the current market. When your lender lends you money, part of that money is going to be based on the calculated ARV. That loan amount is also dependent on the lender’s loan to ARV percentage. This percentage is found by dividing the loan amount by the ARV.  Let’s jump into an example and see how you calculate the loan to ARV percentage. 

For example:

In this market, with a property that is all fixed up, the ARV is $300,000

The lender is able to lend $210,000 (because it will be based on the ARV and what their loan to ARV is)

So in this case, we divide the $210,000 by the $300,000, which equals a loan to ARV percentage, which is 70%.

$210,000 ÷ $300,000 = .70 loan to ARV percentage (70%)

This is important to know because lending companies will say what percentage they loan based on the ARV. By crunching the numbers, you can easily determine what the lenders loan amount would be for your property.

How do you calculate LTV?

LTV stands for loan to value. The difference between loan to ARV and loan to value is what the value represents. The value in LTV is the current value of the property with nothing else changed on it. Meaning, what is the value now? What is the value today? How do you find the value? This normally comes off of comps or appraisals that are done by the lender. Let’s jump into an example and see how you calculate the LTV percentage. 

For example: 

Purchase price (current value) $200,000 

Loan amount $140,000

We are going to divide the loan amount by the purchase price.

$140,000 ÷ $200,000 = .70 LTV percentage (70%)

Again, by crunching the numbers, you can then determine what their loan amount would be for your property.

In conclusion

If you’re a new investor or even if you’re an old pro, you need to master these 4 key real estate loan calculations. As an investor these are the things that you are going to come across when you are working with lenders. 

If you have any other questions or need a run through to show how things work, please contact us today! 

Watch our most recent video to Master These 4 Key Real Estate Loan Calculations.

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The Biggest Piece of the Lender Pie

One of the biggest hurdles that many investors face is learning the lending side of real estate. Today we are going to go over the lender pie and how it affects you as an investor. For over 23 years I have been working with investors. Many of them are just starting out and learning how to build both income and wealth. Wealth in real estate investing is achieved by using other people’s money for leverage. It is important that you understand the leverage side, what it looks like, and how you can make it work for you. All lenders base their lending decision on three factors, which are your credit score, LTV, and your income. The biggest piece of the lender pie is credit score!

1.  Credit score 

Lenders will evaluate your credit score and how you have paid people in the past before considering loan approval. Lending is primarily based on algorithms, and your credit score is a big determining factor. 

2.  LTV 

LTV stands for the loan to value. It is determined by evaluating how much money you have in a property, how much equity you have, and what is your piece of this property. LTV is one of the biggest factors that lenders look at when

 determining if they are going to lend to you, how much they will lend, and what it is going to cost.  

3.  Income and Reserves

Income and reserves can either come from you or from the property. If you’re looking at a DSCR or fix and flip, and you are going to sell it, then it is the income that the lenders will evaluate. Reserves include the amount of money you have put away in case something comes up. In regards to rental properties, it is how many months of reserves you have in case the property goes unrented for 3 to 6 months. If you’re a flipper, the reserves can help you make payments over the next 6 to 9 months until your property is sold.  

Which factor is the most important to lenders? 

The answer is that It’s always a mix between the three. However, your credit score has the largest impact on the other two pieces in the lending pie. Here is an example that illustrates how your credit score can affect both your LTV and the flexibility on income requirements.

Example: Credit score 

Your credit score is the most important factor in being approved or denied for a loan. If you have a good property, but a bad credit score in the 500’s, it won’t matter for most lenders. To clarify, a good property could be one that is 50% or 60% LTV. However, most lenders won’t even look at you. This is due to the fact that all lenders have guidelines and have to take into consideration certain things. If you have a 600 or even 620 credit score, then you are going to be limited. Your credit score is vital to your success. The higher credit score will get you more money, a higher LTV, and it will provide more flexibility on income requirements. It is imperative for new investors to get their credit score as high as possible because it will lower the interest rates, the lower the mortgage payment, and decrease the amount of income you will need.

In conclusion

The lending pie provides the perfect visual of how important leverage is for investors. Again, leverage is how you create wealth and income. While the pieces of the pie are not always equal, it is imperative that you understand how your credit score, income, and LTV work together. Remember, a lender is going to look at every piece and make sure that your pie is where it needs to be for approval. While LTV and income are more difficult to change, your credit score is a place where you can make the biggest impact. Be on the lookout for future videos that focus on credit and easy ways to raise your scores.

Our goal is to make sure that you are as successful as possible. Contact us to find out more about the lending pie and how you can raise your credit scores. 

Watch our most recent video about The Lender Pie: 3 Key Loan Qualifications in Real Estate to find out more.

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The Lender Pie: 3 Key Loan Qualifications in Real Estate

The biggest hurdle that many investors face is learning the lending side of real estate. Today we are going to go over the lender pie and how it affects you as an investor. For over 23 years I have been working with investors. Many of them are just starting out and learning how to build both income and wealth. Wealth in real estate investing is achieved by using other people’s money for leverage. It is important that you understand the leverage side, what it looks like, and how you can make it work for you. This will in turn allow you to better understand how to play the game and win in real estate. Let’s take a look at the three things that lenders are looking for when making their decision for approval.

All lenders are looking for three things that make up their decision if they are going to lend to you. This includes your credit score, LTV, and your income.

1. LTV 

LTV stands for the loan to value. It is determined by evaluating how much money you have in a property, how much equity you have, and what is your piece of this property. LTV is one of the biggest factors that lenders look at when determining if they are going to lend to you, how much they will lend, and what it is going to cost.  

2. Income and Reserves

Income and reserves can either come from you or from the property. If you’re looking at a DSCR or fix and flip, and you are going to sell it, then it is the income that the lenders will evaluate. Reserves include the amount of money you have put away in case something comes up. In regards to rental properties, it is how many months of reserves you have in case the property goes unrented for 3 to 6 months. If you’re a flipper, the reserves can help you make payments over the next 6 to 9 months until your property is sold.  

3. Credit score 

Lenders will evaluate your credit score and how you have paid people in the past before considering loan approval. Lending is primarily based on algorithms, and your credit score is a big determining factor. 

Which factor is the most important to lenders? 

The answer is that It’s always a mix between the credit score, LTV, and income. This is because everyone’s pie is just a little bit different when lenders are looking. Let’s take a look at a few examples and how one piece of the pie can impact the other two. 

Example 1: LTV

First let’s start by looking at LTV. The more money you have into the property the lower the LTV. This lower LTV allows the lender to be more flexible when it comes to your income requirements, or even your credit score. An example of this would be an individual who has owned a rental for a long time and is refinancing it with a 60% LTV. When your LTV is lower, they can overlook and maybe stretch the DTI or even lower the credit score requirements. On the other hand, if you have a property and you are into it for 90%, the lender will then be very diligent in making sure that you hit both the income and credit requirements. Remember if your LTV or credit score is not the perfect piece of the pie, then you may have to compensate for that with a higher rate. We want to make sure that you understand this so that you pay the least amount when you’re investing. Investing is all about creating more wealth and income by paying less on the money that you are borrowing.

Example 2: Income 

The question is, does your personal income make the payments, or can it make the payments on this new debt? The more income you have to cover the expenses, the more lenders can look at a higher LTV or they could even lower credit limitations. On the other side of it, if you have more reserves, the lenders can look at giving you a higher LTV. Just to clarify, reserves include 401K, IRA, stocks, bonds, and savings. Reserves are anything that is liquid. Let’s say your expenses are $1000 a month. This includes your mortgage, HOA, flood insurance, taxes, and insurance payment. If this property is bringing in $300K, the lenders will be a little more flexible on your credit and LTV because they know that this property is able to sustain. However, if the expenses are $1000 and you’re only bringing in $1100, then there is less of a cushion. The lender will see the income as being less sufficient to take any hits or damage if the property goes vacant for a month or the market shifts. They may want a lower LTV or require a higher credit score to help balance things out. 

Example 3: Credit score 

Your credit score is the most important factor in being approved or denied for a loan. If you have a good property, but a bad credit score in the 500’s, it won’t matter for most lenders. To clarify, a good property could be one that is 50% or 60% LTV. However, most lenders won’t even look at you. This is due to the fact that all lenders have guidelines and have to take into consideration certain things. If you have a 600 or even 620 credit score, then you are going to be limited. Your credit score is vital to your success. The higher credit score will get you more money, a higher LTV, and it will provide more flexibility on income requirements. It is imperative for new investors to get their credit score as high as possible because it will lower the interest rates, the lower the mortgage payment, and decrease the amount of income you will need.

In conclusion

These examples create a great picture of what real estate investors need to understand about leverage. Again, leverage is how you create wealth and income. Remember that it is not just one piece of the pie that is taken into consideration in the lending process. Instead, a lender is going to look at every piece and make sure that your pie is where it needs to be for approval. While LTV and income are more difficult to change, your credit score is a place where you can make the biggest impact. Be on the lookout for future videos that focus on credit and easy ways to raise your scores.

Our goal is to make sure that you are as successful as possible. Contact us to find out more about the lending pie and how you can raise your credit scores. 

Watch our most recent video about The Lender Pie: 3 Key Loan Qualifications in Real Estate to find out more.

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How High Interest Rates Impact Real Estate Investments

Today we are going to paint a picture of how high interest rates impact investments for those who fix and flip properties or have rentals. Our goal is to show how rates, credit scores, and LTV can affect your ability to not only qualify for a loan, but also cash flow on the property. We all know what is happening with the Fed and how it is impacting us, but what does that look like on paper? The example that we are reviewing today will provide an excellent visual of how everything plays a role in the real estate game. DSCR is the product we are using today because it is one of the most popular out there.

Type of property Purchase price Appraisal 

average 

rents in area 

Amount down Financing 

30 year loan

Fees

Taxes

Insurance

HOA

DSCR 

(LTV) 

Rental $250k $1,950 20% 80%

($200K loan) 

$300 75%
Credit Score DSCR rate Payment amount 

principle and interest

Payment amount plus fees  Cash flow 

based on appraisal 

Client 1 680 9.75% $1,718 $2,018 -$68.00
Client 2 720 8.99% $1,608 $1,908 +$42.00
Client 3 780 8.75% $1,573 $1,873 +77.00

What about Conventional and Fix and Flips?

This example is also representative of a conventional, and fix and flips as well. In a nutshell, the more you pay on interest, the less properties you can handle. 

What is the appraisal?

An appraisal determines the average of rents in the neighborhood and uses this amount in the underwriting. The amount can change depending on if you have a couple years of history with rents that exceed the determined amount. The increasing rates are making it extremely difficult for properties to hit the expected rent amount.

What is the DSCR rate?

DSCR rates are determined based on your LTV. A credit score below 680 typically lowers the LTV from 80% to 75%. Therefore, you would need to put in more money up front on each purchase. If you’re looking at a DSCR with a credit score of 679, you will either be declined or it will flip you into a non ratio DSCR. Which means that your rates are going to be higher. Is a DSCR loan right for you? Visit our website to find out more.

The power of credit scores.

Your credit scores not only affect your rates, but they also will impact your cash flow on the property. Do you need to raise your credit score in order to qualify? We can help you get your credit scores back on track with our 911 loan. Contact us today to find out more. As credit scores go up, you will be able to capture more monthly income and create wealth.

How do rates affect cash flow?

As rates continue to rise, your payments are going to increase as well. This in turn causes your cash flow to suffer, and in most cases it will be a negative. Cash flow positive on the other hand, means that there are going to be more properties available for more investors. So keep your eye out for this change!

Rates are decreasing!

Over the past three weeks rates have been decreasing. We may be at the peak right now and many are predicting that rates are going to significantly drop in 2024. It is imperative that you stay up to date and keep track of current trends. We have created a Weekly Investor Mortgage Report for you! Reach out through our website or email to find out more.

Keep increasing your leverage!

In real estate investing leverage is the key to success. It is what makes your wealth and creates your income. By using banks, other people’s money, and filling your leverage buckets, you will set yourself up for success.  

In Conclusion.

I wanted to paint this picture so you can understand how 3 different people compare side by side on the same property. Investors can either be denied or approved just based on their credit score, or where the markets are. While being denied is discouraging, it is important that you understand why you didn’t qualify and why properties are not cash flowing right now. If you want to impact where you are and where you are going in the New Year, then check out our website. We have a lot of ways to positively impact your credit, as well as a weekly newsletter. We are here to help you get on the path to success. 

Watch our most recent video to find out more on How High Interest Rates Impact Real Estate Investments.

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Why to Take Action When Other Investors Run Away

Today’s market can be very daunting to real estate investors. Many are asking why take action when other investors are running away? Unlike years past, money for financing is just gone. This in turn is forcing investors to obtain more knowledge and leverage in order to win in this real estate game. While this is causing many to run away, it is actually the perfect opportunity to get into real estate investing. Are you ready to take advantage of this excellent opportunity? Let’s take a closer look at why you need to take action now!

How can investors prepare?

To get started, buy when property values are low and rates are high. This will guarantee your success when the market changes. When rates go back down over the next few years, you will already have your property, and can take advantage of the higher property value. Those who are positioned correctly, and stick with it, need to be set up correctly. Let’s look at the steps you need to take in order to take advantage of this current market.

  1. Understanding the market by going through knowledge based learning
  2. Set up your realtors
  3. Determine how you are going to find your deals
  4. Learn how to calculate your ARV

By getting all of the training completed over the next 90 days, it will allow you to confidently enter the market right away. If everything keeps going the way it is, then there are going to be more opportunities available compared to before, as well as a smaller pool of investors who can take advantage of this.

If things are tightening up, why does that create more opportunities?

When the Fed shrinks the money pool, it in turn decreases what’s available for everyone. This causes lenders and banks to swim upstream in order to look for the best of the best. Banks are being pushed to the point that they can only lend a portion of what they could before. Let’s take a closer look at the money side as a customer, and as an investor, to explain why these times are creating more opportunities. The customers are the ones who own their homes and are going to give it up for a discount. While investors are looking at the property as money to invest. Once again, leverage is the key to real estate investing and why we can make money from nothing. Anybody can do this and create generational wealth if you are set up correctly and financially prepared

How lending has changed.

One of the largest private lenders used to lend on ARV. ARV stands for after repair value. Lending based on ARV allows investors to get more money, create more leverage, and buy more deals. So if you’re in real estate investing you need to focus on purchasing undervalued properties, fix them up, and either keep it or sell it. This will in turn create wealth for you to reinvest in another property. In today’s market however, lenders are lending off of LTV, or loan to value, instead of ARV. This is often a $50K to $75K difference from what they were lending before the market changed. 

Let’s look at an example of ARV vs LTV

Purchase a house for $250K with a rehab of $50K
Worth when all said and done Percentage Amount they will lend Amount lenders  want you to put in 
ARV $400K $400K at 75% Close to $300K 10%
LTV Lenders don’t looks at this  $300K at 75% Close to $225K 10% to 30% 

It is clear to see what a big difference it makes when lenders switch from ARV to LTV. They are becoming tighter on their lending, lending less, and charging more. This creates a smaller pool of investors, because many can no longer qualify for those deals. While the deal flow might remain the same, only 20% to 30% of investors are prepared to continue buying in this market. There are going to be better deals for those who can buy and buy quickly.

How rates are impacting DSCR

Rates are impacting a lot of things, including DSCR and the rental side of real estate investing. A DSCR ratio of 1 means that the expenses and the income are equal to each other. In the past, DSCR ratios were based on a 1:1 ratio. Nowadays, the ratio has increased to 1:1.1, which means that you need to create even more cash flow. Now if we layer that onto a credit score of 680 or 700, then the ratio will increase to 1:1.2. Therefore, the people with better credit scores often get the better deals. 

Now is the time!

It is one of the most valuable times to get into real estate investing. This is because the Fed is tightening up and banks are starting to lend less. In doing so, it creates better deals that will in turn create wealth and income in the near future. One of the most important things to remember is that when there is fear in the street, that is when people start running. These are the times when you need to make your move. 

At The Cash Flow Company we can help you find the funding you need and guide you through this market. 

Watch our most recent video to find out more about Real Estate Investment Essentials for Today’s Market.

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Act Fast: Real Estate Investment Essentials for Today’s Market

Real estate investing in today’s market can be daunting. Discover the real estate investment essentials for today’s market so that you can succeed in the near future. For the past 10 to 12 years the rates kept getting better and the pools of money were bigger than ever. It was a time where anybody and everyone could get the financing they needed for their investments. Nowadays, the money is just gone. While this may cause many investors to run away, it is actually the perfect opportunity to get into real estate investing. If you want to participate in this market, there is a learning curve. However, once you learn how to play the game, you will set yourself up to win when rates go back down. 

Now is the time!

It is one of the most valuable times to get into real estate investing. This is because the Fed is tightening up and banks are starting to lend less. In doing so, it creates better deals that will in turn create wealth and income in the near future. One of the most important things to remember is that when there is fear in the street, that is when people start running. These are the times when you need to make your move. 

How can investors prepare?

To get started, buy when property values are low and rates are high. This will guarantee your success when the market changes. When rates go back down over the next few years, you will already have your property, and can take advantage of the higher property value. Those who are positioned correctly, and stick with it, need to be set up correctly. Let’s look at the steps you need to take in order to take advantage of this current market.

  1. Understanding the market by going through knowledge based learning
  2. Set up your realtors
  3. Determine how you are going to find your deals
  4. Learn how to calculate your ARV

By getting all of the training completed over the next 90 days, it will allow you to confidently enter the market right away. If everything keeps going the way it is, then there are going to be more opportunities available compared to before, as well as a smaller pool of investors who can take advantage of this.

If things are tightening up, why does that create more opportunities?

When the Fed shrinks the money pool, it in turn decreases what’s available for everyone. This causes lenders and banks to swim upstream in order to look for the best of the best. Banks are being pushed to the point that they can only lend a portion of what they could before. Let’s take a closer look at the money side as a customer, and as an investor, to explain why these times are creating more opportunities. The customers are the ones who own their homes and are going to give it up for a discount. While investors are looking at the property as money to invest. Once again, leverage is the key to real estate investing and why we can make money from nothing. Anybody can do this and create generational wealth if you are set up correctly and financially prepared

How lending has changed.

One of the largest private lenders used to lend on ARV. ARV stands for after repair value. Lending based on ARV allows investors to get more money, create more leverage, and buy more deals. So if you’re in real estate investing you need to focus on purchasing undervalued properties, fix them up, and either keep it or sell it. This will in turn create wealth for you to reinvest in another property. In today’s market however, lenders are lending off of LTV, or loan to value, instead of ARV. This is often a $50K to $75K difference from what they were lending before the market changed. 

Let’s look at an example of ARV vs LTV

Purchase a house for $250K with a rehab of $50K
Worth when all said and done Percentage Amount they will lend Amount lenders  want you to put in 
ARV $400K $400K at 75% Close to $300K 10%
LTV Lenders don’t looks at this  $300K at 75% Close to $225K 10% to 30% 

It is clear to see what a big difference it makes when lenders switch from ARV to LTV. They are becoming tighter on their lending, lending less, and charging more. This creates a smaller pool of investors, because many can no longer qualify for those deals. While the deal flow might remain the same, only 20% to 30% of investors are prepared to continue buying in this market. There are going to be better deals for those who can buy and buy quickly.

How rates are impacting DSCR

Rates are impacting a lot of things, including DSCR and the rental side of real estate investing. A DSCR ratio of 1 means that the expenses and the income are equal to each other. In the past, DSCR ratios were based on a 1:1 ratio. Nowadays, the ratio has increased to 1:1.1, which means that you need to create even more cash flow. Now if we layer that onto a credit score of 680 or 700, then the ratio will increase to 1:1.2. Therefore, the people with better credit scores often get the better deals. 

Creating the leverage you need to succeed.

Make sure that your business is set up correctly from the very beginning in order to create wealth. In doing so, you will be able to open up business credit cards, business lines of credit, and seek out OPM or other people’s money. An underused source of funding is OPM. Nowadays more people are searching for better returns, you can be their solution. Investors who create these buckets of money will set themselves up to win. It is also imperative that you have a good credit score and a good business history so you will be more attractive to the lending community. Do you need help with raising your credit score or locating OPM. Contact us to find out more! 

What do investors need to do?

This is the time when the select few will make a lot in the near future. If you want to take advantage of this, then you have to do certain things. Let’s take a closer look at real estate investment essentials for today’s market. Also known as the pillars of success.

1. Find a lot of properties/find good properties

It is important to buy when everyone else is running away. A successful investor needs to determine where they will find properties, connect with others to start buying better properties, and understand the value of the property. The better the property you find, the better chance you have to get the financing you need. Especially from private lenders or hard money lenders. 

2. Set up your business correctly  

It is imperative that you set up your business to look like you are serious about investing. This includes setting up your business name, establishing business accounts, and applying for business credit cards. In setting these things up correctly, banks and lenders will know that you will do what it takes to succeed.

3. Make sure you have a diverse source of funding 

Start by looking for lenders who are actually lending, and build a relationship with them. In taking the time to build that foundation, you will be the person who goes to the top of the pile. Lenders will not be willing to help investors who don’t return calls, or those who are unprofessional. Finally, broaden your horizons by looking at other options to see who can help create the wealth you want. 

4. Find contractors and resources that will help you complete repairs.

We still see properties that are selling like crazy. These are in good locations and have quality work done. It is important to find contractors and resources that will help create a product that people will want to buy. Don’t skip on the flips! Take the time to find a team who can make your property shine. This will result in a shorter sell at a better return for you.

In Conclusion

Things have changed, bankers have changed, and lenders have changed. You should always have control over your lending options. There is a glimmer of hope in this more restrictive economic environment. Investors can empower themselves by setting things up right, cultivating relationships, and knowing your numbers. You can still make a lot of money in this market as long as you understand the rules in the game and have the flexibility to change with the times. 

At The Cash Flow Company we can help you find the funding you need and guide you through this market. 

Watch our most recent video to find out more about Real Estate Investment Essentials for Today’s Market.

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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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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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