Tag Archive for: LTV

How High Interest Rates Impact Real Estate Investments

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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

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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

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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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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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How to Calculate HELOC LTV (And Other Things To Know)

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Simple facts: how to calculate a HELOC LTV, and more.

The #1 consideration when you start looking for a HELOC is, by a landslide, the loan-to-value.

LTV should be your priority for one simple reason: the more money you can get, the more you can do with real estate investing.

Depending on the property type, you’ll find that your bank or credit union will give you an LTV of somewhere between 70 and 90% in this market. In other markets, they’ve gone up to 100% loan-to-value.

Example of  How To Calculate LTV on a HELOC

Let’s say you own a property worth $400,000. You found a credit union that will give you a 70% LTV on a HELOC to buy an investment property.

Here’s the simple calculation:

$400,000  ×  .70  =  $280,000

So, they’ll allow $280,000 in a HELOC on that property.

If they offered an 80% LTV on the same home, then you’d get a HELOC with $320,000. At 90% LTV, you’d get $360k.

But What Is CLTV?

However, HELOC LTVs are a bit different than typical loans – after all, there’s already a first lien or mortgage on the property.

In this case, they look at a combined loan-to-value (CLTV) instead.

As an example, let’s say that property worth $400,000 has a mortgage that’s $270,000.

So here’s what the credit union will do for a CLTV:

  • They know their 70% LTV would give you $280k.
  • But since you still owe $270k, they’ll subtract that amount from your available LTV.
  • Therefore, you’ll end up with $10,000 for a HELOC.

Maximizing Your LTV

This is why LTV is so important for a HELOC. The higher the LTV, the more available funding you’ll have to put anywhere in your real estate deals.

In our previous example, the 70% LTV only gave you $10k in your HELOC. The same property with an 80% LTV would get $50k. And 90% would leave you with $90,000 to use on a HELOC – even with the mortgage still on the home.

It’s essential to make sure you’re working with an institution that will give you the maximum loan-to-value to get more flexibility in funds.

Read the full article here.

Watch the video here:

https://youtu.be/25VFJx66yZ8

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How to Get the Best HELOC to Buy an Investment Property

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3 things you need to know when you start shopping for a HELOC to buy an investment property.

For 23+ years, we’ve worked with thousands of investors and funded over a billion dollars in loans. Over and over, we find the following to be true:

Real estate investors who are set up right with financing – HELOCs, business credit cards, real private money – are the ones who succeed.

In this post, we’re going to zoom in on using a HELOC to buy an investment property. Here’s what you need to look for to get the best HELOC for your investing needs.

HELOCs – The Basics

A HELOC is a Home Equity Line of Credit. Oversimplified, this means you can get credit from the bank based on how much of your house is paid off.

A few things to note about HELOCs generally:

  • They can be on either your primary residence or your rental properties.
  • Real estate investor can benefit from taking out as many HELOCs on all of their properties as they can.
  • They provide easy, flexible access to funds for all areas of your investing.
  • A HELOC can be used for:
    • Down payments
    • Earnest money
    • Closing costs
    • Carry costs
    • Rehab costs – material, contractors, or other bills
    • Buying a property outright, if the line is large enough

There are a couple rules of thumb we follow and questions you should ask when you start asking banks for a HELOC. Let’s go over the top 3.

1. LTV on a HELOC to Buy an Investment Property

The #1 consideration when you start looking for HELOCs, by a landslide, is the loan-to-value.

LTV should be your priority for one simple reason: the more money you can get, the more you can do with real estate investing.

Depending on the property type, you’ll find that your bank or credit union will give you an LTV of somewhere between 70 and 90% in this market. In other markets, they’ve gone up to 100% loan-to-value.

Example of an LTV on a HELOC

Let’s say you own a property worth $400,000. You found a credit union that will give you a 70% LTV on a HELOC to buy an investment property.

Here’s the simple calculation:

$400,000  ×  .70  =  $280,000

So, they’ll allow $280,000 in a HELOC on that property.

If they offered an 80% LTV on the same home, then you’d get a HELOC with $320,000. At 90% LTV, you’d get $360k.

But What Is CLTV?

However, HELOC LTVs are a bit different than typical loans – after all, there’s already a first lien or mortgage on the property.

In this case, they look at a combined loan-to-value (CLTV) instead.

As an example, let’s say that property worth $400,000 has a mortgage that’s $270,000.

So here’s what the credit union will do for a CLTV:

  • They know their 70% LTV would give you $280k.
  • But since you still owe $270k, they’ll subtract that amount from your available LTV.
  • Therefore, you’ll end up with $10,000 for a HELOC.

Maximizing Your LTV

This is why LTV is so important for a HELOC. The higher the LTV, the more available funding you’ll have to put anywhere in your real estate deals.

In our previous example, the 70% LTV only gave you $10k in your HELOC. The same property with an 80% LTV would get $50k. And 90% would leave you with $90,000 to use on a HELOC – even with the mortgage still on the home.

It’s essential to make sure you’re working with an institution that will give you the maximum loan-to-value to get more flexibility in funds.

2. Draw Period on a HELOC to Buy an Investment Property

The second consideration for a HELOC is the draw period. This is how long you can use it like a line of credit before needing to pay it off.

During this draw period, you can take money out, pay it back, then take it out again, over and over.

Draw Period Options & Refinancing

Most HELOCs come in two different draw periods: either a 5-year or a 10-year. The longer the draw period, the more flexibility you have.

Also, you’re able to refinance a HELOC at any time. We recommend searching for better HELOCs every 1-3 years. If you refinance before your draw period ends, then that period doesn’t matter as much. 

However, we still recommend setting yourself up with the longest draw period available to you. When you need to refinance, but you’re stuck in a down market, you’ll probably get worse terms on your new HELOC. A longer draw period gives you more control over a better refinance.

So, when you start the process of getting a HELOC to buy an investment property, set it up to be long-term. Even if you choose to refinance, you should still look to start with the highest LTV and longest draw period possible.

2. Interest rates for a HELOC to Buy an Investment Property

The third important consideration when looking for a HELOC is the interest rate. In other words: how much will it cost you to borrow from this line of credit?

Typically, HELOCs are based on prime plus a number. That “plus” number is where the banks make the profit. Almost all banks use prime as their starting point, then they add a factor. They add either one, two, or three to prime to determine your rate. 

Locking in a Fixed-Rate

We recommend looking for a fixed rate for more than a year. We’ve been locking people into five-year fixed rates, and a few years ago, we could offer a 10-year fixed.

Adjustable rates can be a little misleading. Some banks might offer you a prime minus 5 just to get you in. It’s a bit like if a credit card gave you 0% interest up-front, then jacked it up once you get comfortable with it.

Banks try this strategy because they know that once you get a HeLOCK, you’re less likely to refinance out and stay with the higher adjusted rate. This is another reason why we think you should always be on the lookout for better HELOCs to refinance into.

More Help on Getting a HELOC to Buy an Investment Property

These are the three main things to ask about when you’re looking for a HELOC for real estate investments:

  1. Loan to value. The most important. You want to maximize what you can get.
  2. Draw period. You want the flexibility of a 5-year or longer draw, but always look to refinance.
  3. Interest rate. You want a fixed rate so you’re safe despite turbulent or declining markets.

Want more information on how to talk to banks when looking for a HELOC to buy an investment property? Download this free checklist.

If you have any other questions, you’re always welcome to reach out at Info@TheCashFlowCompany.com.

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5 Small Loans You Can Use to Help Your Business

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Here are the top 5 small loans we fund to our clients.

Most real estate lenders won’t touch small loans. Anything less than $75,000, and you’ll find many institutions won’t even fund you.

But for the last 23 years, we’ve helped thousands and thousands of investors fund billions of dollars – and one of our specialties is small loans.

We understand the important role smaller loans play in your real estate investing career. Let’s go over 5 types of small loans you might find a need for in your investments.

1. “Finish a Project” Small Loans

The first kind of small loan we fund is what we refer to as a “finish a project” loan.

It’s exactly what it sounds like: you run out of money on a project, and you need a bit more to get it over the finish line.

We help people with:

  • New builds that don’t have the money to finish.
  • Started flips that need a few more thousand dollars to get to market.
  • Rentals that require more capital to get to a rentable state.

We can fund these loans without touching your first mortgage on the property.

2. Small Town Loans

We help a lot of clients from small communities, or who invest in small towns. A lot of properties in these areas are available for less than $75k, so other lenders aren’t interested in funding them.

Just last month, we funded 3 properties like this. The number for each of them broke down like this:

  • Purchase: <$40k
  • Rehab: ~$20k
  • All-in: <$60k
  • ARV: $100k – $110k

There is a lot of money to be made on properties like this, yet most lenders wouldn’t fund this deal.

We don’t care if a property is rural or agricultural. If the numbers make sense, our loan is secure, and there’s money to be made for you, then we’d love to help you with small-town loans.

3. Gap Funding

Another loan we commonly do is gap funding.

Gap funding can cover a lot of different parts of a project. Anytime there’s an expense on an investment project that your primary loan doesn’t cover, a gap loan can come in to save the day.

These loans include:

  • Down payment (usually 20-30%)
  • Rehab costs (especially if your primary lender won’t include that in your LTV)
  • Carry costs (like mortgage payment, insurance, taxes, etc)

If you don’t have (or don’t want to use) your own capital or other lines of credit, we can come in with small loans to fill in these little gaps in your project.

4. Credit Usage Loans

Another popular loan we do is an “Improve Your Credit Score” loan.

Credit usage is a common sore spot for many real estate investors’ credit scores. Maybe you use your personal credit card to fix up your properties and pay it off once your flip sells or refinances.

In the meantime, you’re using up a high percentage of your personal credit limit. This usage negatively impacts your score, which in turn wrecks your chances of getting a great loan for your next project.

Where our loans come in is:

  • You take out a private loan with us.
  • Use those funds to pay off your personal credit cards.
  • Your usage goes down dramatically, improving your score so you can get approved for other loans.

5. Cash Flow Loans

The last of our popular small loans are the type that creates cash flow for your budget.

If you need to make payroll, compensate a contractor, get some extra capital for more growth, or any other business expense, we can provide a loan for that.

In this case, you don’t even need to be a real estate investor. You just need to own a piece of property that we could secure the loan with.

How a Small Loan Works

All of these loans work because you use a current piece of real estate to secure it. Our primary concerns are keeping the loan safe and making you money.

We don’t worry about your credit score, income, or experience levels. As long as they’re secured, we can get you small loans.

Have questions about how these small loans work? Need a smaller loan? Reach out at Info@TheCashFlowCompany.com and we’d love to see how we could help.

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How to Find Out Your Real Estate LTV by Credit Score

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This is how lenders figure out your LTV by credit score…

Credit scores are a major factor in any kind of financing.

When you’re looking for real estate investing loans, credit score determines your down payment/LTV. In a refinance, your amount is also decided by credit score.

Let’s look closer at how lenders decide how much you get.

DSCR & Bridge Loan Interest Rate Credit Box

Lenders each have a credit sheet or credit box that they use for all borrowers.

Here’s an example of a DSCR loan credit box. It shows the maximum LTV a borrower could get depending on their credit score:

Similarly, here’s an example credit box for a bridge loan:

As you can see, a low credit score not only leaves you with a bad interest rate but also a lousy loan-to-value. In the best case, a low score gets you a 10-15% lower LTV, and in the worst case – you’re left with no loan at all.

Example Impact of Credit Score on LTV

Let’s walk through an example. Say we need to either refinance or purchase a property with $300,000.

So, what are our options based on the above credit boxes?

A 625 credit score is about the lowest most lenders will lend to in the current economy. Here’s what we could get for our $300k property:

  • Max loan amount on a DSCR loan: $210,000
  • Max loan amount on a bridge loan: $180,000

A 720 is considered excellent by most lenders. Here are the amounts we’d get from the same lenders on the same property with this score:

  • Max loan amount on a DSCR loan: $255,000
  • Max loan amount on a bridge loan: $225,000

This is up to $45,000 difference in your loan amount based solely on your credit score.

Credit Usage & Real Estate Investing Help

In short: the higher your credit score, the more funding you can receive.

The higher the funding, the lower the amount of the down payment and interest rate costs. Your credit score will always save or cost you money in real estate.

You can find out how credit impacts your rates and or cost here. Additionally, you can get quick ways to increase your score here.

We are here to help you increase your cash flow by using all means to increase the availability of cheap, easy, and quick funding.

Reach out with any questions, and for more on real estate investing, check out our YouTube channel.

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