Different Types of Investment Loans for Real Estate Property

Aerial View of Real Estate

Do you know the different real estate investment loans? Learn more from Investor Loan Source, a top investment property lender offering loans nationwide.

Are you planning on investing in real estate? There are primarily two ways to do this, either with cash or with an investment loan. Not all real estate investors have cash on hand when starting out. Therefore, most will choose an investment loan product to fund their purchase. If you’re researching investor loans for the first time, here is a brief overview of what loans might be available to you.

Commercial Loans

These loans are available for purchase, refinance, and cash-out purposes. They are used by investors to purchase all kinds of commercial properties up to $10 mil, in most cases. Commercial loans are great for investors who qualify for traditional loans, but can also provide creative solutions for investors who need less traditional loan options. These loans are a good option for specialized land loans.

Hard Money Loans

Have you considered a conventional mortgage, but you didn’t want the typical duration that comes with a traditional mortgage product? Hard money loans work well for private real estate investors who need short-term loans. Short-term hard money loans require pay-off within 36 months, and they have generous credit score requirements. In fact, many hard money loans have no credit requirements at all. However, before going with this investment loan product, it’s important to know that the interest rates are quite a bit more to the tune of 10% more than traditional mortgage products.

Fix-and-Flip Loans

Investors who need to close fast and need private lenders for real estate investors might choose a fix-and-flip loan. These are investor loans that offer flexible solutions to fit your needs and help you make strategic purchases. Some of the advantages of these loans are they can cover up to 100% of the property purchase amount and 100% financing on rehab costs. Most fix-and-flip loans are available for single-family homes and 2-4-unit multi-family complexes. There are typically no loan minimums with a maximum loan amount of one million dollars.

FHA and VA Investment Loans

Not everyone is eligible for these investor real estate loans, but if you are, these loans are a great way to secure a rental property. FHA loan-funded properties do have strict occupancy requirements such as they must be owner-occupied the first year, and can only be rented out the following year. What makes these investments loans so attractive is their low down payments, making it easier for first-time investors to get into the market.

Rental Loans

If you don’t qualify for FHA and VA investment loans, a private rental loan is another option for investors. These loans offer the following benefits:

  • Close in as little as 10 days
  • Up to 75% LTV
  • 100% LTC
  • 5, 20, and 30-year loan options
  • Ideal for non-owner-occupied residences
  • 600 minimum credit score requirements
  • Available for 2-4 multi-unit rentals and single-family properties
  • Wrap-around loans

Novice investors often haven’t heard of this investment loan type, but it’s a great way to get a lower interest rate on an existing mortgage with a higher yield for the investor. Wrap-around loans are transactions where the lender assumes responsibility for an existing mortgage, allowing you – the investor- to sell a property on owner-finance terms while wrapping that note around the one you have with your lender. The process is often confusing to new investors, so it’s important to work with lenders who do these loans often.

If you’re looking for an investment property lender, contact Investor Loan Source today at https://ils.cash/ to learn more about available programs for seasoned and first-time investors.

Determining Fair Market Rent for Your Rental Property

For rent sign

At Investor Loan Source, we’re here to help you get the funds you need to invest in real estate. Rental properties can be an excellent source of income, and our real estate investor funding is a great way to get one or more rental properties under your belt so that you can begin collecting rent. But exactly how much should you be charging for rent anyways? This blog will help you learn how to calculate a fair rate for your rental property.

Why It’s Important to Know the FMR

The fair market rent (or FMR) is an essential piece of knowledge to have, whether you’re looking for a rental to buy, listing a vacant rental property, or adjusting your current rent charges. Ensuring that you’re charging a fair rate for rent will help you to fill your property quickly, help you keep good tenants for longer, and help you to calculate if a property is a good investment.

When listing a property, you want to ensure that the monthly rent you list is competitive. If your rent is too high, you’ll have a hard time filling the property, which means you’re left paying the expenses on a vacant property. If your rent is too low, you may fill the space quickly, but you’ll likely end up making very little on the property—if you make anything at all. The same applies to adjusting your current rent charges.

If you’re looking for a property to invest in, knowing the FMR for such a property can help you to calculate whether or not the property is a smart investment. If the FMR for that area is less than what it will cost you to run the property, it might be a good idea to invest somewhere else.

What Factors Will Impact FMR?

The FMR for any given property is impacted by many of the same factors that would impact the purchase price of the property. These include:

  • How desirable the area is to live in
  • Square footage
  • Number of bedrooms and bathrooms
  • The type of property (single-family home, townhome, apartment, etc.)
  • Age of property
  • Condition of property
  • Any additional amenities that improve the property’s desirability

Now that you have a basic understanding of what will impact your property’s FMR, let’s get into how to calculate it.

How to Calculate FMR

The first and best step to take when trying to calculate FMR is to look at comparable properties in your area to see what other landlords are charging. You should aim to find at least three properties that are as similar as possible to your own, but the more comps you find, the more accurate your rental calculation will be.

When looking at comps, keep the factors listed above in mind. If the other properties you’re looking at have additional amenities that yours doesn’t—such as being recently updated—or if they have less square footage than yours, you’ll need to adjust your calculations accordingly.

If you’re looking to invest in rental properties, contact Investor Loan Source to get a real estate investment loan. We’ll help you get the funds you need to purchase rental properties that will be a smart investment for your future.

What Newbie Real Estate Investors Should Do in Lockdown

Pile of Money

The real estate business isn’t easy to deal with, especially if you’re new to the industry. You may have to double your efforts to keep up with veterans and larger players in the field. You can contact money lenders who can help you with financing a real estate investment. And, during the lockdown, it’s best to use the time you have to be more productive using these suggestions:

Refresh Your Mind and Establish Clear Goals

Spend a chunk of your time during the lockdown freshening up your mind and reminding yourself why you’re in the real estate business. Take this opportunity to establish your goals. Try to look 5 or 6 years ahead. Picture what you want to be doing by then. If you’re having a hard time thinking of a set of objectives, it can help if you ask yourself these questions:

  • “How many properties do I want to acquire in the next few years?”
  • “Do I settle for becoming a landlord, or do I venture into other opportunities the industry offers?”
  • “How old do I have to be before I start planning for my retirement?”
  • “Should I join investment groups and let them manage some of my rental properties?”
  • “Will I get by if I acquire numerous rental property loans?”

Self-reflection sets up a clearer path for you. Once you have a better idea of what you’d like to achieve in the industry, you can devise several plans for how to realize them. If your Plan A doesn’t work, you can proceed with Plan B or C or even D and E. Multiple options will keep you from getting discouraged if you don’t succeed the first time.

Get Review Pointers From Current Clients

If you have some commercial and residential properties leased, phone some of your tenants. Start by asking them about their status during the lockdown. Once you’ve confirmed that it’s a good time for a long and fruitful talk, let them know why you called. Tell them that you want to get some review pointers that you can use to improve your services as a landlord.

It’s a win-win situation for both parties. You’ll primarily benefit by learning how the way you run your properties can affect your tenants. And, they’ll tell you if they have any grievances that you need to hear. It can be about damage in the unit or your management as a whole.

If you have more time, you can send your tenants a handwritten letter of appreciation. The goal isn’t just to acknowledge their review pointers but to thank them for the trust that they give you as their property manager. No matter how short, a simple expression of gratitude can make them feel less alone while they’re in quarantine.

Watch Documentaries, Read Books, and Join Online Groups

Another way to spend your time during the lockdown is to broaden your cultural knowledge. Go online to view industry-related documentaries. Watching them can offer something beyond temporary entertainment while you’re staying at home. They can also help you gain essential information about the field and understand past and current trends that affect the real estate trade.

It’s also a great idea to study books that can help you become a better investor. Search online recommendations and browse through reviews. Then, you can buy an electronic copy of the publication and read it while you’re at home.

You can also join online groups and forums. This lets you meet and converse with other industry players, both newbies and veterans. It’s a great idea to open a discussion thread by asking a situational question about something that can happen to any investor. Then, let other participants and members tell you what they would do if they found themselves in that position.

Are you encountering different issues as a newbie investor? Get in touch with Investor Loan Source today. They’re a company that can help you if you need hard money lending services or other financial solutions.

Estimating Cash Flow on Multi-Family Rental Property

Calculating Loan Investment

In the real estate industry, having skills in math is a must, especially when there’s profit involved. According to investment lenders, by estimating the potential cash flow, seasoned investors can tell if the multi-family rental property on the table is worth the time and money or not.

The good news is, you don’t have to be a math whiz to do it. All that’s needed are some simple equations to get a ballpark estimate of your potential profit. Once you have a better idea if the multi-family rental property you’re eyeing is worth it, that’s when you can perform your due diligence in researching and doing thorough analyses.

To help you out, here’s what you need to know about estimating the cash flow of a multi-family rental property.

Understanding the 50% Rule

One trick that expert investors use to get a quick ballpark estimate is the 50% rule. Here, always keep in mind that the expenses of a property are around half of its potential revenue.

While it’s true that in most cases the actual amount of the expenses can exceed more than half of the revenue, the rough estimate is still useful. For one, the figure will help you gauge if the property is overvalued or if it has the potential for profit. Also, you can use the number as the base for other computations.

Breaking Down the Cash Flow

To help you use the 50% rule, here’s a breakdown for cash flow in the simplest equation possible:

Total Income – Total Expenses = Cash Flow

What you’ll do is take the overall monthly rent amount as the income, then divide it in half and assume that’s your expenses. Subtract the expenses from the income and you’ll get the cash flow for that month.

Example

So, say the real estate is a 5-unit multi-family property where each tenant pays $800 in rent each month. By following the breakdown, the overall income would be $4000, which is 800 x 5 (rent multiplied by the number of tenants). And, by applying the 50% rule, you get $2000 for the expenses (overall income divided by 2).

At this point, you can add the mortgage of the property to have a more accurate estimate of your expenses. For simplicity’s sake, say you’re paying $1,300 in investment property loans. In the end, the total amount is $3,300 (expenses + mortgage).

Using the numbers from that example, here’s what you’ll get:

$4000 (income) – $3,300 (expenses + mortgage) = Cash Flow

$700 = Cash Flow

By following the 50% rule in ballpark estimation, you’ll have $700 for your monthly cash flow, or $8,400 annually from the property.

Expenses by the Numbers

To have a more realistic cash flow, you can adjust the value of the expenses where different factors are taken into account. Aside from the mortgage, here are what you should include in the equation:

  • Insurance
  • Home Owners Association Fees
  • Taxes
  • Maintenance and Upkeep
  • Capital Expenditures
  • Management Expenses
  • Vacancies
  • Marketing

For this part, since these factors can change depending on the situation, their actual figures are almost impossible to get. So, you’ll have to do your research and make a few phone calls to have a more accurate estimate of the expenses.

If you have experience in the industry and are familiar with the local market, you might already have a rough figure of some factors. But, if you’re new to this, the best thing to do is to talk with property managers, realtors, and other entrepreneurs in the business and ask for their advice. Contact Investor Loan Source to learn more about ballpark estimating and for assistance in investor real estate loans.

How Hard Money Loans Can Help Close Deals Quickly

Person Handing Money

Hard money loans are an excellent choice for purchasing a property that you intend to flip or use as a rental. They can be easier to obtain than other loans, especially for borrowers that don’t have a high credit score or are looking for faster funding than traditional loans provide. If you’re purchasing real estate investment property, you’ll benefit from a hard money loan because they are faster to obtain and can help you close the deal more quickly. Here’s how that’s possible.

Flexible Loan Structuring

One reason hard money loans are great for real estate financing in Texas is that the structure of the loan is more flexible than other types of loans. Private lenders that provide hard money loans are more interested in providing financing than traditional lenders that seem to look for any way to keep borrowers from obtaining financing. That means that the private lender is less interested in credit scores or using a traditional loan structure. This makes it easier for borrowers to pay back the loan in a way that’s individualized to the project instead of making the project fit into the timeline of a loan. Since the lenders are more accustomed to making these accommodations, you can get financing more quickly than when trying to get these accommodations built into a traditional loan, which may end up being impossible anyway.

Fast Underwriting Process

Hard money loans have a faster underwriting process, which means you can get the property purchased more quickly so that you can get to work rehabilitating the property for another sell or for renting or leasing. If you’re able to provide the documentation to the lender quickly, you’ll be able to close the loan quickly as well. As long as you have all the information ready for the lender when you make a loan request, you’ll be able to receive a response very quickly. In fact, many private lenders are able to respond to hard money loan requests in one day, and the loan itself can close in just a few weeks. This makes your offer on a property look far more attractive to a seller when you can finish the financing quickly.

Clear Terms

Another reason hard money loans can speed up a deal is that the terms of the loan are made clear during the application process. You’ll avoid surprises that often crop up in the midst of a traditional loan because you’ll know what’s expected before the application is even submitted. You’ll know exactly what will happen to the collateral you offer if you default on the loan so that there aren’t any surprises at closing.

House Model Sitting on Pile of Money

Direct Relationship

Another reason a hard money loan can help you get a deal closed more quickly is that there’s no middleman to work through. Private lenders typically work more closely with the borrower instead of with a broker so that communication is more frequent and succinct. This helps avoid misunderstandings and allows the borrower to work directly with the decision-maker rather than with a group of people, which is almost always the case with a traditional lender.

Important Consideration

When you’re considering a hard money loan for commercial real estate loans, you’ll probably notice a higher interest rate. It’s important to note that the reason for this is to help investors make a better profit. These are short-term loans to provide funding for an investment opportunity, and in most cases obtaining the loan quickly results in a higher return. To learn more, contact Investor Loan Source today.

Why Choose a Hard Money Loan for Distressed Property Deals?

Hard Money Loan and Key

A distressed property is a property that’s being sold by the lender or is in foreclosure. There are a few different reasons a property may be in this situation, but regardless of the cause, a distressed property offers a great opportunity for investors to get a great purchase price and significant profit. If you’re considering purchasing a distressed property but don’t have the cash to do that right now, there are a few reasons you should consider hard money lending to get the money you need. Here’s what you need to know.

Benefits of Purchasing Distressed Property

Before you obtain a loan, it’s important to recognize the overall benefits of purchasing a distressed property. When a lender repossesses a property, they want to get rid of it quickly and recoup their investment. That means that the price is usually far lower than you might otherwise be able to afford in a certain location. Another benefit is that you’ll usually be able to make a good profit on a distressed property by adding some repairs and updates to make the property more attractive to other buyers. The sale can potentially go through quickly, and if you’re able to upgrade the property quickly, you can repay your hard money loan quickly as well. Here are some reasons to consider a hard money loan for financing the purchase of a distressed property.

Fast Approval

One of the best things about these loans is that they’re faster than other types of loans. Your credit score isn’t weighed very heavily; instead, the property is used as collateral. You can have the loan underwritten in a week or two rather than a few months.

More Attractive Buyer

This type of loan gives you cash to offer to the seller, which can be extremely helpful if the property is a hot commodity with many offers. Cash gives you some leverage in negotiations, and your whole loan process can be done very quickly. This can give you a leg up in investment opportunities in up-and-coming neighborhoods that other investors are starting to catch onto.

Foreclosure House Sale

Different Loan-to-Value Ratios

Another benefit of hard money loans is that the way these lenders determine loan-to-value (LTV) ratios differs from that of conventional loans. That means you can potentially receive more funds than you would from another lender, even though the LTV ratio may look lower at face value. Conventional lenders have to abide by federal regulations by calculating loan amounts from the purchase price or appraised value. However, hard money lenders have more freedom to choose the value they want to use for the LTV because they’re not bound by those federal regulations. That means that private lenders use a higher property value, and, in some cases, they’ll even consider the value of the property after upgrades are made instead of the as-is value. The result of this different LTV calculation is often the funds to not only purchase the property outright, but to pay for rehabilitation costs or loan payments as well until the property is sold again.

Loan Structuring Possibilities

Another benefit of hard money loans is how they’re structured. Many lenders are willing to loan additional funds that exceed the property’s purchase price into the overall loan for loan payments or renovation costs. More creative restructuring may require the borrower to compile estimates of rehabilitation costs and to disclose potential issues so that the lender is able to structure the loan to take these factors into account.

To talk to a lender about money for a distressed property, contact Investor Loan Source today.

The Perks of Investing in Commercial Property

Commercial building

When it comes to smart investments, real estate is usually a safe bet. Though both commercial and residential properties can be excellent opportunities, commercial properties tend to offer a bigger financial payoff than single-family homes and rental apartments do. But that’s not the only advantage they have over residential properties. Before you begin looking for real estate lenders, read more about the benefits of investing in commercial property.

What Qualifies as a Commercial Property?

There are many different types of commercial properties. They include:

  • Retail buildings
  • Offices
  • Warehouses
  • Industrial buildings
  • Mixed-use buildings, which have a mix of retail, office, and apartment space.
  • Apartment buildings
  • Self-Storage Complexes

Each of these properties comes with its own unique needs and management techniques. Keep reading to learn about some of the benefits you may experience if you invest in any of the above types of commercial property.

Higher Income Potential

One of the biggest reasons to invest in commercial real estate over residential is the higher earning potential. Typically, commercial properties have between a 6 and 12 percent annual return on the purchase price. Compare this to the annual return for single-family homes, which is usually between 1 and 4 percent. The exact ROI you can expect will largely depend on where your property is located and what kind of business you rent it out to.

More Professional Relationship Between Landlord and Tenant

Commercial properties aren’t usually owned by individual people, but instead are often owned by LLCs. Because of this, they typically operate their property as a business. Their spaces are also rented out by businesses who take pride in their work and want to do what’s best for their company. The relationship between the landlord and tenant, in this case, is a business-to-business relationship. This ensures that all interactions courteous and professional.

Better Maintenance

Business owners have a unique interest in keeping their places of business clean and maintained, both inside and out. If they don’t, it would negatively affect their business. As a landlord, it’s good to have a tenant who is as invested in maintaining the quality of the property as you are. Your interests are aligned with your tenants, which makes securing the property and your investment in it much simpler.

Property for sale

Set Hours of Operation

In general, businesses are only open for a set period of time during the day. Their hours of operation match your own. This means that you won’t have to worry about calls in the middle of the night from tenants who lost their keys or need a repair. The only calls you may receive during off-hours will be few and may only happen during an emergency, such as a break-in or fire.

Triple Net Leases

This is a common type of lease used for commercial properties. With a triple net lease, the property owner doesn’t pay any expenses on the property, aside from the mortgage. Instead, the lessee handles all expenses directly, including the real estate taxes. Large businesses usually use this type of lease in order to maintain the look and feel that their brand is known for. This type of low-maintenance contract is only applicable to commercial properties; you can’t use them with a residential property.

To learn more about investing in commercial property, contact us at Investor Loan Source today!

Hard Money Lending vs. Crowdfunding: A Realty Test

Crowdfunding

Real estate investing can turn a substantial return when investors understand market trends and demographics and have a good understanding of what will make a good investment property. Investing in real estate requires capital, which is not always readily available, especially when you’re beginning the investment process.

Fortunately, there are different ways you can obtain this capital. Two popular methods for obtaining investment funds are with crowdfunding and hard money loans. Here’s what you need to know about these two methods of obtaining capital.

Basics of Crowdfunding

Crowdfunding requires the investor to raise money in different amounts from a number of people. This can include funds from family and friends, but for real estate investing it usually involves soliciting funds from numerous accredited investors on the internet. These accredited investors are dedicated to the real estate world and understand property values.

To be accredited, they meet certain income requirements and have a minimum net worth value, depending on the crowdfunding campaign. The funds raised in the campaign are used like any other capital to purchase and build value in real estate. The loan from crowdfunding may or may not be secured.

Basics of Hard Money Lending

Hard money lending is a short-term loan that’s secured by the purchaser’s real estate. This type of loan differs from loans typically offered by banks because it’s quicker to obtain than a typical loan and has fewer qualification criteria as well. Since property is used as collateral, the value will help determine how much capital you can obtain as well as the interest rate that’s charge for the life of the loan. Only a certain percentage of the property’s value can be given out as a loan. Hard money loans are easier to obtain because credit history typically doesn’t factor into the lending process.

Hard money loans

Pros and Cons of Crowdfunding

One of the most obvious benefits of crowdfunding is the ability to contact numerous investors online. That means you’ll get a lot of feedback and the potential for funds if they agree with your concept and feel like it has the potential for a big return. You can save time pitching your idea to numerous investors at the same time instead of approaching lenders individually. You’ll also have the ability to promote your campaign on social media when using crowdfunding sites.

The downside of crowdfunding is that there may be a large minimum to participate on the platform, so it may be difficult to raise money for smaller projects. In addition, it may take a good portion of the year to find funding for your project, or you may not end up securing funding at all.

Pros and Cons of Hard Money Loans

Hard money loans are beneficial because you can obtain loans of differing values, whether you’re a first-time investor looking for a small loan or are experienced and looking to finance a large-scale project. Unlike the impersonal nature of crowdfunding, hard money loans make it possible for you to build a relationship with a lender so that you can get loans quickly later on. Hard money loans are also a fast way to get capital.

It’s important to note that hard money loans carry a higher interest rate because they’re short-term (usually only a year or two) with the assumption that you’ll be selling your investment for a profit rather quickly. For more information about hard money loans, contact Investor Loan Source today.

Top Considerations before Investing in a Real Estate Project

House cutouts near stacked coins

Investing in real estate is an attractive option for new and old investors alike. However, no matter where you fall experience-wise in investing, it’s crucial that you go into real estate investment understanding a few important factors. If you’ve been presented with a new opportunity for real estate investing, here are some things you should be sure to consider first.

Timeline

An important thing to remember in real estate investing is that the process can sometimes take some time, so be realistic about when to expect a return. The purpose of your investment is to build your portfolio and increase your cash flow, so if you need to do that quickly make sure you’re not investing in a property that will take too long to see a return.

The due-diligence phase itself can take months rather than days, and if renovation is involved, you’ll need to factor in the time to do that properly as well. It can take months or even years to get specific building permits, so when you’re considering your investment be aware of time frames for city and other government approvals that may be needed.

Location

The location of a real estate investment property is another crucial factor. No matter how incredible the property ends up being, if the location is undesirable it will be extremely difficult to make a good return. Areas with high crime rates or no commercial prospects will be difficult to sell or lease.

It’s also important to consider the trends and demographics of the area where the property is located. Do your homework about the area and talk to local agencies to make sure you understand the civil engineering and environmental limitations or requirements of the area.

Market Trends

A good investor knows the market trends and takes advantage of them accordingly. Make sure you understand fundamentals like vacancy, rent, competition for home sales, and more to make sure you’ll get a high return on your investment. Understanding the market makes it easier for you to diversify your portfolio and quickly identify good potential investments.

Pay attention to indications of recession or other economic downturn, because this substantially impacts how quickly you’ll be able to make a return on your investment, whether you plan to lease your property or flip it and sell. Make sure the properties you consider will be able to survive downturns so that you can recover more quickly.

House cutouts with bag labeled Investments

Property Value and Type

It’s important to remember that even after considering the market trends and demographics of an area, not all properties will be valued the same in an area simply because of the type of property. Some areas may be hotter for residential sales while others will be better for commercial. Make sure the property you’re considering isn’t overpriced and that risks are low for that type of property.

Current Financial Health

Very few real estate investments have a guaranteed return, so it’s important to be cautious financially and take into account your current financial health. Don’t stake everything you have or take out loans that you’re not certain you can recoup or pay back. If you are short on capital and want to take out a loan, make sure you understand all the terms and find a lender who specializes in the type of loan you need. Contact Investor Loan Source today to learn about the different loan options available for your investment.