HARD MONEY LOANS IN THE NEWS

It is not often we bring you press releases. However this one from respected prnewswire.com is worth quoting extensively as it explains what Arizona hard money lenders are doing to assist in the current times of need most people are enduring.

Quoted From The Article:

“During these trying times with COVID-19, Hard Money Lenders Arizona is working tirelessly to ensure accessibility and services to their Arizona base of clientele. In an effort to provide more offerings and assistance, they are expanding their loan programs to include commercial hard money loans to residents of Arizona as they may be running into funding challenges in the short term. A commercial hard money loan is dependent on the real estate assets the borrower has. Commercial hard money loans are also called “bridge loans”, “no-doc loans” or “private hard money loans” just to name a few. Loans from traditional lenders decide if a borrower is qualified based on their credit, financial statements, etc., while a commercial hard money loan is strictly based on assets the borrower has. This allows borrowers whose projects don’t necessarily meet the traditional guidelines of most banks and other lenders to receive funding from other reliable private lenders.”

“Potential to receive hard money lending in Arizona falls back on certain criteria including but not limited to credit history, insurability and/or ability to provide property collateral. The company has been built on the foundation and mindset that just because an individual may have a poor credit score does not mean that they should be incapable of receiving lending or financing for any and all real estate or business purposes. ”

“Hard Money Lenders loan programs are designed for Arizona real estate investment professionals and to help make the process of investment funding fast and easy. Their simple loan process enables clients to close purchases in as little as 3 business days. They work with investors buying REOs, short sales, real estate auctions, trustee sales, trustee sale refinances, private party, and even residential construction projects. Their programs focus on single-family residential properties (1-4 unit) all throughout the state of Arizona.”

Source: https://www.prnewswire.com/news-releases/hard-money-lenders-arizona-expanding-loan-programs-to-assist-during-time-of-need-301031830.html

AVOIDING NEGATIVE AMORTIZATION

The Consumer Financial Protection Bureau says: “Amortization means paying off a loan with regular payments, so that the amount you owe goes down with each payment. Negative amortization means that even when you pay, the amount you owe will still go up because you are not paying enough to cover the interest.”

How It Happens

Some borrowers experience negative amortization with an adjustable-rate mortgage (ARM). An ARM is a home loan with an interest rate that fluctuates based on consumer indexes. In order to protect borrowers from steep increases, some ARMs include a cap on your monthly payment. However, if rates rise enough, that maximum payment may not be enough to cover your monthly interest. When that happens, the unpaid interest is added to your principal, effectively increasing your loan balance rather than paying it down. This can lead to more issues for a borrower. If the housing market in your area experiences a downturn and your home value declines while your loan principal continues to increase, you may find yourself with an upside-down mortgage and that means you owe more money than the worth of your home.

HARD MONEY LOANS, ARIZONA AND COVID-19 IN THE NEWS

With COVID-19 so much in the news in Arizona, we thought we would share this news article regarding COVID-19 and hard money loans. The entire piece can be found here.

During these trying times with COVID-19, Hard Money Lenders Arizona is working tirelessly to ensure accessibility and services to their Arizona base of clientele. In an effort to provide more offerings and assistance, they are expanding their loan programs to include commercial hard money loans to residents of Arizona as they may be running into funding challenges in the short term. A commercial hard money loan is dependent on the real estate assets the borrower has. Commercial hard money loans are also called “bridge loans”, “no-doc loans” or “private hard money loans” just to name a few. Loans from traditional lenders decide if a borrower is qualified based on their credit, financial statements, etc., while a commercial hard money loan is strictly based on assets the borrower has. This allows borrowers whose projects don’t necessarily meet the traditional guidelines of most banks and other lenders to receive funding from other reliable private lenders.

Potential to receive hard money lending in Arizona falls back on certain criteria including but not limited to credit history, insurability and/or ability to provide property collateral. The company has been built on the foundation and mindset that just because an individual may have a poor credit score does not mean that they should be incapable of receiving lending or financing for any and all real estate or business purposes. All specialists employed with Barrett Financial Group are proficient in carrying this mentality out, in fast and efficient ways and provide customers with a plethora of knowledge on the above-mentioned loan programs.

Hard Money Lenders loan programs are designed for Arizona real estate investment professionals and to help make the process of investment funding fast and easy. Their simple loan process enables clients to close purchases in as little as 3 business days. They work with investors buying REOs, short sales, real estate auctions, trustee sales, trustee sale refinances, private party, and even residential construction projects. Their programs focus on single-family residential properties (1-4 unit) all throughout the state of Arizona and California.

WHAT IS A BRIDGE OR FIX AND FLIP LOAN?

Fix and flip loans—also known as a bridge loan, swing loan, or gap financing—are short-term loans that offer you with the working capital required to meet the quick financial undertakings of your fix and flip venture. These types of loans are usually for a twelve-month term or less and can be acquired in a couple of days. Like a lot of other kinds of property loans, backing is needed for an underwriter to back the loan. So, what’s interesting about bridge loans—and what makes it such a good alternative for those who are new to fix and flips—is that the backing may be the projected value of the flipped property. This may be structured in two distinctive ways: the amount based on how much you could borrow on the after repair value (ARV) or based on the loan to cost (LTC) ratio.

After Repair Value (ARV) Loans

ARV fix and flip loans are appropriate for properties that will increase considerably in value following the renovations as much as 50 to 100% on top of the purchased price. A lot of lenders cap ARV loans at between 65 and 70% of the property’s estimated ARV.

Let’s say the purchase price of the property is $100,000, and the renovation cost will be $50,000. The entire investment that will make this home available to market is $150,000. You have done your homework, and you’ve estimated you could sell the property for $200,000.

The lender will do their own research to decide if your investment estimations are accurate and your selling price is reasonable. Because their findings support your data, they agree to give you a loan that’s 65% of the ARV, equaling $130,000. Meaning you only need to put up $20,000, or in this instance, 10% of the ARV, on your own. If the property sells for $200,000, you have made a $50,000 profit.

Loan to Cost (LTC) Ratio Loans

Loan to cost ratio loans are suitable for properties that, while still anticipated to make a profit when they sell, are not estimated to sell at 50 to 100% profit margin. Dependent on the market, the lender might be ready to underwrite an investment and a rehabilitation LTC loan of 75 to 80%.

For instance, you have located a property that costs $125,000 and will require $45,000 to renovate. Your research shows you will be able to sell the property for $210,000 after the repairs. The lender offers you a loan of $127,500, meaning you’ll have to put up the rest of the $42,500 on your own. When you sell the renovated property for your asking price of $210,000, you’ll end up with a profit of $42,500.

Bridge Loan Rates

Depending on the kind of lender, no matter if it is hard money, private money, or a financial institution, rates may range considerably. The loans terms will also differ, so it is vital that investors look around until finding a lender that is appropriate for their individual requirements.

In the end, the kind of bridge loan you decide on becomes a matter of balance—meeting your fix and flip property’s requirements without exceeding your personal financial risk.

Financing For Fix and Flips

Brad Loans provides competitive financing alternatives for real estate investors interested in fix and flip projects. Get no interest on unused renovation funds, 100% financing on rehabilitation costs, and closings in in around 10 business days when applying for a Brand Loans Fix and Flip Loan.

IS A DOWN PAYMENT REQUIRED FOR HARD MONEY LOANS?

If you are wondering whether hard loans require a down payment, read on to learn more. The majority of hard money lenders out there do require a down payment. They’ll take a look at your credit score, experience, and maybe a few other factors, and then calculate your down payment from there. Most often, you’ll be required to front 20% to 30% of the deal. And it makes sense why they do this:

They’re taking a risk on you. They’re assuming that you’ll be able to pull off the flip and pay back the loan with interest within the time frame they’ve established. When you pay 20% – 30% up front, it lowers their risk. Each company has their own underwriting criteria to determine risk on a deal. If they see that you have experience and a good credit score, you’ll be able to pay less money up front.So your questions about down payments and hard money loans will have various answers depending upon the lender.

CALCULATING A BRIDGE LOAN?

Read on to learn more about calculating the cost of a bridge loan.

Rates will actually vary between lenders, but below is an average estimate for a bridge loan. The interest rate will fluctuate, but for this instance, we will use 8.5%. These types of bridge loans will not have payments for 4 months, but interest will build up and be due whenever the loan has been paid based on the sale of the old property. Below are sample fees:

• Title policy fee: $450 or more
• Recording fee: $65
• Notary fee: $40
• Escrow fee: $450
• Drawing/wire/courier fee: $75
• Appraisal fee: $475
• Administration fee: $850

Additionally, there will be a loan origination fee for the bridge loan that is based on the loan amount. Each point will be equal to 1%. Below are the average fees and they will vary.

• $100,000 – $150,000 = 0.75 point
• $150,000 – $250,000 = 1 point
• $25,000 – $100,000 = 0.50 point

HOW MUCH MONEY DO I NEED TO FLIP HOUSES?

To flip houses you will need enough money to cover the purchase cost, cost of repairs, carrying costs, marketing costs, and cost to sell the property.  How much you will need depends on how much repair is needed, where the property is, and the type of property.  The cost does average about 10% of the purchase price of a property.

Property Purchase Cost

The purchase cost includes more than just the price the property is sold for.  It also includes all of the other costs associated with purchasing the property.  These include closing cost, fees, title insurance, financing fees, and taxes.  Depending on how the seller is listing their home this may or may not include light fixtures, window treatments, and appliances.

The cost to purchase the property is simply how much the seller agrees to let it go for.  In the case this is a family home (single or multifamily) the structure and property will be included in the purchase price.  IN contract when co-op or condos are purchased the land is not generally part of the purchase price.

A good guideline for calculating what you should pay for a property is 70% of the value after repair subtracting the costs to rehabilitate.  That means if you’re looking at a property with a price of $100,000 you will offer $70,000 minus what you think it will cost to rehab the property.  It’s easier for beginners to choose properties that just need minor repairs such as new carpet and paint.  These rehab costs are easier to calculate.

Include The Closing Costs In Your Plan

Closing costs include property insurance, fees to the title company, title insurance, transfer taxes, and a portion of the property taxes.  It’s important to consider this as part of how much you will need to loan to flip a house.  Closing costs generally run about 5% of the purchase price of the property.  That means on that $100,000 dollar property you’d be looking at an extra $5,000.  So now you’d need to estimate $105,000 for how much you’d need to flip the house.

Property Rehabilitation Cost

How much it will cost to rehabilitate a house varies.  It goes without saying that the more the house needs to be sold the more it will cost and the longer it will take.  Include both the cost of labor and the materials needed to fix the problems with the property you’re considering.

Labor & Material Costs

Decide which items need to be rehabilitated to resell the property as a ready to live in “turnkey” property.  This will include the building materials, appliances, and all fees for delivery and installation.  If any of the items will need to be special ordered, work that into your timeline to ensure you borrow enough to cover carrying costs.

Most of your costs will fall into one of two categories, appliances and building materials. Carefully inspect the property’s appliances, HVAC system, floors, walls, hardware, paint, and tile.

How much you should budget for when it comes to labor is the cost for you or subcontractors to come and do the work.   Ensure you have a contracted amount before you authorize work from any specialized labor.  Most fix and flips will include services from landscapers, painters, plumbers, electricians, handymen, and if the project is big enough a general contractor.

Beginner Cosmetic Fix & Flip Costs

For the new fix and flipper it’s not a bad strategy to choose properties that only need cosmetic rehabilitation.  These fix and flips take less time which reduces the cost to carry the property.  In addition the labor and material costs are not as high.  The one downside is your purchase price is likely higher as the property is valued higher.

Common projects for cosmetic rehabs include, patching and painting walls, refinishing hardwood and replacing carpet, and taking care of remodeling in the bathroom and kitchen.  Cosmetic rehabs also typically include cleaning up the landscaping to bump up the curb appeal and value.

ROI For Cosmetic Fix & Flip

When you fix and flip a property that just needs some cosmetic repairs you should be shooting for about a 10% ROI.  An example of how that would look is if you purchase the property for $100,000 and put in $5,000 in cosmetic repairs your new sale price should be $105,000.  To calculate your ROI take the difference between your purchase price and your new rehabilitated value and divide it by your new value.  Then multiply that by 100 to get the percentage of ROI.

ROI For Moderate Fix & Flip

When you consider doing a moderate fix and flip it will include more involved repairs and upgrades that might require the hiring of licensed contractors.   While taking on properties that need more involved updates and repairs the potential ROI is attractive.

Examples of moderate repairs include: kitchen remodeling that replace countertops, appliances, lighting fixtures, along with bathroom remodeling, improving the landscaping and lastly painting the outside of the house.  You should be shooting for an ROI on this type of project in the range of about 18%.

ROI For Extensive Fix & Flips

Fix and flips that need more involved rehabilitation will require more time, more skilled labor, higher carrying costs, but do offer an opportunity to get the best ROI.  These properties typically have known larger issues that lower the value of the property.  This allows you to purchase at a lower cost and get better ROI for your efforts and investment.

Common rehabilitation projects include: fixing foundation cracks, adding bathrooms, adding more rooms, and putting in a garage.  You should be looking to get an ROI of about 23% or more for extensive fix and flip rehabilitation projects.

Cost To Own The Property

While you are rehabilitating the property there are costs of ownership.  These include the payments on the loan, insurance, utilities, and any property taxes.  These costs are generally paid monthly while you’re fixing and until you sell it.

Marketing & Sales Costs

There are costs to market, sell, and close when you’re done fixing and flipping the property.  You’ll need to decide if you’re going to market and sell the house yourself or if you will use a realtor.

Realtor Costs

Most real estate deals consist of the seller’s realtor and the buyer’s realtor.  Each of these realtors are typically paid by the seller.  While its customary for realtors to get 6%, any amount can be decided by the seller and realtor.   While this fee isn’t something paid out of pocket it should be expected and planned for as part of the settlement process.

Cost To Market The Property

When using a realtor the cost of marketing your fix and flip is minimal. However if you decide to purchase the property to yourself there will be some out of pocket costs.  The marketing approach may include some or all of the following: open houses, flyers, signs, and online posting.

These costs must be added into your carrying costs to have an overall picture.  Without the right marketing you may not sell your property quickly and increase your carrying costs.  The more people that are marketed the property you’ve fixed the higher chance you’ll sell it.