Dennis Dahlberg - It Can't Get Better Than This!

Monday, February 11, 2019

Becoming a Good House Flipper

You’ve heard all seen it all over television—buy a distressed house and turn it into a valuable piece of property. All the while turning quite the handsome profit. But, what exactly is house flipping and how can you become a house flipper?

HGTV makes it look so simple. You simply find a distressed house—which is relatively inexpensive, get a loan, put the work in and tah dah— you turn a huge profit— and become a house flipper In reality, becoming a house flipper—a successful one— isn’t quite that simple. As with any huge potential, it comes with risk. But, if you truly understand the steps, enjoy the process and put the time in you will be a success.

Last year, while I was at a convention, I met Steven. Steven had been selling real estate for about 15 years. He had done well, but hadn’t reached the financial goals he had set for himself. However, while working as a realtor, he had learned about home renovation. At that time he was working with investors that were flipping houses. He figured he would give it a shot. He found a perfect property and went straight to the bank. The problem was he had shaky credit. The bank turned him down. But, he was on a mission—and he refused to let the bank crush his brilliant idea.

THE BEST LENDERS FOR BAD CREDIT

After some research, he found that a hard money lender would work best in his situation. Although, he had never worked a deal that included a hard money lender, he gave it a go.

Hard money lenders offer loans for flippers on different terms than banks. These loans are specifically designed for people who don’t have great credit but need money to renovate a property. They are short-term loans that typically need to be repaid with one to three years and is secured by real estate. Some lenders will require a down payment, but there are lenders that will fund 100% of the property cost. Generally, at the end of the loan terms a borrower can refinance with a traditional loan if necessary.

So, Steven did his research. He spoke to agents and brokers in his profession. He found a hard money lender that would give him an 7.99% interest rate upon approval. Before speaking with the lender, he created a clear financial plan for his project. When he went to his meeting, he brought along the last 3 years of his tax returns, his 1099’s and his bank statements. Steven asked questions and the lender reassured while explaining the loan terms. He was approved in less than 24 hours and his funds were available the next week.

Hard money loans will benefit a house flipper

Generally, these loans have lower qualifications for approval. House flippers will typically be in competition with all cash buyers and they will need approval and funding quickly. Depending on the lender and the borrower available financing can be up to 100%, but more typically it is up to 90% of loan-to-value; and loan terms are shorter—usually between 1-3 years. It may not be as simple as HGTV’s Desert Flippers, but with the right lender it will be a very smooth process.

Dennis Dahlber Broker Ri CEO Level 4 Funding LLC Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters and 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

How to Finance an Airbnb Loan

It’s the new fad—Airbnb. Hotels and motels are trending out and Airbnbs are in. Don’t miss out on creating a handsome profit with a vacation home.

Sarah and Jim Nelson had finally retired. They had looked forward to traveling the world, to spoiling their grandchildren and to enjoying the rest of their lives. Unfortunately, they had both spent their professional careers as teachers. Their state pension met their living expenses; they would be able to pay their bills and live close to their pre-retirement standard of living. Their mortgage was reasonable, and they had thoughts of selling their home that had tripled in value. But, they loved their home and they didn’t want to give it up. Thoughts of starting a small business had been an option until they realized opening up a tutoring business was about the only thing, they were confident in running. After over 25 years of teaching that was the last thing, they wanted to do the rest of their lives. They wanted to have fun and feel free after years of a regimen of predictability.

EAGER TO FINANCE AN AIRBNB LOAN

As soon as school had let out on that final school day, for the Nelson’s, they took off to the wine country of Napa Valley, California. They thought they would try something new; and so they stayed at an Airbnb. Their children had recently skipped the sameness of hotels and motels and begun staying at Airbnbs when they traveled. So, mom and dad followed suit. It was fabulous. They spent a little more than they had previously on hotels and ended up in a 2 bedroom 2 bathroom condo in the heart of the wine country.

Sarah and Jim began discussing buying another home in Santa Barbara, where they resided. Their thoughts were on simply buying a small condo and renting it out as all these other people had done. How hard could it be? They knew they would make enough to make the mortgage—at least to start—and the sky would be the limit. As soon as they arrived home they went to the bank to discuss a second home.

Their dreams were immediately crushed. They were informed that their options for buying a house to start an Airbnb were impossible. Because they already had a mortgage on their primary residence they had only two options: a second-home loan and a non-owner occupied loan. On a second-home loan they would be defaulting on the loan terms if they ever rented it out. And, a non-owner occupied loan would require a 33% down payment. Neither of these options would work for the Nelsons.

Finance an Airbnb loan and reap the benefits

The Nelsons started hearing about hard money lenders. They had heard of them before, but knew nothing about the process. Hard money lenders are private money lenders. What this meant for the Nelsons was that they could take a loan out for very little down because the hard money lenders were aware of the demand for Airbnbs in Santa Barbara and felt confident giving the retired couple the loan. They found a beautiful property and brought the details to the lender. Along with that the lender needed: a Note, a Deed of Trust (of their asset), the last 3 years of their tax returns, proof of income, and proof they had access to sufficient cash to preform proposed property renovations. Their lender worked with them and made it possible to turn their retirement dreams into a reality. Today the Nelsons own four Airbnbs and are traveling the world, spoiling their grand children and enjoying their freedom!

Sunday, February 10, 2019

The Real Deal with Hard Money Lenders

When you hear “hard money lenders,” you might think of loan sharks that will charge you high interest rates and then when you don’t pay them back, they will come steal your property—but that is just in the movies.

In real life, hard money lenders in Arizona are key in financing many different types of real estate. They are especially known for their integral role in financing fix-and-flip homes. Hard money lenders are non-traditional lenders—meaning they are not a bank or a credit union. Instead of securing a loan with a borrower’s credit, savings or CD’s that can be used as collateral, they secure loans with real estate. What that means is if a borrower defaults they can foreclose on their property. That can be a little scary. However, finding the right lender that will work with your personal situation can ease those fears. Hard money lenders do not want to seize your property. In fact, they want you to be successful because that will mean you will take out another loan—it’s a win-win for the lender and the borrower. They are not loan sharks. They are normal, everyday folks just like you and me.

HOW TO FIND A GOOD HARD MONEY LENDER

There can be a wide range in both loan sizes and loan costs. Different lenders have different terms. However, beware of junk fees. When you are comparing your loan proposals make sure you look at all the costs. Don’t be fooled, there are lenders out there that will offer you a 8% rate and a 3%fee but you will have so many hidden costs or junk fees that the rate you are given is misleading.

Be sure that you know who is lending you the money and that they will do what they say. Anyone can be a hard money lender; they can be an individual with cash flow or they can be a real estate finance company. Make sure you ask questions. The lender that is right for you will answer your questions and give you confidence.

What questions should I ask hard money lenders?

There are several questions for a borrower to ask. Here are a few to get you started in the right direction when speaking with a potential lender:

1) How many loans have they done in the last 12 months?

2) What details and documentation will they need from you?

3) Are they the lender or are they a broker working for a lender?

4) After funding do they sell your loan or keep it in-house?

5) If the project takes longer than originally expected can the loan be extended?

6) How many loans have they foreclosed on?

7) Do they work with 3rd party appraisers and underwriters?

8) Have they ever changed the terms on a loan before closing?

Taking out a loan is always a risk. It is of utmost importance you work with a lender that makes you feel comfortable. It is your responsibility to know your lender’s past and present. Do your homework and minimize your risks that come along with the use of other people’s money.

How to Get a Small Business Loan in 4 Easy Steps

Entrepreneurs usually need to finance a new business. However, clinching the funding can be quite the task. Here are 4 easy steps to get your business loan.

1. Ask yourself why you need the money? Is it for start up costs, managing daily expenses, bringing on new employees or to grow your current business? You will need to decipher the reason for your loan.

2. Find out what you qualify for. Finding out your credit score is a huge factor that will determine which loans you may be approved for—there is no sense applying for a loan that you will be denied. You can get your free credit report from Equifax, Experian and TransUnion once a year; and you can also downloads apps such as Credit Karma that will update you daily. Traditional banks want a borrowers credit above 680. In addition to your FICO score lenders will want to know how long you have been in business or if you are a start up business.

3. Gather your documents. Regardless of the lender you choose, you will need to have your documents gathered for the application process. Generally, the documents will be the same for all lenders: business and personal tax returns, business and personal bank statements, business financial statements and all legal documents (articles of incorporation, franchise agreement, etc.).

4. Determine the best lender. Once you decide the type of lender that is best for you—you will want to compare a few options based on annual percentage rate and terms. You have choices when it comes to the type of lenders; you can choose from banks, micro lenders and hard money lenders.

THINGS TO CONSIDER WHEN CHOOSING A HARD MONEY LENDER

BANKS: A traditional bank will provide a small business loan that ranges from about $5,000 to %5 million. The average loan size is right around $370,000. You will need to prove you have collateral, good credit and you will not need the cash quickly. Getting funded takes longer than other options— typically about 6 month. The positive in a bank loan is you will receive the lowest APR option.

MICRO LENDERS: Micro lending are nonprofits that lend short-term loans in smaller amounts—typically less than $50,000. Micro lenders are lenders have more of an interest in development versus earning a profit. Their main goal is to help entrepreneurs who do not have the qualifications for a traditional bank loan. They usually provide training to teach the lenders how to run a business. Because, traditional loans are not approved easily without stellar credit and a cash reserve. A micro lender may be an avenue to explore as long as you do not mind taking required trainings and having a lender “lead” you to success—also, this funding is a smaller amount than other options.

HARD MONEY LENDERS: Hard money lenders usually do not have a required minimum FICO score. Therefore, this can suit an entrepreneur with fair or poor credit. Hard money lenders lend off of hard assets (real estate) not credit. When it comes to hard money loans. You are using your business’s commercial real estate as collateral. The loan you receive will be heavily based by the collateral you have to offer. Typically, hard money lenders are smaller lending organizations that believe in the value of taking on risky deals.

There is a small business loan for every borrower. It is important you look at your credit, your business projections, your assets and what you can realistically pay back monthly.

Regulations of Vacation Home Loans

You have finally figured out how to get that lake house you have dreamt of for years. You can rent it out when you are not using it—genius idea! But, hold on because traditional lender rules may not allow that deal to come true.

The first thing you must know is there are different mortgages to finance a vacation home and each of these mortgages have their own set of rules. There are three main mortgages: primary residence loans, second-home loans and non-owner occupied loans.

A primary residence loan is where a borrower will find the lowest mortgage rates. After living in the house for at least one year you are legally free to rent out the home as an airbnb. A second-home loan has the same rates as primary residence loans; however, down payments will be larger. On the average lenders require 20-25%. Finally, non-owner occupied loans, which are also called rental property loans. These loans will run you about .35 percent higher than primary and secondary home rates and your down payment will typically be 30-35%. With a non-owner occupied loan you will be allowed to rent it out and also to use it when it’s not being rented.

When you take a loan for an airbnb, there is a document titled the note. The note will have all the information about the “cans” and “can’ts” of your loan. This will include everything from the loan rate to any additional requirements of the loan. This is where you will find, in a second-home mortgage, that says you can not rent out the home. If you do not follow these laid out rules you will be found in default of the loan.

MAKE SURE YOU TAKE OUT THE RIGHT LOAN FOR AN AIRBNB

Many people are choosing to invest in vacation properties. If the property is near a popular tourist destination it is very possible that the entirety of the mortgage can be paid solely from renting the property out. Airbnb is taking over hotels. Why would people pay the same amount for a hotel room when they can have an entire condo for close to the same price? It’s a brilliant idea to buy a vacation home and have the mortgage paid by tourists. Unfortunately, financing the purchase of vacation real estate can be quite the challenge. Typically, lenders don’t lend large loans on vacation rentals because they are considered investment properties. The problem lies in that banks have no reliable source of data for the vacancy rates on a vacation rental property. Add on that appraisers don’t use short-term rental rates when looking at rental or vacation properties. What that means to a potential buyer is that these properties are undervalued in their potential generation of income. Therefore, banks are not confident on a borrower’s ability to pay the mortgage on said property.

Help with getting a loan for an Airbnb in Arizona

This is where a hard money loan comes into play. These investors know the market is out there and believe a profit can be made. Hard money investors do not base your ability to pay back the loan on your debt-to-ratio or your credit. These loans are based on a borrower’s assets. They are asset based loans. You can find them as low as 7% interest and your investor will work with you closely on loan terms. Remember, where there is a dream, there is a way. See a hard money investor to explore the options that are available to you.

Saturday, February 9, 2019

Why 100% LTV Financing in Arizona Is Hard to Get

100% LTV Financing in Arizona is not impossible to get, but it can be challenging.

Hard money lenders are typically disinclined to approve 100% financing on a deal. It is unsettling, to most lenders, when a borrower requires 100% financing. There are 3 main reasons that most lenders won’t approve 100% financing.

1. The borrower has no experience in real estate or hard money: Not having any experience in hard money loans or real estate increases the chances that the borrower will make a mistake and this will cause both the lender and the borrower to lose both time and money.

2. The borrower isn’t financially solid: When a borrower asks for 100% financing it casts doubt on their financial situation. This can cause the lender concern about the loan being repaid. Typically, lenders feel that a borrower who isn’t risking any of their own money has very little skin in the game; and that is not a risk most lenders want to take.

3. The borrower won’t assume risk on the deal: When a borrower requests 100% LTV Financing in Arizona and therefore has no equity into an investment, it makes sense that lenders feel it would be easy for the borrower to walk away from the property, leaving the lender fully responsible for any potential losses.

100% financing is rare in commercial real estate deals. You will see it more in residential investing; and even more commonly you will see it in fix-and-flip deals. A lender is more likely to finance 100% of the project if it is a short-term deal with a clear predetermined strategy. Most lenders that finance an entire purchase will only do so for experienced real estate investors. A borrower that is new to the game will have a much more difficult time finding complete financing.

INEXPERIENCED BORROWERS NEED SKIN IN THE GAME

When it comes to investments you will always take it more seriously if you have some skin in the game. It’s a little like being a kid; remember, wanting new shoes, or a video game, or a remote-control plane? You would ask your mom or dad and they would say, “yes.” More than likely once the excitement settled down you would toss it wherever the “toys of yesterday” lived. But, remember saving your money and buying that same toy? I’m willing to bet you took better care of it. It is human nature to take care of things better if you have invested in them. If you have no money invested, it will always be easier to walk away.

What is cross collateral and how can it help you get 100% financing?

Cross Collateral is where the borrower allows the loan to be secured by equity in an additional property. Hard money loans are always backed by real estate. In cross collateral there is more than one property and at least one of the properties are free and clear—meaning the owner owes nothing on the property.

Let’s say you find a property you want to purchase for $200,000. You want to purchase this price, but don’t want to put money down on it. You also have a property that is appraised at $175,000 and is paid off. You will find lenders that will give you the $200,000 because the property you own free and clear plus the new property are enough collateral to pay back the loan if you default on the terms of the loan. That is cross collateral—and that is what you will most likely need if you are an inexperienced investor looking for 100% financing.