100% LTV Financing - The Myth Is True
In the world of real estate investing one thing is always true. The more properties you can buy the more money you can potentially make. Ok, you might think this inherently obvious, but many people don't realize this. Too many times when someone is looking to buy a property, or more to the point finance a property, they are always analyzing and concentrating on the wrong things. Home buyers are always on the hunt for the best rate. Ever since an investor was ever informed about financing they have always had one goal in mind; finding the lowest interest rate on planet earth. What they really should be doing is calculating how they can maximize their buying power so they can leverage their money to purchase more property. This mainly pertains to fix and flippers and rehabbers, but it resonates across the board in some ways as well.
Rate Doesn't Matter... "Say What????"
I am not here to tell you rate doesn't matter ... oh wait, that's exactly what I'm telling you. Now class, repeat after me, rate doesn't matter... good ... say it again, this time a little louder... RATE DOESN'T MATTER ... do you believe it yet? I bet you don't. The reason why I say rate doesn't matter is because if you're flipping this property than you're going to hold on to this property for what? 90 days? 120 days? Interest rates matters when you are holding on to it for 30 years and going to make 360 payments on a note throughout your lifetime. Your rate over 4 months? Come on now. Concentrate on what matters. It's not the current interest rates.
Wanna Play Real Estate Roulette?
Look, I'll admit it ok, if all things are equal in a given situation than rate does matter because you want to save as much money as possible. Yes we know, first rule of business is not how much you make it's how much you don't spend blah blah blah. Lower your bottom line and your profits will grow blah blah blah. Thank you Business 101. We all get the basic rules, but making your top priority be the saving of a few bucks you can can ruin literally ruin your investment strategy. What you call thrifty shopping, I call Real Estate Roulette.
One of the key things you need to do is work with someone that can deliver and that you trust. Real Estate financing is not something that a person can do well their first day on the job. It takes thousands of closed transactions to understand how to navigate the intricate details of the way everything works. If you find a lender you like, and they treat you well, then they are worth their weight in gold. I swear to god, especially if you find someone who can provide 100% financing otpions.
If you work with someone that you know and trust and he charges a rate of 10% you might be inclined to look around and shop for a better deal all because your Business 101 professor beat that into your head along with every advertisement during the refi boom. Now, let's say you find a guy that says he can do everything your trusted lender can do, but he can get you 8%. Wow, 2% savings, sounds great right? WRONG!!!! Over your 3-4 month period you may save a thousand dollars or so, but you just put your entire investment future into the hands of someone that you don't know and hasn't proved themselves. They are an empty promise on the other end of a telephone. He might be able to close at 8%, and he might not. Are you willing to gamble your investment away? You wanna play real-estate roulette? What if in the middle of the transaction he realizes he read his rate sheet wrong and he needs an extra 10% down payment that you don't have? Now you just wasted 2 weeks with this moron on a 17 day close and you now have to get an extension or walk away from the deal. If you were standing to profit $50,000 from your flip you have now just lost $50,000 because of your epic bragging rights quest of attempting to save 2% on an interest rate over the next 4 months. Nice work pal. I can tell you're not going to be investing too long.
ABCs: Always Be Closing
It's a cliché but ya gotta love Glengarry Glen Ross, even if you feel the language (get over it) is minorly offensive (If you don't know what I'm talking about then you must not be a salesman and go buy it now from Amazon). Always be closing. Alright now we're getting somewhere class. "Always Be Closing" means so much more than concentrating on working with people you trust so you can close. I literally mean you should always be closing. Your goal as a fixer and flipper should be to always be in escrow whether you're buying a new prospect or selling a recently remodeled fixer upper. You should always be in escrow.
All Cash Offers with Other People's Money
This is going to trigger your anxiety about having enough capital to go around. In order to invest you need capital, there is no doubt about it. However you don't need all cash for every single transaction. What you need to do is leverage the cash that you do have so you can maximize the amount of properties you can buy at any given time. You do this by utilizing and tapping into the wonderful world of Private Money. Private money is this somewhat obscure world in between hard money and your rich uncle Bob. If you can find the right private money lender out there then they are worth double their weight in gold.
Leverage is the #2 Priority
Chances are if you're looking to invest in properties than you should have some capital in which you plan to use for your investments. More than likely you don't have 2-10 million dollars lying around to buy every investment opportunity you see in straight cash. Now, if you go back to the train of thought of maximizing the profitability of a single transaction (from your business 101 professor) as being the top priority than you'll believe that buying a property all cash is what matters most. All cash means no lender fees, no interest rates etc... You can save money by purchasing a home all cash, but that limits you to only one or a few transactions.
Hypothetically let's say you have $125,000 you can invest. (please keep in mind I am oversimplifying this to make a point). Now you could purchase one property at $100,000, put $25,000 into it and then resell it for $155,000 giving you a $30,000 profit. Sounds pretty sweet right? You saved loan costs and you bought yourself a nice property and resold it for a nice profit.
Now, let's say you have the opportunity to buy 4 houses for $100,000 each + $25,000 each for the rehab. Well that stinks, you're $375,000 short. Change your way of thinking. Borrow 100% of the purchase price money from Private-Money-Loan.com for each home. Let's say it costs you $5,000 for each loan in rates and fees. Well, you resold each home for a $25,000 profit and made $100,000 in profits versus $30,000.
That is exactly why rate doesn't matter. If you're working with the right person that can deliver results than you will be able to buy more houses by leveraging your money with more aggressive programs. This will always yield you much better results and much more money.
100% Financing is the Holy Grail for fix and flippers
It is not easy to find 100% LTV financing, but it is out there. You just need to look in the right places for it. Concentrating your efforts on finding the maximum amount of leverage is going to be the biggest payoff for you in the long run. Utilizing other people's or a company's money will cost you more per transaction, but if you listen to Alec Baldwin and follow the ABCs then you'll be a much wealthier person than any "rate bragger" out there in the world.
Best of luck out there.
More about the writer: Steve Snyder has continually provided hard money and joint venture programsfor lots of property investors for upwards of Twelve years. Steve Snyder is the Founder of the firm Private-Money-Loan and provides excellent solutions for anyone around him.