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Saturday, September 3, 2022

Private Money Lending Questions and Answers.

There may be no more exciting yet often confusing element to the real estate investing field than private money lending. Yet, while private lending for real estate represents a real opportunity for new real estate investors, many are unsure what the endeavor entails.

Is private money lending different from conventional financing? What's the difference between private money lending and hard money lending? And how do you find those ever-elusive private money lenders just waiting to take a chance on your new property acquisition?

To help dispel some of the confusion and boost your real estate investing IQ, here is a private money lending FAQ to get you up to speed on this most promising form of investment financing.

What Is Private Money Lending?

They are borrowing money from an individual investor. Real estate investors use private lenders to finance deals that will not qualify for a traditional loan or are not able to wait the usual 30 days or so that a conventional mortgage loan needs approval.

How Does Private Money Lending Differ From Hard Money Lending?

Private Money Lending FAQ

Think of it this way: private lending involves borrowing money from people with the means to invest capital in your venture (there's no financial institution backing this investor). An excellent example of a private money lender would be a friend or family member — anybody in your inner circle — or an individual investor who was intrigued by your proposal and wants to be a part of your investment.

Hard money lending is something that lives between private money lending and conventional bank financing. Though hard money lending doesn't require the usual hoops to jump through that traditional financing, hard money lenders are semi-institutional. However, they do have their own set of established criteria. Therefore, both types of lending should be part of an investor's financing toolbox.

Private Money Lender – Individuals who use their own money. Easy to qualify and get funded.

Hard Money Lender – a company or broker that uses their funds/pool or finds an individual private money lender, or provides semi-institutional funds.

What Are The Advantages Of Private Money Lending?

As Nasdaq accurately points out, private loans are ideal for investors who want to buy a property that needs a lot of repairs. For example, conventional financial institutions often refuse to grant mortgage loans for properties that have been vandalized or seriously damaged. On the other hand, private money lenders and hard money lenders see the potential in a property that can be purchased cheaply, fixed for a reasonable price, and then resold for a tidy profit.

Additionally, private money lenders and hard money lenders will have fewer requirements than other lenders. More specifically, private investors focus on the potential profitability of the real estate purchase rather than the borrower's financial history and credit score. Furthermore, private money loans are funded relatively fast, whereas a loan from a conventional lender may not be approved for up to 45 days.

What Are The Disadvantages Of Private Money Lending?

There are a few disadvantages to obtaining private loans. The first is that private lenders often charge a higher interest rate than the average bank loan. Private lending rates hover around 8%-18%. This is particularly true if you have poor credit and property purchases are risky. Lenders also add "points" to the loan, creating an additional expense for borrowers to cover.

Another disadvantage is that, unlike banks, raising private money won't allow you to pay off a loan over 30 years. Instead, you can expect to be required to pay the loan back within six to twelve months, although some more-lenient lenders, especially those you may be related to, may give you a couple of years.

One more thing to remember: you will likely have to use the property as collateral for the money financed from a private money lender. Do your due diligence to ensure a deal's framework (and potential) meets your criteria.

The good news is that these disadvantages do not hinder your real estate investment plans if you have done your research before pitching an investment deal. If you know the property is a good buy and are reasonably sure you can fix it up and sell it at a profit within a reasonable amount, the strict repayment time frame shouldn't cause alarm.

How Do You Find Private Lenders?

It's a big puzzle many new investors have: how to find a private lender that might be able to help them with the financing of their next project and securing low lending rates.

Several investors specialize in offering private loans to real estate buyers. You can find such investors through a variety of platforms:

A simple Google.com search for "private money lenders (your city or state)."
Craigslist.org
Your friend-and-family inner circle
Tapping your existing real estate network (mortgage brokers are ideal for this)
Social media (especially LinkedIn)
Live events (especially those that would attract investors)
Direct mail marketing
Cold calling
Public record search (look for "grantees" on mortgage paperwork)

Remember that private lenders don't need to be professionals in the field; when searching for ways to find a private lender, you want to locate somebody who wants a decent return on their money. For example, a parent, relative, colleague, or acquaintance who has cash on hand — and wants to turn a profit on it — may be willing to loan you the money you need to get started. These people in your "first circle" will have the lowest barrier to entry. You can even work with more than one lender if a single individual does not have enough cash to help you buy a property. The friends and colleagues of your "first circle" are considered part of your "second circle."

What Are The Requirements For Securing A Private Loan?

Because private lenders are so diverse and no government regulations cover private money lending, the terms and conditions for securing a loan vary greatly. Close friends and family members may be willing to loan you money simply because you have a clear proposal for how to turn a profit and because they know and trust you. On the other hand, acquaintances and colleagues may want a note or deed of trust and a clear investment plan to consider a loan.

Professional private money lending companies and individual lenders will want proof of identity, a note, a deed of trust, and a written plan (budget) outlining the profit you expect to generate.

A professional private lender may also ask about your credit score. Poor credit may not hinder you from obtaining a loan but will likely affect the interest rate. A down payment for the loan is also likely required, and you may need to use the property as collateral to protect the lender if you aren't able to pay off the loan.

Private Money Lender –It may require a credit report and a simple application.

Hard Money Lender – a company or broker that uses their funds/pool

or finds an individual private money lender may require a credit report

or semi-institutional funds require a credit report and a 1003 application.

Combining Private Money

Taking private money from multiple investors and pooling it together is legal under the right conditions. Two main structures exist to help you stay squeaky clean and organized: REITs and LLCs.

REITs are liquid and can use pooled money to invest in many different areas of real estate. LLCs allow investors more control over what they want to choose to fund. Both structures have their pros and cons, so be sure to do your research and consult with an attorney if necessary.

How is credit score considered?

Most Private Lenders will ask to see a credit report. However, having bad credit will not stop the deal. The lender is looking for or is the overall credit score and judgments on the credit report. A low credit score will require a higher down payment and interest rate. If the deal looks good and is secured with a reasonable LTV, the private lender will usually fund the deal. It depends on the source of funds; an Individual is more flexible.

A managed poll may have more requirements and a credit limit. For example, they would not fund with a credit score below 630, a maximum LTV of 60%.

Institutional funds require a credit report with a minimum credit score, cash flow analysis (do you have income), an LTV of 80%, and an appraisal.

One essential item that will stop all loans is whether the borrower has judgments or tax liens or is currently in bankruptcy.

Summary

When trying to attract a private money lender, it can be very tempting to focus on "closing the deal" and think about all the excellent opportunities coming your way when you secure financing.

But it's essential to think of it from the lender's point of view.

As a private lender, you want to hear to ensure your investments are secure and you have a good chance of seeing a decent return on your money.

Understanding how raising private money works is just the first step. The real breakthrough comes when you "think" like an investor and present yourself as the answer to a question they hadn't even asked. Do that consistently, and you won't have to look for investors again; they'll come looking for you.

About the Author: Dennis has worked in the real estate industry for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the excellent investment opportunities trust deed investing and hard money loans provided. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have two beautiful daughters and five amazing grandchildren. Dennis has been an Arizona resident for the past 45 years.

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 - 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment's establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Thursday, September 1, 2022

What First-Time Homebuyers Need to Know About Purchasing a Fixer-Upper

Fixer-upper is a great way to make money in real estate.

Purchasing your first home is an incredibly rewarding experience but qualifying for a mortgage and coming up with the money for a down payment can be a challenge for many first-time buyers. This is what makes purchasing a fixer-upper so great: you can buy your first home at a lower price and with less money down, and you'll have the option to sell the home for profit when you're done remodeling it.

On the other hand, purchasing a fixer-upper as your first home does have some downsides as well. While it's true that fixer-uppers enable you to purchase your first house at a lower price, you'll typically need to pay for home renovations — and you may need to live in a construction zone if you choose to move in right off the bat. There's also a chance that the fixer-upper could turn into a money pit, and you could end up spending more on renovations and repairs than you would a move-in-ready property.

There are pros and cons to purchasing a fixer-upper, and first-time homebuyers in particular need to consider it carefully. But if you've decided that you're ready to meet the challenge of buying a fixer-upper, the following tips will help ease you through the process.

Pre-Qualify for a Mortgage

Getting prequalified for a home mortgage is the first step toward buying a fixer-upper unless you plan to purchase your first home with cash. Applying for a mortgage won't be necessary if you're paying with cash, but it's still important to schedule a home inspection — even though you won't be required to do so.

If you do wish to finance the purchase of your first home, an FHA 203(k) rehabilitation loan is an excellent option for fixer-uppers. Other options for financing are using a Hard Money Lender in Arizona. These loans can be used to pay for the purchase of a house as well as your home renovations. Start by meeting with an FHA-approved mortgage lender to discuss your eligibility and provide verification of your income, credit history, assets, and employment.

Search for Fixer-Uppers

Once you're pre-qualified for a mortgage, it's important to hire a skilled and experienced real estate agent who can help you to find fixer-uppers for sale. Some of the things you'll want to consider when searching for homes include:

● The home's location. Desirable locations are best, including those located in up-and-coming neighborhoods.

● Home layout. Three-bedroom homes with one or more bathrooms tend to be the most profitable when flipping a fixer-upper.

● The condition of the home. As the name implies, fixer-uppers need work. However, some problems (including structural, electrical, plumbing, and roofing issues) may not be worth the hassle.

Regardless of whether you're required to pay for a home inspection, a professional inspection is something you won't want to pass up as a first-time homebuyer — especially when you're purchasing a fixer-upper. You may also wish to pay for a pest inspection, roof certification, and sewer line inspection.

Renovate Your New Home

After purchasing your fixer-upper, you can begin to renovate your new house! DIY renovations will usually be the most cost-effective option, but these could take months or years to complete if you don't have a lot of experience under your belt. So search for professionals who have the skills and tools needed to renovate your kitchen, bathrooms, cabinets, and counters in a lot less time.

Decide Whether to Stay or Sell

Once you've completed your renovations and repairs, you'll need to decide whether to live in the home or sell it for a profit. Joe Gomez of Opendoor shares some tips to help you determine whether you should sell the home or stay put for a few more years.

If you plan to stay in the home after completing your renovations, you may wish to refinance your mortgage to take out money for additional home improvements and repairs, lower your mortgage payment, remove private mortgage insurance (PMI) from your home loan, or roll your mortgage and home equity line of credit (HELOC) into one monthly payment. There are advantages and risks of refinancing your mortgage, however, and it's important to only refinance if doing so will be worthwhile.

If you decide to sell – and you decide that you enjoyed the whole process enough to do it again – you might want to think about turning this into a regular business. For tax purposes, you'll need to get an EIN, or Tax ID number, so that you can hire employees and protect your assets.

The Bottom Line

Purchasing a fixer-upper can be a great way to buy your first home at a lower price, but there are some risks you should be aware of before leaping. And if you decide that a fixer-upper isn't right for you, other first-time homebuyer programs can help you to afford a move-in-ready home. Meet with a mortgage lender to go over your different options, calculate how much house you can afford, and begin your journey to homeownership!

If you're looking for more information about purchasing,

fixing, and selling a fixer-upper, be sure to explore

the other content on Fix and Flip.

What First-Time Homebuyers Need to Know About Purchasing a Fixer-Upper

Fixer-upper is a great way to make money in real estate.

Pre-Qualify for a Mortgage

Search for Fixer-Uppers

● The home's location. Desirable locations are best, including those located in up-and-coming neighborhoods.

● Home layout. Three-bedroom homes with one or more bathrooms tend to be the most profitable when flipping a fixer-upper.

● The condition of the home. As the name implies, fixer-uppers need work. However, some problems (including structural, electrical, plumbing, and roofing issues) may not be worth the hassle.

Renovate Your New Home

Decide Whether to Stay or Sell

The Bottom Line

If you're looking for more information about purchasing,

fixing, and selling a fixer-upper, be sure to explore

the other content on Fix and Flip.

Wednesday, August 31, 2022

You don't have money to be a real estate investor?

One of the most common excuses investors make is not having enough money. Instead of going out and finding a private hard money lender, they complain about their lack of funds. While excess capital is nice, it is far from a necessity. Many investors get their start without money. What they find is that this allows them to meet more people and develop more contacts. In the end, not having money turns out to be the best thing that happened to their business. It may be difficult to see that if you are just getting started, but a lack of funds is no excuse to not invest in real estate.

If you don't have hard money, you should focus more on finding deals. By having access to deals, you can find someone to buy them. Your goal at this stage in your career should be to build your business. Since you don't have the cash to buy deals yourself, you are not in a position of strength. This means you need to find deals and earn a flat fee or a small percentage of the profits. There will not be six-figure rehab profits in this method. You most likely will not see many five-figure deals come your way either, but you are generating money in real estate and – more importantly – building your network. This is more important than closing one deal and then waiting six months for your next one.

To find deals you need to find sellers. Since you are on a budget, you need to think of ways to market without spending much money. Start by calling for sale ads you see on Craigslist, Zillow, and other real estate websites. Every ten calls you make you may end up with one or two homeowners who may be interested in selling. You should also contact any for-sale-by-owner signs or ads that you see. The name of the game with finding deals is to get as many leads as possible. At this stage, the business is a numbers game. You need to put the time in and find deals. Once you find deals, you can find buyers.

Finding buyers is not as difficult as you may think. This stage is easier if you have deals, but even if you don't, it shouldn't stop you. You probably know many people who are interested in real estate that is looking for a way in. Between your friends, family, and co-workers alone, you most likely have an investor in the group. Talking about business and finances can be a difficult topic to discuss, but it doesn't have to be. Start by having an idea in place of how you are going to find deals. Here is where you can validate yourself by having a deal ready to go. Without private hard money, you need to have a plan for generating leads. The more detailed your plan is, the more likely you will find the money you need. If you are serious about the business, you need to reach out to your closest contacts and see if anyone has an interest in real estate investing. The odds are that someone will.

Start by sending your contacts an email stating your real estate intentions. If you send this to 50 people, you should get at least five interesting replies. Many investors are scared or embarrassed to discuss the business at this point because they have not closed any deals. Every successful investor had to get their start somewhere. All it takes is a couple of deals to go from not having cash to having a network and money for a down payment of your own. You need to take the step and reach out to the people closest to you.

Another way to find buyers is to promote yourself on social networks. One post stating that you are looking for an investor partner will surely elicit a few responses. In addition to tapping into your network, you can generate local contacts. There are many local networking clubs and groups that are free to join. Even if you can't find buyers you will meet people that will help grow your business. You can also find local real estate investment clubs. These meetings will often have dozens of investors who are constantly looking for deals. Find out what deals they have an interest in and what area investors may be looking for. You can also network with fellow investors who may have been in the same situation as you. Listen to the advice they give and see what works for you in your market.

In most markets, you should be able to find private money lenders. These are lenders who do not follow traditional lending guidelines in lending out money. Between your realtor, attorney, and local network, you can surely find someone in your area. They will lend based on the deal, so you need to have a deal or a business plan in place.

Tuesday, August 30, 2022

Can You Get a Hard Money Loan for Owner Occupied Homes?

Owner-occupied hard money loans are also considered Principle Residence Loans, alternative financing, and private money loans.

Reasons Why Borrowers Use Owner-Occupied Hard Money Loans

Bad Credit

Hard to prove income

Self Employed

or dealing with a problem property

Typical borrowers pay off this loan by refinancing after being qualified for a conventional or FHA loan.

Common Uses Of Owner Occupied Loans

Buying a first or second home.

Refinance an existing loan.

Cash out for repairs or remodeling.

Cash out for debt consolidation.

Owner Occupied Hard Money Loan Program Options

100% financing is available if the borrower has another property that is free and clear, or has a small mortgage with value ( substantial equity) to pledge as additional collateral ( aka Cross Collateralized Loan).

Hard Money Lender is making real estate loans to both Investors & Owner Occupants in Arizona.

Typical hard money programs for owner-occupants are below.

NO PRE-PAYMENT PENALTY

Typically no pre-payment penalties on our loans.

PURCHASE

Down payment: 30% - 40%.

Up to 60% or 70% of the appraised value

Up to 100% financing with a 2nd free and clear property as additional collateral.

REFINANCE

Up to 65% of the appraised value

Up to 100% financing with a 2nd free and clear property as additional collateral.

ORIGINATION FEE

A loan Origination fee of 2 to 6 points (2 to 6% of the Loan Amount).

Requirements For Owner Occupied Hard Money Loans

Income must be able to be verified by a 3rd party source.

If the owner-occupied loan is considered a "high-cost loan", hazard insurance and property taxes must be impounded for the 1st year of the loan. This is the borrower's responsibility.

There are disclosure laws that require us to make you aware of the loan terms before signing any loan documents. These are the same requirements as a traditional bank loan.

Apply for an Owner Occupied Hard Money Loan

If you are interested to see if your qualify for an owner-occupied hard money loan in Arizona, give us a call today at 602-497-4444 or fill out our loan application to get started. Getting your owner-occupied hard money loan is simple and fast, and we do the funding! So if we say you're approved you'd better start packing to move into your new home!

Owner-occupied hard money loans program makes it easy for you to get the new home you need despite not having credit, having bad credit, or even if you're not from the United States.

Owner-occupied home loans using private hard money have easier requirements than investor loans and can even benefit from our cross-collateral 100% LTV loan option.

Are you looking to become a private lender? How to find attract a Private Lender

How To Attract Investors for Private Hard Money

While each investor may have an agenda when it comes to a particular exit strategy, the returns provided by an investment are of the utmost importance. The ROI is the motivation behind any investor. After all, money means security. Who wouldn't want to maximize their ROI? Having said that, private lending is perhaps one of the best ways to increase returns. Private mortgage lending has typically provided an annual return of 8-10%, based on the historical interest rates charged to borrowers.

The Pros of Private Lending

Assuming you have decided to pursue becoming a private money lender, it is important to familiarize yourself with the benefits it provides borrowers. However, it is equally important to know the drawbacks as well. As with any new business venture, you will face both positive and negative circumstances. The decision of whether or not to proceed with this moneymaking strategy lies in the balance. Do the pros outweigh the cons for you? The following illustrates some of the biggest pros involved in private investing:

The Pros:

Reliable Cash Flow: While there are no guarantees, private money lenders can typically expect an annual return somewhere between 8% and 10%. Depending on the loan structure, there may be other ways in which profits are realized, like interest.

Capital Preservation: In loaning your own money, your investment will be secured by a first position "priority" lean on the property in question. Additionally, the loan-to-value (LTV) ratios are typically 60-70%, allowing the invested capital to be preserved in the event of foreclosure. Structured correctly, your investments are very safe.

Diversification: As a private money lender, you are encouraged to diversify your portfolio.

Minimal Volatility: Loans are typically short in length (usually not more than 12 months).

Passive: Private money lenders earn relatively passive income, in that their money is working on their behalf. The return on investment is not correlated to the amount of time they put in.

Private Lenders: The First 3 Steps To Get Started

Whether you are interested in having your money work for you now or in the future, understanding what it takes to get started is a critical step. Having said that, it is imperative to equip yourself with the right tools should you decide to become a private money lender. Before you make the transition from the borrower to lender, be sure to familiarize yourself with the following:

Make Sure You Qualify: Before becoming a private money lender, you must become seasoned. Essentially, you should be actively investing and using the systems that are offered to you. Moreover, if you have already rehabbed, wholesale , or turned profits with some relative degree of success; then there is a good chance you are ready to make money with the money you have already accumulated. You really can't know where you are going until you are familiar with where you have been. Provided you meet the qualifications, you will also need to make sure that you can afford to become a private money lender. In other words; can you manage your monthly expenses while simultaneously working as a private money lender? If your answer is yes, becoming a private money lender may be right up your alley.

Pick An Angle: As a private money lender, there are multiple routes to consider. However, your choices will be entirely dependent on the amount of funding you have available, how long you want your money tied up, and the time you have to dedicate to a particular opportunity. To better understand the directions you can take, consider the following criteria:

Residential vs. Commercial

Short Term vs. Long Term

Direct vs. Passive

Each of these options will become available to you as a private money lender. It is up to you to choose the path you want to take.

Speak With A Professional:

Those set on becoming private money lenders should seek counsel from a professional that has already done it. Moreover, speaking with someone that has already done what you want to do can lead to some valuable in sight. However, if you choose to lend directly, you should speak with your team of professionals. This includes your Escrow Company, Title Company, attorney, and anyone else who may be of concern.

It is an even better idea to speak with a team of people who have been private lending for a while. While you may want to try direct lending, finding a private lending company with a good track record is a very good place to start. Remember, investing with a pool of people is one of the safest ways to go.

For More Information on private lending…

If you have realized success in real estate thus far, it may be time to invest your hard-earned money into another facet of the industry. Learn the anatomy of a private loan, how to identify the most qualified borrowers, and what paperwork and legal documentation you can expect.