One of the hardest things to do in life is to get started. Whether it’s a new job, a new business, or a new relationship. All of these involve challenges because of the unknown, the unforeseen, and a general lack of knowledge and experience. This can create anxiety and fear, which prevents you from moving forward on a path to success. The same is also true for getting started in real estate investing.
I want to help anyone struggling with those first steps, so they can get started in real estate investing. I have outlined what I believe are four keys for putting you on a path to success. So let’s dive into them.
KEY #1: KNOW YOUR REAL ESTATE INVESTING STRATEGIES
In the single-family real estate investing world, there are basically three investing strategies: wholesaling property, flipping property and owning rental property. Your job is to consider which one(s) you want to focus on, and put a plan together to execute on them. For example, if you want immediate income, wholesaling is the way to go. If you are looking to make large profits, consider finding a deal with enough equity where you can rehab and flip it. If you are looking to build long-term wealth and generate passive income, then you need to buy rental properties.
KEY #2: GET A SPECIFIC GOAL DOWN ON PAPER
The biggest key to getting started is setting a goal and writing it down on paper. I know I’m preaching to the choir with some of you, however, others might be thinking, “I just don’t need to do that.” Really? How will you be able to measure if you are reaching your target if you don’t really have one? Do you really want to leave it up to chance? Wouldn’t it be better to take charge and have a plan? Write your goals down.
KEY #3: NETWORK WITH OTHER REAL ESTATE INVESTORS
Other real estate investors are going to be your best resource for networking, creating a mastermind group, and building the rest of your team. You want to reach out to them, learn from them, and discuss your ideas with them. If you want to get to the next level with your real estate investing, networking is a must-do.
KEY #4: TAKE ACTION!
All that is left at this point is for you to take action. How do you do this? Go find a pen and paper and write down your action plan.
If you are still struggling with this, go to YouTube and watch “How to Take Action” by Tony Robbins. That will help put things in perspective for you and help you get started.
Now get moving! Identify the next steps and TAKE ACTION! Want to wholesale properties? Find a wholesaling group on Meetup.com and attend their next meeting. Want to buy a flip or rental property? Contact a wholesaler, talk to them about what you’re looking for, and get on their buyer’s list. Need financing for your deal? Give us a call!
New (and even some experienced) real estate investors often think there is more money in a deal than there actually is because they are focusing on gross profit and incorrectly calculating their net profit.
For example, a house with a $100,000 ARV that needs $20,000 in repairs and purchased at $50,000, yields an average net profit of around $13,500. While the net profit may appear to be higher, as it looks like there is much more equity in the deal, let’s discuss why this is not the case.
There are five costs incurred at the sale of a property that goes into a formula we will use to calculate the net profit. These costs are:
- Seller’s Closing Costs: This includes the title company escrow fees, title insurance, recording fees, and any other title company costs.
- Carrying Costs: This would include utility expenses such as water, gas, and electric, as well as any interest expense if you borrowed money to purchase the property.
- Seller Concessions: If your buyer doesn’t have enough money to bring to closing, they can ask you, the seller, for some assistance. This assistance means they want you to pay for some of their closing costs and/or lender costs. Many lending products allow for up to six percent in seller concessions. Although a buyer will seldom ask for this high of an amount, just know that they can.
- Commissions: If you are listing the house on the MLS (which you should be doing), you are going to have to pay your agent or broker a commission. In most markets, six percent is the norm.
- Pro-rated Property Taxes: As a seller, you will have to credit the property taxes to the buyer for the current year up to the date of closing on the sale. So if you sold the property on May 31, you would have to credit exactly five months’ worth of property taxes to the buyer at the sale closing.
Keep these costs in mind when you are making your decision to buy a deal you are planning on flipping, and use them to determine what you are going to net at closing. Remember, your costs will vary based on the value of your deal, as well as how long you own it before it sells.
If you have Real Estate deal in mind and looking for an experienced hard money lender in Dallas, TX, contact us today or call us at 214.219.0360.
Over time hard money lenders come and go. Which ones stay? The lenders who survive in this business are the ones that understand they must charge enough to operate, service loans, and most importantly, service customers who are in most cases, making one of their largest investments ever. They understand that they are not loaning the money over a 30-year time period, where there is long term cash flow, and so they must price their product accordingly. Without boring you with any other details, let’s skip to what’s important for you to know.
As the real estate market remains strong, more lenders are entering the space and want to put their money to work as quickly as they can. In order to do this, many of them advertise what appears to be a lower cost hard money loan, when in fact, it is a much more expensive product.
While this may seem innocuous, the reality is the consequences this brings to the investor. Failure to disclose the other fees and/or structure of the loan puts borrowers at risk of not knowing their true costs and is absolutely deceptive on the part of the lender.
Many of these lenders are not real estate investors and do not understand flipping, buying a rental property, or even wholesaling, putting themselves and their customers at risk of losing money.
Recently, rates have been advertised from 2.99% – 10.99%. When you see anyone advertising rates below 12%, read the fine print, and look for the “catch.” What’s the catch? Any attempt to trick someone with a bait and switch loan. Here are eight examples to keep in mind:
- The borrower needs the maximum FICO score of 850 (which is very unattainable) with $100K cash in the bank to qualify.
- The borrower must do a “specified” number of loans with the lender to qualify for the lower rate.
- Interest is charged on the full note amount when the repairs have not been borrowed yet is a lending practice by most lenders, but is not advertised upfront. Also, if the repair holdback is a large amount, the borrower is paying additional interest on funds they haven’t used yet!
- The lower advertised rate is for a short initial period in the loan (i.e., 30 days) and then it increases to a normal rate. Of course, the borrower is also being charged on the full note amount, even though the repair funds have not been drawn.
- The loan term is for 90 days with expensive extension fees built into the note.
- Junk fees that make up the difference in the lower points and/or interest being advertised (underwriting fee, admin fee, evaluation fee, etc.).
- An offer of 100% financing, or anything that is not based on the ARV in the offer. This is designed to make the borrower think that no matter what their purchase price + repairs are, they are going to get all of it financed, irrespective of the ARV.
- A lender who advertises no application, no credit check, no appraisal, etc. Be suspect anytime there is no due diligence being offered on the part of the lender. It is for the benefit of the buyer and the lender that all the numbers are verified on a property.
As a member of the Ethics Advisory Committee for the American Association of Private Lenders (AAPL), I helped create the guidelines for what all lenders must follow as members of this organization. AAPL bans bait and switch lending practices as well as false advertising.
So, just as you would perform due diligence on your investment property, be sure to do the same for your lender. We disclose everything regarding our hard money programs on the website. If you are looking for a hard money lender within your area, contact us today!