Building Your Real Estate Investing Team

Building Your Real Estate Investing Team

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Category : Hard Money Loans , Real Estate Loans

To be successful as a real estate investor you will need a “team” of professionals that you can rely on. You do not need to build this team before you start investing. As you progress in your investing career you will meet many people in these fields that you will want to establish a working relationship with. Some team members will not work out and will have to be replaced. Don’t worry about this, as it is a normal part of the business. A great way to find your team members is through referral from other investors. Once you join a local real estate investors association you will meet active investors who will be able to guide you toward competent individuals in the business. One word of caution though – contractors have earned bad reputations. Therefore, most investors will not share their “best” contractor for fear that he will get to busy to do their work. Expect to have to sort through many contractors if you decide to do any rehab work. This team will be needed to successfully close your purchase and sale transactions. Not all members will be needed for every transaction but knowing they are in place will increase your confidence level.

Investor Associations

Most cities have a real estate investors association. You should visit the associations in your area and join one that you are comfortable with. Through these organizations you will find educational opportunities as well as networking opportunities. Attend as many of the educational programs as you can. This will help you to become more comfortable with each area of investing. The more areas you have knowledge in the better equipped you are to be able to meet the needs of sellers that contact you. Through networking at the association meetings you will be able to find many of your team members. You will also find other investors who will be interested in deals that you do not want. You can always pass these deals along for a bird dog fee or an assignment fee.

Wholesalers

You will find many wholesalers at association meetings. If you decide to rehab or rent property, a wholesaler will be a valuable source of property for you. They will spend the time and money to find the deal and negotiate with the seller. This allows you to spend your time managing your rehab or rental property. Make sure you verify their ARV (After Repair Value) on the property as well as their repair estimate. As long as the numbers work, you should not mind paying them their “wholesale fee”.

Real Estate Agents

Most real estate agents are not interested in working with investors. This is because they are trained to make “full price offers” on listed property. In every area there are a few agents that do work with investors. These are usually the most successful agents in the area. They understand that a good investor client means easy repeat business for them. You will find these agents by looking at who has the most listings in your target area as well as word of mouth at investor association meetings. These agents are very busy so it may be difficult to establish a relationship with them. However, it is well worth the effort in the long run. They are especially needed if you decide to be a wholesaler. They will have access to most of the bank owned properties.

Real Estate Lawyers

You will need a strong real estate attorney on your team as soon as possible. This person will handle closings for you as well as title searches. They can also give you legal advice as you run across unfamiliar situations (such as a seller in bankruptcy). You should make sure that your attorney specializes in real estate.

Lenders

There are three main type of lenders that you will be dealing with:

Hard Money Lenders – Based on ARV of property, your credit history and close quickly

Conventional Lenders – Based on your credit, current property value, slow closing

Private Money Lenders – Based on your relationship with the individual

You will find all three types at most association meetings. When you are beginning your investment career you will most likely be working with a hard money lender. They are called hard money lenders because they charge pretty hefty fees to make the loan. They will usually loan up to 70% of ARV for a period of 6-12 months. They typically charge 3-6 points up front to make the loan (each point is 1% of the loan amount), interest rates of 12-18% and will hold repair money in escrow to be paid out as repairs are completed. Although these fees sound expensive they really aren’t. It is much cheaper to borrow from a hard money lender than it is to take on a money partner and give up 50% of any profit made. See the following simple example for a comparison using a 6-month holding period, 3 points upfront and 12% interest and a final sales price of 5,000:

Loan From Hard Money Lender

Sale Amount 145,000

Loan Amount 100,000

Points to Lender 3,000

Payments to Lender 6,000

Partner Split 0

Net Profit 36,000

50% Money Partner

Sale Amount 145,000

 Loan Amount 100,000

Points to Lender 0

Payments to Lender 0

Partner Split 22,500

Net Profit 22,500

As you can see, hard money lenders are not as expensive as you thought!

You will probably only use a conventional lender when buying long term rental property. Conventional lenders will be necessary when you sell property to homebuyers. A good mortgage broker will be able to find financing for buyers with a variety of credit issues. An average broker will only be able to finance buyers with perfect credit. Make sure you look for brokers who can find financing for people with “A”, “B” and “C” credit. Once you have established a track record as a successful investor you will be able to attract private investors. These are people who have money that they will loan to you in order to get a better return than a bank or the stock market will give them. You can replace hard money lenders with private lenders and stop paying the upfront fees. You may also be able to negotiate a lower interest rate than the hard money lenders charge.

Insurance Agents

There will be two main types of property insurance that you will need. These are “Builders Risk” and “landlord” insurance. When you are dealing with a vacant house that is under repair you will need “Builders Risk” insurance. Builders risk insurance will cover the property and usually the materials being used during the rehab (in case of theft). It is more expensive than a landlord’s policy because of the increased risk. A landlord policy will cover the property only, not the contents. Your renter will need to have a renter’s policy to cover their belongings. Landlord policies usually will not cover vacant property or property under repair. Most agents do not sell both types of policies. Make sure to acquire the correct type of policy so that you are always covered.

Real Estate Investment Financing

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Category : Hard Money Loans

So you’ve made the calls, you braved the elements and headed out to look at properties in search of the deal and now you’ve found it. The next step is to determine which method of real estate investment financing you will use.

It depends a few things like whether you want to hold onto the property or resell it quickly or how much cash you are putting into the deal and how much you are borrowing. It depends on what your credit looks like.
Will you want monthly interest payments or do would you prefer to pay on the back-end. Should you use your cash or someone else’s cash?
Much of this will depend on your strategy and personal resources.
Real estate investment financing can take many forms. I’ll break it down simply into three categories.
Bank Financing
If you have the credit and the necessary down payment, you can get a loan from a bank or mortgage broker. When going this route it is important to make sure you factor in monthly costs such as taxes and insurance and make sure your budget will cover the monthly note.
Six months of mortgages with no income can strip all your profit out and leave you working for nothing.
If you’re buying rehab-grade property the bank might get picky, since the property will be their collateral after all. They might not like the idea of financing a property that isn’t reasonably habitable.
Another thing to keep in mind with banks is that you will pay a higher interest rate on non-owner occupied loans
Cash
Cold, hard cash is King when buying properties below market value. The ability to act quickly and not wait for bank approvals is key to acquiring distressed property or other-wise untouchable property.
If you don’t have your own cash for the deal, you can use a hard money lender.
Hard money lenders will be local investors most likely but there are some mid-size companies in the hard money business. Most will charge close to double the interest rate a bank will, plus extra points for funding the deal.
Many hard money lenders are long-time real estate investors that have branched out and will understand the process better than most bankers. They will care less about your credit than they will if you have a good deal or not.
Hard money lenders will only do business with you if you’re buying the property at or below 65-70% of the After Repair Value.
Another route is to find your own private investors to put up the cash and split the profits on the back end. Give the investor a 1st position on the property as collateral.
In this way, both private investors and hard money lenders can potentially make more money if you default by foreclosing and completing the project themselves.
Creative Financing
Many real estate investors specialize in buying homes with little or no money down.
They achieve it through a variety of ways that fall under the umbrella of “Creative Deals”. They’re usually situations in which the owners are in distress due to foreclosure, bankruptcy, divorce, or any other situation that creates urgency to sell quickly.
Methods include the Lease-Option, in which you lease the property with the option to buy later. You can assume the existing mortgage. In some situations the owner of the property can simply quitclaim the deed to you in exchange for taking over payments.
With creative deals make sure you have a good real estate attorney on your side making sure your doing everything legally and that all parties are well informed of their rights.
Any of these methods can allow you to finance or gain control of the property so you can then apply your strategy for wealth, whether it be renting it out or reselling.

Financing Real Estate Deals – How To Make It Work

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Category : Hard Money Loans , Real Estate Loans

Here are 6 ways to fund your deals:
Bank Financing: This is the first and most commonly referred to technique for novice and seasoned investors. Bank Financing often offers the cheapest and longest term financing available. Mortgage brokers are mostly used for this king of financing. The problem is that motivated sellers usually need cash right away, and this kind of financing can take 30 days or more to fund.
Refinancing: This is simply obtaining a new loan to pay off a loan that already exists on a property. Title does not change hands. Only the security deed changes. Reasons for the refinance are better terms, or there is large enough equity to do a cash out.
Hard Money Loan: A hard money lender is a quicker faster way to get cash. The loan is based on the value of the property itself, and typically not on the credit of the borrower. Many hard money lenders were at one time or are real estate investors. Closing can happen in two weeks or less, but the fees and interest rates are much higher than a regular bank loan. Hard money loans are typically used as a short term method of finance, and are sometimes referred to as bridge loans.
Equity line: This is a loan on the equity of a property. The benefit is the funds can be accessed when needed, repaid, then used again as needed. So you only pay interest when the funds are being used. Once established, equity lines can be a quick and relatively inexpensive method for financing a deal.
Private lenders: These are people that typically don’t make loans at all. They have money sitting in savings or other low interest bearing accounts. They usually consider investing in your projects because the loan is secured by real estate, and you will offer them a better return on their money than they can realize with savings. These potential lender can be your friends, doctors, attorneys, anyone with money to invest. This can be a very attractive method for lending because you can negotiate the terms, and there is no qualifying process.
Unsecured lines: These are the credit cards in your wallet. For portions of funding or repairs, these lines can be great sources of short term financing. Call you credit card company for increases in the lines available and negotiate better terms. You can also ask for promotional rates. Make sure you use this for making money, not buying toys.
This is just the tip of the iceberg. There are many ways to creatively finance your deals. Keep reading and learning about different ways to make it happen. Also-don’t forget that mixing up the strategies is a strategy in itself. Sometimes it may take a traditional loan, plus hard money and use of your equity line to make the deal happen. Just make sure the number work!

Hard Money Loans-Easy To Borrow

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Category : Hard Money Loans , Real Estate Loans

Hard money loans are the amount being borrowed to solve some urgent financial problems. The term hard signifies it’s quite Herculean to obtain because these loans are not provided by banks or financial institutions rather they are disbursed by private financial groups or lenders known as hard moneylenders. Hard can also be interpreted in different manner as there is high upfront cost involved and exorbitant interest rates are being charged. These loans also have high origination fees and cost more than an average mortgage (in some cases going as high as twice that of average mortgage).

Hard money loan is generally explored as the last resort. It should be understood like if one is willing to sale his/her business venture or the property and he/she thinks with a little bit of renovation and repairs the money generated can be quite high then hard money loans can be the best suited option for him/her. All he needs to do is to obtain the loan utilize it make some extra money and return it.

The uniqueness of hard money loans lie in their various characteristics like they have private lending sources. They come with short interest term of one to three years they charge upfront fee on closing before three months of the due date that is quite astronomical. There is limited number of debt covenants and they are shorter in duration. Moreover the failure in repayments results in the sale of the assets to nullify the debt.

Hard money comes in forms like hard money business loans or residential hard money loans. The hard money loans are usually secured by real estates of commercial viability. Hard money borrowers get the fund based on the estimated value of the commercial or residential real estate. The lenders are interested in money generating properties such as apartments, shopping malls, office buildings, hotels, hospitals and so on. However potent income generating activities like land acquisitions, bankruptcies are also seen with interest.

People who have been turned down the mortgages by the financial institutions because of various reasons like having a poor credit history, non competence to pay as they lack in desired income etc. also look upon the hard money loans as their saviors. Hard money loans are also sought by persons who are falling behind the repayments of their mortgage or fear the foreclosures.

The investors are lured by the typically high return on their amount which banks fail to provide them. So investing in hard money loans to borrowers having equity of 30-40% in the property seems to be a better proposition to them. These loans are given on the appraised value of the commercial property unlike traditional bank criteria which seek too many documented proofs like credit card scores, tax returns and income statement of the borrowers. Lesser paper work and lesser verifications make the procedure to obtain these loans very brisk.

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