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The Basics of House Flipping

Do you ever watch reality tv house flipping shows and dream about making a big profit in weeks?

Real estate investors that purchase homes in need of repairs and cosmetic work can earn huge returns in a relatively short period of time. It’s important to keep in mind that house flipping involves work and careful planning in order to be lucrative.

There are financial risks involved as well, but if you follow the key steps outlined in this article, flipping homes can be an excellent way to make money quickly.

What is House Flipping?
Flipping houses involves buying a property, renovating it and selling it for a profit. In order for a home to be considered a flip, it must be purchased with the intent of selling it in a short period of time.

Step 1: Know Your Market
Getting familiar with the real estate market in your area is critical to the success of your flip. It will help you recognize undervalued homes with profit potential and ensure you don’t overpay for a property. It will also help you determine the price you should be able to list the home when you sell it.

Step 2: Set a Budget
How much do you have to invest? How much money will you need to borrow? There are excellent private lenders out there willing to finance your next real estate deal. Do not assume not having enough cash resources will rule out a possible investment. Learn more about fix and flip loans here.

Make a list of repairs needed and get quotes from contractors while setting your budget plan to ensure you will be able to profit after selling the property.

Step 3: Line Up Your Financing
When you find an ideal property for flipping, you will need to be ready to act fast. Talk to lenders BEFORE you are ready to purchase the home to ensure you don’t miss out on opportunities. Investor Loan Source specializes in short-term fix and flip loans and are able to get you pre-approved quickly. Having your financing available before you discover your dream fix and flip property will help you beat out other investors looking in your market at investment properties. If you are already considering purchasing a real estate investment property, consider getting pre-approved today.

Step 4: Establish Your Team
You need to start building relationships with contractors before you buy your first flip. Begin asking for quotes and estimates immediately after purchasing your property, or even better before.

Part of learning how to flip a house is building a strong network of contractors you trust and can depend on – general contractors, electricians, roofers, plumbers, painters, HVAC experts. Get to know several lower-cost, well-rounded handymen as well.

Unless you plan on doing the work yourself, your team of contractors are essential to the success of your flipping business. It is helpful to ask for references and to contact them ahead of time to ensure you are hiring a trustworthy contractor.

Step 5: Locate and Identify Your Property
Learning how to find good deals is critical. That means not only buying below market value, but with wide enough margins to cover your expenses.

There are many strategies to find below-market deals on homes to flip. You could work with a realtor to find on-market deals, work with wholesalers to find off-market deals, build a direct mail marketing campaign and so on.

Part of finding a good deal as a home flipper is patience. It may be tempting to act quickly on a property that is not ideal, but if the numbers don’t work or if the repairs involve more work, time and money than what you are comfortable with, it is best to keep looking. Be ready to act quickly on properties that are ideal, but be ready to walk away from properties that simply aren’t good deals.

Step 6: Buy the Property
Got a contract accepted? Wonderful! Now consider hiring a home inspector. The home inspector will help you ensure the property is structurally sound and that the mechanical systems are in good working order. You don’t want any expensive, unpleasant surprises.

Contact your team of contractors for quotes. Choose a contractor and schedule them to start work on the same day you settle on the property if at all possible.

Step 7: Renovate
Get to work! Time is money, so the faster you can complete the renovation project, the faster you can sell the property and pay off your loan.

Step 8: Sell It!
The final step of flipping homes is usually the simplest – selling it! You can usually lean on a realtor, but ultimately, you’re the one responsible for pricing properly; your profits depend on it. Make sure you understand the fundamentals of real estate pricing, before buying your first investment property to flip.

Once you sell the property, you can celebrate and enjoy the financial rewards of being a successful house flipper!

How to Add Curb Appeal

You only get one chance to make a first impression. Having good curb appeal is one of the most important factors in attracting buyers to sell your fix and flip homes quickly. If your curb appeal is lacking, the right buyers may never even set foot in your home.

Walk around your home and look for any neglected areas that might seem like “red flags” to buyers, such as missing roof shingles or rotted siding. Trim trees and shrubs if needed, and make sure your lawn and flower beds are well maintained. Add some colorful flowers to your front beds and/or flower boxes to brighten up your landscaping.

To bring your house to the next level and really make it stand out from the rest, you want to create some sort of focal piece. Some houses have pre-existing outdoor focal pieces that you can enhance and highlight. For example, a porch on its own is great, but you can make it amazing with some simple improvements like patio furniture or seating. Adding some Adirondack chairs on the front lawn can create a conversational space that buyers will be sure to remember.

Make sure the exterior of your home is as clean as the interior. This can often be accomplished with a simple garden hose. You may even want to rent a pressure washer if the siding, walkway or driveway is stained or dingy.

Thoroughly wash windows and screens, and remove and dark solar screens if you have them. Open shutters, curtains and blinds, to make your house look more inviting from the outside – it will also brighten the inside of the home as well.

Consider a fresh coat of paint on your front door, trim and shutters. Personalizing the home will make your home stand out. Try small, cosmetic improvements like new house numbers, a colorful wreath and a clean front doormat. These minor inexpensive changes can pay off in a big way and help you sell your flip quickly for top dollar.

Looking to buy a new fix and flip? Let Investor Loan Source help with your financing needs.

What Newbie Real Estate Investors Should Do in Lockdown

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.

A Letter from Our CEO, Tom Berry

As I write this letter, I can’t help but think that this will probably be the craziest, most unpredictable experience of my lifetime. First, I hope you and your family members are well and are in good spirits and optimistic about the future. I read in a “good book” one time that “without vision, the people will parish”. I think it is important to always look to the future with vision and wisdom. Fear is crippling and debilitating. It is born of uncertainty and a lack of understanding. Today is certainly ripe for that, isn’t it? So much is unknown right now that I wanted to focus on what we do know and share with you what we at Investor Loan Source have done and what we continue to do, to ensure that we remain strong and secure for our families, investors, lenders and partners.

We have always taken what we have considered a conservative approach to lending and investing. We have never swung for the fences. We keep our pricing at reasonable, sustainable levels, and we have limited exposure as much as possible. When our competitors slashed their margins and raised their LTV maximums, we didn’t chase them. We let borrowers go to them and we focused on diversifying our product lines, so we didn’t have to compete with craziness. It turns out that our strategy worked out well, as many of those competitors are now unable to lend or have closed their doors all together. As a result, we have had record numbers of loan applications in the last 30 days. With this THREE-FOLD increase in applications, we have been able to make changes that will only serve to make us and our loans even stronger.

We raised the credit score requirements of borrowers to get into our A&B loan programs. This results in higher percentage rates on most of our loans without us really raising rates.
We lowered LTV maximums on certain loans. This means they need to bring more of their own money to close.
We have lowered the maximum loan amount for residential fix and flip loans. Now we will generally lend only up to $250,000 in most of our markets, as we believe that the higher priced houses may take a value hit in the next 12 months. As an investor over the last 13 years, I know that the blue collar “affordable housing” is always in short supply and demand increases during rough financial times. This leads to smaller price drops as a percentage on lower priced homes compared to higher priced homes. It creates more work for us since we get paid based on the loan amount and a $500,000 loan takes the same amount of time as a $50,000 loan, while paying only one tenth as much. At this time, we are fine with that to keep the integrity of our loan portfolio as high as possible.
We have diversified into commercial bridge loans that have higher loan amounts in asset classes not effected as greatly by the downturn (if it hits real estate). This has given us the ability to diversify geographically, by asset class and by industry. Our approach is to not have huge exposure in any one place.

While we have taken a cautious attitude through all this turmoil, we are very optimistic about the future. Our borrower payment rates have been outstanding. We have not seen much of a difference, if any, from our normal collection rate. Our Private Equity Funds have been posting phenomenal returns and I expect that to get a little higher, given our ability to charge more interest in the current market. With less competitors, we are able to cherry pick the best loans out there and let the rest lay. While the future is uncertain, with the wisdom of the past and steady patience, opportunities will abound. I will remain diligent and seek to bring in the very best business I can. Donald and I look forward to many more years of our families working with you and your families.

Best Regards,

Estimating Cash Flow on Multi-Family Rental Property

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

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.

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.

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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.