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

Sunday, March 10, 2019

Why New Investors Fail with Commercial Texas Hard Money Lenders (And How to Make Sure You're Not One of Them)

Historically, commercial Texas Hard Money Lenders have been the go-to funding sources for those in real estate investing. Newcomers to the field sometimes struggle to get a plan off the ground due to funding shortfalls, but if you understand why they fail, you’ll avoid the same errors.

If you’re doing your homework, you’ll probably see lots of people asking about commercial Texas Hard Money Lenders who will fund 100% of a project. This is a newcomer error. Asking for 100% is asking someone to assume total risk for your project, and that rarely happens, even if you’ve got loads of experience and already have already earned serious money for the people who fund your deals. If you’re short on cash and just getting started, focus on purchasing a property for less than what it’s worth. That will give you more wiggle room with the budget and funding.

Another big mistake is not working with experienced professionals. As a newcomer, it’s tough to know what everything will cost, what permits will be needed, what the property value is now, and how much you can safely increase it without making it overpriced for the neighborhood. Plus, there’s always a chance you’ll overlook some kind of damage that can tank your budget and set you behind schedule. Always build up your team first. Not only will it make you more successful, but you’ll look like a more appealing borrower too. Consider people at every phase of the plan, from contractors through appraisers and brokers.

Lastly, many fail to find a niche. You can’t be an expert on everything, nor can your funding team. Find an area you really enjoy working in, such as single-family homes, multi-family properties, distressed properties, historic homes, and so forth. Become the expert in that area. Again, it will make you more successful and will help you network, which is essential when you’re searching for new projects or need help with one. This is also looked upon favorably in the lending niche, particularly if you can pair up with a lending team that shares your affinity.

Focus on Creating a Win-Win Solution for Everyone

One other tactic to try is to put yourself in the mindset of commercial Texas Hard Money Lenders. Look at yourself and your plans with a very critical eye. Try to poke holes in your own plan. Are the profit margins too small? Is the budget or timeline too tight? Is the neighborhood you’re considering less in demand than others? Is the team involved lacking in experience? Once you’ve made a list of all potential issues, find ways to overcome them, so your deal is a win-win for everyone involved.

Work with an experienced broker who can help you find the right funding with the best terms.

On a final note, you’ll have greater success with commercial Texas Hard Money Lenders when you work with an experienced broker. A seasoned broker will listen to your plans and help you polish them up before getting you matched up with someone who is excited to fund your deal and finding the best possible terms, so you start your project off ahead of the curve.

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 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.

Saturday, March 9, 2019

5 Types of Commercial Real Estate Loans in Arizona You'll See in 2019

Many types of Commercial Real Estate Loans in Arizona will be in play this year. Become familiar with the most prominent, so you can pick the right type of funding for your needs.

1. SBA 7(a)- Backed by the Small Business Administration, the SBA 7(a) can work for people with good credit, that have been in business for at least a couple years, and who want to pay off their balances over an extended period of time, similar to what one might do with a mortgage on a home. There is a requirement that the business owner must occupy the business more than half the time. These are capped off at $5,000,000 and are only available to specific business types which fall below certain income limits. It typically takes 60-90 days to get funded if you make it through the approval process.

2. SBA 504- Divided into two separate loans, with the SBA providing 40% and a Certified Development Company (CDC) contributing 50%, there is no maximum funding limit. However, they do work similarly to the SBA 7(a) in that you’ll need a good credit score, will have to have had years in business, and it can take three months to get funded if you’re approved. There is an owner-occupied requirement for SBA 504 options too.

3. Traditional Mortgage- Offered by lending institutions like banks and not backed by the government, traditional mortgages tend to offer better terms than the SBA options, but also have more stringent requirements for credit. They can work well for those who are well-established, will occupy the business more than half the time, and plan to repay their debt over a period of 5-30 years. It usually takes 30-45 days for those who get approved to be funded.

4. Bridge- Designed to help businesses compete with cash buyers, bridges are special Commercial Real Estate Loans in Arizona that fund quickly, usually within 15-45 days, and are short in duration. A typical term could be anywhere from 6-36 months. That said, these are typically only available to those who have completed at least one other similar project and good credit is required for those applying with traditional lending institutions, but you can get them through alternative lenders too.

5. Hard Money- Similar to a bridge, hard money terms usually last a matter of months or a few years, and it’s generally awarded to those with at least some experience. However, a key difference is that it’s offered by alternative lenders, and as such, people can get funded in a matter of days, and most of the time, there is no owner-occupied requirement.

Learn the Differences to Decide What Form of Lending is Right for You

If you’ve got good credit and plan to pay off your balance over a period of many years, going with a traditional mortgage or an SBA option is likely to be the most affordable way to borrow. That being said, many people don’t meet the criteria for these Commercial Real Estate Loans in Arizona and sometimes they’re not suited to the purpose.

Hard money or a bridge may be best if you have rotten credit or need to purchase quickly.

If the banks say, “No,” because you’ve got rotten credit, won’t primarily occupy the space, or for other reasons, bridges and hard money are probably your best bet. They’re also the ideal Commercial Real Estate Loans in Arizona if you need to act quickly to grab your property before someone else does or in order to negotiate better pricing.

Can You Get Commercial Real Estate Loans in Arizona with No Down Payment?

Getting Commercial Real Estate Loans in Arizona with no down payment can mean the difference between having cash to operate and leaving the doors locked. If you’re trying to obtain 100% financing, hard money could be the answer you’re looking for.

Most Commercial Real Estate Loans in Arizona have strict requirements, including starting with some serious skin in the game. At a bare minimum, you should expect to put 10% down, but more often than not, banks are looking for 20-30%. That can be completely unreasonable for a start-up and is a major barrier for many entrepreneurs.

Adding to this, businesses are put through immense amounts of scrutiny by banks. They’ll check your credit scores, profit and loss, cashflows, and more, all to determine whether you’re a safe bet or not. Even those with the best of credit get denied, simply because they haven’t been in business long enough or because they aren’t making a large enough down payment.

The good news is, the rules shift in your favor when you look beyond bank options. Alternative financing sources like Texas Hard Money Lenders help small-business owners every day and can fund 100% of your property purchase.

LTV is Key to Eligibility

Whereas banks are concerned with how you look as a borrower, Texas Hard Money Lenders are more concerned with what you plan to do with the cash you get. The property you purchase is typically used to secure the funding. This is where LTV comes in. It means “loan to value,” and references how much money you’re borrowing versus the value of your business property when Commercial Real Estate Loans in Arizona are concerned. In other words, let’s say you want to purchase a building, such as an office, warehouse, or rental property, and it’s worth $100,000, but you need the full $100,000 to buy it. Do the math: 100,000 / 100,000 = 1 or 100%. Your LTV is 100%. But, you’re a savvy businessperson and you’re not going to pay $100,000. You negotiate down to $90,000 for the sale or maybe you’re really great and get it down to $80,000. Your LTV is now 90% or 80%. You just made yourself an appealing borrower to a hard money lender.

If you can do basic math, you can get 100% funding for your venture.

Yes, Texas Hard Money Lenders still care whether you can piece together a business plan. They want to know that you’ll be able to pay off the balance within the allotted amount of time. That said, it’s easy to get Commercial Real Estate Loans in Arizona if your LTV is realistic, even if you don’t have a whole lot of your own money to work with or have crummy credit. This is precisely why this method of financing is hugely popular with people who do fix-and-flips and fix-and-holds. With the surge in Airbnb rentals, many are using the model to start their own home businesses too. If it works for them, it will work for you.

How Much Will I Need in Cannabis Business Loans in Arizona to Start a Grow Operation?

If you’re planning to use Cannabis Business Loans in Arizona to start a wholesale cultivation company, the last thing you want is to run out of money midway through the launch. Break down all the anticipated expenses to get a clear idea of how much you’ll need.

Naturally, the total amount of you’ll need in Cannabis Business Loans in Arizona will vary based on the size of your operation and whether you’ll be growing indoors or out. An outdoor will be less expensive, at somewhere between $10 and $17 per square foot, according to the Marijuana Business Factbook. However, outdoor growing may not be practical in all regions and will generally produce lower-quality plants. To tap into year-round cultivation, produce multiple crops, and possibly charge a bit more for your product, you’ll need to move indoors, which can climb as high as $75 per square foot.

One of your biggest expenses will be the physical location. It may be tempting to base your costs off renting unused warehouse space, but bear in mind many landlords will charge you more than the going rate because you’re in the marijuana industry. As you build out your estimates, call around and verify whether landlords would rent to you and if they would charge you more. In some cases, the cost increases more than $10 per square foot purely because you’re cultivating marijuana. In these cases, it often becomes much more cost-effective to purchase your own property and skip the landlord altogether.

Some sources say you can place as many as eight plants under one light—anything more than that and you’ll diminish the yield so much you might as well have never added the extras. However, some growers will do as little as one plant per light, ensuring each one as ample space. If you’re going with LED grow lights, these alone will run $250-350 each, depending on the wattage and area covered. Fans, humidifiers, and vents will also be necessary, and these usually run around $2,500 per setup. Then, there’s dirt, pots, watering systems, nutrients, electricity, and licensing.

Beware: The Banks Probably Won’t Fund You

While conservative estimates put startup costs around $20,000 if you’re able to find a landlord who will rent to you and aren’t outright buying, banks don’t usually offer Cannabis Business Loans in Arizona. That’s because most are FDIC-insured, and the federal government still hasn’t legalized marijuana even though individual states have.

Alternative lending can give you a helping hand as you launch your marijuana startup.

The good news is, you can get Cannabis Business Loans in Arizona to cover your property/ building/ land and equipment, but you’ll need to look outside banks. Hard money, for example, can get you started and enable you to make interest-only payments for a period of time; perhaps long enough to harvest a crop or two. Generally speaking, wholesalers are making a little over $1,000 per pound right now, but there’s a huge variance in weight per plant—each could be little more than one ounce, or you could grow a single huge plant per grow light, which could potentially give you more than a pound per plant. Do the math. It may be expensive to start, but with margins like that, you could have your full operation paid off in no time and be bringing in serious cash.

Friday, March 8, 2019

3 Things to Consider Before You Explore Cannabis Business Loans in Arizona

Getting matched with the right Cannabis Business Loans in Arizona is an important step, but launching a marijuana startup is unlike starting any other type of company. Before you start applying, it’s important to become familiar with what lenders are looking for in this emerging industry.

1. You’ll probably need to work with an alternative lender. Most banks are FDIC-insured, meaning consumers who deposit money in them have some level of protection from the federal government in case the bank loses it. That being said, marijuana still is not legal at a federal level, so it’s a no-go with federally-insured banks, even if marijuana is perfectly legal in your state.

2. Most alternative lenders have criteria similar to banks. Even if you’re circumventing banks and sourcing your Cannabis Business Loans in Arizona elsewhere, the majority of lenders are still going to be assessing your risk as a borrower or business, meaning they still care about your credit score, your income, and the number of years you’ve been in the industry. Most expect two or three years of experience at a minimum. That can present issues in states which have made a recent move to legalize. If you’re struggling in this area, you may need to bring on a business partner from another state with some experience. That will help you qualify for funding, but you might also want to seriously consider tapping into his or her experience. No doubt, you’ll be able to avoid some of the common pitfalls startups experience if you’ve got a good mentor.

3. You’ll need to have a comprehensive business plan. When you shift into alternative lending, the people providing the funds want additional assurance you’ll be able to pay the money back. So, unlike traditional lending where it’s mostly based on your credit score and a promise, you actually do need to have a full plan, including budget and timeline.

What Form of Lending is Right for My Marijuana Startup?

The right Cannabis Business Loans in Arizona will vary somewhat depending on what you plan to use the funds for, how long you need the funds, your credit score, and other factors. Crowdfunding is one option MJ companies turn to, but bear in mind that options like Kickstarter tend to work best if you have a tangible good. As an alternative, equity crowdfunding can work, but it also requires you to give up shares of the company. As an aside to this, many of the existing platforms tie you down to specific banks and payment portals. Do your diligence with them because if anyone in the chain is using an FDIC-insured bank, there’s a chance your project could get nixed without warning.

Many entrepreneurs are successfully funding marijuana startups with hard money.

By working with private investors who base Cannabis Business Loans in Arizona of the value of an asset, you eliminate most funding barriers. Although they’re still regulated, as virtually anything involving transaction is, the FDIC is not involved, and you can be funded within a matter of days. Moreover, because it’s a form of asset-based lending, your credit score isn’t a huge concern. However, it’s important to remember that hard money is a temporary solution. During the term of the loan, you’ll usually make interest-only payments, and then will be expected to pay the principal back at the end of the term, either by refinancing or paying off the balance with your earnings.

Why Don't Banks Offer Cannabis Business Loans in Arizona?

Most start-ups need a helping hand, but if you’re getting into the marijuana industry, you’ll find banks rarely offer Cannabis Business Loans in Arizona. A lot of this has to do with bureaucratic red tape, but you can cut through it with alternative lending.

The marijuana industry is booming now, thanks to favorable legislation enacted by most states. It’s no longer spoken about in whispers, but in professional circles and in terms of dollars and cents. Many savvy investors have jumped into the emerging sector, and with great success, but if you’re trying to start your own grow operation, dispensary, or are homing in on another aspect of the MJ industry, you’ll find it’s hard to break in due to funding shortfalls.

Small-business owners have always had trouble getting financing. Even today, most who apply don’t get the full amount they need. Banks attribute this to poor credit scores, lack of time in business, and sluggish cashflows. However, starting a marijuana company isn’t like opening an ice cream shop or running a farmer’s market. If you’re trying to get Cannabis Business Loans in Arizona, there are additional challenges thanks to the government.

In short, most banks are insured by the Federal Deposit Insurance Corporation (FDIC), meaning the government protects those who deposit there in the event that the bank loses the consumer’s money. Not all deposits are protected, and not all banks are FDIC-insured, but a great many are. The FDIC won’t touch banks that take on “existential risks,” or those that fund businesses and individuals that could cause major issues for the bank. Although states have moved to legalize marijuana, it’s still illegal at a federal level, and as such, the feds aren’t going to insure banks that lend to the industry either.

Alternative Lending Doesn’t Have the Same Regulations

Alternative lending sources can be thought of as almost anything beyond banks. This includes things like crowd-funding, peer-to-peer lending, angel investing, and private money. These sources aren’t dealing with FDIC-insured deposits, so there’s no risk of losing their status, and they don’t have to follow the FDIC’s rules. However, even within this subset, you’re still dealing with lenders who may or may not support your endeavors, and they’re often looking for things like good credit and an established track record—something someone seeking Cannabis Business Loans in Arizona won’t have because the industry is still so new.

Hard money may be right for you if you’re running an MJ startup.

Hard money, provided by private lenders, is often the best bet for those starting a marijuana-related company. You can get Cannabis Business Loans in Arizona to cover the cost of your building and your equipment, even if you have rotten credit. The only real catch is that you need to be business-minded. These lenders are only looking for people who know how to grow the green stuff—money. If you can nail that aspect down, you can get your startup funded with hard money, even if the banks won’t touch you.