All Forum Posts by: Tamara Deering

I am going to throw in my own two cents here.  If you are a teacher, first responder, or first time home buyer start researching all of the down payment assistance, low income programs out there.  There are tons, especially for people who live in extremely heated housing markets.  Also, really hit the owner finance route.  Look at every rental on the market, specifically ones managed by the owners.  Look for the properties that have been on the market a long time and need some maintenance.  Then find out if the owner would be willing to seller finance.  Maybe you could fix up the property and use that as your down payment.  You probably won't find the barbie dream home this way but you will get into your first property and you will own it and you can go from there to leverage your next home.

I know that there are a lot more of us out there than people know about.  I am also the triumverate, investor, realtor and contractor.  I don't think that women are less likely to take risks, I do think that we are less likely to brag about them than our male counterparts.  As women we routinely, silently get a lot of stuff done all at the same time so it doesn't occur to us to tell people about it. Which is great because we are quietly getting 'er done and taking over the world while the boys are chatting about it.

Hello,

Don't shoot the messenger!!!  I want to share some feedback I just received from a major lender regarding a cash out refi of a hard money loan.  

In my day job working for a hard money lender, we issued a loan on a property that the borrower got a great deal on, so good it was very close to a no money out of pocket situation.  Everything went perfect for him, his contractors completed the job on time and under budget, the property is appreciating and he got it for a killer deal.  He decided that based on the price he paid and the location this property might be more profitable as a buy and hold rather than the flip he intended.  I looked at the numbers and looked at the long term hard money loan options available. The refinance looked like a slam dunk but it wasn't.

My lending partner said, sorry the fund managers are still gun shy from 2008, they really, really want the borrower to have some skin in the game in the form of actual cash money that they have put into the deal.  If there isn't cash they will lend on rate and term but only based on purchase price and money that was put into repair the property that is documented with receipts.  They will lend 70% of that amount. I was shocked, this isn't a bank, it is a hard money lender, they are supposed to incentivise under market purchases.  Here is the email he sent me to follow up on our conversation:

"Hi Tamara,

Just to follow up. If a borrower has less than 20% of their own cash into a property (as down payment, and/or rehab costs) then it won’t work for us.

If your guy put about $30k or so of his own money into that deal(down and/or rehab), we can get him cash out in May (6 mo for Hard money long term {borrower took out loan in November, 2019}). It’s the same model for all rehabber’s across the country for us.

If they know they’re keeping a property, it’s a good idea to steer them into putting more equity down, so that most refinances become easier with most lenders."

By the way this lender advertises "no seasoning", I sent it to a second wholesale lender with the same results.

I'm not posting this to deter you from the BRRR strategy, quite the opposite, BRRR is my second or third favorite investment strategy (live in flips and house hacking hold the top spots) but rather a warning to talk to your lender about your ultimate goal and verify your exit strategies before it's too late. Luckily for my borrower he still has 8 months left in his original hard money loan to figure out what to do next, imagine how frightening this would have been if he just started working on this in the last month of his loan.

Good luck and best wishes in your real estate investment adventures.

@Samuel Fletcher Hardy

An interest only note simply means that rather than paying down principal and interest each month you are only paying interest.  So to keep it simple $120,000 at 10% would be a payment of $1,000 a month if the lender is using a simple interest calculation.

Here's the quick dirt on hard money loans:

They will usually loan 75% of ARV some programs are higher some are lower buy 75% is normal. They will typically only offer purchase money up to 75% of the As Is Value of the property and some lenders will only loan 90% of the purchase price. So in the scenario you mentioned, let's assume that the As Is value of the property is $150,000 if a company will loan 75% of As Is value they would loan $112,500 or $108,000 if you could buy the property for $120,000 and they loan 90% of purchase price. Because the ARV is $300,000 you will probably be able to borrow the entire $65,000 in rehab costs but that amount would be put in a construction reserve account that you would "draw" as the work is completed. Your draw is just a request for reimbursement of work that has been completed. Hard money interest rates are all over the map right now and your rate will go up or down based on the criteria of the lender, typical factors include loan to value, cash in the deal, experience and credit score. I've seen rates from 7.5% to 13% with most people falling within the 9.5 - 11% range. You will also be charged origination fees with a hard money loan. Again these vary from 1 to 5% but most seem to end up in the 3% range. This is 3% of the loan amount and it is paid to the lender up front. Some lenders will allow you to finance the origination fee and closing costs, others want you to bring the fees to the table to close in addition to the down payment (the difference between the $112,500 or $108,000 loan amount and the $120,000 purchase price we mentioned earlier). These loans are short term in nature usually 6 to 12 months and most have a minimum number of months interest that they charge. If you can't pay off the note by refinancing into conventional financing or selling the property before the end of the term you may be able to extend the loan but there are additional fees involved. You will want to ask a lender for their rate sheet and talk to them about all of their fees. Don't work with a lender that charges a non-refundable application fee up front.

If you want to talk to me and get more information on the process feel free to PM me and we can set up a time to talk.

True private money usually does not involve an origination fee.

@Ujwal Velagapudi

If you check the market place on BP there are always a lot of people looking for financing.  I would check out the people who are local to you, check some of their posts on BP and see if they attend meet ups.  If you are going to lend money this directly you are definitely going to want to meet the people and see some of their projects. You may also be able to check people out on crowd funding sites but I still think you will want to get to know the person before you hand over $50 - $75K.  Another thought is that if you know or could meet local mortgage brokers they would be a good starting point, they usually have clients who don't meet the standard lending guidelines that you could help fund.

@Dylan Viola

Those indicators are predictors of market growth and they are used for speculation, they will help you determine the likelihood that an area will increase in value over time.  They are not the indicators that you would use to evaluate whether an investment is a good or a bad buy.

Government reports and indexes will provide the information you have asked for.  Zillow and Realtor.com have neighborhood demographic reports.  You can google any of the information that you are looking for and the information will appear. Investors use all sorts of crystal balls to determine whether an area is appreciating or depreciating, one of my favorites is the Starbucks or Trader Joes indicator.  The theory is that these are retailers who spend a ton of money identifying where future growth will support their sales targets so if you invest where they are going to build then there is a good chance for property appreciation.

As for what investors look for to decide if a project is a good buy vs. a bad buy it is all done by comparing an individual opportunity to past performance and expected performance of an asset. In the single family and small multi-family rental space this is done by determining how much cash flow a property is going to produce and how that compares to other properties in the same market. In the larger multifamily and commercial rental space the key indicators are NOI, Cash on Cash Returns, Cap Rate, etc.

For flips and BRRRR's the key indicators that investors look for are what comparable properties have sold for in the past 90 days or so less than 1/2 mile from the property they are looking for the likely potential profit of a property in the next 30 to 60 days not long term growth predictions.

If after factoring in all of your expenses and the cost of money that you can access the investment still satisfies your goals then by all means buy the property.  In the historic view of interest rates, 7% is very low.  In the 80's conventional rates were somewhere around 13% in the 90's/00's it was normal to pay 13-14% plus points for hard money.  

@Naresh Hinduja

In real estate investing leverage is your biggest tool.  If you have enough equity in your existing properties borrowing against that equity makes sense.  However, without knowing why your partner is hesitant to use this strategy it's hard to put up a compelling argument.  My guess is that this partner wants to maximize cash flow and minimize debt.  This is a conservative strategy but it makes a lot of sense if he wishes to protect his existing investments rather than incur a higher risk for a larger reward.

To invest directly with most asset based lenders you will need to be an accredited investor.  You can finance short term loans directly to individuals you know but ensure you have a good real estate attorney draw up the contracts so you are protected.  One area that seems to have a funding gap is hard money loans under 75k.  If you were willing to play in this space I'm sure you would have a lot of options.  Finally, I think your idea of buying  performing notes with short windows remaining is a good one.  One final piece of advice, contact your tax advisor or financial planner about the best strategies for short term investments so you don't undermine all of the work that you have done to achieve so much with your real estate business.

@Dylan Viola

The usual suspects Zillow and Realtor.com will let you know what's for sale for what price in your area.  Once you decide what type of property you are looking for put it your criteria in one of those two portals and see what pops up.  Identify a neighborhood that has the highest number of properties that meet your criteria and go for a drive.  Check the neighborhood out at all times of the day and increasingly widen your search until you have a good sense of a market area to focus on.  Once you have that information in hand along with a solid understanding of your budget and your ability to be financed contact a good Realtor to help you refine your search and send you listings as they come on the market or the price changes.