There are a great deal of new investors looking to get into the fix and flip business. We do rehab loans for these types of transactions, and work with new investors on a regular basis.  While we have a lot of successful investors we have worked with, one pitfall they must avoid is using an overly aggressive after repair value for their base assumptions.

A good after repair value, or ARV, should give an accurate representation of what the property is actually going to sell for once the rehab is complete.  This value needs to be accurate, as all other numbers will be based upon this assumption.  Having a great real estate agent certainly helps these investors wrap their hands around this all important number, but it is important that they do not rely only on their agent, but rather roll up their sleeves and do their own research as well.

One very simple thing that can be done is for the investor to actually drive the comps for the property.  It surprises me how often people are willing to walk into a deal without looking at the properties they are using as a basis for their after repair value.  Even if no other research is done, actually looking at the properties in person, seeing the neighborhoods and considering any differences between sales comps and their subject property will certainly bring a quality perspective on the true after repair value.  Looking at comps on paper is a great place to start, but if buying, fixing and flipping property is to be a business, you must get out and see the properties you are comparing in person.

Another item that seems to get overlooked a lot is the days on market.  Investors who are working with me are paying interest on their loan.  It's not cheap money, and every day the property is held is another day of interest that must be paid.  That debt service is something that can easily be overlooked.  Pricing a property properly so that it will sell quickly and reduce the amount of debt service that must be paid is incredibly important.  Knowing this going in and adjusting your after repair value estimate accordingly can really payoff.

There are a lot of other potential pitfalls, and I will be writing about more soon (so check back in!).  For more information about hard money lending, please visit our California hard money page on the web!

As the banks continue to take back properties, buying distressed, bank owned properties and reselling them continues to be a hot business.  As a facilitator of rehab financing, I work with a lot of rehabbers in the California area.  Generally speaking, those who are the most active tend to target the entry level market.

There are a number of reasons why this may be.  For our purposes, the sale of an entry level home once it is rehabbed tends to be quicker than the sale of a luxury home or a step up home.  Many people overlook this aspect when going in, but it is important to consider.  Every day spent holding a property cuts into profit as loans require debt service.  At double digit interest rates, this can add up quickly, especially on a higher end home.

Another plus to working with the entry level homes is the rehab budget.  Typically speaking, an entry level home is not going to need the upgrades that a higher priced or luxury home is going to need.  This cuts down on the cost to actually rehab the property to the point where it will sell for a profit.  This is not to say that there should be no upgrades, but the cost of upgrades at the entry level to really make a home pop when compared side by side to other entry level homes is usually not the same cost burden you would need to upgrade a luxury home to make it stand out from the crowd.

When financing these types of transactions, we typically are financing based on the after repair value of a home. This value is very important, not only to us, but to the borrower as well.  It is common for our loan amount to be equal or greater than the purchase price of a property, but this does not mean that we can finance all of the costs.  This is due to the fact that we are going to have a fund control account set up for the work to be done and an interest reserve account set up to cover the debt service for anywhere from four to six months.

If you would like to learn more about our lending or rehab loans, please visit our hard money home page.

If you don't know what a QR code is, now is a great time to get familiar with what they are.  QR codes are those box shaped jumbled up looking bar codes that you are likely starting to see in many places.  I guess that is the best way to describe them!  However they are described, though, knowing what they are and how they work can really help in your marketing efforts.

QR codes basically are scan-able codes that create an action.  Users scan these codes with their smart phones (apps for scanning these codes are readily available and free).  The most common action is to take the user who scanned the code to a particular website, and that is what we are going to focus on for our discussion today.

There are a number of uses for these codes.  Of course you can place a QR code on the back of your business card and have it take people to your website.  You can also include them in print advertising, again bringing people to your website.  But what about going a step further?

You can have a QR code link directly to a video walk through of a home you have listed.  Put that QR code on the home fliers, add it to any print advertising and people can simply scan the code and get a tour of your home on the market.  Take it even further, you could have multiple QR codes on your fliers, linking to informative sites about the area surrounding the home you have listed.  A map of local parks, local restaurants, etc.  The possibilities are endless.

In addition, how do you think your prospective clients will view you if you can show them this type of marketing?  It is not hard to do, but it does show your creativity and it shows that you are on the cutting edge.  People like that.

To get started is easy, here is a free QR code generator, you can create as many QR codes as you want, and link each one to a specific page on the internet (or link them to other specific actions).  In addition, here's a link to a free SEO guide that is useful.  If you combine the QR code marketing with the ability to get a property listed at the top of the search results when people are searching for it, you are well on your way to making yourself stand out from the crowd - which is what it takes these days, good luck!

These days financing for real estate transactions can be a challenge.  The banks have tightened their lending standards to the point where even quality borrowers may be unable to obtain the loans they need.  This is compounded further among the smaller community banks, which make a lot of the local commercial, mixed use and other real estate loans that are not secured by an owner occupied single family residence.

For those with financing issues, a potential alternative is hard money.  There are both pros and cons to using hard money.  The benefits include looser qualification standards.  For non consumer loans, often times you can qualify without much paperwork.  On commercial properties, the debt coverage ratio does not determine whether a loan can be made or not.  For self employed borrowers, low or no doc options are available.  Additionally, there is the opportunity to get creative with hard money financing.  

Cross collateralization is an option that many banks don't consider, but with hard money it is a very viable option. In addition, properties in need of repair or rehab can be financed.  Closing a loan on a rehab property that has major repairs needed, even section one and two items, is a reality.  In addition, closing on these properties using a fair market or after repair value as a loan to value basis (rather than the purchase price) is a possibility (see our breakdown here of rehab loans).  All of this flexibility means more opportunity to close loans that banks simply cannot these days.

Of course there are trade offs.  At the top of that list is the cost.  Hard money loans are typically more expensive than bank loans.  Points are charged on practically all hard money transactions.  These can range from 2 or 3 on up to ten or more in some cases.  The interest rate is also notably higher, with typical rates ranging between 10% and 14%.  The length of term is also a trade off, with most of these loans being interest only with a balloon payment due after anywhere between one and five years.  Finally, while the qualifications are much more loose than the banks require, hard money lenders are going to require much more equity in the deal.  Most loan to value ratios on hard money these days are going to cap out at 60% max, often times less.

For many quality borrowers who have either hit a rough patch, or have a temporary issue obtaining financing, hard money can be a great option.  When used as a bridge loan to bridge the gap between the present and some point in the future when bank financing can be obtained, this alternative form of financing can allow borrowers to take advantage of the current real estate market.  For more information, please visit our hard money loans page.

With all that has gone on over the past few years, one question many have is with regards to the housing market.  When will it bounce back?  Have we hit bottom yet?  How far can things fall?

I took a look at some very interesting numbers, and what they indicate to me is that we still have a ways to go.  Depending on factors such as interest rates, unemployment rates and the average annual income in America, we could be in for some additional pain.  I don’t want to believe it, but some of the numbers are a bit scary.

Looking at the very basics, two major factors in the housing market equation have to be income and interest rates.  Should income stagnate, and interest rates rise, buying power is certain to fall.  It’s a simple matter of math, the higher the interest rates are, the more your home loan is going to cost.  The more your monthly payment is, the less you can qualify for.

Right now, we are sitting on interest rates for 30 year fixed mortgages of less than 5 percent.  This is historically very low.  It was only 20 some odd years ago when rates were in the 10% to 14% range.  With all the stimulus programs coupled with the huge amount of debt America is carrying, it seems very likely that rates rise in the future, perhaps the not too distant future.  What happens to the housing market if we see 8.5% rates again?  How about 12.5% rates again?

If you couple that with incomes that are not increasing at the same pace as they were 30 years ago, you have the makings of a prolonged downturn.  Read the full article with detailed numbers here - Why the Housing Market is Still in Trouble.

I use the internet for a good portion of my marketing.  There are many ways I do this, but today we're going to focus on one way to improve your visibility using Linkedin.

Linkedin is a great resource.  The fact that it went public recently only helps, as more and more people are aware of the site.  It is a high authority site for the search engines, and a great site to network on.  You can do a lot of what Facebook allows you to do, but everything is business related.  Facebook is great, but typically I don't use it for business purposes.  Linkedin, however, is another story. 

Today we are going to look at how to use your Linkedin profile to generate greater visibility for you online.  First, if you don't have a Linkedin profile, go sign up and get one, it is free.  I won't go into detail on how to populate your profile, there simply is not enough space in one post to do so, and instead I'm going to concentrate on two areas. 

The first area is your actual profile.  Make sure this is set to public.  There is a radio button that you can click that makes your public profile visible to everyone.  In addition, I check every box underneath except picture.  This means my headline, summary, specialties, positions, etc. are all public. 

The importance of this is that the search engines will be able to crawl your profile and index you accordingly.  This brings us to point two.  Be sure to completely fill out your summary and specialties.  When people run a search for you (as many looking for a real estate agent or loan officer do) and find your Linkedin profile, everything you want them to know about you and your specialties will be front and center.

When completing this area, be sure to use keywords that match what you do.  If you are a short sale specialist in San Francisco, say so.  A little known fact is that Linkedin also has an internal search engine.  For people looking for someone to network with, adding these buzzwords will help you get found within that internal search engine.  Every bit of visibility you can bring to the table will add up in the long term to a strong online presence that you can leverage for more business.

There are many more ways to tap into the power of Linkedin, check out my Linkedin marketing post, and I will look at more in the future.  I've created a real estate networking group, feel free to join as I will be sharing internet marketing ideas with that group as well - you can find it here.  You can also take a look at how I've set up my personal profile here: http://www.linkedin.com/in/hardmoneyloans.  Feel free to add me as a connection, I'm always happy to network with other professionals.

For real estate investors just starting out, or for those looking for additional leverage, hard money rehab loans have a lot to offer.  Typically, these hard money rehab loans are short term, maybe 12 months in length.  For those able to obtain this type of financing and pair it with an equity partner or gap financing, the ability to purchase rehab property with zero cash out of pocket is realistic.

These equity partners, or gap financiers, can typically take anywhere from 20-50% return on their money.  Sometimes this is in conjunction with participation in the project (a percentage of the profit) as well.  While this may seem awful expensive, even in comparison with the hard money rehab loans we deal with, for those looking to get into real estate investing who have no money to work with, it certainly is a viable option.

For transactions in California, we are able to secure the hard money debt, and can also help borrowers with deals under contract find equity partners or gap financing.  When going this direction, it is important to calculate all of the costs involved with the money you will be borrowing, and usually that means you need to find more attractive deals than normal.  If you are able to find the right deals, though, being able to invest without having to use your own capital may be advantageous to you.

Visit us on the web for more information on hard money rehab loans, or give us a call directly to discuss the options we can provide.

With recent changes being made in the lending industry, owner occupied hard money has become increasingly difficult to obtain.  Many hard money lenders who had made these loans in the past have stopped, choosing to only make loans for investment or business purposes.

Residential hard money can take two basic forms these days, consumer and non consumer.  The distinction between these two qualifiers is important, so today we’re going to touch on the differences.

Generally speaking, many hard money lenders are shying away from consumer loans.  These are loans made to consumers, for consumer purposes.  Owner occupied hard money would be considered consumer, as the owner intends to occupy the property.  That is pretty basic, and generally understood.  However, there are other situations where a loan can be considered a consumer loan, even when it is not an owner occupied property.

The main test of consumer vs. non consumer loans comes down to the use of funds.  If a borrower is going to use the funds from a transaction to buy a car, pay down consumer debt, send their kids to college, etc, it is considered a consumer loan.  This is true even if the property is an investment property, simply due to the consumer use of the funds.

Non consumer loans are loans made for non consumer purposes.  Examples of residential loans that are non consumer would be, for example, a fix and flip or a refinance of an investment property to cash out and purchase additional property.  Many times these transactions are made to corporations or LLC’s, which is fine.  Whether made to an individual or an entity, however, the use of funds is what truly dictates whether the loan falls under consumer loan guidelines.

For more information on owner occupied hard money and non consumer residential hard money, or to discuss any scenarios, please visit our hard money loans page.

Today I’m going to take a break from discussing loan related topics to focus on real estate SEO and some resources that can help get your site ranked in the search engines so potential clients can find you.

According to the National Association of Realtors, 87% of recent home buyers in the United States indicated that they utilized the web during the transaction.  32% said that they first learned about the house they eventually bought from the internet.  So what does all this mean?

It means that if you are not utilizing the internet in your real estate marketing plan, you are leaving out a growing segment of potential clients.

Most of my clients these days find me using the internet, and I’m a big proponent of leveraging the web to gain exposure and clients.  Although many people may feel like establishing a strong online presence is something they cannot accomplish, the truth of the matter is that it is imperative that you do so.

As time marches on, the internet is only becoming a larger and larger part of everyday life.  Think about the last time you wanted to find a business, did you pick up the yellow pages, or did you simply Google it?

It does not take much to get started.  If you don’t have a website already, and think you don’t have the means to create one, think again.  Check out this step by step guide on creating a blog.  It is simple, and with a little bit of time even the least tech savvy can create a professional looking site that is user friendly, fully controlled by you and able to get ranked in the search engines.  Pairing a blog with an Active Rain outside blog can be a great combination!

For those who do have a site, the next step is promotion.  For a basic guide on promoting a website, take a look at this free SEO report.  Choosing keywords, building content and creating links is all covered in a very straight forward manner.  This report can help you get started on the right track very quickly.

To round out our SEO resources, we also have a site that you can use to build backlinks.  The solutions provided here range from individual backlink building campaigns to full blown SEO solutions.  In addition, you can find a phone number under the “contact us” tab at the top, and are welcome to call for advice, questions or to have a custom package built specific to your needs.

To get ranked and found in the search engines does not have to be difficult nor expensive, it just has to be done!  Hopefully these tips and resources will give you the information you need to take your business to the next level, good luck!

It used to be that hard money did not take into account a borrowers debt to income ratio.  With the recent changes to lending regulations, however, even hard money loans require a debt to income ratio, or DTI, calculation to be made to ensure a borrower has the ability to repay a loan.

This is true for consumer lending on residential 1-4 unit properties.  In a nutshell, if you are going to live in the home or use the proceeds from the loan for consumer purposes, you must document your income and ensure you have the ability to repay the loan.  Even for hard money loans.

While a debt to income ratio must be calculated, there is not a hard and fast cap on what it must be when dealing with hard money.  Generally speaking, though, you will need a debt to income ratio of less than 50%.  This means a maximum of 50% of your gross monthly income is being spent on housing expenses and other monthly debt obligations.

While hard money is an alternative lending source for borrowers who cannot obtain conventional financing, it is not a “non-qualifying” money source these days, especially for consumer loans.  Just because a property has equity does not mean a hard money loan can be made for a borrower.  While debt to income ratios may not be in play for loans made for business or investment purposes, for any consumer loan you will be required to fully document your income and satisfy a debt to income requirement.

If you are able to document your income and satisfy a debt to income ratio requirement, hard money can provide an option that will allow the purchase of a home regardless of credit history.  This includes recent short sales and foreclosures, two events that often preclude a borrower from obtaining conventional financing for years following the incident.  

Feel free to contact me for more information on hard money loans or to discuss any questions you may have regarding your eligibility.