Don’t Be Afraid of Using Hard Money

Don't Be Afraid of Using Hard Money

Hard money is an asset based loan that is typically issued by private investors or companies where you as the borrower would receive funds secured against the property.  The interest rates are higher, the loans are considered riskier and the duration is much shorter than a conventional mortgage.  Many new real estate investors don’t know about hard money or are afraid to use it.  Don’t be afraid of using hard money it is just another tool in your arsenal.

Why Use Hard Money?

Hard money is easier to get and it is available when traditional financing isn’t.  The last thing you want to do is lose a really good deal because of lack of funds.  Hard money is often used when you find a distressed property that you want to rehab and flip.  The terms are usually very short somewhere between six months and a year.  The interest rate is very high but these are meant for short term quick deals.

What are Points?

Points are 1% of the loan amount and a hard money lender will charge somewhere between 4-6 points.  Yes, that is a lot but you need to take all of this into consideration when making a deal.  If there is big money to be made and no other financing options then hard money can work for you.

Why Is Does Hard Money Cost so Much?

Hard money lenders are banking on your ability to take a piece of property fix it and pay them back quickly, without any collateral or even so much as doing a credit check.  You have little or no money at stake in the deal, the risk is entirely theirs, in fact it’s doubtful they will ever even see the property.  The risks aren’t small, and that’s what you pay for.

How Do You Make Hard Money Work?

Hard money lenders will often finance between 70 – 90% of the after repaired value of a property (ARV) and you find a property that is selling for $70, 000 and it will need $30,000 worth of repairs, totalling $100,000.  Once the property is repaired it will be worth $150,000.  You borrow $100,000  that you will need to pay back plus 5 points which is $5,000 plus interest for a total cost of roughly $110,000 over 6 months.  But then you sell the home for $150,000 leaving you with a profit of $39,000.  That is why investors use hard money.

Hard money is expensive and should only be used as a last resort, but you can turn a very good profit using hard money when used carefully.

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Buying Foreclosure Properties

Buying Foreclosure Properties

A foreclosure is a piece or property being sold off by a lender in order to pay off a mortgage loan that has gone into default.  When a property is foreclosed on there is an auction allowing anyone to purchase the property.  You can also purchase directly from the bank.  You can get some incredible deals on investment properties when you are buying foreclosure properties but they can be complicated.  Here are some tips to follow.

Work with an Agent

Whether you plan on using the property as your primary residence or you plan on flipping it an agent can help.  The realtor can help tremendously when it comes to the local market.  Determining the value of the property and whether it is a sound investment.

Check the Financials

While you can get some great deals from a foreclosure you still need to stick to a budget.  If you are buying as an investment or rental property can you afford to carry the mortgage while repairs are made or until you can feasibly get tenants in there?  You still need to get an inspection of the property and determine the repair costs.  Foreclosure properties are generally sold “as is” so repairs are almost a given.

Check the Comps

One of the ways to determine whether or not the property is a good deal is to check what other properties in the neighborhood are selling for.  You will also need to have a realistic assessment done on the home you are considering.  Typically there is a deep discount on foreclosed homes but to determine if it really is a good investment you need to factor in repair costs and look at the market value.

Find Bank Owned Foreclosures

Banks and other lending institutions aren’t landlords and they don’t want to own property their only desire is to get them off their books.  They will generally do so at low price just to be rid of them.  You want a bank owned foreclosure rather than one going up for auction there is less competition and you can generally get a better price.

Foreclosures can be a very smart investment, the housing market right now is stable and interest rates are still good.  You still need to research the property thoroughly before you sign on the dotted line.  Even buying a foreclosure can turn into a very bad deal if you’re not careful.

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Don’t Make These Mistakes When Investing in Rental Property

Don’t Make These Mistakes When Investing in Rental Property

Rental properties can be a great investment that can give you positive cash flow each and every month but it doesn’t happen magically you need to put in the work.  First of all you need to find a property that will cover the expenses including mortgages, taxes and other expenses.  The most common mistakes that are made when it comes to investing in real estate involve underestimating your expenses along with not screening your tenants.  Don’t make these mistakes when investing in rental property.

Mistake #1: Don’t Underestimate Your Costs

Aside from the cost of your mortgage you are going to have other expenses such as taxes and insurance.  You will also have to ante up for the costs when your property is vacant or a tenant has done damage and your property is sitting vacant while it is getting repaired.  You will also need to put away some money for emergencies like a new furnace or hot water tank.  Ideally your regular expenses should be no more that 1% of the purchase price of the house.

Mistake #2:  Rental Property is Not a Get Rich Quick Scheme

Stop watching HGTV or listening to infomercials. The real world of real estate investing looks nothing like that.  These shows and commercials give a very unrealistic view of what real estate investing is really like.  Rental property is a business and not necessarily a passive investment scheme.  You need to be ready for tenants calling you in the middle of the night because the toilet is clogged.  If you plan on hiring a property manager then be prepared to pay for it.

Mistake #3: Always Screen Your Tenants

Even the nicest of people can turn out to be the tenants from hell and it can end up costing you a small fortune.  A credit check can be done fairly cheaply and verifying references is a couple of phone calls.  You can find out if your prospective tenant paid the rent on time, did damage or was difficult to deal with.  Take the time to learn the law concerning landlords and tenants so you can take steps to protect yourself.

Buying rental property can be a fantastic way to make money but you need to do your due diligence before you sign on the dotted line.  Understand your expenses and cash flow for each and every property.  You need to know what repairs the property needs or will need in the near future.  Be very firm on your deal breakers and don’t be afraid to walk away from a bad deal.

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