Today, we are discussing the importance of getting pre-approved in BRRRR. To clarify, BRRRR stands for Buy, Rehab, Rent, Refinance, and Repeat. Let’s break it down step-by-step.
Getting Long-term Loan Approval
Before buying, secure a pre-approval from a long-term lender. This step ensures you know the maximum loan amount you qualify for, which is crucial for the refinancing stage later on.
Buying with a Short-term Loan
Next, use a short term loan, like a hard money loan, to purchase the property. Short term loans are essential for fast closings and approved within days or weeks.
Rehabbing the Property
Once you own the property, it’s time to rehab it. Focus on making necessary repairs to meet the After Repair Value (ARV). Most importantly, remember that this is a rental property, so avoid high-end finishes. Just make it appealing and functional.
Renting the Property
After the rehab, find a reliable tenant. By renting the property, you journey begins because you are generating money.
Refinancing
Finally, refinance your short-term loan into a long-term mortgage. This step not only reduces your monthly payments, but it locks in a lower interest rate also. Having pre-approval speeds up this process while saving you money.
Repeating the Process
Build a robust rental property quickly and easily by being pre-approved in BRRRR today. Set your goals, search for the right properties, secure financing, and repeat the process. Contact us to find out more! Watch our most recent video.
https://thecashflowcompany.com/wp-content/uploads/2023/10/Blog-Image-Template-Kira-93.png6001800The Cash Flow Companyhttps://thecashflowcompany.com/wp-content/uploads/2022/09/The-Cash-Flow-Company-logo.pngThe Cash Flow Company2023-10-16 09:00:562024-06-20 23:53:17Why You Need to Get Pre-Approved in BRRRR
Building wealth is all about leverage in real estate investing. But what exactly is leverage money, and how can you use it correctly?
If you look at investing, it’s all about using other people’s money. It’s all about leverage.
Understanding leverage and using it correctly is the key to unlocking the profits of real estate investing.
Why Leverage Matters
Leverage is the term we use for using someone else’s money (typically in the form of loans) to make a profit for yourself.
Frequently, you will also use a small amount of your own money. But leverage—the opportunities you can access with external funds—is what makes real estate investing accessible regardless of your personal wealth.
Additionally, leverage allows investors to enter the market quickly, without needing to wait 5 years to save up for a downpayment.
If you know how to get money from others and use it to strategically turn a profit for yourself, you’ll be able to build income out of nearly nothing.
Different Kinds of Leverage
Leverage comes in many forms:
Financial gifts
Loans
Mortgages
Liens
And more!
The most common form of real estate leverage is probably a classic mortgage. However, how you use that mortgage (and what you look for in a property) can make all the difference.
Looking for undervalued properties that owners are looking to sell quickly typically maximizes the ARV (After Repair Value). By getting a mortgage to cover the cost of the purchase price and leveraging those funds, you can fairly easily increase the value of the property and turn a profit on the resale (or rental).
Additionally, if you’re looking to buy a property that’s appraised under the market value, lenders are more likely to cover 100% of the purchase price (and sometimes a large piece of the renovations as well).
How Far Can Leverage Take You?
In the current market, successful investing over the next few years is likely to have a huge payoff.
Many real estate investors are even able to accumulate hefty retirement funds strictly through real estate investing in addition to annual income.
There are so many strategies you can use to build income with leverage:
Fix and flip (buy, fix, sell)
Renting (buy, fix, rent)
House hacking (buy, fix half, rent fixed half, fix other half with income from first half)
Even new investors can make quick progress if they use leverage wisely.
Recently, we had an investor from a smaller community who has already purchased 8 properties this year with little-to-no money down on each. They’ve been refinanced, rented, and are building her income. By the end of the year, she’ll probably have purchased anywhere from 10-15 properties. And she’s accomplished this by using other people’s money.
Of course, some markets are harder to work in and some communities move a little slower.
But if you are committed to the game, and you pursue the best loans, you can build a successful business without emptying your pockets.
It’s all about finding the right leverage and using it wisely.
https://thecashflowcompany.com/wp-content/uploads/2023/09/Capture-11.jpg6731285Mike Bhttps://thecashflowcompany.com/wp-content/uploads/2022/09/The-Cash-Flow-Company-logo.pngMike B2023-10-12 08:00:222023-09-29 18:26:36What is Leverage Money in Real Estate?
It’s important to look at the prepay penalties of your loan so that you can figure out what fits your particular investment. You should also take time to research the following to make sure you’re getting the best deal possible:
Think about your timeline.
Are you keeping the property long term? Do you think the market’s going to go down? All those things come into play when you’re determining what prepay is best for you.
A good lender will walk you through the numbers and your options, but the more information you have about your timeline, the better they’ll be able to help you.
Work with a knowledgeable lender.
Make sure you pick a lender who has options. DSCR companies often specialize in loans for a specific group, so it’s possible they won’t have the perfect loan for you.
A good lender should have at least five to ten different DSCR funders that they could match with your loan. They should be able to help you find a loan that fits your timeline, cash flow, and specific project needs.
Consider your exit strategy.
Prepay penalties come into play when you exit your loan.
If you know on the front end of your project that you want a DSCR loan but might not need five years to complete it, then that should be a huge consideration when configuring your DSCR.
Prepay Cost Examples
This chart can help you understand how DSCR prepay penalties can affect the cost of your project.
In this example, we’re considering a loan of $100K from a person with a 780 credit score.
When comparing straight vs. declining prepay options, it’s always worth considering the timeline of your project as well as whether or not interest rates are projected to drop.
Also, always check what added fees your lender might have connected with their prepay option as these can vary significantly.
https://thecashflowcompany.com/wp-content/uploads/2023/06/Capture-2.jpg6721285Mike Bhttps://thecashflowcompany.com/wp-content/uploads/2022/09/The-Cash-Flow-Company-logo.pngMike B2023-07-03 08:00:342023-07-07 13:08:11What’s the Right Prepay Option For You?
What are DSCR prepay penalties and how can you navigate them?
One of the normal things you’ll come across when looking at DSCR loans are prepay penalties. Understanding how they work (and the options you have) can help you make the best choices for your project.
What are DSCR Prepays?
If you’re working with a DSCR or a non-QM investor, you’re likely going to find lenders charging prepay penalties.
Typically, if you want to exit the loan within a certain time period—often three to five years—they’ll charge an additional exit fee. This means that if you pay off your loan early, you could run into what’s called a hard prepay.
Understanding the Cost of Prepay Penalties
Lenders don’t care about why you’re paying off your loan early. If you pay them in full, they’re going to charge the agreed upon fee (the prepay penalty).
For example, if you have a $100K loan with a 3% prepay penalty, you would pay them 3% of the $100K on top of the principal and any interest or other fees owed.
While this can feel frustrating, these penalties actually allow these lending institutions to keep money flowing. Therefore, a prepay helps them keep interest rates stable by ensuring a consistent flow of capital.
Different Prepay Options for DSCR Loans
DSCR loans offer two standard prepay options: five-year or three-year periods.
How does this connect to DSCR prepay penalties?
During the initial five- or three-year period of your mortgage, you will be penalized for paying off your loan before the prepay period has elapsed. If you keep your loan past that benchmark, you will have no more prepay penalty.
You typically will find two basic types of prepays:
Straight Prepay: If you have a straight prepay, a lender may charge you a fixed percentage of the principal balance for each year, regardless of when you pay off the loan.
Declining Prepay: A declining prepay is exactly what it sounds like. Each year, the prepay penalty decreases. For example, it may be 5% of the principal balance the first year, 4% the next, etc. until the prepay penalty disappears altogether.
What are DSCR prepay penalties and how can you navigate them?
One of the normal things you’ll come across when looking at DSCR loans are prepay penalties. Understanding how they work (and the options you have) can help you make the best choices for your project.
What are DSCR Prepays?
If you’re working with a DSCR or a non-QM investor, you’re likely going to find lenders charging prepay penalties.
Typically, if you want to exit the loan within a certain time period—often three to five years—they’ll charge an additional exit fee. This means that if you pay off your loan early, you could run into what’s called a hard prepay.
Understanding the Cost of Prepay Penalties
Lenders don’t care about why you’re paying off your loan early. If you pay them in full, they’re going to charge the agreed upon fee (the prepay penalty).
For example, if you have a $100K loan with a 3% prepay penalty, you would pay them 3% of the $100K on top of the principal and any interest or other fees owed.
While this can feel frustrating, these penalties actually allow these lending institutions to keep money flowing. A prepay helps them keep interest rates stable by ensuring a consistent flow of capital.
Different Prepay Options for DSCR Loans
DSCR loans offer two standard prepay options: five-year or three-year periods.
How does this connect to DSCR prepay penalties?
During the initial five- or three-year period of your mortgage, you will be penalized for paying off your loan before the prepay period has elapsed. If you keep your loan past that benchmark, you will have no more prepay penalty.
You typically will find two basic types of prepays:
Straight Prepay: If you have a straight prepay, a lender may charge you a fixed percentage of the principal balance for each year, regardless of when you pay off the loan.
Declining Prepay: A declining prepay is exactly what it sounds like. Each year, the prepay penalty decreases. For example, it may be 5% of the principal balance the first year, 4% the next, etc. until the prepay penalty disappears altogether.
It’s important to look at the prepay penalties of your loan so that you can figure out what fits your particular investment. You should also take time to research the following to make sure you’re getting the best deal possible:
Think about your timeline.
Are you keeping the property long term? Do you think the market’s going to go down? All those things come into play when you’re determining what prepay is best for you.
A good lender will walk you through the numbers and your options, but the more information you have about your timeline, the better they’ll be able to help you.
Work with a knowledgeable lender.
Make sure you pick a lender who has options. DSCR companies often specialize in loans for a specific group, so it’s possible they won’t have the perfect loan for you.
A good lender should have at least five to ten different DSCR funders that they could match with your loan. They should be able to help you find a loan that fits your timeline, cash flow, and specific project needs.
Consider your exit strategy.
Prepay penalties come into play when you exit your loan.
If you know on the front end of your project that you want a DSCR loan but might not need five years to complete it, then that should be a huge consideration when configuring your DSCR.
Prepay Cost Examples
This chart can help you understand how DSCR prepay penalties can affect the cost of your project.
In this example, we’re considering a loan of $100K from a person with a 780 credit score.
When comparing straight vs. declining prepay options, it’s always worth considering the timeline of your project as well as whether or not interest rates are projected to drop.
Also, always check what added fees your lender might have connected with their prepay penalties as these can vary significantly.
How We Help
Sometimes it can be difficult to find lenders who will take the time to run through all the numbers with you. You’re welcome to contact us at Info@TheCashFlowCompany.comand we will be happy to walk you through your options.
You can also visit our website to learn more about real estate investment or to find tools such as our free and easy DSCR calculator.
As always, we’re more than happy to look at your project and help you figure out a deal that works for you.
When looking to fund your fix and flip, it’s important to understand where the money comes from.
In general, the money in your bucket comes from two places: lenders and your own pocket. It’s important to know how these funds work together to fund your project.
What Does “Lender Funding” Actually Mean?
When lenders talk about funding 90% of purchase or 100% of a renovation, it sounds like they’re paying for more than they actually are.
True, they’re taking care of a huge portion of the cost (that you will pay back eventually). However, you’re still going to encounter additional costs and fees that you’ll have to pay out of pocket to complete your fix and flip.
If you’re not prepared, it stalls your project, and you might end up paying even more than you otherwise would have.
Reimbursable Fix and Flip Costs
This is a sub-category of money you’ll need for your fix and flip. You should also have extra funds in your money bucket to pay for certain projects up front. Even for costs that will be reimbursed!
Because most lenders only reimburse you for completed work, you’ll need out of pocket money to fund the first one or two draws to keep the project going.
These can be expensive and could cost around $15,000 each. You can find more information about how to pay for these first draws in this article from Hard Money Mike.
These draws will be reimbursed eventually, but you need the funds available up front to get your fix and flip moving. This isn’t technically an out of pocket expense, but it can feel like it while you’re waiting for those first renovations to be completed.
How to Fund Out of Pocket Costs
It can be overwhelming to look at the out of pocket costs adding up for your fix and flip. You can easily expect to pay an additional $20,000 in expenses alone, and that number can rise to $50,000 if you include the funding you’ll need for draws.
It’s best to have these funds available in a savings account, but you can also use gap financing.
It’s also important to build your credit and be smart about how you’re using credit cards. Some business credit cards let you draw beyond the cash limits. This can be helpful in covering some out of pocket expenses.
You can also look into hard money loans. Depending on your project, different loan options could better fit your needs. Shop around on the front end to avoid delays in your fix and flip projects. You can also use our loan cost optimizer to help you find the right deal for you.
https://thecashflowcompany.com/wp-content/uploads/2023/06/Untitled-Design-2.jpg6281200Mike Bhttps://thecashflowcompany.com/wp-content/uploads/2022/09/The-Cash-Flow-Company-logo.pngMike B2023-06-19 08:00:592023-06-29 12:53:10How to Fund Your Fix and Flip
Don’t Forget to Join the Money Chat: How to Fund a Flip
Want to know more on how to fund a flip? Then don’t forget to join our Money Chat tomorrow with lending expert, Mike Bonn.
During Tuesday’s Money Chat, Mike will spend time answering all of your questions on how to fund a flip and other real estate deals.
If you’ve always wanted to get into the real estate game, but don’t know where to start when it comes to buying properties, then this Money Chat is perfect for you!
This is your chance to join other like-minded real estate investors and ask all of your questions to a lending professional.
If you’d like to join Mike’s Money Chat tomorrow, then you can register for FREE here.
During the virtual call, Mike will answer common questions like:
What are my funding options?
What is hard money?
How do I qualify? What credit score do I need? Income? Experience?
By the end of the money chat, you should have a much better grasp of how to get going in real estate investing…and how to pay for your properties.
Can’t make it to tomorrow’s chat? No problem, because we’re running another Money Chat on Thursday. That way you have an opportunity to listen, learn, and ask all of your questions on how to fund a flip (and any other value-add property).
And if you miss both Money Chat, no sweat. We’ll be hosting many more in the future. Plus, our team is always here to assist you.
https://thecashflowcompany.com/wp-content/uploads/2021/08/15.png788940Jenna Weldonhttps://thecashflowcompany.com/wp-content/uploads/2022/09/The-Cash-Flow-Company-logo.pngJenna Weldon2021-08-30 09:00:082022-05-20 17:59:22Don’t Forget to Join the Money Chat: How to Fund a Flip
New Money Chat: How to Fund a Flip…and Other Real Estate Deals
During our next Money Chat, lending expert Mike Bonn will discuss How to Fund a Flip (and other real estate deals).
If you’ve always wanted to get into real estate investing, but you have no idea where to start when it comes to buying properties, then this Money Chat is perfect for you.
We invite you to join other like-minded real estate investors and ask all of your questions to a lending expert.
How do I qualify? What credit score do I need? Income? Experience?
By the end of the Money Chat, you should have a much better grasp of how to get going in real estate investing.
Can’t make it? It’s okay, because we’re running a second Money Chat next Thursday. That way you have an opportunity to listen, learn, and ask all of your questions on how to fund a flip (and any other value-add property). And if you miss next week’s chats, no problem because Mike will be hosting many more in the future.
https://thecashflowcompany.com/wp-content/uploads/2021/08/6.png788940Jenna Weldonhttps://thecashflowcompany.com/wp-content/uploads/2022/09/The-Cash-Flow-Company-logo.pngJenna Weldon2021-08-26 07:24:232022-05-20 18:12:32New Money Chat: How to Fund a Flip and other Deals
Do you want to know how to buy a rental property? Then check out these 5 ways to fund your real estate deal.
If you’re interested in generating positive cash flow with a rental property, then it’s important you know how to actually BUY a rental property. Like, where does the money come from? Because most real estate investors don’t have hundreds of thousands of dollars sitting around.
Most will need a real estate loan.
So, let’s take a quick look at the various types of real estate lenders you can rely on to fund your rental properties. Just like fix and flips and other value-add properties, you have 5 different options, and each of these options have various pros and cons.
Hard Money.
Hard money is a great option when you need to close a deal fast. We’re talking days instead of weeks or months. Plus, most hard money lenders offer 100% financing.
The downside is hard money can be expensive. Rates tend to be higher than other lenders. But this type of loan is intended to be short-term. If used correctly, you only pay these high rates for 6 months or less.
Non-Traditional Loans
Another option to buy a rental property is using a non-traditional loan. These are excellent for those who don’t have—or don’t want to use their tax returns. Unfortunately, they also come with high rates, so they’re more expensive than some of your other real estate funding options.
Banks
Banks are useful for those who can make the cut. They offer lower rates and allow you to keep your real estate loan in your LLC or business name.
But banks also have the strictest requirements, and if you don’t meet those requirements, you’ll get rejected. Worse, they require 3-5 year terms, so you can’t get in and out of them as fast as hard money and other loan options.
Traditional Loans
Traditional loans are one of your cheaper options because they offer the best rates. But be careful, because these types of loans have stricter requirements. And, unlike banks, you can’t put the loan in your LLC or business name. You have to keep it in your personal name.
OPM (Other People’s Money)
Compared to all the other real estate lenders, OPM offers the lowest cost and highest flexibility. You only pay interest, so there are no points or other random fees. Better yet, you and your lender can set the terms together.
The only downside to OPM is finding those who are willing to lend their money to you. But that’s where gaining experience and knowledge in real estate investing helps. The more you know, the more you can prove you’re worth the investment.
So, there you go. If you’re interested in buying a rental property, one of these 5 options can help you actually BUY it. Which one is the best? Well, there’s no right answer to that, because every real estate investor has a different path. What works for you might not work for someone else.
Ready to find out what YOUR path is? Great! Our team is here to help. We’re excited to set you on a path that helps you make the kind of money you need…to live the life you want.
https://thecashflowcompany.com/wp-content/uploads/2021/08/JENNAS-YouTube-Thumbnails-3.png7201280Jenna Weldonhttps://thecashflowcompany.com/wp-content/uploads/2022/09/The-Cash-Flow-Company-logo.pngJenna Weldon2021-07-21 15:07:532021-08-10 07:57:07How to Buy a Rental Property: 5 Ways To Fund Your Real Estate Deal
Quitting your day job so you can invest full-time…and bring even MORE money into your life!
Or maybe you simply want to live more comfortably, without stressing about bills and groceries and all the other expenses that keep you awake at night.
You see, when you have good cash flow appearing in your bank account every month, life’s just better. It’s as simple as that. You’re no longer tied to fear, anxiety, stress, an unwanted job, or unfulfilled dreams. You can take control and be free of the rat race forever.
Want to discover how you can bring more cash flow into your life and gain financial independence? Well, good, because our team is here to help you learn about your options. Because there are many when it comes to producing sustainable, reliable cash flow. These include:
Investing in real estate. AKA, fix and flips, rentals, and other value-add properties
Improving your credit score
Getting out of an expensive loan and into a more affordable one.
Ready to chat? Great! Our team is here and ready to help you achieve financial independence.
https://thecashflowcompany.com/wp-content/uploads/2021/07/YouTube-Thumbnails-5.png7201280Jenna Weldonhttps://thecashflowcompany.com/wp-content/uploads/2022/09/The-Cash-Flow-Company-logo.pngJenna Weldon2021-07-06 10:00:512021-08-10 07:55:27What is the Answer to Your Financial Independence: CASH FLOW
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