Tag Archive for: real estate market

How to Calculate the Certainty of a Real Estate Investment

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What’s worse: Paying money for an unknown amount of time? Or paying with certainty on a real estate investment?

A flip stuck on a market like the current one is a death knell for your profit.

The question is: do you keep paying carry costs in hopes of a higher sell price? Or do you cut your losses and move on in your real estate career?

Here’s our take on the dilemma.

What Is Certainty in Real Estate Investing?

Certainty in real estate investing is about coming up with a conclusion. This conclusion is whatever path:

  • Gets the property somehow moving along.
  • Offers the least out-of-pocket cost for the client.
  • Provides a clean slate to get them back on track to take advantage of the upcoming better market.

Certainty in Real Estate Investing by Taking a Short

In a market like this, you often end up with two options:

  1. Continue paying carry costs, with no sale in sight.
  2. Sell at a loss, for certainty about how much you’ll lose and the freedom to move on.

Taking the first option involves high monthly payments for 6-9 months, or longer. Once the end is finally in sight, it’s possible you’ll find out you’ll have to pay even more and take a huge loss anyway.

With the second option, you accept what the market is giving you. You take the short, then you move on. Money will still be lost, but the timeline of the payouts has a clear end. It becomes certain.

The first option is a gamble with the cards stacked against you. The second option is a clean slate to start fresh.

If you’re trying to find the best route to certainty for your property, we’ll go over some examples. You can follow along with the numbers for your own situation. Running these numbers will help you find out if it’s smart to opt for certainty in your real estate investment.

How to Calculate the Certainty of a Real Estate Investment

One client owed (and were paying interest on) $600,000 for their loan. When they first took out this loan in early 2022, they were expecting to sell the property within a month or two for $800,000+.

This property was supposed to be a quick cleanup – get in, get out, and make a quick couple hundred thousand dollars. Then the market changed, especially for higher price point homes in their area.

Now, five months later, they’re desperate to get out of the property.

What Is the Cost of Certainty?

If sold now in the current market, they could get $570,000.

That’s $230k less than they had originally hoped to get for this property – enough of a gut-punch as-is. But to sell for $30,000 less than you owe on the loan itself? Not ideal.

Although selling right now would mean a $30,000 loss for this client… At least that number is certain.

They’ve already spent close to that much on carry costs alone since purchasing the property. If they can’t get a better price for another several months… Which option is more worth it?

Would you rather lose $30k for sure? Or pay dollar signs with question marks and no end in sight?

How Do You Pay for the Loss?

So, say you’re in this client’s position, and you’ve decided to sell for $570k. How do you go about paying off the remaining $30,000?

 In this specific instance, we as a lender worked flexibly with our client. Since they were already locked into making payments indefinitely, we trusted them to also pay in a definite amount of time. So we put a term on the remaining $30k for the same payment amount.

Now, the client has the property out of their hands and a much smaller loan to pay off. They will make the same payments as they were on the larger loan, and they could pay the full loan off in 5 months and be done with it.

$30,000 isn’t a little money. Five months isn’t a short amount of time. But paying that much for certainty can beat paying 2x or 3x as much for uncertainty in this market.

What If Your Lender Isn’t Flexible?

Most lenders will be open to working something out with you. They want certainty, too. It does them good in the long-term for you to get this property out from over your head.

Opting for a shorter term loan is a great way for a lender to clear the decks and get ready for the next wave of great purchases.

However, even if your lender is unwilling to work out a shorter term, you still have a couple options for paying off the loan when you sell at a loss:

  • Cash – The obvious answer is you pull this cash right out of your own bank account. Not everyone has that luxury (or wants to take that path if they do), so there are a few other options.
  • Private money – In a bind like this, the flexibility of OPM is useful. If you borrow money from family, friends, or people in REI groups in your area, you can pay them back at a rate better than they’d get in the stock market or a bank right now.
  • Gap funding – You could also do a lien on another property to provide some gap funding. If your original lender won’t do this, we can help.
  • Use another lender – If the property’s original lender won’t agree to a short-term loan, someone else might.

Read the full article here.

Watch the video here:

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How This Real Estate Market Is Impacting Bridge Loans

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If you’re an investor, here’s how the current real estate market is impacting bridge loans for you.

Federal interest rates keep rising, tightening up money across the country for real estate investors.

The entire real estate market is feeling the squeeze of rates. Many fix-and-flips on the market now were purchased in a different market. Investors may have expected to get top-dollar for houses that now may take weeks or months to sell at all.

The Market Changes & Bridge Loans

Firstly, what changes have already occurred, and what can we expect going forward for bridge loans?

In general, you can expect the following changes from real estate leverage lenders:

  • Lower LTVs – The amount of money you can get from a lender will continue to go down.
  • Cutting Appraisals – Lenders expect a 5% to 15% decrease in market prices, and appraisals will begin to reflect that.
  • Shortened Terms – The length of bridge loans or some lenders will be cut in half.
  • Credit Score – While a 620 credit score used to be the minimum, now lenders won’t consider applicants with less than a 680.
  • Pricing – Six to eight months ago, you could get a bridge loan at a 7% to 8% interest rate. Now, they’re around 10% or 11%.

Just as you might feel some uncertainty in these economic times, lenders feel it too. Lending institutions want to keep themselves safe. Unfortunately for real estate investors, that means tight money in this real estate market is impacting bridge loans.

Why Bridge Loans are Needed

Secondly, these market conditions increase the demand for bridge loans. Homes may be staying on the market longer, but lenders still need their loans paid back on time, and you still need to move on to your next project.

Now is the time to set yourself up well financially. Due to tightened conditions now, the market 6 months from now will have a lot of great deals for investors. Bridge loans can help you get ready.

With a bridge loan, you can free up the capital you have in houses on the market. Plus, you can improve your relationship with lenders by paying off your flip loan.

You can put your flipped house into a short-term bridge loan for 2 to 3 years. In the meantime, you could rent out the property, or just use the loan to pay off the lender while waiting for a buyer.

Using bridge loans in this way keeps you from foreclosure or other negative effects on your credit.

Who Does Bridge Loans Right Now?

Lastly, the following places are still lending:

  • Small to mid-size banks
  • Lenders that work with capital funds or hedge funds
  • Small lenders, like The Cash Flow Company
  • Some hard money lenders

The catch is they’ve all tightened their funds.

You can get a bridge loan from these places. You’ll just get lower LTVs, higher rates, and need a better credit score.

In this market, it’s important to reach out to any lender who can help you. Nothing will fall into your lap – you’ll have to actively search to find a loan product to fit your bridge needs.

You can also work with a place like The Cash Flow Company, who always searches for the best real estate loans available.

Read the full article here.

Watch the video here:

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Why Are Bridge Loans So Popular Right Now?

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Everything you need to know about bridge loans right now in the current market.

The demand for bridge loans is up in the real estate investment community. Yet the availability of loans is decreasing every day.

Why is this? Who is still lending?  What are the current costs? And how do you find these lenders?

Let’s dive in.

Why the Real Estate Market Has Changed

Federal interest rates keep rising, tightening up money across the country for real estate investors.

The entire real estate market is feeling the squeeze of rates. Many fix-and-flips on the market now were purchased in a different market. Investors may have expected to get top-dollar for houses that now may take weeks or months to sell at all.

The Market Changes & Bridge Loans

What changes have already occurred, and what can we expect going forward for bridge loans?

In general, you can expect the following changes from real estate leverage lenders:

  • Lower LTVs – The amount of money you can get from a lender will continue to go down.
  • Cutting Appraisals – Lenders expect a 5% to 15% decrease in market prices, and appraisals will begin to reflect that.
  • Shortened Terms – The length of bridge loans or some lenders will be cut in half.
  • Credit Score – While a 620 credit score used to be the minimum, now lenders won’t consider applicants with less than a 680.
  • Pricing – Six to eight months ago, you could get a bridge loan at a 7% to 8% interest rate. Presently, they’re around 10% or 11%.

Just as you might feel some uncertainty in these economic times, lenders feel it too. Lending institutions want to keep themselves safe. Unfortunately for real estate investors, that means tight money – including bridge loans.

Why Bridge Loans are Needed

These market conditions increase the demand for bridge loans. Homes may be staying on the market longer, but lenders still need their loans paid back on time, and you still need to move on to your next project.

Now is the time to set yourself up well financially. Due to tightened conditions now, the market 6 months from now will have a lot of great deals for investors. Bridge loans can help you get ready.

With a bridge loan, you can free up the capital you have in houses on the market. Plus, you can improve your relationship with lenders by paying off your flip loan.

You can put your flipped house into a short-term bridge loan for 2 to 3 years. In the meantime, you could rent out the property, or just use the loan to pay off the lender while waiting for a buyer.

Using bridge loans in this way keeps you from foreclosure or other negative effects on your credit.

Who Does Bridge Loans Right Now?

The following places are still lending:

  • Small to mid-size banks
  • Lenders that work with capital funds or hedge funds
  • Small lenders, like The Cash Flow Company
  • Some hard money lenders

The catch is they’ve all tightened their funds.

You can get a bridge loan from these places. You’ll just get lower LTVs, higher rates, and need a better credit score.

In this market, it’s important to reach out to any lender who can help you. Nothing will fall into your lap – you’ll have to actively search to find a loan product to fit your bridge needs.

You can also work with a place like The Cash Flow Company, who always searches for the best real estate loans available.

What Is the Cost of Bridge Loans Right Now?

There are 3 main types of bridge loan lenders: banks, capital funds/hedge funds, and local hard money lenders. 

But the market has changed. Here’s a glimpse into what you can expect for the next few months:

Rates

Banks – Interest rates average around 6% to 6.5% for banks.

Capital Funds – Expect 10% to 12% interest rates for hedge fund bridge loans right now.

Hard Money – Hard money interest rates are about the same as cap funds, around 10% to 12%, but with a bit more flexibility.

Points

Banks – Banks have the cheapest money, at 1 to 1.5 points. Smaller banks tend to charge more in origination fees than national banks.

Capital Funds – Cap funds charge around 2 to 3 points.

Hard Money – You can expect 2 to 4 points on a hard money bridge loan transaction.

LTVs

Banks – Depending on your relationship with the bank, you can get up to  65% to 70% LTV on a bridge loan.

Capital Funds – You can get 65% LTV on a refinance or bridge loan with a hedge fund.

Hard Money – Hard money has the most LTV flexibility, like putting a cross-lien on other properties. Typical LTV range is 70% to 75%.

Terms of Bridge Loans

Banks – For bridge loans, banks have the most flexible, longest terms, from 1 to 3 years.

Capital Funds – For cap funds, 3-year bridge loans are now two. Two-year bridge loans are now one.

Hard Money – Bridge loans from hard money have the shortest terms – as short as 1 month, and typically no longer than 1 year.

Closing Times

Banks – Banks’ lead time for a bridge loan is typically 3 to 6 weeks. But lately, we’ve seen loans take up to a couple months in the current market.

Capital Funds – The standard closing time for cap funds is 2 to 3 weeks.

Hard Money – Hard money can close fastest – which is very important for a bridge loan. Depending on your relationship with the lender, the loan can take a week or less.

Location

Banks – Banks have a footprint they’ll lend within, which is typically very local.

Capital Funds – Hedge funds lend nationwide. They’re the best option for multi-state bridge loans.

Hard Money – Hard money lenders are flexible. But, they tend to lend locally, or in other areas they’re familiar with.

Valuation

Banks – Banks require an appraisal for all loans over $250,000. (And some loans under that amount).

Capital Funds – Hedge funds always require an appraisal.

Hard Money – There is no appraisal in the hard money loan process. That’s why they can close so much faster than everyone else.

Overview

Banks – Will be your cheapest but slowest options. They have high requirements.

Capital Funds – Middle of the road for cost and speed, but helpful if you need loans within multiple urban areas.

Hard Money – The most expensive option for bridge loans, but also the most flexible and the fastest.

How Do You Find Bridge Loan Lenders?

For bridge loans right now in these changing times, you need to be proactive.

Where to Search for Bridge Loan Lenders

Check with local real estate communities (REITs in your area, biggerpockets.com, etc). Once you get some lender names, call around. Overall, it may take some effort to find lenders.

Or you can offload the research onto us.

We search every day for the best bridge loans in the real estate world.

Email us with a question about a deal or a bridge loan need, and we’ll find a way to help: Info@TheCashFlowCompany.com.

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