All Forum Posts by: Tamara Deering

@Randy Brown

As a Realtor® I want to know what type of property you are looking for, Single Family, Multifamily or Commercial. I also want to know how many bedrooms and bathrooms the property must have.  The neighborhood or type of neighborhood you want the property to be in. What you intend to do with the property hold or flip and who you are planning to sell or rent it to. How much cash you have to put into a deal and what financing you have in place or are planning on using. How much profit or cash flow you expect to earn.  

I try not to work with investors who tell me they want any property that makes money that isn't an answer, if you can't define what you are looking for fairly quickly I will move on to a buyer who does.

I apologize.  I can't get the formatting right.  Number 1 is not a number it's the introduction.

1. If you are new to borrowing money to fund your investments here are some terms that mortgage brokers and lenders commonly throw around without any explanation.  I did not list them in any particular order.  If there are other terms you are unfamiliar with or you didn't know about when you first started borrowing money please respond to this post so we can help out our new investors.
2. Rate - This is the interest rate that you will pay for the privilege of borrowing money, expressed a percentage.
3. Points - A point is 1 percent of the loan.  Typically points will be used when discussing the origination fee or the discount rate.
4. Origination Fee - this is the amount the lender charges to underwrite the mortgage (also called a note).  If you use a mortgage broker they may charge a fee as well as the lender. You may be able to get a lower origination fee by going directly to the lender but you will need to do more work to compare rates.
5. Discount Rate - Some lenders, mainly conventional lenders rather than asset based lenders, will offer a discount rate or fee to reduce the interest rate. For example, you will be quoted a rate of 5.75% with no fees but 4.9% with a 1.5 point discount rate. Whether or not it makes sense to pay a higher fee for less interest depends on several factors but mainly if you are going to keep the mortgage in place long enough to cover the fee.
6. LTC - Loan to cost, this is the ratio between the purchase price of a property and the loan amount.  If the purchase price of a property is $100,000 and your loan is $80,000 the LTC is 80%.  Divide the loan amount by the purchase price (cost) to determine your LTC.  Sometimes lenders will restrict the LTC to ensure you have some of your own money in the deal.
7. LTV - Loan to value, this is the ratio between the current market value of the property and the loan amount. Current market value is determined by an appraisal or a broker's price opinions. Some lenders refer to current market value as the As-Is value. Most lenders will limit the amount they will loan to a certain percentage of value. To calculate LTV divide the current market value of the property by the loan amount. If the current market value of a property is $120,000 and the required loan amount is $80,000 your LTC is 67%. IMPORTANT: Some lenders use LTC and won't offer 100% financing other lenders use LTV and if the deal is good enough you can get 100% financing.
8. ARV - As repaired value, this is the amount the property will be worth after you complete the repairs and upgrades to the property. ARV is determined by an appraisal or a broker's price opinion. Your construction budget influences the ARV so be as detailed as you can with your list of repairs and your level of finishes. Your lender uses the ARV to determine amount of construction repairs they will fund. Note: If your ARV is based on installing granite countertops and you install laminate you may not receive your entire budgeted amount when you submit for your draw. A good rule of thumb to follow if you are borrowing construction funds is that you can always go up on your finish level but you can't go down.

@Charisse Patterson

You didn't mention what type of buy and hold property you are looking for but if it is a 1-4 family property I would definitely work with an agent.  The seller pays the commission so it won't cost you anything out of pocket to use a buyer's agent.  Also, if you see a home on an auction site you will still need an agent to put in the offer, if you use the seller's agent they work for the seller not you but they will still get the buyer's side commission.  

You should also start lining up lenders, you need to decide what type of financing you are going to use, conventional or asset based. Many of the asset based (hard money) lenders require you to have an LLC so I don't think you did that out of order.

Finally, yes you should open a bank account in the LLC's name and maybe set up a very rudimentary book-keeping system to track your expenses. The LLC will have operating expenses that will be separate from property acquisition and you want to set up a system to track expenses in order to make your tax preparation easier. I know this seems like it's putting the cart before the horse but trust me on this - it's easier to set up a system with only a few transactions than to try and put one in place in the midst of a project or worse after it's done.

@Aaron Bihl

I'm glad you were able to persevere and get done.  I had 300 feet of copper service wire stolen the day I put a house on the market but nothing quite as dramatic as what you experienced.  Do you use a security alarm and does it help?

@Bernie Granier

I think that this is one of those times that your best bet, after you have listened to podcasts and got a feel for the risks and rewards of private lending, may be to find a real estate attorney and talk to them about the paperwork they recommend and how much they will charge to draw it up.  Essentially you are loaning money for a property so in addition to the promissory note and deed of trust paper work you want to think about how you are going to protect the investment itself.  Most (if not all) hard money lenders require that the borrower insures the property and names the lender as an insured.  You will also want to think about how you are going to collect the payments, are you going to do interest only and collect monthly or are you going to write the interest into the note and collect it when the property sells?  Also, what actions will you take if the borrower is unable to pay off the note at the agreed upon time, (foreclosure, default interest rate)?  Considering things like this will make your conversation with the attorney much more productive.

@Diana Frasier

I agree with @Brandon Miller, there could very well be foundation issues if not now then sometime in the future.  Bring out a foundation contractor and get an inspection done, if for no other reason than to give you information for you cap ex budget.  Besides, if there is some shifting going on it could strengthen your bargaining position, the seller may even pay at closing and you can get a lifetime warranty on the foundation repair.

@Mike Lambert

I realize I can buy properties in Europe but it is infinitely more complicated, taxes, foreign investment rules and restrictions, and needing more cash than I have makes it an option that I would love to explore but it's not in the cards for me at this time.

@Wade Currie

Typically an ADU is considered part of the main dwelling for mortgage and insurance purposes. I have one on my property that my parents live in and my insurance company covers it just like another out building. You should have no problem getting financed. Talk to your mortgage broker and describe the property they will let you know what sort of financing options you have.

@Mark Thomas

I have used them, they are great but expensive.  What I like is that you can use their calculator and print pre-qual letters yourself anytime you want, they loan in a lot of states and the approval process is straight forward.  What I dislike is that they are expensive and pretty stringent with their guidelines for rehabs.  I would recommend looking for local hard money lenders first then if you strike out their see what DHM can do for you.  Don't sign up for their $2,000 package though.