The seesaw swings both ways with leverage
The main advantage of leverage
The main drawback of using leverage
Here are some quick search tips that will keep you pointed in the right direction when trying to locate your next piece of investment property. Trite but absolutely true, finding the worst property in the best neighborhood is axiomatically better than locating the best property in the worst area…regardless of the absolute price. Most beginner investors get too hung up on the bottom line price they’ll have to pay. Instead, worry about whether the cash flow will throw off enough return on your investment.
You should also be concerned about your ability to finance the project. While having enough cash on hand to pay the freight for the entire purchase is nice (and will always yield you the most advantageous negotiating position to obtain the best price on any piece of investment property), having the ability to finance and obtain a mortgage on a property is much more important. Leverage is the key, and you will not be using any leverage when you buy all cash. That said, keep in mind that you could employ the strategy of buying all cash in order to obtain the best deal on any given property, then finance it with a mortgage after you’ve purchased the property: in effect, the best of both worlds. Keep in mind though, that most lenders will require some form of “seasoning” (or amount of time for you to actually own the building) until they are able to give you a loan on it. Seasoning traditionally can be a year or more, depending on the lender.
Keep in mind that your pro forma cash flow will tell all you need to know about whether a potential investment property will be a good deal or not. You’ll certainly want to avoid any negative cash flow scenarios (also known as negative gearing), unless you have deep pockets, and are pretty sure you can turn the property around by raising rents substantially in a short period of time to drastically increase your cash flow…either through repairs – or through being able to replace existing tenants with below-market rents, with those that pay market rent.
Your pro forma income statement (also known as your pro forma cash flow) needs to reflect actual expenses on the potential property you’re considering making an offer on. Never take the word of the seller. Do your due diligence, and get confirmation of every figure a seller gives you. Pour over each lease. See each expense item bill for the last year or two the seller gives you. Talk to your insurance agent for accurate figures on what new insurance will cost you – and make sure you have enough of both property insurance, as well as liability insurance.
Make sure you can ascertain exact figures for the current rent roll, as well as common expense items such as taxes, fuel (whether oil, propane, or some other source), sewer and water charges, trash collection fees, electricity charges and insurance. Naturally, you’ll also need an accurate number for your projected monthly mortgage payment if you will be obtaining one.
Oh, and don’t forget to add in an amount for vacancy. While it is wishful thinking to create a pro forma cash flow based on 100 % occupancy, it’s not reality. You always need to build in some vacancy rate. The standard is 10% of the total rent roll. Depending on the area, and the ease or difficulty it may be to rent out a vacancy, the 10% figure can be tweaked up or down a couple percent. But the norm is 10%. (It’s just really hard to replace a tenant without some down time in between.) Also, don’t forget to add in the expense of .maintenance. This also is usually a small percentage of total rent roll (you can plug in any number you like – from 2 or 3 percent up to 10 percent , based on how liberal or conservative you’d like to plan for emergencies – like a burst pipe, for example…
Just make sure you don’t skip any steps, and do your homework, diligently. In this way you can best protect yourself – and identify the best investment properties on the market that are ripe for acquisition.
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Sometimes I am asked by novice property investors what types of advice I’ve received in my investing career. And what was the best advice I ever received – as well as the worst.
The absolute best advice I ever got about property investing:
Roll, baby, roll. Leverage is EVERYTHING in real estate. It is unlike any other investment asset class, in that you can increase your leverage with each new property you acquire. Forget about the bank “owning” the property. They’re simply your “partner.” Lenders are what allow you to grow your business steadily over time…even without the need to put more of your own capital into each new acquisition. If you manage your acquisitions properly, maintain them, improve them, then refinance them, all on a planned, strategic acquisition schedule, you’ll be able to roll your property investments up – that is, increase your leverage with each new property acquired. Ultimately, you can build your own version of a “real estate empire.” Keep things realistic, and you will succeed in property investing. Keep growing your property portfolio with high leverage – always putting down as little of your own funds as possible. That’s the absolute best property investing advice I ever received.
The worst advice I ever got about property investing:
Anyone can do it.
It takes a certain temperament, a certain je ne sais quoi, to be a good property investor. Basic personality qualities include being entrepreneurial, being decisive, and having a proper aptitude (though not genius-level) with math, as well as being meticulous, grounded, and having stick-to-itiveness. These are some of the basic qualities a good property investor will display. Notice I did not include: being good with people, or being a “wheeler-dealer” type. These two traits are not something you need…and they can be learned, as well as delegated to others. That’s what property managers , as well as real estate agents come in and can do for you.
So be cognizant of what makes you tick – and what your passions are….Active investors in real estate (those that prefer to control their own properties, as opposed to investing in Real Estate Investment Trusts, REITS, for example) don’t get in strictly for monetary rewards alone. There are too many pitfalls to running a successful property investment business to take on the added risks. Rather, hands-on property investors enjoy wearing many different hats: being the site locator, searching for properties, then being good numbers crunchers to see which are the most attractive properties available at any given time.
They then switch hats to become buyers, making offers, negotiating, then finding financing for the properties. Finally, there’s the investor who needs to wear the hat of property manager – acquiring tenants, refurbishing units, and keeping them continually maintained properly. This requires great diligence and attention to detail. You are running an active business, not simply parking your investment dollars in a fund that will (hopefully) offer you positive returns. So heed the worst property investing advice I ever got – that anyone can do it. And make sure you have the right temperament and personality for the job.
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In the wake of Dr. Jerry Buss passing away this week, property investors should look back and see his example as the crowning achievement in how to grow real estate investments. While known mainly for his tremendous success as the owner of the Los Angeles Lakers, and his visionary ways in the sport of basketball, Dr. Buss started from very humble beginnings. While teaching chemistry at USC in the early 1960’s, he took to real estate investment as a way to simply supplement his income while teaching. Stop me if this sounds familiar – like the reason many investors first venture forth into property investment themselves.
His very first property acquisition was a small apartment building in West Los Angeles – a then up-and-coming community. He invested $1,000 of his own money in the property. From there, he, like many first time investors, caught the “bug.” He found he was not only good at leveraging property to buy other pieces of real estate, but it soon became his passion. He later took on a business partner, Frank Mariani, and they began their own real estate investment company named Mariani-Buss Associates. Together they helped grow a real estate empire machine.
It’s important to note the power of combining resources when trying to grow real estate investment. Many times two heads are better than one. And this was certainly the case with Buss and his partner Mariani. As their empire grew, they were able to continually leverage their different pieces of real estate. Eventually they started investing in very high-end pieces of real estate. By 1979, Buss himself purchased the former Mary Pickford estate in Los Angeles…
It seems like Los Angeles in the ‘60s and ‘70s was a great place for wheeler-dealer types and real estate investment. There was plenty of money to be made back then, and many empires were formed in that area. In Dr. Buss’ case it was clear that the power of this partnership helped to greatly propel his real estate empire…much farther than he could have had he tried to do it alone.
This is a crucial lesson if you are operating in real estate investment today. You can go it alone and retain control of all your properties. But you pay for that in the long run in many ways. There’s only so much growing you can do on your own. You won’t have the advantage of two heads to use for business acumen, connections, creditworthiness, searching and negotiating skills. And you won’t have the leverage opportunities available to you if it’s only yourself. It’s also important to learn from this example that even more than two people may be a good move for some investors when creating a real estate investment partnership. If all the partner’s skills are complementary, you could really develop your empire that much faster.
One great thing about a real estate investment partnership is that it helps to even out the lows in the business cycle – and there are always low periods. Losses are more easily absorbed with a partnership than by yourself. So the partnership can more easily take on bigger projects – and riskier projects as well because of this cushion. These could be acquisitions a single individual proprietor may not be able to finance by themselves, nor want to take the risk themself.
So learn from Dr. Buss’ example of initial investing simplicity. Consider starting early in your real estate investing career. You don’t have to invest your entire life savings, but start small, and look for as many units as you can purchase for your first project. Use the cash flow from this to leverage your next project. See if you have the temperament – but most importantly – the passion for the business as Dr. Buss did. In addition, look for partners to help you in purchasing new projects. This will increase your leverage greatly. And it will grow your empire much faster. With all the tremendous successes Dr. Buss had in his life, and his great basketball legacy in Los Angeles and the entire NBA, we can learn from his humble beginnings in property investing. And you should try to utilize these simple principles to develop your own little real estate investment empire.
photos courtesy of flickr.com, marinij.com, cbicommercial.com, you-are-here.com, corporatedispute.com, blog.aarp.org
If you have the personality type that works extremely well with others, doesn’t have to have “their way,” and can compromise in order to realize a common goal of higher profits – then partnership property investing may be perfect for you. You’ll find it’s a great way to finance investment property. In any business partnership, there will be several key basics you’ll need to understand in order for the concept to work well.
You’ll need to fully delineate in a formal partnership agreement what each partner is responsible for – that is, who will do the scouting ,searching and locating of properties, who will do the negotiating, who will do the legal work, who will proscribe the repair work to be done, who will do the budgeting and accounting, and then who will actively manage the property. This part would include finding tenants who are qualified, collecting rents and making all necessary ongoing repairs and maintenance. Also spelled out should be who will receive tenant emergency calls, as well as make rent collections.
Of course, ultimately, there needs to be a decision process created and set down in writing. In addition, a plan detailing how much capital in total each partner will be putting up in this new enterprise, as well as whether all the partners will have equal shares or not will need to be laid out. You may all decide all the partners would like to participate in the locating of potential investment properties for the group to acquire. That’s fine too. Just make sure it’s written down exactly how you’re going to individually and collectively locate – and then actually decide – which properties to go after for purchase.
Using a partnership will allow you to create the seed money (that is, down payments) to bankroll either bigger projects, or larger individual projects than you could if you were investing on your own. It’s truly a nifty way to help finance investment property. Profits (or losses) will be shared pro rata amongst the partners. And a good partnership agreement will also spell out the mechanics for when a partner wants to leave the company, when the other partners want to push a partner out, or how to add a new partner to the mix. Certainly, each alternative requires a detailed written plan to avoid potential litigation down the road.
Like with any business partnership, you’ll be able to utilize your unique set of partners’ synergy, and make the whole greater than the sum of its parts. You’ll be lessening overall financial risk in the process, whilst still maintaining the ability to utilize leverage on any property your company acquires and rents out.
If you don’t already have an accountant and/or a lawyer as one of your initial partners, then you truly must seek out their respective professional help in setting up the partnership, writing the partnership agreement, as well as creating a basic set of bookkeeping standards for you to follow. Of course, if the partnership decides to hire a separate property management firm to manage all its acquired investment properties, then the property manager will be doing all the bookkeeping functions for you. Certainly, a property manager will also remove all the day to day responsibilities for running your properties as well. In the case of a partnership, a good property management company can really help free up the principal partners for the locating, financing and acquiring functions of the business.
Again, partnerships are a good way to gain entrée into the world of property investing by lessening overall risk while still allowing for complete leverage of limited assets. And the same real estate tax advantages will be afforded to the partnership as well. Borrowing funds may be a bit trickier – but then again, all the partners’ separate income and assets will be considered in making a loan to the partnership. But once a particular lender starts working exclusively with the partnership and writes all the mortgages, acquiring properties will become much easier than if you were to do so on your own since you’ll already have a strong working relationship with one banker. As mentioned before, it can be a much more powerful way to help finance investment property.
photos courtesy of fairfaxcountypartnerships.org, thinkglink.com, accounting-financial-tax.com, blog.guidantfinancial.com, managementspecialistsinc.com, dmp.com
If diversification is one of your prime reasons for investing in real estate, then by all means Real Estate Investment Trusts (REITs) are for you. They’re traded as stocks, and most REITs invest specifically in some niche of the real estate market. Some specialize in office space, some retail malls. Some are dedicated to apartment buildings. Others still base their holdings in more specialized commercial space – warehouses, factories and manufacturing buildings. And then there are some that diversify over all forms of property investment niches all over the world.
Whatever you choose, good investment property advice is that it’s the easiest way to enter the real estate world. You can buy and sell your shares on line, the per-share costs are reasonable, and like stocks, you can get in and out quickly, so liquidity is very high.
Of course, you won’t have any control over the exact properties that are bought and sold, nor any say in the expenditure or running of the properties either. And you won’t have the ability to leverage any of the real estate holdings, as you would when you own your own pieces of individual investment properties.
But the risk is very low when investing in real estate using REITs. Another good piece of investment property advice is that it doesn’t take much cash to get started. And you can diversify over a number of property types in the process. Of course, the liquidity is one of the greatest draws of REITs relative to actual property ownership.
But if you like to take control of your own projects, have the fortitude to see your projects through to completion, and like to put your imprimatur on your own properties, then REITs would probably not be for you. Rather, you should then be focusing on saving up for down payments on your own investment properties. That way, you can also utilize the leverage inherent in owning your own real estate when you utilize mortgage money to help grow your portfolio. And of course, the tax advantages of self-ownership can greatly outweigh using REITs as a form of investment property purchasing.
Diversification of your real estate dollars is one of the main facets of investing in REITs. When you purchase one property yourself, you’re in effect putting all your nest eggs in one basket. By allocating dollars to REITS, you get to even out the investment over many properties in many potential real estate niche markets. The safety will be much greater.
That said, you really won’t learn much about the nitty gritty of the real estate market by investing in REITs. To truly understand property investing, and my best investment property advice, is that you’ll need to own property yourself in order to understand and truly learn about the intricacies, fluctuations and vagaries of the real estate market. It’s a life lesson you can’t possibly learn by investing in a REIT. Just be sure to cater your investment style to each option that suits your personality.
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When searching to buy investment property, it is a rarity to come upon a residential house where the seller will offer some form of owner financing. It is more common in commercial real estate, especially for rental buildings with over five units. However, whenever you come across the opportunity, by all means avail yourself of the chance to obtain some amount of paper being given by the owner to sweeten a deal.
Any money you don’t have to put up yourself when you buy investment property offers you the opportunity to increase your leverage on the purchase. And if you don’t have to borrow from a bank (or worse, a hard money lender) then you will be saving your credit line possibilities for further down the road. And if an owner is willing to take back mortgage paper for at least some part of the purchase price, you will be ahead of the game. Even if that amount is small, or not a first mortgage, it will benefit you. Every little bit of leverage goes a long way. Of course, if you can obtain a first mortgage from the seller, even better still.
You can expect to pay for the seller’s attorney’s fees for preparing the mortgage. However, you’d be doing the same thing (paying attorney fees) if a bank was involved in granting you a mortgage. If a seller is willing to offer a first mortgage, you can expect to negotiate a break in interest rate if you are paying market rate or slightly more for the property’s purchase price. Conversely, if you have negotiated a great price on the building, expect to pay a slightly higher interest rate on the loan than a conventional bank mortgage would currently offer.
While owner financing helps you greatly in increasing your overall financing leverage and future options, don’t waste your time making it your number one pursuit when searching to buy investment property. It is still an elusive task and will take an inordinate amount of your time. It would be better to use your time more wisely – time that could be spent on more fruitful property searching. Don’t pass up a great deal simply holding out to obtain seller financing. But if you do manage to come across a willing seller offering some amount of owner financing, by all means, don’t pass it up.
You’ll negotiate just as hard as you would normally – but now you’ll be negotiating not just on price, but overall terms of the mortgage as well: interest rate, amortization schedule, and payoff term. Expect any owner financing to be short term – usually 1 to 5 years, but with amortization based on 15 or 30 years, with a balloon payment at the end of the overall term. Like with commercial paper, you’ll eventually have to refinance the overall remaining mortgage amount at the end of the term.
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Hard money loans are basically a form of short-term borrowing available to property investors. They are like bridge loans, in that they are designed to get in and out of very quickly. Hard money loans are typically used by those in dire financial straits, like borrowers facing foreclosure or bankruptcy. But property investors utilize their services as well – and with good reason. Simply put, hard money loans are a much better alternative to all cash deals.
The average hard money investment property loan is supplied with capital put up by private investors – usually as a pool of money that is used to drive much greater profits for its investors. This private capital is traditionally unregulated, which gives the hard money industry a kind of “Wild, Wild West” feel to it’s practices and reputation. Pejoratively, many consider hard money lenders as sharks feeding off the misery of those in bad financial straits. As a property investor, you will certainly need to approach any hard money investment property loan with a great deal of caution and foresight prior to signing on the dotted line.
That said, if you do not have excellent credit, or if you’re self-employed with much income written off, or if you are investing money from a self-directed IRA, then it may be difficult for you to obtain conventional mortgage financing. You could pay all cash for your next property acquisition. But hard money lenders allow you the ability to utilize leverage – even in the short term.
Think of hard money lending as a local train on the real estate train line. Conventional bank loans are quite onerous to qualify for, but they offer the best rates and terms for property investors. They are like the express trains on the line. Hard money investment property loans are like local trains in that you will need to continually be stopping off at more points along the route. Points where you need to pay off your existing short term loan’s balloon payment by taking out another short-term loan to supercede it.
Is this more costly, time consuming and fear-provoking? Absolutely. But, hey – you’re a property investor. You should be used to living with debt and risk – and be comfortable with it. Your safety is knowing there are always going to be hard money lenders out there with their private funds to ensure you make it through to your next “stop” on the line.
While paying all cash for a property is the “safe” way of investing, it provides no way to leverage your financial strength. Assuming you could not obtain conventional financing, hard money lenders offer the next best alternative to all cash deals. While your cash flow will be severely impacted because of the relatively exorbitant interest payments on hard money loans, even a small positive cash flow will yield great leverage over several years of making timely payments on the loan. Remember, besides the cash you put up on the property as your down payment, you will be paying off the principal on your hard money loan each month – thereby helping to increase your return on investment (ROI). Over several years, a small positive cash flow will yield much greater ROI’s than an all cash purchase would.
If you’re going swimming amongst the sharks, your protective shark cage is knowledge. You need to know ahead of time that typical hard money loans carry interest rates that can run anywhere between 12 and 18 percent. Balloon payment are de rigeur, and these mortgages usually come due within 1 to 3 years. In all but rare instances, hard money lenders require being in the first mortgage position, so they can get their money out first if you default.
In addition, typical loan-to-value (LTV) ratios on hard money investment property loans range between 50% to 65%. And this LTV is based upon the “quick sale” market value of the property…that is – what the property will fetch today – not three months from now after you’ve fixed it up. Another potentially scary cost to take into account are points (up front interest charges). Typically, they can run anywhere between 4 to 8 percent of the total mortgage amount.
As a borrower, the hard money loan is definitely not for the faint of heart. You should already be comfortable taking on more debt, especially of the short term variety. You should also be well aware of the consequences in case of default.
The hard money lender takes on the increased risk of borrowers with less-than-stellar credit. For this, they are able to charge exorbitant interest rates, with onerous terms, and even more Draconian conditions if the borrower defaults.
A mature, responsible investment property investor/borrower should not be scared off by the terms of a hard money loan. They realize they can use the leverage to their advantage to help grow their real estate holdings. And they enter into hard money investment property loans with eyes wide open.
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Let’s face it – we live in a world-wide economy. And property investing in the United States requires being cognizant of the potential pitfalls that await us from overseas markets. It seems like every day there are new, gloomy reports of impending financial disaster coming out of Europe. The latest news comes this week from Spain, as their banking industry seems poised to collapse. Banco Popular, as well as Bankia and Bakinter, three of the largest banks in Spain, have been downgraded by the credit ratings agency Standard & Poors. S & P lowered their ratings to near-junk standards, as these banks have been hit hard by increasingly bad loans, especially mortgages.
In addition, Bankia, which is Spain’s largest mortgage maker, announced on Friday that it required an infusion of an additional 24 billion dollars to stay afloat. Spain had seized the bank earlier this month, due to the bank’s huge portfolio of delinquent mortgage loans. The greatest fear is that Spain will not have the ability to raise the funds to keep Bankia alive. If this mammoth lender were to collapse, the entire European banking community will be rocked to its core. Of course, the reverberations will be felt here in the states, much like a financial tsunami hitting our shores.
Spain is currently experiencing the same bubble burst in real estate that began here several years ago. However, their central government may have waited too late to try to repair the rupture to their economy. There is a double whammy on the horizon for them: the genuine threat of a run on Spain’s banks, combined with the government’s inability to raise funds to cover all the bank losses in the short term. Currently, short term debt is being offered by the government there at a whopping 7 percent in order to entice foreign investors. It’s a very ugly situation indeed.
Will Germany have to come to the rescue again, as they have several times already with Greece? It’s looking more and more like a strong possibility. But at some point, Germany itself will be simply unable to financially take the lead as the main country in helping to bail out weaker European Union countries. The writing’s on the European wall – and it’s not looking very positive in the long term.
For this reason, property investors here in the Unites States should be extremely concerned about the negative consequences that lie in wait for us. What exactly does this mean for the small investor in our country and the ability to obtain an investment property mortgage? Will the overseas crisis come to our shores? And if so, when?
As I’ve written before, I think this financial tsunami will occur in some form, and will be making its way over the Atlantic to our shores by late this year. And the net effect for small property investors will be a further tightening of credit. It will be
much harder to get an investment property mortgage later this year and going forward well into next year as the crisis in Europe develops and intensifies.
So the end result is that you should be planning your buys of investment property accordingly. If you haven’t already this year, be sure to speed up your property purchases as soon as possible, and do not wait till the end of the year to try to go out searching for property and locking up an investment property mortgage. By the end of this year banks in the United States will be feeling the crippling effects of what is going on overseas. Banks here will try to tighten their credit in order to ensure mortgage repayments, ratcheting up their standards for lending in the process. Small investors will be hit with higher FICO scores in order to qualify for a mortgage, as well as much lower loan-to-value ratios on all new mortgages.
The new bottom line is that it will be much more difficult to increase leverage on your properties. More stringent qualifying standards will apply not only when you try to purchase new investment property by obtaining an investment property mortgage, but also when you refinance any of your existing properties. So your ability to leverage will plummet, and that will mean more cash out of pocket in order to help finance your new purchases. With less leverage of course, you will not be able to grow your real estate investment holdings as quickly. It will also create a scenario where your returns on investment will be substantially reduced as well.
So be aware of all that’s going on in Europe right now. Banco Popular, Bankia and Bankinter are not merely names of distant lenders – their failure would have far-reaching effects on how you purchase your investment property here in the states. To protect yourself, purchase and lock in an investment property mortgage now, well in advance of the end of this year. And plan accordingly. You should be planning your next year’s purchases based on the assumption that higher credit scores will be necessary to obtain that investment property mortgage, and your ability to leverage will be lessened. Also prepare for a reduction in mortgage loan-to-value ratios offered by lenders here. This means you’ll have to make up the difference utilizing your own cash on any new investment purchase.
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For many years now investors have had only one choice when it comes to investment property loans that allowed for renovation cost wraparound financing. These types of loans are used so you can incorporate the fix up costs to renovate the property into the total mortgage for the house. This type of loan is called the FHA 203K renovation loan. The problem in the past with this form of loan is that you had to occupy at least one of the units in the building you were purchasing.
Therefore, for most investors, if you were not going to live in the investment property, this type of loan would not be available to you. In addition even if you were purchasing a multi-family house under five units, and if you were not going to live there, this type of loan would not be for you. It would only work if you’re going to live in one of the units. Now Fannie Mae has come out with their Homestyle Renovation loan. This loan is a sign of the times, as the federal government tries to help banks lessen their inventory of foreclosed properties. Now as an investor, you can purchase a property and wrap the renovation costs in with the total mortgage. And you don’t have to live there.
This type of loan is great news for investors who really want to leverage properties. Instead of sinking a great deal of your available cash into renovation costs, you can now wrap a large portion of those renovation costs into the mortgage. This frees up your other capital for purchasing other properties. This Fannie Mae Homestyle Renovation loan can be used to purchase basically any house, condo or townhome, or multifamily property,. And the property can be in any condition, and loans will typically carry loan to value ratios in the 50 to 75% range, depending on the property.
Like the FHA 203K type of renovation and purchase loan, you’ll need to use a licensed contractor. The contractor will have to be familiar with what Fannie Mae requires, It will be helpful to use a contractor who has had a great deal of experience dealing with the FHA and its paperwork requirements. Ultimately the contractor is responsible for generating all the paperwork as to the renovation work to be performed, in order to get the loan approved. Just like the 203K, you’ll need to use a contractor that’s been approved by Fannie Mae.
Nevertheless, this is still an exciting proposition for property investors. Now you’ll be able to truly leverage multiple properties at a time using this type of loan. Again the only caveat is that you will ultimately have to bring a tenant to the table in order to get the loan. As with the 203K type loan, you’ll have a window of time in which to get the unit occupied, after the renovation work has been completed.
Some of the repairs usually done in loans like these include major work like roof repairs or replacements, new heating units, new air-conditioning , as well as complete kitchen and bath remodeling. Unlike the old FHA 203K loan however, where only one property could be financed at a time. This new Homestyle Renovation loan can be used to finance multiple properties. This makes it a gold mine for investors looking for new investment property loans.
Before looking for more investment properties, you really want to create a team to help you buy these kinds of distressed properties. You want to find real estate professionals with experience dealing with foreclosures and short sales. You’ll also want to get recommendations for mortgage loan people who are familiar with this new style of loan from Fannie Mae. It’s very important that these mortgage people can close on a loan like this in the shortest time possible.
You want to find mortgage loan officers who can put you at ease that a loan can close within 30 to 45 days, much like the time it takes for most average non-FHA loans to close. Otherwise you’re going to have a big problem on your hands if the loan takes forever to get approved, and you can’t close on time. It’s also a good idea to have your contractor on board as you look at properties that need a lot of work. If your contractor has done work with the FHA 203K type loan before, all the better.
So if you go out searching for investment properties these days, and if you look at a lot of distressed and or foreclosed properties or short sales, make sure you have your team all set to go: your contractor, your mortgage person, as well as your real estate agent. Make sure they’re all familiar with this new Fannie Mae Homestyle Renovation loan. Because once you see something you like, you’ll really want to jump on it as quickly as possible and put in a bid on it immediately.
And after a bid has been accepted and a contract executed, you want to get the paperwork rolling as quickly as possible for this type of investment property loan. That way the whole process will run smoothly, and you can then concentrate on your next project.
photos courtesy of 203konline.com, lendersoup.com, 203krehabnow.com, moneypress.com, workaway.info, brokersbestmtg.com, buildingmoxie.com