BUSINESS FUNDAMENTALS
BUSINESS FUNDAMENTALS
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TURNKEY
FINANCING
The Key to Investing Success: Financing
This content is brought to you by Norada Real Estate Investments PROPERTY SOLUTIONS Norada The Rental Strategy THREE TIPS YOU MUST FOLLOW WHEN BUYING A RENTAL PROPERTY.
EXPLORING THE DIFFERENT LENDING OPTIONS SO YOU’RE READY TO BUY.
by Blake Yarborough
R
eal Estate Investing has become the hot trend across our country
the option of type of prepay. Be sure to understand before entering this type of loan. They can be declining prepay 3-2-1 or possibly
Cost (LTC) and 70-75 percent of After Repaired Value (ARV).
and is gaining popularity. There are many benefits to Real Estate Investing like Cashflow, Market Appreciation, Equity Capture, Tax Advantages (De- preciation), and Principal Pay Down. Financing options have increased over the last few years with more coming to the market daily. Knowing how and when to use these prod- ucts effectively is key to investing success. These loans are as follows: Private, Hard Money, Conventional, Bank Portfolio, Securitized. PRIVATE MONEY Every successful investor needs access to private funds. Private funds are the fastest and most flexible. They are best for unique situations. Private money can be used for 100 percent of the Loan to Cost amount and for any property condition. Funds may be limited. Maximize leverage with hard money loans. This is a short- term loan based on After Repaired Value. This loan type is ideal for properties that are not financeable through traditional sources. Com- monly used for Fix and Flip situations and Rehab to Rent, but they require two closings. This loan will finance any property condition and unlimited funds. Currently, these loans are provided for up to 100 percent Loan to HARD MONEY
CONVENTIONAL These loans offer best rates and are fully amortizing. Usually, these loans require excellent credit and income documentation. Property condition must be without deferred maintenance. Typically, 20 percent down is required for a purchase and 25 percent down is required for refinances. These loans are available for up to 10 financed properties. And, you must close these loans in a personal name. BANK PORTFOLIO Simply, a loan that the bank keeps in their portfolio. If the loan makes sense as an investment, they will do it. With this type of loan, banks can overlook changes in job or other financial situations that would be a problem for conventional loans. Portfolio loans can be a single asset or a multi asset/blanket loan. Guidance Lines of Credit (GLOCs) may be set up for acquisitions or rental loan packag- es. Banks underwrite a borrower one time to a limit. These loans may be for up to 90 percent LTC, not to exceed 75-80 percent of value. SECURITIZED These loans are securitized typically as a package of loans to investors expecting a certain return. Typically, they have a prepayment period of 3-5 years with
yield Maintenance of Defeasance that can be very expensive. These loans are useful as another
by Marco Santarelli, CEO of Norada Real Estate Investments
R
ental real estate continues to be a good investment strategy
ployment and low interest rates and these two factors together keep the housing market healthy. As such, the single-family sector of most all real estate markets is strong and in high demand. Given that single-family rental properties are easy to rent and stay leased, they are also the easiest to sell compared to multi-unit prop- erties — if and when that becomes part of your plan. Typically, when working with a reputable turnkey property firm, the three tips above will be part and parcel of your investment. Of course, there’s more to it than the tips above, and that’s something you should certainly discuss with your team and advisors. Continued success!. •
#2 Use Leverage to Purchase Rental Property As important as location is to buying, so is leverage when it comes to investing. If you do it right, you will be able to continually add more rental proper- ties to your investment portfolio. If you wanted to buy $100,000 worth of stocks, you’d need to invest $100,000 from your savings. But, if you want to buy a rental property that costs $100,000, you can use other people’s money (OPM) to make the purchase. A bank or other lender will gen- erally provide you up to 80 percent of the purchase price, provided you qualify, and you provide the other 20 percent as the down payment. This allows you to leverage your in- vestment capital (savings) as much as 5-to-1. That’s powerful and can accelerate your wealth creation.
source for long-term financing with easier qualifying terms when it comes to credit and borrower income. Many times, these are qualified based on the independent cashflow of the underlying collateral.
and one that more high net worth investors are attracted to in order to cope with stock market volatility. But regardless of whether you’re investing in your first, second or twentieth property, here are three tips you must follow when buying a rental property for passive income. #1 Choose Good Locations Before Buying Rental Property Before you set your heart on a spe- cific property, bring the property’s location into serious consideration. “Location, Location, Location” still rules and remains the most important factor for profitability in any form of real estate investment whether it’s a “fix and flip” or a buy-and-hold rental property. Find out what the crime rate is in that location. How good is the rental market in that location? How is the local economy? Are there schools close by and how are they rated? How far are basic amenities like parks, supermarkets, trans- portation hubs and restaurants?
Knowing the different financing options available will open more pos- sibilities to investors that many people believe are not possible. Many people speak to one banker and are told that they can do a certain loan and their growth and continued success is lim- ited. A lender only sells what he must sell. Continue to look for different money sources as you look for invest- ment properties. Then, if you find a property, you’ll have the money! •
Marco Santarelli is the founder and president of Norada Real Estate Invest- ments, a national real estate investment firm offering turnkey investment prop- erty in growth markets nationwide. He
#3 Choose Single-Family Rental Properties
In general, a low unemployment environment like we have today translates into a strong housing market. We have both low unem-
is also a published author and host of "The Passive Real Estate Investing Show," a podcast for real estate investors interested in building substantial passive income and creating long-termwealth. Learn more at NoradaRealEstate.com.
Blake Yarborough is the President of Investor Lending and you can learn more at investorlending.com or by calling 713-337-2000.
38 | think realty housing news report :: august / september 2019
thinkrealty . com / hnr | 39
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