Mortgages & Creative Financing

From the traditional mortgage to more complex strategies like seller financing, there are dozens of ways to fund real estate deals.

Mortgages & Creative Financing

Why You Should Constantly Seek Investors—And How to Find Them

When I was growing up, my grandparents lived in the mountains outside of a small, rural northern California town, far removed from the comforts of modern city living. They had electricity, but there was no city water or sewer out there, not even phone lines. Communication with the outside world was achieved via two-way radio. A well and septic system provided for the essentials. But my grandparents’ well wasn’t all that deep, and the water wasn’t all that plentiful. The necessity of turning water on and off during showers taught me an important lesson about the conservation of limited resources! Despite being conservative with usage, by the end of summer, there were times when only sludge would come out of the tap. But after a few years, they had a second, deeper well drilled. From then on, worrying about running out of water was a thing of the past. How Deep is Your Well? Those of you growing your real estate businesses already know that it requires a lot of capital. And unless you were fortunate enough to have started with a lot of wealth, you know that having access to the capital of others is essential if you are trying to scale. You need to have a base of investors, and continuously grow it. Recently I was invited to speak at a large real estate summit attended by hundreds of experienced and aspiring real estate investors. Prior to going on stage, the organizer asked me what it was that I most needed in order to grow my business. He was very surprised by my answer: “More investors.” “But you’ve closed $50 million in real estate and raised over $25 million in the past year! Why would you need more investors?” he asked with an obvious hint of surprise. “Because I just raised $25 million!” A pool of investors is just like my grandparents’ well. If you keep using it, the water will dry up. You need to dig more wells—and deeper ones, as you grow. Related: Where Do You Find Your Investors? Here’s Exactly Where I Find Mine… Which Comes First, the Chicken or the Egg? The classic “chicken and egg” scenario in real estate investing applies to the question of what comes first, the deal or the money? Just like you wouldn’t go to the grocery store without your wallet, shopping for real estate without the money to buy it doesn’t make sense. But by now you’ve heard the phrase, “Find the deal and the money will follow.” Surely everyone saying that can’t be wrong, right? I’ve got bad news for you—they are. And it won’t. But there is also good news. Securities laws are very specific about how you solicit investors for your deal. But if you have no deal, the only thing you are soliciting is yourself, your ability, and your dream. What better time to build those “pre-existing relationships” than when you have no offering to solicit? It certainly reduces the risk of running afoul with the law. How to Get Money Without a Deal Looking for investors—digging those wells—happens by talking about what you do, how you do it, what results you’ve produced, and what results you expect. If you’ve never raised money before, forget about pitching your idea to wealthy, accredited investors that you’ve never met. Those guys get pitched all the time and have the pick of the litter. Instead, focus on an audience that is more likely to listen to you—people you already have relationships with. There’s a reason why most startups are funded by friends and family of the founder. It’s because it works, but more so it’s because no one other than the founder’s inner circle is likely to take the risk on an unproven idea. Your real estate business is no different. “But my friends and family don’t have any money!” Yeah, I’ve not only heard that before, but I’ve lived it. When I started in this business, I was 20 years old and working in a grocery store. I didn’t know anyone who could rub two nickels together; all of my friends were living check to check just as I was. But that didn’t stop me from talking. Word gets around. Your inner circle grows. Conversations develop. And things happen. You must be consistent, authentic, and transparent. It’s OK to expand your inner circle. Join the Chamber of Commerce. Attend REIA meetings and meetups. Go to real estate conferences. Get to know people here on BiggerPockets. Out of all of the outreach I’ve done over the years, none has born more fruit than just talking to others in the BiggerPockets forums. Answer people’s questions and be helpful, never argumentative, and always aim to add value to the conversation. Over time, relationships will develop. Related: How to Find Investors to Fund Your Real Estate Deals What to Say to People What do you say when talking to your inner circle? Tell people that you are in the real estate investment business. Tell them about deals you’ve done and deals you plan to do. If you haven’t done any deals, find a partner who brings something to the table that you don’t, and do some deals together to build your track record. Don’t make this a pitch; just integrate your story into the conversation. And you should talk about this with everyone, even if you don’t think the person is a potential investor—the idea is to spread the word. Maybe they tell a friend who turns out to be interested and they put you together. When you go to meet an interested investor, start by simply telling your story. How did you get into this business? Why? What is your outlook on the market? What are your thoughts on the opportunity, competition, returns, and risk? Put together a slide deck (printed is fine; don’t walk around with a projector and screen) showing a deal similar to the one you plan to do, including a full financial analysis and some pictures. The last slide should be your bio, highlighting your knowledge, experience, and accomplishments. The conversation could go like this: “Here is an opportunity I analyzed that is very similar to the one I’m looking to purchase in the near future. I would do X, Y, and Z  to it (substitute for what you would actually do) and we would sell it in X years with the objective of delivering X percent return to you as an investor. Here are some examples of how I’ve (or my partner and I have) been successful in the past…” Expectation Management After you’ve been in this business for a while, you’ll find that it’s really all about managing expectations. It’s important to give projections that you know you can achieve, and outperform on them so your investors will be happy. I’ll do the same for you, by setting your expectations for what it’s like to raise capital. And because I don’t have a $20,000 boot camp to sell you, I can shoot it to you straight. If you are starting from scratch, it’s going to take time. Relationships develop slowly. It’s hard. In fact, it’s even harder than you think, unless of course you are fortunate enough to already have a somewhat wealthy or connected inner circle. But if you stay consistent and constantly work toward your objective, you can get there. If I can, you can. It took me several years to get investors to believe in me. With today’s technology and social platforms, you can do it faster than I did. Keep Drilling As real estate entrepreneurs, we should always be in “capital raise mode.” This means whether we are currently trying to fund a deal or not, we are always seeking new investors. Whether you are actively looking to scale, or just keeping your eyes open for the right opportunity to add another property to your portfolio, drilling your well before the escrow clock starts ticking puts you in a position to make an offer on the property with the confidence that the money to close it will be there. Don’t let yourself run out of water. Drill, baby, drill! How do you keep your well of investors flowing? Share your strategies in the comments below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! 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Mortgages & Creative Financing

6 Ways to Invest in Real Estate with Little Money or Experience

Do you have a “big but”? No, I’m not talking about the size or shape of your backside. I’m talking about the big excuses most people have when they think about investing in real estate: no money and no experience. Well, it’s time to let go of those excuses, get rid of your “big buts,” and learn how to invest in real estate with little money or experience. Because wouldn’t it be great to walk out to your mailbox and find it stuffed to the brim with checks every month? Of course, this isn’t going to happen—but not because “mailbox money” isn’t true. It’s not going to happen because people shouldn’t be paying you money to your mailbox. What is this, 1998? It’s called direct deposit. Welcome to the future! If you want to start receiving passive income, you need to start investing in real estate, plain and simple. “But Brandon,” you say, “I don’t have any money. And I don’t have any experience!” First, stop whining. Second, with that attitude, you’ll never get there. I call it the “big but attitude” because the excuses always start with “but…”—not because you have a—well, anyway, let’s move on. So, in this post, I want to help you get rid of your “big but” by showing you six different ways you can start investing in real estate even without lots of cash or experience. 6 Ways to Invest in Real Estate with Little Money or Experience 1. House hack. House hacking is this really awesome strategy where you purchase a small duplex, triplex, or fourplex, live in one unit, and rent the other units out. It’s especially awesome for two reasons: First, almost anyone can qualify for an FHA loan, which requires just 3.5% down payment. Second, it’s like training wheels for landlording. Not a lot can go wrong when you live next door. Of course, you don’t have to live there forever. Soon, you can turn it into an awesome rental property that will hopefully provide lifelong passive income. 2. Try home equity loans/lines. Do you own a home right now that has equity in it? In other words, is your home worth more than what you owe on it? If so, you can potentially obtain a home equity loan or line of credit and get access to that money, which you can use as a down payment or maybe as funds for the entire thing if it’s enough. Pretty cool, right? OK, on to number three. 3. Use seller financing. Seller financing is amazing, but it confuses a lot of people, so I’m going to explain it using an example most people can easily grasp. Imagine I sold you my car, but instead of you getting a loan and giving me cash, you just make payments to me every month. Each month, you give me $200, and after a few years, you’ve paid it off. That’s seller financing—and it works the same way in real estate. Seller financing is basically where a person decides to sell you their property, but rather than making you go get a loan, THEY provide the loan themselves, and you make payments based on whatever terms you set up together. Like selling a car on payments, seller financing works best when the property doesn’t have an existing loan already on it. That can get kind of sticky with the banks, so look to do seller financing on properties where the current owner doesn’t owe anything on it. 4. Look into partnerships. I love partnerships. You see, when I first got into the real estate investing game, I wanted to buy properties, but I’d go to the bank and they’d basically laugh at me. But then I discovered the power of partnering. I realized that if I lacked the money to jump into a real estate deal, I bet there were others out there who lacked the knowledge. So I quickly discovered a powerful formula for no-money-down success, and I call it “the deal triangle” because it looks like a triangle. I know, I’m super original. If you have a better idea, put it in the comments below this post. OK, the deal triangle is simple. On one side, you have MONEY. Then you have KNOWLEDGE. Then you have HUSTLE. Now here’s the key that’s going to change your life: Pick two. That’s it. People often think they need all three. But in reality, you just need two. If you don’t have money, just gain the knowledge and use your hustle to make it happen. I can guarantee you there are a lot of people out there with money—or at least the ability to get a loan—who don’t have the time to hustle. If you don’t have the knowledge, then pick up a few books about real estate investing, like some of the books I’ve written at BiggerPockets.com/store or watch some of our Youtube videos or listen to the BiggerPockets Podcast. Just don’t spend $50,000 on some late-night TV guru with bad hair. Then, start hustling. Attend local real estate meet ups and find people who might be great partners. Then get it done. 5. Explore hard money lenders. Let’s say you want to fix up and sell a house—which we call “house flipping”—but you don’t have any money and don’t have enough experience to get someone to give you the cash. What do you do? Well, lucky for you, there are these businesses called hard money lenders and basically, that’s what they do. They are super expensive, but they can be a great source of financing for a real estate deal. Just be sure that when you do the math on your flip, you include the cost of paying the expensive hard money rates and fees. And speaking of doing the math, our last tip of the day… 6. Get an incredible deal. Look, when you find amazing real estate deals, financing becomes much easier, no matter how much cash you have or don’t have. Because great deals are the foundation of creative financing. If you have an incredible deal, you’ll likely be able to find financing, whether it’s a private lender, a hard money lender, a bank, a partner, or something else. Become super incredibly amazing at doing the math and you’ll find that financing deals is the least of your problems. (And if you want to see the way I run the numbers, I host a free online webinar every week here at BiggerPockets where we find and analyze deals live.) So, are these the only ways to invest in real estate without cash or experience? Of course not. There are so many ways to put together real estate deals that a person could write an entire book about it. 😉 But also, understand this—in the words of the late, great Jim Rohn: “If you really want to do something, you’ll find a way. If you don’t, you’ll find an excuse.” It’s time to lose your big buts and decide, once and for all, if you really want this. Then go out and get it. What would you add to this list? Which is your favorite low or no money down strategy? Comment! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

Evaluating the Pros and Cons of Different Mortgage Options

When it comes to buying house, you need to think about more than floor plans, square footage, and school districts. From a financial perspective, you have to consider important topics like loans and mortgages. If you’re a first-time or inexperienced homebuyer, do you know your options? Understanding Your Home Mortgage Options The finance/mortgage industry really isn’t very different from other industries. Take the jewelry industry as an example. When you go shopping for a ring, you typically visit a couple of different stores and look through the display case at different options. You might even pick up a couple and take a closer look. While you can’t physically hold a mortgage, it’s still a product. “When it comes to loan options, there are a ton, with each appealing to different types of buyers—some for those without sparkling credit, others for those who live in small or rural areas,” OnQFinancial explains. “No matter your situation, there’s a mortgage type that fits.” Related: 3 Reasons to Consider NOT Paying Off Your Mortgage In the process of shopping for a mortgage, you’ll want to know a little bit more about the different mortgage types that exist. Let’s examine four basic categories: 1. Fixed-Rate Loans The most common and predictable type of loan is a fixed-rate loan. As the name suggests, the interest rate on this type of loan is “fixed” for the duration of the loan. This means it can’t change, regardless of how interest rates fluctuate over time. Most fixed-rate loans come with 10-year, 15-year, and 30-year options (with interest rates stepping up accordingly). 2. Adjustable-Rate Loans Whereas fixed-rate loans stay the same until the loan is completed or refinanced, an adjustable-rate mortgage (ARM) actually changes over time. The most common types of ARM loans are 3/1 ARM, 5/1 ARM, and 7/1 ARM. Depending on the type you select, this means your interest rate is set for 3, 5, or 7 years and then adjusts annually for the remaining portion of the loan. The benefit is a lower interest rate on the front end. The negative is that you don’t get the chance to lock in a good rate for very long. 3. Government-Backed Loans While most people get conventional loans—such as the ones discussed in the previous two sections—there are also government-backed loans. The name is pretty self-explanatory, but some of the most common types of government-backed mortgages are federal housing administration (FHA) loans and veterans administration (VA) loans. These types of loans are nice, but they aren’t as beneficial as they may appear at first glance. Sure, they feature low or non-existent down payments and have fewer requirements for qualification, but they also tend to feature high interest rates and poor terms over the life of the loan. 4. Jumbo Loans Finally, you have jumbo loans. Also known as a nonconforming loan, a jumbo loan is a loan that doesn’t meet the guidelines laid out by Freddie Mac and Fannie Mae regarding credit, income, and asset requirements. These types of loans require a lengthy qualification process, but allow certain buyers to take on much larger loans if they’re able to put down a significant down payment. Related: 3 Reasons to Consider NOT Paying Off Your Mortgage Pursue the Options That Make Sense for You The mortgage that makes sense for your neighbor won’t be the same mortgage that works for you, and vice versa. As you evaluate different loan products, it’s imperative that you think about the situational factors involved and make a choice that reflects your needs, priorities, and limitations. The bank will tell you if there are certain loans you don’t qualify for; however, it’s up to you to decide whether or not you’ll pursue a loan that you’re “qualified” for. Questions? Comments? Leave them below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

How to Take the BRRRR Strategy to the Next Level with a 198-Unit Apartment Building

The buy, renovate, rent, refinance, repeat method (BRRRR) can be very effective to grow your rental portfolio if you implement it properly. This method works for single family and small multifamily deals—and it works on larger properties as well. In today’s video, I am going to show you how I used the BRRRR method to take my real estate investments to the next level. The only way to make the BRRRR strategy work is to find the right deal. The property has to need a “face lift.” Perhaps the kitchens are dated, the windows are old, the carpets are damaged, the bathrooms need updating, or the heating system needs replacement. But the key factor is that the property has to have good “bones,” meaning it doesn’t need structural repairs and it isn’t becoming functionally obsolete. It’s just the ugly duckling. This is where the BRRRR strategy becomes super valuable. You find a property in a good area with a good structure that simply needs some cosmetic repairs. Those cosmetic repairs are predictable and add value to the rents you will get once you lease it out. With that increase in rents, the property value goes up, which allows you to refinance. It’s a fairly simple equation, and it can be scaled up on larger deals. Related: Case Study: How I Made $40,000 on My Recent BRRRR Real Estate Investment The Deal We found a deal in North Carolina that fit the equation. The kitchens were dated, floors needed replacement, the exteriors were drab and dated, there wasn’t any landscaping on site, and the property didn’t have any amenities like a playground or pool. On top of that, the vacancy was high and the units that were leased were rented for around $140 per month below the market rent. By adding an average of $140 per month, per unit, we increase the yearly revenue to about $330,000 per year. Notice that we didn’t increase expense; we just did renovations. By doing this, we’re increasing the cap rate that will justify our refinance. The creative part of these types of deals is figuring out how you will finance the renovations. On this project, renovations will cost around $8,000 per unit. We will get the money for this by using equity, investors, and loans—$8,000 x 198 units at 6% debt cost will come in at $480 per unit per year or $40 per month. In a nutshell, we pay $40 per month to renovate each unit to make $140 in additional rent, which yields us $100 in cash flow per unit per month. This adds up quickly on larger deals, as $100 x 198 x 12 = $237,000 per year. Once we achieve stability and renovate all 198 units, we will refinance the short term loan and pull out some of our investor’s capital to return to them, which increases their ROI on the project. Watch the video for a full breakdown of the numbers on this one. The BRRRR method is simple if you apply it properly. It works if you are just starting out and you’re doing smaller multi-unit family properties or if you’re looking for a way to elevate your portfolio to the next level. Be sure to watch the video to hear all the details on this deal! Questions? Comments? Leave them below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

The Beginner’s Guide to Building Wealth With Private Notes

Rentals or fix-and-flips are the real estate investing vehicles we usually talk about to build wealth and achieve financial independence. But another, equally powerful real estate technique should be on your radar if it’s not already. The technique is called private note investing. In general, a private note just means you’re the lender instead of the owner of a real estate property. And in case you didn’t notice, the names on many of the biggest and most expensive buildings in small towns and big cities around the world are lending institutions (i.e. banks)! It’s no accident. Those big, institutional note investors paid for those fancy buildings with profits. And as a smaller, private note investor you can build your own net worth and financial independence in a similar way. Like other parts of real estate investing, there are many different niches and approaches to private note investing. I’ll share some of the top ones in the rest of this article using real world examples. I’ll also share some of the challenges and reality checks that come with private note investing. But let me begin with why you should consider investing in private notes in the first place. Why Private Notes? I’ve been investing in real estate for 15 years. Like most of us, I started with flipping houses and buying rental properties. Rentals, in particular, are still a core part of my approach to real estate investing today. But much of my success in both rentals and flips came from using money or equity from others in the form of private notes. I supplied a good deal, and they supplied most of the money. It didn’t take long for me to realize that these private lenders were making good returns. And on top of that, I was doing all the work and taking most of the risk as the property owner! After this realization, I didn’t give up the other real estate strategies. But I did start building a private note portfolio in parallel. Here are a few reasons I did. 1. Steady, Consistent Interest Income In a world of 1% bank CDs (certificate of deposits), 2% stock dividends, and 3% bonds, high yielding private notes are a luxury. This is especially wonderful when you need to live off your investment income. But interest income is also a great wealth builder if you reinvest the earnings wisely (and tax efficiently). More on that soon. 2. More Passive Private notes are a more passive investment than rentals or flips. Notice I didn’t say completely passive. There is no such thing. And this passive quality makes private notes ideal for a self-directed IRA or 401k, where you want to be more hands off. But retirement accounts are also the ideal holding entity for private notes for another reason. When you earn interest personally, it’s taxed at your ordinary income tax rate. But inside of a retirement account, there is no tax on the interest until it’s taken out (or in the case of a ROTH IRA, it’s never taxed). So, if your goal is to use private notes to build wealth, a retirement account is the perfect vehicle to let them grow and compound tax-free for years. 3. Greater Control I started investing in private notes because I liked the control. Notes, like rentals, allow you to personally impact your investment success. You decide the borrower, the interest rate, and the note collateral (i.e. a property) that’s acceptable to you. As a beginner, this may be a daunting reality. How do you know who makes a good borrower, what a good interest rate is, or what type of property makes good collateral? This is why I think private notes are not a beginner strategy. You need some experience in the trenches of the real estate game so that you understand the investors you’ll be lending to. But even if you have experience, getting educated on the fundamentals of notes and receiving help from competent professionals is still a prerequisite. Especially early on, the experience of others can compensate for your lack of knowledge. So, for all those reasons and more, private note investing was worth my time. And perhaps it’s worth your time, too. Now, let’s look at the primary types of private note investing. The Two Primary Types of Private Note Investing As I said earlier, private note investing means you’re in the role of the lender. And within that role, there are two major types I see investors use: Private money lending Discounted notes With private money lending, you are in the business of loaning money to other investors. And the discounted note business involves creating and/or buying notes at a discount to their face value. In both cases, you could own the entire note yourself.  Or you could own part of multiple notes through a fund (i.e. a group of investors). There is also a relatively new approach to lending called real estate crowdfunding. It has made it possible to invest in pieces of many larger loans (like $2,000 to $5,000 chunks) through online platforms. Both private lending and discounted notes have their pluses and minuses. I’ll go over each and give examples below. Private Money Lending Private money lenders often fund some or all of the purchase when investors buy properties to flip or to hold. For example, when investors buy rentals using Brandon Turner’s now-famous BRRRR (buy-rehab-rent-refinance-repeat) technique, the upfront money often comes from a private money lender (or a hard money lender, which is a business that loans out money on behalf of private money lenders). The rates that private money lenders charge aren’t cheap. I’ve seen them range from 7% to 15% or more, and there are usually upfront fees and points in addition to the interest. Related: How to Define Systems & Build a Team When Investing in Real Estate Notes But many investment property owners still use these loans because traditional lenders are not as flexible or fast with investment purchases. And the availability of the money allows investors to buy profitable deals that they might have lost otherwise. They then refinance or sell the property within a short period of time to avoid paying the higher rates for too long. As a private money lender, you can make loans directly to borrowers. For example, you could network on BiggerPockets or at local meetups and find a fix-and-flip investor who you trust and who demonstrates competence. You could then arrange to loan this investor money for their next project. You could also find a local, experienced broker who finds, screens, and services loans for you. In this way, you borrow their expertise and logistical skills in exchange for a fee that comes out of the interest and points charged to the borrower. You could also invest in group funds and crowdfunding platforms that have made it possible to diversify your money across multiple loans. You usually need to be an accredited investor to use either of these options. But if you are, it could be a viable way to diversify your risk and to use professionals to help screen deals up front. Now, let’s look at a specific example of using private money loans to build wealth over a longer period of time. Example of Growing Wealth With Private Money Loans Mike is 35 years old, and he has already been investing in real estate for five years. He owns five rentals, and he’s completed several fix-and-flip deals. He had challenges and made mistakes early on, but his “battle scars” taught him lessons that made him a better investor in the end. Now Mike has turned his attention to his 401k retirement account from an old employer. He has a balance of $300,000 invested in stock index funds. The stock prices have gone up significantly, and he wants to diversify some of that into real estate private notes. So, he rolls over a $150,000 chunk of the 401k funds to a self-directed traditional IRA account. This is not a taxable event because the money goes directly from one custodian to another. With the new self-directed custodian, he can invest in alternative assets like real estate notes. And as the beneficiary of the account, he gets to choose and have control over where to invest his money. Finding Borrowers for Private Money Loans For many reasons, Mike does not want to advertise that he has money to loan. Instead, his strategy is to meet investors and find the ones he likes and trusts. Then he will approach the subject of private money lending if it makes sense. So, Mike begins networking heavily on BiggerPockets and at local real estate investor meetings. It takes a while, but he gets to know a couple of fix-and-flip and rental investors that he feels good about. He likes their character and honesty. And he also likes their competence and ability to execute successfully on their investment projects. During a conversation with one of these investors named Regina, the topic of private money comes up. She tells Mike that she finds more deals than she has money to fund herself. She would like to use a private money lender to do a few extra deals per year. Mike tells Regina that he has some self-directed IRA money and would be interested in making loans. So, they discuss details and agree to work together on the right deal. The First Private Money Loan Within a month, Mike makes his first private loan. The property is a fixer-upper single-family house that Regina plans to flip within six months. Her purchase price is $75,000, and she plans to invest another $75,000 in repairs to make it a beautiful home that can sell for $225,000. The house has been a long-time rental, and it needs major updating. It needs a new HVAC system and a new roof. Plus Regina plans to overhaul the layout, kitchen, baths, landscaping, and cosmetics. Here are the terms that Mike and Regina agree to: Note and mortgage paperwork will be prepared by Mike’s attorney Title insurance required Hazard and liability insurance for vacant property required $140,000 total loan $65,000 at closing (Regina makes a $10,000 down payment) 3 repair draws of $25,000 (total of $75,000), third party inspector required & fee paid by Regina Interest and fees: 2 points (a point is an upfront fee for 1% of the loan, so 2 points = $2,800 in this case) $200 processing fee to cover the IRA custodian transaction fees 10% interest Interest only monthly payments 9-month term No prepayment penalty 2% fee for extending loan an extra 3 months Regina is happy because Mike’s IRA funds the loan 10 days from the date of her request. This allows her to make a strong offer to the seller and get her low price. Mike is happy because he has a competent borrower, solid collateral, and profitable terms. Regina fixes the property and has it sold in 6 months. So, after getting paid off, Mike’s results for the first loan look like this: Results of First Private Money Loan Points Earned: $2,800 Interest Earned (6 months): $7,000 Total Earned: $9,800 Annualized Return: 14% Regina is happy because she made a profit of over $40,000 after all her costs. Mike is happy because he got an above average return on a property and a deal type that he understands. They are both ready to do another deal together as soon as possible. Private Lending Wealth Building Over Time Not every deal for Mike will go like the first one. Some will be better, and some will be worse. And his overall returns likely won’t be so high. Why not? First of all, Mike’s has $150,000 in the self-directed IRA, but only $140,000 was invested. So, $10,000 sat idle at the custodian making no return. This will likely be the norm because it will be difficult to always invest the total amount of money in the account. There will also be times between loans when the money is not invested. So, during that time, there will be no return. Next, Mike will likely incur collection, legal, and foreclosure costs at some point. It’s almost inevitable when you lend money over the long run. And the fees to solve those issues will eat into overall returns. Lastly, over time Mike may decide to use brokers and loan servicers to help find deals, handle some of the work, and monitor loans. And their fee will take some of the returns. So, to simplify calculations and provide an example of how Mike could use private lending to build wealth, let’s assume Mike’s average return on all of his money is 10% per year. At age 60 after 25 years of consistently lending, Mike’s original nest egg of $150,000 would grow into just over $1,625,000! [If you want to use a financial calculator to do those types of calculations, I use the free fncalculator.com app for Android and iPhone/iPad.] And let’s assume his $150,000 investment in index funds also grew but at an annual rate of 8%. Those funds would be worth just over $1,027,000 in 25 years. Altogether, his retirement funds at age 60 would be worth over $2,652,000. But most importantly, he could turn those funds into income to pay for his living expenses in retirement. Even if he could only generate 6% income yields from more passive investments, that would still be $159,000 per year (.06 x $2,625,000). And knowing people like Mike, I’m sure he has also done well on his non-retirement account investments in real estate. So, his total income in retirement will likely be much higher. Now let’s look at the other type of private note investing—discounted notes. Discounted Notes Discounted note borrowers could be investors or owner-occupants. The common theme is that you as the private note investor own the note at a discount. And that discount gives you extra risk protection and an increase in returns. How can you find a note at a discount? I’ll give you a short example using my primary approach to the discount note business. Let’s say I buy a single family house at a discount for $50,000 using my own cash. It needs work, and I invest an additional $20,000 into making it a nice place to live. After the work, the house is worth $100,000, and I have $70,000 invested. But instead of flipping the house and cashing it out, I find someone who wants to buy it with owner financing. After screening them heavily with a third party mortgage originator (more on this and Dodd-Frank regulations later) and testing them out as a renter for a year, I then sell them the house for $100,000. Related: Diversifying into Real Estate Notes? Better Choose a Strategy! Here’s How. The new buyer puts $10,000 down, and I carry back seller financing (i.e. a private note) for $90,000 at 7% interest for 20 years. This note is also secured by a first mortgage or trust deed to give me security in case I need to foreclose. My net investment is $60,000 ($70,000 minus the $10,000 down payment), and I own a private note with a face value of $90,000. The discount increases my return and gives me a larger margin of safety in case something goes wrong and the borrower stops paying. Although I created the note in this example, there is also a HUGE business buying seller financing notes like I created. Either individually or through note group funds, you could buy those $90,000 notes from people like me (at a discount, of course). Example of Growing Wealth With Discounted Notes In the discounted note example above, I financed $90,000 at 7% interest. With a 20-year amortization, that means the payment to me as the note investor would be $697.77 per month. But remember that your actual return on this note is much better than 7% because you own it at a discount. Your net investment after receiving the $10,000 down payment is only $60,000. So, using a trusty financial calculator again, your return on the $60,000 over 20 years is more like 12.9%! And if the buyer pays you off early, like in 5 or 10 years, your return will be even better because you’ll get a big chunk of the discount you built up front. Our prior example with Mike and his $150,000 in a self-directed IRA could easily apply to this type of investing. Instead of or in addition to private money lending, Mike could choose to buy a couple of houses at a discount and then sell them with owner financing like I explained above. And the safety and returns over time could be just as good as private money lending or better. In fact, what I like about either creating or buying discounted notes is that the notes are more consistent. In 2008 and 2009, I created discounted seller financing notes. Today, almost 10 years later, most of the buyers are still happily paying me. And I’m happy to still be receiving their payments! With these types of notes, you do most of the hard work up front. And then you continue to reap the rewards for many years to come. But like any business, there are also challenges to discounted notes and private lending. I’ll discuss a few of the more important ones in the next section. Challenges and Reality Checks With Private Note Investing As a BiggerPockets reader, you’re not the type of person who believes everything is easy. I gave you a lot of benefits of private note investing above, but you and I both understand that any worthwhile technique has its shortcomings. The shortcomings of private note investing for me fall in two big areas: Regulation Risk I’ll talk about each of those here. Regulation of Private Note Investing The long-term trend for private note investors is to be regulated in the same way as big institutional lenders like banks. More than anything, this increases your costs and hassles in order to stay compliant. For example, The Dodd-Frank Act was signed into law in 2010 in response to the turmoil and in many cases mischief that occurred in the lending markets leading up to the 2008 Great Recession. The wide net cast by the law caught seller financing and other small lending operations in the same rules. And there are an array of other state and federal laws that you must pay attention to, both with private lending and discounted notes. So, the first lesson is that you must get educated on regulations and receive professional advice before jumping head first into private note investing. The BiggerPockets forums are a great place to start. Follow and ask questions to experienced note investors like Jay Hinrichs, Dave Van Horn, Jeff Brown, and Bill Gulley. You can also read this post by Brian Gibbons with a nice summary of the Dodd-Frank regulation’s impact on seller financing. Also, plan to get local legal counsel from an attorney who understands private notes and real estate investing. You may be able to find this person through local real estate meetups. The second lesson of private note regulations is to learn the legal exemptions. For example, the regulations that resulted from the Dodd-Frank act apply to owner occupant borrowers. So, if you’re making loans to investor borrowers, those particular rules don’t apply. There will be other federal and state rules that still apply, but it would less cumbersome. Also looking at the Dodd-Frank act, investors who only seller finance three or fewer properties per year have fewer regulations than others. So, by knowing the rules and the exemptions of lending laws, you can build your private note investing in a way that stays compliant and safe. Risk in Private Note Investing All investments have risk. You’ve heard that before, haven’t you? But what are the big risks of private note investing? Here are a few that you should watch out for. Default Risk Your borrower could stop paying you or default on your private note in another way. If the borrower is uncooperative, you would then have to hire an attorney to foreclose. And a bankruptcy could delay even that process. So, you need to be prepared for major delays and costs in the event of a default. This is the reason experienced note investors emphasize a margin of safety. A margin of safety between your investment and the value of your collateral protects your principal. I like to be at 65% or less loan-to-value. Defaults are also the reason you should maintain cash reserves. If you loan every bit of your money, you could put yourself in a very unfavorable position. Borrower Risk The borrower of your private note determines much of your success. A bad borrower with little character or desire to follow through when things get tough will make your lending experience miserable. On the other hand, a good borrower with character will follow through and do right by you even when a deal or an economy go downhill. Finding good borrowers starts with getting to know people. You can and should also use proxies for character like credit and background checks. Then if possible require skin in the game (i.e. their own money in a deal) and a personal guarantee. Property Risk The property is your ultimate collateral and the safety net for many of the other risks mentioned here. So, problems with the property, the title, and with the local market bring major risk. So, first of all, make sure you always hire an attorney to research and guarantee title with a title insurance policy. Title problems would prevent you from selling the property in the event you had to repossess the house. Second, make sure the property itself is inspected thoroughly by knowledgeable inspectors and contractors before you fund the deal. Third, hire an appraiser to help you understand the market value of the property. And I also suggest studying and learning the neighborhood trends yourself. The local market fundamentals are so important that you can’t just depend on third parties. And related to properties and risk, here’s my number one rule for private notes. If this is not a property you would be excited to buy for the same price as your loan amount, don’t do the deal. You may be a lender, but there’s always a chance you will become the property owner after a foreclosure. So, think like one! Conclusion There are so many profitable niches within real estate investing. I hope this article has shown you why private notes are an important one that you should consider for wealth building and long-term income. If private note investing appeals to you, it may be something you do on the side in order to complement and synergize with your other investment strategies like rentals and fix-and-flips. That’s what it’s been for me. Or you may decide private notes have enough promise to be your primary investing strategy. There are investors who have successfully done that as well. But whatever you choose, be sure to treat private note investing like a business. Get educated, network with successful investors, and hire professionals to help. Let this article only be the beginning. Best of luck! What do you think about private note investing? Is this something that you’d like to try? If you’re already investing in private notes, what has your experience been like? How have you chosen to invest in this niche? I’d love to hear from you in the comments. Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

How I Accidentally Landed My First Seller-Financed Deal

Hi guys and gals; it has been a few months since my last writing. I’ve been working on diversifying my real estate investment strategy. What I want to share with you today is how my first seller finance deal was accidental. The Back Story If you’ve been around BiggerPockets for a while, you may know that I typically stick to wholesaling, and I have a smaller portfolio of rentals. This is where I am comfortable, but I know if I want to reach my goal of 50 doors by the age of 50, I need to move things a long. So I’m working on increasing my portfolio by leveraging some of the assets I have in order to acquire more. Well in doing so, we made a bad purchase. I say “we” because I let the emotions of a partner skew my decision. We purchased a small frame house in a rural area. The house being small wasn’t a issue. The rural area was not the complete issue either. But the house being small and in this certain rural area was an issue. Our problem was that we purchased this property for one specific reason: to help homeless teens. We did not look into this project as a money maker, it was more philanthropic. We looked at this project without our investor hats on, and we did not have multiple exit strategies. Related: The Definitive Guide to Using Seller Financing to Buy Real Estate The Problem Let me outline the problem. We did our research and found out through our network there were government subsidies allotted for the project. So not only can we give to the community, but the project could be profitable as well. So we were all in. We acquired the property, subsidies were awarded to us to complete the majority of the rehab, and of course we had county approval. Here’s the problem: During this time, there were county elections, and politics got in the way. Ultimately, the newly elected county commissioner disallowed the project. Here we were with a (small) loan on a property, in a rural  d-class area, and vacant. What the heck am I going to do with this property? I wanted to know. The Solution We, or rather, I should say “I,” had to look at the bright side, although it was not glaring. We had a property with a $20,000 note. We had completely rehabbed with money we did not have to repay due to politics. I began to market the property for rent. I knew the tenant pool would be small, and most likely they’d have some credit issues, but we had to take a shot. We found a traditional paying tenant (not section 8). Although the prospective tenants credit wasn’t good, he had a got a good job he’d been at for over a year. This definitely went against all of our procedures (bad credit), but we were somewhat desperate. Not because the $20,000, but because the house was vacant in this area. We finally decided to rent the unit to the prospective tenant because the references checked out. He rented the property for two years, and he was compliant with paying rent (although he would be a few days late at times). We had a positive cash flow of just over $230. One day, after a short conversation, he stated that he would be interested in buying the house. I knew traditional financing for him was not an option at the moment, so I begin slowly introducing the tenant-to-lease option. I had some background on lease purchase, but was not completely familiar. It took some time for me to completely educate myself as well as educate the tenant. Related: 5 Reasons to Consider Seller Financing for Your Investments Financing The contract was prepared by the attorney and signed by both parties. We agreed get to a purchase price of $54,000, with $15,000 down and 7 percent interest for 12 years. Nothing really exciting, but remember, we only had a $20,000 note left on the property, so our horrible acquisition was beginning to turn around for us. Before finalizing the agreement, he called early one morning to say the detached garage was on fire and completely burned down. Everyone was OK, but the garage was destroyed, and the vinyl siding on the rear of the house was melted. The insurance paid the damages, which happened to be more than the amount owed on the property. The entire dynamics of the deal had now changed, because now, instead of lease option, I could sell the property through seller financing. We agreed to decrease the purchase price of the house rather than replacing the garage (part of the money from the fire to pay off the note and repair the vinyl siding). Finally, a note was created for the same terms as above, minus $10,000 for the garage. I also used the buyer’s down payment for a down payment on a new acquisition. So in essence, we created a note on one SFR and purchase another for rental (with much better numbers). Conclusion This terrible acquisition is now cash flowing without the headache of repairs, and it even created another stream of passive income. Although the seller financing was completely accidental, I was not closed minded when it came to finding solutions to turn the acquisition around. I used the resources I had, including BiggerPockets, to help me navigate my way through this mess. As an investor, you will make mistakes, but try to find the best solution to rectify those mistakes. Questions? Comments? Leave them below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

Federal Housing Finance Agency Announces Loan Limit Increase to $453,100 in 2018

The Federal Housing Finance Agency (FHFA) announced Tuesday that it is increasing the conforming loan limits for Fannie Mae and Freddie Mac in 2018. This is the second year in a row—and the second time since 2006—it is doing so. The FHFA will be increasing the limits from $424,100 to $453,100 for next year. The conforming loan limit stayed at the level mandated by 2008’s Housing and Economic Recovery Act (HERA), $417,000, until last year, when it was first increased. When established, the Recovery Act had mandated that the baseline loan limit could not rise until home prices returned to pre-decline levels. Related: The Pros and Cons of Conventional Real Estate Loans Rising Home Prices Necessitate a Loan Limit Increase To explain why it is raising limits for the second year straight, the FHFA cited rising home prices, indicating that U.S. home values have increased 6.8% on average between Q3 of 2016 and Q3 of 2017 per the 2017 House Price Index report. For “high-cost areas,” where the loan limit is calculated as a multiple of the area median home value, the new ceiling will be $679,650—which is 150% of $453,100 per HERA guidelines—for 1-unit properties in the contiguous United States. This is up from 2017’s limit of $636,150. Find Out Your Loan Limit by County Here Certain other states and territories—including Alaska, Hawaii, Guam, and the U.S. Virgin Islands—will see an increased baseline loan limit of $679,650 for 1-unit properties, although that limit may be higher in certain locations. You can find loan limits by county in this chart. What do you think about this loan limit increase? Leave your thoughts below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

The 5 Best Investments in My Self-Directed IRA

Often, newer real estate investors ask me for recommendations on what to invest in. Although I’m honored to be asked, I usually let them know that I’m not a CPA and that the answer to that question depends on many factors, including their investing goals, level of risk tolerance, and amount of capital to invest. (Check out my recent article, “How to Invest Your Money When You’re NOT a High Net Worth Investor.”) That said, when it comes to investing capital from my self-directed IRA, I do have my own set of “favorite” investments. So, what are these preferred investments? The 5 Best Investments in My IRA 1. Business Equity Owning a business in your IRA is a great way to build your net worth. Although you may need to pay UBIT (unrelated business income tax), it still enables you to get more money into the qualified plan. Remember though that you can’t “self-deal” in your IRA, so the business your IRA owns needs to be separate from you and prohibited family members. Also, your personal involvement in the business needs to be minimal. So a great business to own in your IRA might be an out-of-state franchise—or in the real estate world, a business like a title company that you don’t personally use in your transactions. Related: How to Invest in Real Estate With a Self-Directed IRA 2. Performing Notes/Private & Hard Money This is one of my favorite investments, but even more so when I own it in my self-directed IRA. Investing in performing notes is extremely passive, especially if you hire a mortgage servicer, who will do all the accounting and management for you. Another great option is to lend out of your IRA. To stay in the real estate realm, your IRA can step into the hard money role and fund rehabbers on acquisitions and repair costs. Thinking beyond real estate, I guarantee there are local business owners with solid operations who can use more capital for equipment, inventory, or even operating expenses who would be interested in doing a loan with your IRA. The key, of course, is to make sure your IRA is covered in the event of default. 3. Shares of an LLC There are many opportunities to passively invest in fund offerings or purchase shares of LLCs. This is true mailbox money, as you are not actively involved in a business’s day-to-day operations (i.e. you have no liability), and yet you still benefit from the business’s success. Think of it this way: Instead of owning an entire business (like in #1 above), your IRA becomes a fractional owner of a business or entity. If you go this route, all the rights and responsibilities of ownership should be spelled out in the operating agreement, so have your attorney review it. The point here is to buy an interest in a business that spins off cash and/or is likely to increase in value so that your IRA stands to benefit from the upside when the shares are sold. 4. Options Options, particularly lease options, appeal to me most because they require very little capital, yet the earnings can still build tax-free within my Roth IRA. I could write a book on options, but the main point is that your IRA can buy the right (the “option”) to do certain things like purchase real estate for what is usually a pretty small amount of money, and that option may gain in value when another buyer steps in and wants to get the property. It’s almost like a lien that has to be paid off for a buyer to acquire a property. Look up “options” on BiggerPockets to get the whole story. This strategy is worth knowing about. 5. Wholesale & Flip Real Estate By purchasing wholesale and selling to a retail buyer or even another investor, you can still make a nice spread, while maintaining a more passive role in the deal. It’s much more favorable to do inside your IRA because it’s so highly taxed as a short-term capital gain outside a qualified account. The key here is structuring the deal so that the IRA’s ownership is truly independent of your personal actions. Maybe a “financial friend” could sell your IRA a fixer-upper house for $50K and then the IRA would turn right around and re-sell the house to a rehabber for $60K. Think about ways your IRA can get into deals like this, and you’ll soon realize that the possibilities are unlimited. Related: 3 Pros (& 2 Cons) of Self-Directed IRA Investing So, Why These Investments Instead of Others? The investments I mentioned above usually come with less management headaches and aggravation than investments like buy-and-hold real estate, for example, which often require more work to own inside one’s IRA. As an example, with buy-and-hold property, do you realize that in most cases (checkbook IRAs aside), you have to have your IRA custodian issue checks to pay contractors for repairs, pay municipalities for taxes due and so on? And if you have any experience with typical custodians, you know that these seemingly simple requests often involves lots of paperwork and lots of time monitoring the custodian. Active and Tax-Advantaged Investments Is it better, sometimes, to use regular cash to fund your investments? Yes! Some tax-favored investments, like apartments or funds that purchase apartments, may be better utilized owning outside of my IRA so I can still benefit from all the tax advantages like depreciation, repair expenses, and mortgage interest deductions, etc. I also prefer not to own super active investments in my IRA (i.e. buy and hold real estate deals, non-performing notes, etc.), as I don’t want to run the risk of disqualifying my retirement account. Be sure to check your custodian’s list of prohibited transactions to get clear on what’s allowed and what isn’t. Typically, actively managed investments are more frowned upon because they’re the most dangerous with the risk of disqualification. WARNING: If a prohibited transaction occurs, the IRS could disqualify your IRA, essentially changing its tax-exempt status and making it a nonexempt trust. You would then be taxed on the entirety of your account. For example, even if you only invested $10,000 into the deal, but your account was worth $1MM, your whole account would be taxed. Ouch. So, again, think of ways to establish that arm’s-length relationship with your IRA. For example, a safer way to invest in non-performing notes from an IRA may be to hire a specialty servicer who does all the borrower management on the IRA’s behalf. Likewise, you could hire a general contractor for the rehab on your fix-and-flip deal or a property manager for a buy-and-hold property owned by your IRA. So now that I’ve mentioned some of my favorite investments to own in my self-directed accounts, what are some of yours? Or what do you purposefully invest in outside of your IRA? Comment below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

When You Should and Shouldn’t Consider Rent-to-Own Investing

Rent-to-own investing is a form of creative investing. In short, you purchase a property for under-market value and rent it to a tenant who has the intention of buying it before the end of the lease term. You collect an option fee from the tenant at the beginning of the lease that is between 3-5 percent of the expected sale price of the home. That fee gives the tenant the option to buy the property but creates an obligation for you to sell exclusively to this buyer throughout the lease term. When You Should Do Rent-to-Own Investing You should do rent-to-own when the buyer’s market is slow. Buying houses under market value and flipping them is profitable when the market is moving quickly. It only takes a few months to flip a house, but in that short period of time, the market can dip. The market of the home could be less than the price you paid for it or the demand for homes within the price range could fall. You usually have two options when the market dips. You can sell the property for less or hold onto the home until conditions improve. However, rent-to-own is a viable third option. When market conditions worsen, people usually have a more difficult time purchasing homes. That doesn’t mean that people want to purchase homes any less; it is just more difficult for them to secure financing. Rent-to-own gives those people the opportunity to strengthen their economic position to purchase a home, even when the economy is bad. It also gives you a third option to make a profit. You can lease the property to a tenant and sell it at market value whenever the tenant is ready to purchase, which is usually at least six months down the line. Related: Rent To Own Homes: How to Profit from a Lease Purchase By setting the property’s sale price at market value, you can benefit from property appreciation over the lease term. You could also set the purchase price at or above the cost of flipping the home. However, buyers are less likely to commit to a high sale price when the market is weak. Additionally, the home may not appraise at that value, which would leave even a willing tenant unable to secure a mortgage and purchase the home. You should rent to own if you want a larger return on investment, but you’re not in a rush. Rent-to-own is a low-risk way to make extra money from a flipped home. You are guaranteed the extra rental income for the full lease term and retain ownership of the property if it isn’t purchased. Leasing a property to a tenant and giving them the option to buy helps you find a buyer motivated by the money he or she has invested into the property (the option fee) who will buy if financing comes through. For you, it’s a win-win. If the tenant doesn’t buy the property, you keep the option fee and the rent money. You can then sell the property to someone else or rent to own it again. If the tenant buys the home, you return the option fee as a credit toward the tenant’s down payment on the home and keep the rent money and the sale price of the home. You will make more money from the property if the tenant does not buy; however, both options are more profitable than selling the home immediately after the flip. When You Shouldn’t Do Rent-to-Own Investing You shouldn’t do rent-to-own when you need to make the money back fast. If you secured the funds to purchase a property through creative methods, you may need to pay back financing quicker. While that works well for flipping properties, it does not work as well when it takes longer for you to make a return on investment. Rent-to-own takes time to yield a return on investment. Ultimately, the ROI is higher than the outright sale of the home, but it is nowhere near as fast. There are no guarantees of when you will get your money back because lease-option contracts are unilateral. The tenant has the option to buy, and you have an obligation to sell. Related: The Two Types of Rent to Own: Advantages & Disadvantages The payout could come at the end of the lease term when the buyer purchases or it could come later when the property is sold to someone else. You will recoup the money spent either through rental income over a long period of time or through the sale of the property. You shouldn’t do rent to own when it is a seller’s market. Though it’s difficult to know when you’re at the highest point of a market bubble, flips are most profitable at the top of it. Therefore, it doesn’t make sense to lease-option a home that you flipped at the point of the market when you’ll gain the most money. If you lease-option your property at the top of the bubble, you risk the bubble popping and the value of your property dropping considerably. The drop in value will likely outweigh any profit you could have made from rent-to-own. Would you consider rent-to-own? Why or why not?  Leave a comment! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

The Ultimate Guide to the FNMA HomeStyle Renovation Mortgage

[Special thanks to BiggerPockets member and moderator Chris Mason, a lender and mortgage expert with Bay Equity Home Loans in California, for updating the information in this article.] As real estate investors, we are always looking for new and better solutions to improve our investments. Most investment properties take money, and often that means cash we don’t want to give up or don’t have to give up. There IS a solution to this problem. Whether you’re an investor who prefers to pay all cash for your real estate investments or one who uses financing to buy the property and pay cash to fix it up, or whether you use hard money lending, there are other options that you should consider. What is the HomeStyle Renovation Mortgage and How Does it Work? The HomeStyle loan is a Fannie Mae (FNMA) loan that basically allows an investor to purchase a property and include the renovation costs into the mortgage. It’s quite similar to a hard money loan, but the significant difference is that the loan is a permanent loan (15 or 30-year fixed). It’s also traditionally a LOT cheaper. Since the loan is FNMA backed, it’s going to conform more to the market interest rates and fees for a conventional mortgage. Here is the most basic example to wrap your head around the idea of this product: Sale Price: $100,000 Renovation Budget: $25,000 Total Investment Needed: $125,000 80% LTV, 30-Year Fixed Mortgage* Traditional Mortgage Rate (5% +/- in 2015) Loan Amount (80% of $125k): $100,000 Cash Down Payment: $25,000 Escrow Account Setup for $25,000 in Renovation Great Property, Fixed, for 20% Cash Investment Versus: Hard Money Loan $125,000 Total 70% LTV $37500 Cash Needed 3-5 Points Up Front 10-18% Interest 6-12 Months Payoff As you can see, you get most of the benefits of a hard money loan wrapped into a single close, long-term financed mortgage without the expense. Intrigued? You Should Be! Let’s Continue With More Details. Who? Fannie Mae is America’s largest secondary lender. Many of their tradition guidelines that apply to conventional loans also apply to their HomeStyle product. One thing to keep in mind is that not all FNMA qualified lenders are qualified to also sell their HomeStyle loan product, so you must ask. What? The HomeStyle loan is designed for investors and owner-occupant buyers as an alternative to the FHA 203(k) loan, as well as for second home buyers. As far as lending limits, most mortgage brokers will tell you that up to an investor’s fourth loan can be a HomeStyle. While we know that some investors can obtain up to 10 FNMA loans with increased qualifications, a borrower can only use the HomeStyle up to their fourth loan. We have not tested this yet, but that’s what we’ve been told. Many of the same lending guidelines that apply to qualification for a conventional FNMA loan apply to a HomeStyle loan. Most traditional conventional loans allow lending limits of 80% LTV. For investors using a HomeStyle loan, there is a maximum LTV of up to 85% with mortgage insurance, or 80% without. For owner-occupant buyers, the limits are significantly higher (also with MI). Related: The Five “C’s” of a Perfect Loan Proposal When? Now! But remember, the HomeStyle mortgage process takes 45 and sometimes up to 60 days to close. Plan accordingly with your contracts. These are more intense than the standard, 30-day conventional mortgages, so make sure that you have the time and personal commitment to work the process. Where? HomeStyle can be used on single family residences for investments and 1-4 unit properties for owner-occupied homes. Why? To preserve CASH! You can substantially increase your cash on cash return using this product versus other investment scenarios. You can increase your portfolio faster. The FNMA HomeStyle Renovation Mortgage Lending Process in Detail 1. Find a qualified Fannie Mae HomeStyle lender. As mentioned, not all lenders or mortgage brokers are qualified or set up to provide the HomeStyle mortgage. It takes quite a bit more staff and processes for the lender to be able to provide these. Make sure it is a lender that you feel comfortable working with. This is a process; you need to be comfortable with your lending partner. I strongly urge you to use a mortgage broker or lender that is in the area of the property. This process involves a few extra people. Having a direct relationship with someone who wants to keep you happy for referral business and repeat business is important. Celebrating with a blender of margaritas when your house is done is even better. Once you have your lender selected, you will need a pre-approval letter to present with offers. 2. Put a house under contract. Restrictions: Not many. It should need some repairs, at least enough to justify this process and a couple of extra costs. What can it need? Just about anything. Windows, yes. Doors, yes. Bathroom, yes. Kitchen, yes.  Roof, yes. An addition onto the back of the house? Even for this, yes. Free-standing stove, no. Mini-blinds, no. (More on this later.) 3. Get a contractor and an inspection (required by most HomeStyle lenders). Most contracts permit a 10-day inspection period or other amount of time that is negotiated to have a professional inspection. This can be money well spent to make sure that you have located all or most of the necessary renovation items that you will need to take care of during the process. A qualified inspector can make reasonable suggestions on what and how to repair certain items. But the important part of this process is to have a renovation contractor develop a Scope Of Work (SOW) with you. The contractor will also need to complete a contractor profile. These are required parts of the loan paperwork. The lender needs a SOW, also called the Scope Of Repairs (SOR), to know what you plan to do to the house and that those items will actually bring it to a livable condition. Here are some items that you will be required to provide to your lender: Scope of Work with itemized repair budget The cost of the renovation cannot exceed 50% of the purchase price of the property Copy of contractor’s license from the jurisdiction of the property Copy of contractor’s insurance (general liability and workman’s comp usually) Contractor profile form from Fannie Mae Copy of contract between you and your contractor (here is an example from FNMA) Notification of work needing permits (can’t moonlight these; permit work must be permitted) *Note: Everyone always asks about self help. FNMA allows it on SFR owner-occupied, but it’s INCREDIBLY rare for any lender to not have this overlaid. Self help always ends up being fraud, so realistically, you’d have to find a lender that’s NEVER done FNMA Homestyle and doesn’t know that it’s always fraud (which it always is, 100% of the time), to swing it. 4. You will need to provide your lender with documents. These will simply entail the traditional documents needed for a conventional loan and a few other items related to the renovation. 5. Your hard part is done. It’s a time process now. Some of the next steps include an appraisal that is ordered and managed by the lender or mortgage broker. Rather than a traditional appraisal, they are going to appraise the property based upon “subject to repairs” or the “After Repaired Value” (ARV). This is important to the lender and to you in order to justify that the cost plus renovation do not exceed the value of the property repaired. The lending process is going to maximize the loan at either 80% of the ARV, or 80% of the cost of the property and renovations. (If you have another LTV, i.e. 85%, substitute as needed.) 6. You’ll get the Feasibility Study performed. Usually the appraiser is qualified for this step and can do this process, but it can also be done by another party chosen by the lender. These inspectors are usually HUD consultants. The validation of the SOW/SOR is done by the consultant. This is called the Feasibility Study.  As mentioned, the appraiser or other party will review the SOW/SOR while at the property to justify that this set of repairs will bring the property to a livable and safe condition. They will also validate the cost of each of the items being repaired in accordance with market prices. 7. Underwriting takes place. Once all of the documents have been received for the loan, the lender will underwrite the loan for final approval. Additional questions are regularly made at this point, and then the loan is set for approval. The underwriter, under FNMA guidelines, WILL add a contingency budget of usually 10% of the total cost of the renovation and sometimes up to 20%. 8. You’re ready to close. Once everything has been done with this process, which typically takes 45 days and sometimes longer, you are ready to close on the sale. The closing will take place as usually set up in the state of the property. An escrow account is set aside with the renovation proceeds, usually with the lender. Instructions will be given, and additional contacts will be presented for the duration of the process. 9. You are ready to begin renovations. It’s up to you and/or your contractor to start the renovations as outlined. Initial funding must come from other resources. The lender will NOT give you starter funds for the renovation. Typically, the owner will need to provide the contractor with starter funds to fund materials and initial labor. Once formidable progress is completed on certain tasks of the SOW, a draw request can be made for reimbursement. Most renovation loans come with a limit of up to five draws. A form is submitted to the lender, and an inspection is made by typically the same consultant who validated the SOW. The reimbursement process can take a few days on each draw, so be prepared. Ask the lender in advance how long these take with them. Continue this process to completion. Most draws are written to the borrower and the contractor, and almost always the final draw is written to both. You may be able to work with your lender to advance the draws to one or the other with special instructions. Once the renovation is complete, the final draw will be released upon receipt of the following: a HomeStyle Completion Certificate, a Project Inspectors Final Report, and a Release of Lien and Title Update. 10. Congrats! Your house is renovated and ready to move into, sell, or rent. I’m sure that there are investors who use these loans to flip with, but most investors are using them to keep the property as a rental. If you are building a portfolio of rental properties, this can be a great way to impact your cash on cash returns, minimize the number of loans taken out on the property, and maximize your buying power. Other Items Learned Along the Way From Experience If you are buying a Fannie Mae property (and other sellers with deed restrictions), you have likely noticed a deed restriction in the contract that prohibits you from encumbering the property for more than 120% of the purchase price within three months. Many listing agents do not know about the HomeStyle loan and do not understand it. If you are going to do a renovation that will exceed this requirement, which isn’t hard to do, you must realize that this will make an impact. Fannie Mae may have the option to change this restriction. Sometimes, it isn’t realized that this limit is exceeded until the closing company reviews. Remember the contingency budget that was added so this doesn’t put you over. Most appraisers and consultants are swamped. This process will sometimes take more than 45 days. Open communication with all parties will solve many issues during the contract to close process. Keep everyone on task and informed. FHA also has a renovation mortgage that is very similar to this, with some exceptions. They are for owner-occupied houses only. There are different restrictions on what can and cannot be included in the renovation. There is currently a $35,000 limit on the renovations. The LTV will be enhanced by the use of the FHA 203(k) product versus the HomeStyle. Using this process instead of a traditional turnkey investment property typically yields a better equity position. The purpose of going through the renovation process on your own instead of having someone else do it is to save equity. If you can renovate the property to be worth $135,000 for the cost of $125,000, you just made $10,000 in equity. This is where our clients have shined. Related: Your First Investment: How to Use Future Rental Income to Qualify for a Duplex Loan If you use the 80% LTV mortgage on a single family, or the 75% LTV on a 2-4 unit property, you will avoid mortgage insurance. If you have an LTV of 85%, which is allowed even for an investor, you will have mortgage insurance premium (MI). Use this worksheet, Form 1035, to determine maximum eligibility or work with a qualified lender on the process. What is considered to be a permanent improvement to the property? Since the mortgage is designed to carry for the extent of typically 30 years, the lender wants to know that the improvements made to the property have “shelf-life” and stay with the property. Therefore, things like appliances are considered personal property and cannot be financed into a HomeStyle. The same goes for items that typically have a short life, like mini-blinds, etc. Consult with your professionals when developing the SOW/SOR on these items. The use of other subcontractors for things like the roof or electric can be used, but should be managed by a single general contractor. I believe that there are exceptions to this rule, but I would imagine that it would become much more difficult to process. If your renovations are going to exceed the original cost, you can use the contingency budget with the contractor completing a Change Order Request Form. As previously mentioned, the contractor must be licensed in the jurisdiction of the property. Even if they are licensed in the jurisdiction of their business, they must also be licensed where the property is located. This will also be necessary for them to pull necessary permits for the renovation. You also may be eligible to use a renovation mortgage as a part of a refinance. Seek the expert advice of a qualified lender. The balance of the contingency budget will be applied back to the borrower’s loan balance if not used during the renovation process. The fewer draws needed to complete the renovation, typically the faster the project will go. Even though lenders should be able to process these in a few days, you are waiting on the consultant to check on status each and every time that you request a draw, which usually comes at a fee of approximately $150. When making your draw requests, the consultant usually wants to see that the entire portion of a line item on the SOW/SOR has been completed. If you are requesting money for the painting of the property, make sure it is complete and that you aren’t requesting just part of it. For the paint example, some contractors may work on a main level of the house, then the finished basement.  If both get painted, both need to be done if that is how it is charged on the invoice. In searching for your lender, be sure to find one that not only has this product available, but also has experience working with them. There are several more forms and processes to be completed, and experience is critical. You can also review the HomeStyle Renovation Consumer Tips page or their Product Overview. Investors: Have you used the HomeStyle loan for your real estate business? Any questions about how it works? Leave all your comments below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! 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Mortgages & Creative Financing

4 Reasons Property Owners Might Choose to Sell via Seller Financing

If I gave you the choice between getting $100 today or $1 per month for the next 30 years, which would you take? Most of you would want the $100 right now, but if you do the math, $1 per month for 30 years is $360, which is more than three times the lump sum of $100. Still want the $100? Perhaps. Some of you reading would take the $1 a month, whereas others would take the lump sum. It all comes down to personal choice. The same principle this question demonstrates is true for home sellers. Many homeowners who own their house free and clear would rather take the cash and move on. However, for a large number of sellers, the value of getting monthly payments outweighs the need for a large lump-sum check. Let’s look more closely at why owners might choose to sell via seller financing rather than just getting cashed out. 4 Reasons Property Owners Might Choose to Sell via Seller Financing 1. Monthly Income Perhaps the most common reason sellers would prefer to sell via seller financing is to get monthly income. As in the $100 or $1 per month example I used, a lot of individuals would simply prefer to steadily receive checks each month instead of one lump sum. This is especially true for older sellers on a fixed income who need stable monthly income to survive and pay the bills. A $100,000 chunk of money would last only so long for a seller, but if that income were financed over 30 years, the money would last them much further into retirement. 2. Better ROI Many homeowners choose to sell with seller financing because the interest they get from the financing is greater than they would likely get elsewhere. For example, if a homeowner were to sell a home for $100,000, they could put that money into a certificate of deposit at the bank and receive 1.5% annual percentage yield, or they could seller finance their home and get 6%, 8%, or more. Related: 5 Reasons to Consider Seller Financing for Your Investments Many seasoned real estate investors understand this concept and eventually move their portfolio from a “holding” phase to a “selling” phase, using seller financing to avoid the hassle of being an owner, while still collecting monthly income by carrying the contract. Therefore, some of the best possible candidates for seller financing are other real estate investors who are changing their strategy. (On a side note, this is another reason making friends with as many local real estate investors as you can is so important. When they are ready to get out of the landlord game, they may choose to sell to you and carry the contract in the process.) 3. Spread Out Taxes Anytime you make money, the government wants its share, and when you sell real estate, it’s no different. This issue may not be as important for homeowners, because of the IRS rule that allows homeowners to avoid paying taxes on up to $500,000 in profit from selling their primary residence, as long as it meets certain specific criteria. However, real estate investors are not so lucky and are must pay taxes when they sell. For example, if an investor spends 30 years paying off a rental property mortgage and now owns the home free and clear, and he decides to sell the property for $100,000, that investor would need to pay taxes on that gain, which could result in a hefty tax bill. Related: The Pros and Cons of a Seller Financed Deal for Seller and Buyer Therefore, many investors choose to sell using seller financing rather than getting a lump sum, to spread out most of those tax payments over the life of the loan on the seller financed property. You see, the IRS has special tax rules for installment sales, such as ones using seller financing, so the seller may need to pay only a small portion of that tax bill each year while the loan is being paid off. Be sure to talk to a CPA for more details on this. 4. Can’t Sell Otherwise Many properties simply are not sellable to a typical bank-financed borrower because they are in such poor condition. Seller financing can allow the seller to unload such a property without needing to fix it up first. [This article is an excerpt from Brandon Turner’s The Book on Investing in Real Estate With No (and Low) Money Down.] Have you used seller financing before? Any other motivations you’ve seen that convince owners to go this route? Leave your comments below! Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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Mortgages & Creative Financing

Should You Create a New Profit Center in Real Estate by Becoming a Lender?

As the CEO of a private mortgage investment fund, sometimes I get asked how I got started in the “lending” business—or even which bank or which servicer I started off working for. My answer—that I’ve never worked a day as a banker—can surprise people, especially if they’re coming from the world of institutional lending. Thinking Like a Banker The path that led me to found a mortgage note investing company was a roundabout one entailed being a real estate agent, a rehabber/landlord, a private lender to other rehabbers, and finally to note investing, but it definitely taught me a lot about borrowing and lending with real estate. So, are you wholesaler, rehabber, or landlord now? Then my advice to you is to understand the lending and finance side of the business as if you were a banker. Why learn to think like a lender? Because eventually you’ll want to scale, and scaling takes capital, and one day, you’ll run out of your own money. That’s when lenders become very important players on your team. Plus, I’ll lay odds that once you “get” how real estate works for the lender, the “a-ha!” light will turn on, and it won’t be long before you switch seats at the closing table. Here’s how that evolution in roles played out for me. From Bank Borrower to Private Money Borrower to Private Lender Back when I first started out in real estate investing, I didn’t know that borrowing or lending private money for rehab projects was even an option. Like many investors, I was focused on finding my next deal and trying to convince the bank to help me pay for it. In my early days as an agent working with investor-buyers, though, I learned fast that if my investor clients didn’t work out the financing side of the transactions I was brokering for them, I didn’t get paid my commission. Nothing happens until the money changes hands, and “the bank” seemed in control of that part of things. When I started networking with other real estate investors and attending local real estate club meetings, I learned about “being the bank” and other alternative investments—and ways to create multiple streams of income (see recent article, “How to Create Multiple Streams of Income in Real Estate”). Lending Opens Up a Whole New Profit Stream in Real Estate My first encounter with non-bank lenders came when I was looking for capital as I grew my rental property portfolio. At real estate club meetings, I met several “professional” hard money lenders who did lending as a business, and I saw how much yield they were bringing in while taking on very little risk. But it just seemed so expensive to me (as a borrower). The next thing I discovered was that hard money rates were typically higher than with private money, which tends to come from people who don’t lend as their primary business but do it more “on the side.” Borrowing private money was more appealing to me as a borrower, but I could see that the lender was also doing very well on his side of the transaction. Related: 7 Truths About Private Money That Will Help You Raise Capital And soon enough, after working with private lenders on my projects, I started tapping into the equity from my rental properties and doing some lending myself. And now, I run a fund that manages mortgage loans as investments (although to this day I still buy, borrow, broker, and lend on real estate). So, that’s how I “became the bank.” Whether you aspire to be a lender or you want to understand their side of things better, here’s a quick summary of how to think “like a bank” when dealing with real estate. Think Like a Bank: Pros and Cons of Private Lending Pros 1. Less Risk As the lender, you can structure the deal in ways that protect you (i.e. short term, points, etc.). Another good way to limit your exposure or risk is to release the capital on a draw schedule, meaning that you lend portions of the total amount as work is being completed. 2. More Passive Lending private money is obviously more passive than being on the other side of the transaction, as the borrower. After all, you’re not the one rehabbing the property. However, it’s still wise to be involved. You’ll want to know things like the after repair value (ARV) of the property and the track record of the borrower before agreeing to fund the deal. If you’re releasing the capital on a draw schedule, maybe you even want to go down to the work site and confirm that the agreed upon work is completed. 3. Short Term The term of a private money loan could be anywhere from a few months to a few years. It’s ultimately up to you, as the lender. Many lenders opt for a short-term loan, though, as this keeps their capital more liquid, allowing them to pursue other investments in a shorter period of time. For example, if an investor lends on a deal at 15% for a 6-month term and that deal is completed on-time with the expected outcome, the lender could then “rinse and repeat” within that same tax year. He/she could redeploy the capital in a similar deal for another 6 months. 4. Collateral Another advantage of lending private money is that, in the event of default or breach of contract, you can take over ownership of the property pretty easily. Also, if the borrower is an entity, such as an LLC, the loan isn’t subject to the lengthy foreclosure timelines that residential mortgages are by having the deed held in escrow. If the borrower were to default, you can just record the deed, and then you have control of the property. That said, when you’re lending private money to rehabbers, there are also a few things to look out for. Cons 1. Qualifying the Borrower What’s the borrower’s track record look like? Who are their mentors? Do they have integrity? These are all very important questions. You have to make sure the borrower is going to honor his/her side of the bargain. Personally, I’ve only lent private money to borrowers whom I knew, and I was always familiar with their work, whether that was through referrals or from working with them before. Still, I’ve run into issues. For example, I once lent money to a rehabber who notified me that he was ready to receive the next draw of capital, but when I went to check out the property, the work he outlined in the contract was not completed. Also, beware of investors who are working on multiple rehab projects at once. You want to make sure your money is really going towards this project and isn’t being used to buy supplies or pay vendors for another. This goes back to having a system of “trust but verify” when it comes to releasing money on a draw schedule. Related: How I Find Private Money Lenders to 100% Fund My Deals (& How You Can, Too) 2. Qualifying the Property Prior to funding a deal, private money lenders typically want to know what the property is worth, how much work it really needs, how long that work will take, and how much it will sell for. You could even charge the borrower for the cost of an appraisal – this is a fairly common practice by hard money lenders. Personally, when I walked through a property, I had a pretty good idea of what work needed doing and how much it would cost. But that knowledge comes from years of rehabbing properties as a contractor prior to getting into real estate investing. If you’re not sure how to qualify the property, a possible work-around would be to hire a home inspector. This way, a third party professional can give you and the seller an unbiased opinion. 3. Unexpected Project Delays Another potential con or threat to your deal would be if the project takes longer than anticipated or if it takes a while to sell. This could tie up your money for a longer period of time. Or if home values decline in your area while they deal is being rehabbed, it might even impact the borrower’s ability to pay you back. This, however, is a much less likely scenario. Personally, I think the pros far outweigh the cons, and I consider private money loans a valuable part of my investment portfolio. That said, lending private money isn’t for everyone. And even if you’re focused on fix-and-flips or building a rental portfolio now, have you ever considered lending private money to fellow rehabbers? Given the pros and cons listed above, would you consider it in the future? I hope this dive into the “brain of a banker” was helpful. Let me know if you have any questions. Free eBook from BiggerPockets! Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks, and techniques delivered straight to your inbox twice weekly! Actionable Advice for Getting Started, Discover the 10 Most Lucrative Real Estate Niches, Learn how to get started with or without money, Explore Real-Life Strategies for Building Wealth, And a LOT more Sign up below to download the eBook for FREE today! Click Here to Download the eBook Now! We hate spam just as much as you

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