what is the most important part of the hard money application?

hard money or private money has different requirements than conventional or bank money

Because hard money lenders have a different focus than bank money, the weight of different elements of the application is varied.

A hard money lender wants to focus on the deal - tell us about the property. This is a part of the application that the lender will want you to be an expert on. It will give them pause if there are questions you have not thought about or you don’t know. Things to consider:

1. Purchase Price or Maximum Offer Price

2. After Repair Value - what will it be worth after you improve it?

3. Exit Strategy

   1. will you be fixing and flipping the property? your exit strategy is the sale.

   2. will you be improving and renting the property? your exit strategy may be a refinance.

   3. are you expecting another property to sell or a large cash inflow? you may be planning to pay off the loan direct with the lender.

4. What are your planned improvements on the property? And what will that cost?

   1. are you adding square footage?

   2. replacing appliances?

   3. repairing structural issues - like roof or foundation?

   4. if you are improving vacant land, have you met with the building authority for what they will require and what entitlements will cost?

   5. based on the comparable properties surrounding the area, what do the improved homes have that your home needs?

5. Do you have reserves for if things are more expensive or go wrong? any built-in contingency plans? are there things you can save on without affecting the future repair value?

You can make your future lender feel more comfortable by being an expert on your deal. They will place less weight on your personal financial picture. If you don’t know an answer, just make sure that you can get that information to your lender in a timely fashion. Do not make up an answer if you don’t know it. If there is a problem on the property in the future, your honesty will be very important to your lender. This will make for a much better working relationship.

What is Hard Money Lending?

you’re looking to invest in real estate and keep hearing about hard money lending or private money lending, but what is it?

What Types of Real Estate Investments are There?

you’ve heard all of the quotes…they’re not making any more land…how many millionaires have been created by real estate investments, and now you want in. Where do you start?

If you are looking to actively invest in real estate, there are different ways to do it. Often, investors specialize in a certain type of real estate investing.

Consider Remodeling a Condominium Unit

condo remodel - aurora

Pros: Lower Risk. When purchasing a condo unit, you’re remodeling the interior of the space, so you normally will not have to be concerned with the building’s integrity. Although, you should always investigate the building’s issues and the ability of the owner’s association’s ability to work through it. Condominiums are often less expensive than houses, so there is an easier entry to purchase.

Cons: The HOA mentioned above can often be expensive. Because they insure the building and often provide additional services like utilities, trash, amenities. These add to your holding costs should the unit take a while to renovate or stay on the market. The upside is more limited than single family. It isn’t possible to add square footage or improve the exterior which often lead to higher profits in other types of real estate investing.

single family

Remodel

Looking for more risk, but possibly more reward? Consider Remodeling a Single Family Residence

Pros: As stated above, there are more possibilities for making a higher profit. A distressed property can be improved in many ways

Cons: generally, you have more money invested than condos which could lead to less capital available or more holding costs. Fixes are also generally required on the exterior and interior of the home in order to improve value.

new construction

Single Family

Build a Single Family Residence

Pros: Potential buyers have interest in new construction homes, especially today when inventory is very low. There is a significant potential for profit when you create something that the market needs. There are some controls that can be made when designing a home to make things less expensive vs. having to work with whatever mystery problems arise in fixing an existing home.

Cons: There is more risk to building a new construction home than remodeling an existing home. Lenders are looking for investors with more experience and capital in order to finance a new construction home. Holding costs are substantial. There are often more liability risk in building new construction should there be defects. Insurance and code requirements are more strict as well.

multi-family rentals

Own a Multi-Family Building

Pros: Often there are opportunities to finance the building where you can live in one unit and rent out others. Multiple tenants are in one area for ease of management and maintenance. You control a building rather than owning one unit in a building where you must vote or agree as owners or as part of an HOA to fix or improve things.

Cons: Multi Family buy and hold projects are desirable and more expensive. Generally when things break in a building, it will require more capital as multiple issues arise.

commercial buy and hold

Owning Commercial Property

Pros: There is a potential for more professional tenants. Tenants also normally want to stay longer term than residential tenants, because they want to establish their location, invest in its improvement and not move to hope their customers follow them.

Cons: These properties are more expensive and lenders are generally looking for more experienced investors in order to finance you. While the market is much larger to find a residential tenant, there are fewer commercial tenants.

residential lot

for future development

Land Speculation

Pros: If you are just purchasing land and not improving it right away, the costs can be lower than improved property. If you’re able to purchase unimproved land, the potential value increase could be quite large, especially if you were to improve the land yourself by annexation, platting or building.

Cons: Most believe that Land Speculation is some of the riskiest of investments. You could have to hold land for a long time in order to it to be in the path of development and raise the value. In this time, there are holding costs. Many lenders do not want to provide more than 50% LTV against vacant land.

We hope this provides you some helpful information. We would love to hear from you for what types of projects you are interested in investing in!

What is ARV?

ARV is so important to flippers, but what is it?

Hold It or Fold It - Getting Started with Rental Property Evaluation

If you are new to real estate investing, there are some things to consider when buying an investment property.

First - Consider the location of the property. Is the property in a desirable part of town? Is it an area with with many tenant opportunities? Is it near public transportation? The area will also determine what the property can rent for. Be sure to look at what neighboring properties are renting for and note their condition.

Property Due Diligence -

Repairs : what repairs will you need to make in order to make the property rentable? If you are used to flipping, there are different repairs that will be necessary if you are now planning on renting. Such as being able to get away with not including some appliances when flipping, but needing to provide those to make tenants choose your property over others available. What repairs are necessary for health and safety of your tenants and to limit your liability as the owner?

Holding Costs : what will insurance, taxes, vacancy, utilities, etc cost you over time? What will you need to reserve for any repairs?

Financing : what financing are you able to get? how much will you be required to put down? and after all of that, will the property cash flow. Not only will you want your investment to cash flow, but your lender will feel more comfortable providing financing to you if your investment “pays for itself”. Hopefully in addition to the monthly cash flow, your property will appreciate over time. This will allow you to sell for a profit on top of it generating monthly cash flow to you over time.

You will hear us preach this time and time again. But money is made on the buy. Make sure you do not get excited about a seller, wholesaler or agent’s sexy numbers of what you can rent a property for. Be sure you do not overpay for the property.

Be a good landlord - if you can keep tenants in the property for long periods of time rather than needing to get new tenants constantly, it will make your life and your wallet better.

TABS provides financing to landlords in Colorado. And our management team has been a landlord - we are happy to counsel you if you are just getting started.

Good luck!

Homeowners Associations

first - what is a home owners association? a real estate developer will generally set up a home owners association in a master planned community. this association will determine rules or covenants for the people who live there, generally to keep the look of a community consistent and to make sure that everyone keeps up the neighborhood - removing trees that are dead, not keeping a recreational vehicle parked for an extended amount of time or changing the paint color unless approved. the HOA will also collect assessments from the home owners in order to maintain common areas. The developer will generally be a member of the HOA until an agreed upon number of homes are sold. A recent development in Colorado is that an association must be managed by someone or an entity with a CAM (community association manager) license. This is generally necessary because the management of the HOA handles funds from sometimes a sizeable amount of people and those need to be properly accounted for and disbursed to protect the owners who live within the community. 

another consideration in properties with home owners associations, is whether or not a traditional lender can provide financing. there are instances, such as the case, with non-warrantable condos where a portfolio or alternative financer would be required. a non-warrantable condo could exist for example if there are more owners within a community who do not occupy their property as their primary residence than people who do. this information is provided by the homeowners association. some banks find these loans riskier than a community that is a majority owner occupied. if you do find aproperty within one of these subdivisions, also consider your exit strategy. will your end buyer be able to get financing? or does this limit your pool of buyers?

real estate investing is all about whether or not a deal makes financial sense, unlike your primary residence where there is an emotional element: a desire to be in a certain neighborhood, near a certain school, a property with blue shutters, whatever the case may be. homeowners association dues can be pricey, especially in communities with extra amenities such as clubhouses, pools, fitness centers or golf courses. homeowners dues could rise. these liens also take a superior position to any loan should you not pay them which would be of great concern to your lender. when evaluating a property, it is always wise to think of multiple exit strategies. should this house not flip, what do i do? if the market changes, how do i deal with this property? think of these items: will you be able to rent out the property if needed?  would i be able to re-finance my hard money loan? 

we are here to help and call attention to these issues as they are discovered. not only do we have experience as being a hard money lender to colorado investors buying properties with home owners associations, but we have developed projects and set up these homeowners assocations, been directors of their boards of directors. if you ever have any questions, we are here to help!

structural issues in colorado

Colorado is known for its "special" soils. If you are coming from out of state, you might not be as familiar with swelling soils. This is something that is very heavily disclosed in new construction from home builders, but not as common in resales. I've included a link here to the Colorado Geological Video regarding Swelling Soils:

An educational video about hazardous soils in Colorado; includes collapsible or compressible soils and swelling or expansible soils. This geologic hazard causes more damage in Colorado than any other. Covers types of damage, prevention, mitigation, safety hazards, economic losses. Produced by the Colorado Geological Survey - www.colorado.gov/geosurvey

This is something to be aware of when purchasing real estate in Colorado. There is a chance that in the lifetime of the home you are purchasing, it may have shifted, may have some sort of compromised foundation. This is fixable, but will be more expensive and generally scare off a new investor. Experienced investors who dabble in homes with foundations know that there is a high risk but potential high reward when fixing and flipping these properties. Some institutional lenders or even hard money lenders in Colorado may shy away from homes with structural issues. Here are some things you need to keep in mind: you will need a qualified structural engineer, a qualified structural contractor, you will need to disclose these issues to potential buyers and you will likely need to come in under market for it to sell. But this also means that you should be able to purchase these homes at a very steep discount if there is existing structural problems that the owners are not willing or able to fix. Proceed with caution and get your ducks in a row. As always, let us know how we can help. We are a Colorado Hard Money / Private Money Lender with tons of experience!

what should you diy?

As a Flipper, it is beyond important to keep costs low. One way of doing that is to perform some work yourself. If you happen to have a career in construction, this is a no-brainer. But for many flippers, this might be your first experience building something yourself. Working for you is the ability to access tutorials online or in person. YouTube has endless videos for just about any piece of the rehab project and Home Depot offers free classes if you found a topic of interest to you. Always consider if your work will not be up to the quality necessary for the home to fetch top dollar. Some ideas for just getting started are below, but as you educate yourself more, the options are endless to how you can save yourself money. 

• demolition
• light landscaping, tree trimming, lawn maintenance, clean up
• some painting
• install hardware on cabinets
• install doors
• hang mirrors
• install towel bars
• post-construction clean up
• light staging

costly mistakes in fix and flipping

costly mistakes to avoid when investing in fix and flips in Colorado

At some time or another, an investor can fall a pray to common and costly mistakes. The fix and flip business is an area where you will find a considerable amount of chances for such mistakes. When it comes to investing in a fix and flip business (and with any other business), knowing what to do and doing what you know is the key aspect. Besides, it is also important to know what you shouldn’t do if you expect sustainable progress and write your success story in the business of fixing and flipping real estate.

-          Mistake 01: Having Unrealistic Expectations

The old saying is right, you shouldn’t be counting your chickens before they are hatched. There are considerable number of house flippers who spend too much of money and time on repairs with the expectation of compensating all that money from the selling price of the property. This is a very risky approach; you should always try to save money in all the possible ways without overspending. This doesn’t mean, however, that you should settle for cheaper, low quality materials; look for shops that sell materials for cheaper prices. You can expect discounts on bulk purchases. Try to initiate a partnership with a building materials supplier on long term basis. It is important to invest in fixing what will add value to the home. Make sure that the areas of the home that you are rehabbing will provide you with the value return on the sales price. In an existing home, there are any number of improvements that one can choose to make, but not all of them are considered equal in the way of a return on investment. There are many other ways for you to implement cost-effective strategies other than spending money hand over fist!

-          Mistake 02: Not Researching Enough

Some novice fix and flippers tend to focus on cheap fixers without paying much interest to the other facts. Just because you find a property for a very cheap price, that doesn’t mean that you can keep a huge profit margin when selling it back; you should do proper research about the area. The average property prices of the neighborhood, the willingness of the people to purchase properties from the respective neighborhood, the ability to match the average selling price once the repairing costs are added are some of the major concerns you must be aware of. Check out our other blogs to make sure you are evaluating all of your holding costs on a property correctly. Be conservative in your estimates so that you can have a positive end result.

-          Mistake 03: Avoiding ‘Creativity’ Factor

Impression does mean a lot when it comes to real-estate field. No matter how valuable the property you are going to sell, without a good impression, you can’t expect your buyers to like it and agree with the price you offer. With simple yet creative tweaks, you can give a whole new appearance to the property and increase the value significantly. However, being creative is not spending large amounts of money; it is something you can do by making the most of what you already have. In fact, the profitability of the flip and fix business depends on the way you utilize available resources. Make sure you also use the right Real Estate Agent to sell your property - you want them to be an expert in the neighborhood and prefer them to have buyers already waiting for a property to be delivered in that area. It is shocking to see what home staging can do for buyers. There is a reason that national home builders have model homes. Treat your home like a model to drive traffic to your real estate investment. 

You don’t always have to spend a ton to increase the value of a property. It is all about being creative and thinking out of the box. 

invest without emotions

when investing in real estate, it is not an emotional decision such as when you purchase your home where you plan on living

It is always better to control the emotions when making the decisions related to investing in real estate. Obviously, rational thinking is better than the emotional thinking when it comes to actions related to money. If you put emotions first when dealing with financial matters, the potential of losing money increases particularly during the hard times. Therefore, as an investor, you should be able to recognize the behaviors that trigger your emotions related to investing.

common investing emotions you must overcome

            Urge to Follow the Crowd

One of the most common emotions related to investment is following the crowd. You might feel safe to do what others do in common. Nevertheless, apart from just doing what others do, you should depend on the analysis; if the analysis portrays ‘something is not-right’ it is better to be cautious instead of following the crowd. There are many folks who are getting into real estate, not everyone possesses the skill, time or work ethic to make sure their business are successful. A strategy might work for one, but not for you. There are many wholesalers who provide a valuable service in connecting distressed home sellers with the investors who can rehab a property and add value to the neighborhood. However, do not just rely on their estimations for rehab costs or after repair value. Please perform your own due diligence so that you can be confident in your investment.

Feeling of Overconfidence

At times things can go well for investors. Under such circumstances they can be lulled with an overconfidence of security. The "I can do no wrong" mindset can be dangerous in real estate investing. After several successful deals, one could lead themselves down a path for riskier projects and potential for losses. Losing the sense of concern is a common instance when the gains come easier.

If you happen to experience this feeling as an investor, you should re-think seriously your decisions and consider the actual consequences. Think of all the possibilities that would change the current market trends. Be ready with alternative solutions that might be useful in case of things going wrong against your decision. What has changed that could alter my rehab costs from project to project? Are there market changes? New happenings in the neighborhood that could work against me in my next project? Is demand steady to this area? Any number of things could change from project to project. It is always important to evaluate risks continuously.

Avoidance of Risk

It is a professional investor’s characteristic to concentrate on the assumed risks first. Parallel to this consideration, they put together risk management strategies too. Then there is time to examine potential return. Avoiding the potential risks when things going well, is dangerous move; long-term rally of good times is associated with the risk of reversal. Avoiding such risks is an indication of putting yourself into danger as an investor. The most effective way to stay away from such emotions is continuing your research and due diligence. Continue your risk assessment to work without fail. Deploy risk reduction strategies. Be sure to have a goal and stop where you should.

Remember that the economy in general and real estate is cyclical. Not every house that needs fixing is a good deal. There are many other factors to consider that we explore throughout our other blogs. 

Investors tend to forget the investing rules when things go well for them. Be the wise investor that recognizes the warnings signs and put yourself into the correct path to creating wealth through your real estate investments in Colorado. As always, ask us how hard money lending can help you accomplish your goals!