All Forum Posts by: Drago Stanimirovic

Hi Ramdi,

Great to see you're exploring private money lending as a financing option→ it's a smart move, especially if you're looking to scale while conserving your own capital. Here are some common structures and terms that have worked well for both private lenders and borrowers in real estate, particularly for those focusing on single-family homes (SFH) and multifamily (MF) properties like you're considering in Philly's B Class areas.

1. Flat % Monthly Returns

This is one of the most straightforward approaches:

• How it works: The lender receives a fixed percentage return each month, typically calculated based on the amount of capital they’ve provided.
• Typical terms: Rates can range from 8% to 12% annually, broken down monthly (e.g., a 10% annual return would pay the lender about 0.83% monthly).
• Advantages:
• For the lender, it’s predictable cash flow.
• For you, it’s easy to project and budget.
• Challenges: You’re responsible for making payments whether or not the project is profitable, which can create pressure if cash flow issues arise during the project.

2. Equity in the Deal

Offering equity instead of—or in addition to—interest is another popular structure, especially if you need flexibility on cash flow.

• How it works: Instead of fixed payments, the lender gets a percentage of ownership in the property or the project. This is especially useful if you’re unable to make monthly payments or prefer to reinvest funds into the project.
• Typical terms: Lenders might get 10% to 30% equity, depending on how much capital they provide and the project’s risk level.
• Advantages:
• No monthly payments, which relieves immediate cash flow pressure.
• Lenders are motivated to see the project succeed since they’ll benefit from the upside.
• Challenges: You’re giving up a piece of your long-term profits, and if the project goes exceedingly well, the lender benefits significantly. It’s important to strike a balance here.

3. Lump-Sum Return After Project Completion

This is a more flexible structure, especially for short-term projects like flips or renovations.

• How it works: The lender gets their principal plus a lump-sum return after the property is sold or refinanced.
• Typical terms: A set percentage return (e.g., 10% to 15% of the capital invested), which is paid upon project completion. For a 6-12 month project, this could be a good fit.
• Advantages:
• No monthly payments, so all your capital stays in the project.
• Lender gets a sizable return at the end, making it appealing for shorter-term investments.
• Challenges: It requires you to ensure a profitable exit strategy, as you’ll need to have funds ready at the completion to pay the lender in full.

4. Hybrid Structures

You can also blend some of these terms to create more flexibility:

• Monthly Interest + Lump Sum: You could pay a reduced monthly interest rate (e.g., 5%) and offer a lump-sum bonus (e.g., 3-5%) at project completion.
• Equity + Profit Share: Lenders get equity in the project, but rather than full ownership, they receive a share of the profits when the project is completed.

Key Elements to Include in Your Proposals:

• Clear ROI: Make sure to outline the lender's return clearly. For example, if you're offering a 10% annual return, show them how that breaks down over time.
• Project Timeline: Be clear about how long the project will take and when they can expect returns.
• Exit Strategy: Have a well-defined exit strategy (e.g., sale, refinance), so the lender knows how you plan to repay them.
• Risk Mitigation: Highlight how you’ll mitigate risks, whether through market research, contractor selection, or conservative estimates.

Philly B Class Areas:

Since you're targeting B Class areas, which typically have stable rental demand but may need some renovations, a structure that combines monthly interest with a lump sum at the end may appeal to lenders. These neighborhoods are usually less risky than C Class areas, but showing solid comps, market trends, and your plan for value-add improvements will boost lender confidence.

If you need any help with financing options, structuring deals, or putting together proposals, feel free to reach out→ I'd be happy to assist!

Best,

Drago

Hi Ramdi,

Great to see you're exploring private money lending as a financing option→ it's a smart move, especially if you're looking to scale while conserving your own capital. Here are some common structures and terms that have worked well for both private lenders and borrowers in real estate, particularly for those focusing on single-family homes (SFH) and multifamily (MF) properties like you're considering in Philly's B Class areas.

1. Flat % Monthly Returns

This is one of the most straightforward approaches:

• How it works: The lender receives a fixed percentage return each month, typically calculated based on the amount of capital they’ve provided.
• Typical terms: Rates can range from 8% to 12% annually, broken down monthly (e.g., a 10% annual return would pay the lender about 0.83% monthly).
• Advantages:
• For the lender, it’s predictable cash flow.
• For you, it’s easy to project and budget.
• Challenges: You’re responsible for making payments whether or not the project is profitable, which can create pressure if cash flow issues arise during the project.

2. Equity in the Deal

Offering equity instead of—or in addition to—interest is another popular structure, especially if you need flexibility on cash flow.

• How it works: Instead of fixed payments, the lender gets a percentage of ownership in the property or the project. This is especially useful if you’re unable to make monthly payments or prefer to reinvest funds into the project.
• Typical terms: Lenders might get 10% to 30% equity, depending on how much capital they provide and the project’s risk level.
• Advantages:
• No monthly payments, which relieves immediate cash flow pressure.
• Lenders are motivated to see the project succeed since they’ll benefit from the upside.
• Challenges: You’re giving up a piece of your long-term profits, and if the project goes exceedingly well, the lender benefits significantly. It’s important to strike a balance here.

3. Lump-Sum Return After Project Completion

This is a more flexible structure, especially for short-term projects like flips or renovations.

• How it works: The lender gets their principal plus a lump-sum return after the property is sold or refinanced.
• Typical terms: A set percentage return (e.g., 10% to 15% of the capital invested), which is paid upon project completion. For a 6-12 month project, this could be a good fit.
• Advantages:
• No monthly payments, so all your capital stays in the project.
• Lender gets a sizable return at the end, making it appealing for shorter-term investments.
• Challenges: It requires you to ensure a profitable exit strategy, as you’ll need to have funds ready at the completion to pay the lender in full.

4. Hybrid Structures

You can also blend some of these terms to create more flexibility:

• Monthly Interest + Lump Sum: You could pay a reduced monthly interest rate (e.g., 5%) and offer a lump-sum bonus (e.g., 3-5%) at project completion.
• Equity + Profit Share: Lenders get equity in the project, but rather than full ownership, they receive a share of the profits when the project is completed.

Key Elements to Include in Your Proposals:

• Clear ROI: Make sure to outline the lender's return clearly. For example, if you're offering a 10% annual return, show them how that breaks down over time.
• Project Timeline: Be clear about how long the project will take and when they can expect returns.
• Exit Strategy: Have a well-defined exit strategy (e.g., sale, refinance), so the lender knows how you plan to repay them.
• Risk Mitigation: Highlight how you’ll mitigate risks, whether through market research, contractor selection, or conservative estimates.

Philly B Class Areas:

Since you're targeting B Class areas, which typically have stable rental demand but may need some renovations, a structure that combines monthly interest with a lump sum at the end may appeal to lenders. These neighborhoods are usually less risky than C Class areas, but showing solid comps, market trends, and your plan for value-add improvements will boost lender confidence.

If you need any help with financing options, structuring deals, or putting together proposals, feel free to reach out→ I'd be happy to assist!

Best,

Drago

Hi Tim,

It's great that you're considering real estate investing, especially with your focus on condos in Conway, SC, and Titusville/Melbourne, FL! You've identified some attractive factors in these markets, but your concerns about distance and time management with your dental practice are important to consider. Here’s some advice to help guide you:

1. Proximity and First-Time Investing:

Your friends are onto something when they suggest starting locally. Properties within driving distance offer several advantages:

• Hands-on management: You can personally handle issues like maintenance, repairs, and tenant interactions, which is invaluable when you're learning the ins and outs of rental management.
• Cost efficiency: Without needing to rely on a property manager from the start, you’ll save on fees.
• Faster response time: Being local means you're close enough to address emergencies or inspect the property as needed.

Starting with a nearby property often leads to a smoother learning experience. Once you’ve gained confidence, expanding into out-of-state markets becomes easier.

2. Pros and Cons of Out-of-State Properties:

If you're still considering Conway, SC, or Florida, here’s a balanced take:

• Pros:
  • Lower entry costs: As you mentioned, condos in these areas are more affordable than in Akron, which might allow you to get better value for your money.
  • Potentially higher rental income: Higher rents in these markets could result in better cash flow, especially if you get a good deal.
  • Less competition: If properties are sitting on the market longer, you may be able to negotiate favorable terms.
• Cons:
  • Management complexity: Being far away makes it harder to oversee the property. You’ll likely need a property management company, which adds to your expenses.
  • Increased risk: Without local knowledge, you might overlook neighborhood trends or property issues, which can be harder to evaluate from a distance.

3. Property Management Consideration:

If you choose to invest out-of-state, hiring a property management company is almost essential. They’ll handle everything from tenant screening to maintenance, allowing you to stay focused on your practice. However, this comes with a cost—usually around 8-12% of monthly rent. For a busy professional like yourself, this could be worth the investment, but it’s an added factor to consider.

4. Market Research is Key:

Whether you’re buying close to home or out of state, in-depth market research is crucial. For Conway and Titusville/Melbourne, focus on:

• Occupancy rates: Check how full local rental units are—this will give you an idea of demand.
• Rent trends: Ensure rental rates are stable or increasing.
• Local economy: Are jobs, population, and amenities growing or declining? Florida, for example, is popular with retirees and seasonal renters, which could influence your rental strategy.

5. Financing Options:

Since this is your first rental, you’ll want to explore financing strategies. If you’re purchasing an investment property, lenders typically require a 20-25% down payment and higher interest rates than for a primary residence. However, if the property is located far enough from your primary home, you might qualify for a second home mortgage, which has lower down payment requirements.

At CTF Funding, we specialize in helping investors secure the best financing options. We can guide you through various loan types and help you choose what works best for your situation.

To sum up:

While starting with a local rental might give you more control and reduce potential headaches, there’s no harm in exploring out-of-state opportunities as long as you’re prepared for the management challenges. If you decide to go out of state, having a good property management company is crucial.

Feel free to reach out if you’d like assistance with financing or have any more questions!

Thanks Willis!

I think it would be beneficial to research the local market and buyer demographics. Here's what I would do:

Know Your Target Buyer: Is the neighborhood attracting first-time homebuyers, luxury buyers, or families? First-time buyers may appreciate modern, budget-friendly finishes, while higher-end buyers might expect premium materials like quartz countertops or custom cabinetry.

1. Study Local Listings: Look at recently sold homes in the area, particularly those at the top of your price range. Pay attention to the kitchen styles and finishes they feature—this will give you a sense of what buyers are responding to.
2. Focus on Timeless vs. Trendy: In most cases, a modern, clean look with neutral color schemes (like white or gray cabinetry) tends to have the broadest appeal. Sleek, stainless-steel appliances and durable, easy-to-maintain materials like quartz or granite are always safe bets. Trendy materials (like bold backsplashes) are best used sparingly.
3. Cost-Effective Upgrades: A fresh coat of paint on cabinets, new hardware, or upgraded lighting can make a big difference without a huge investment. Open shelving is also an affordable way to add a trendy, airy feel without a complete overhaul.
4. Energy Efficiency: In many cases, energy-efficient appliances can add significant value and appeal, especially with eco-conscious buyers.

In terms of consistent winners, I've found that shaker-style cabinets, subway tile backsplashes, and quartz countertops perform very well across different price points. These are materials that feel both modern and timeless, making them a great long-term investment.

If you ever need help financing your next flip or have more questions about remodeling for resale, feel free to reach out!

Great question Willis! 

One of the highest ROI renovations in fix-and-flip projects is kitchen remodeling. Buyers tend to focus on the kitchen, and updating it can drastically increase your home's appeal and value. But here's the key: it doesn't have to be a full, high-end renovation to make a big impact.

Tips to maximize ROI on a kitchen remodel:

• Focus on cosmetic upgrades: refinish or paint cabinets, add modern hardware, replace countertops with affordable yet attractive materials like quartz.
• Upgrade appliances to energy-efficient models if needed, but don’t over-splurge on luxury brands.
• Install new lighting fixtures and update backsplashes for a fresh, modern look.

Typically, a well-executed kitchen remodel offers a strong return on investment, usually 70-80%, sometimes more depending on the market.

If you're thinking about financing for your flip or want more specific ideas on where to spend wisely, I will be happy to help.

Regards,

Drago

Hey Charlice, 

welcome to the world of fix-and-flip! Here are some challenges that first-timers often encounter:

1. Time Creep: Renovations often take longer than expected. Issues like contractor delays, supply shortages, or unforeseen repairs can extend your timeline, which adds to your holding costs (mortgage, utilities, etc.).
   • Tip: Factor in extra time for delays and have a backup plan to stay on track.
2. Over-Renovating: Many new investors fall into the trap of over-improving a property, especially when they try to bring in their own taste. It’s tempting, but not always profitable.
   • Tip: Stick to improvements that will boost value based on the neighborhood, and avoid unnecessary upgrades.
3. Buyer Preferences: Sometimes, the design or finishes you chose don't match what buyers in that market are looking for. It’s easy to misjudge what sells.
   • Tip: Research the local market and talk to real estate agents about what buyers in that area really want.
4. Financing Hiccups: Securing funding for a fix-and-flip can be tricky. Some investors find that their financing falls through mid-project, or they didn’t budget for unexpected costs.
   • Tip: Always have your financing lined up and know the loan terms inside and out. Hard money loans, for instance, might be an option, but make sure to factor in interest rates and timelines.
5. Exit Strategy Uncertainty: You might not be able to sell as quickly as you planned, or for the price you had in mind.
   • Tip: Have a backup exit strategy, such as renting the property short-term until the market improves.

If you’re looking for advice on financing your next project, I’d be happy to help with that or answer any other questions you might have!

Best regards,

Drago

Hi Masyn,

You've made a great breakdown of the key strategies to make small multifamily properties (2-4 units) work in today's market. I agree with all your points, and I'll add some additional thoughts that might help.

5. Value-Add Opportunities

If you're able to buy a property that needs some renovation or cosmetic upgrades, you can increase rents after making improvements. This "forced appreciation" helps boost the property's value, leading to better cash flow or equity you can leverage down the line. It may also make your property more attractive for refinancing at a lower rate or selling at a profit.

6. Partnerships or Syndications

Partnering with other investors could help with the down payment and lower your financial risk. In return, you split the profits. You may find a partner who is more willing to put in a larger capital injection if they get a better CoC return or equity stake. This can help you get into a property that otherwise would be too capital-intensive for a single investor.

7. Government Programs and Subsidies

You might qualify for programs that offer incentives, especially if you're investing in areas targeted for development or revitalization. For example, FHA loans allow you to buy a multifamily property with as little as 3.5% down if you're living in one of the units. Some areas may also offer tax incentives or grants for certain kinds of development, lowering your overall costs.

8. Rent-by-the-Room (Long-Term)

If local regulations allow it, renting out units by the room might generate more income than traditional long-term leases. This can be particularly appealing in areas with a strong demand for affordable housing or student populations.

9. Creative Financing Structures

There’s also the possibility of lease-option or lease-purchase agreements, which allow you to control a property now and buy later, often with part of the rent going toward the down payment. While not as common, these deals are possible in unique situations, especially with motivated sellers.

In this high-interest, low-inventory market, it's all about getting creative while managing your risk and time commitment. If you're planning to expand into this space, we at CTF Funding can help explore financing options tailored to your needs. Let me know if you'd like to discuss your strategy further!

Hey Shai,

When it comes to the fix-and-flip strategy, schools might not seem like a top priority, but they can actually play a bigger role than you’d think! Here's why:

1. Resale Value Boost: Even if your buyers don’t have kids, properties near good schools tend to attract more buyers overall. People see those areas as stable and family-friendly, which can push up the value.
2. Wider Buyer Pool: If you're targeting families, schools are huge. Families will often pay a premium for homes in a good school district, meaning a higher resale price for your flip. Plus, houses near good schools tend to move faster on the market because demand is higher.
3. Neighborhood Appeal: Good schools usually mean better neighborhoods, less crime, and more community involvement, all of which help raise the perceived value of the area. Even non-family buyers consider this when they think about long-term property value.
4. Long-Term Marketability: Even if your target buyer for the flip isn’t directly interested in schools, future buyers might be. Good school districts make for better long-term investments, so it’s something to keep in mind when choosing a property.

So while schools might not be your number one factor when flipping, they can definitely help increase the speed of sale and final profit. It’s worth checking out!

Best,
Drago

Hey Jennifer,

Sounds like you're uncovering some juicy details in your property hunt! Tenant issues can be a headache, but here are some creative ways to handle them:

1. Evicting the Smoky Late-Payer

This tenant sounds like they’re giving you more ash than cash. Since they’re on a month-to-month, you’ve got options:

• The Polite Kick-Out: Send them a polite “non-renewal” notice—basically saying, “Thanks, but no thanks!” Check your local laws, but 30-60 days' notice should do the trick.
• Cash for Keys: Offer them some cash to move out faster (I know, paying them to leave seems backward, but it works). Sometimes a little incentive can make them leave peacefully.
• Raise the Roof (Rent, that is): If local laws allow, crank up the rent to make them consider greener pastures. Smokers tend not to stick around when things get too expensive!

Just make sure to stay within the law so you don’t get stuck in a sticky situation.

2. Bringing the $750 Tenant to the Real World

As for your tenant enjoying their $750-a-month sweet deal, it's time for a gentle reality check. You could go with:

• Step-by-Step Increase: Let them know the rent will be going up gradually, maybe $100 every 6 months, until they’re paying fair market value. This way, it’s not a shock, and they’re more likely to stick around.
• Market Update: Let them know the neighborhood is changing, and so is the rent (to $1,100). Give them proper notice, keep it friendly, and explain it’s all about fairness to match market rates.

A little empathy goes a long way—help them understand the rising costs, and they might just thank you for it (okay, maybe not thank you, but they’ll get it!).

Best of luck, and here’s hoping you turn that property into a smooth-running investment!

Cheers,
Drago

Hey Jerry,

Congrats on taking the steps toward purchasing a rental property! With excellent credit (800+), you're already in a great position, but I understand the struggle with DTI when you're self-employed.

Here are a few options that might help:

1. Asset-Based Lenders: You're on the right track with DSCR loans, but you may find some private lenders or portfolio lenders willing to go into the high 6's. Sometimes, local credit unions or smaller regional banks can offer more competitive rates, especially for strong profiles like yours. They may focus more on the property's income and your assets rather than your personal DTI.
2. Negotiate with Existing Lenders: It’s always worth a shot to negotiate with the lenders who pre-approved you. With your excellent credit and a solid down payment, they may be open to adjusting their rate, especially if they know you’re shopping around.
3. Explore Non-Traditional Lenders: Some private or hard money lenders could offer lower rates for DSCR loans, particularly if the property cash flows well. A good DSCR ratio often gives you leverage.
4. Interest-Only Loan Options: Some lenders offer interest-only loans for investors, which can keep your payments lower in the short term. While not always ideal long-term, this can help secure a lower rate while you focus on cash flow.

If you need any lender recommendations or want to explore further options, feel free to reach out. Best of luck in securing that rental property!

Best,
Drago