Real Estate

How To Qualify For A Mortgage: Three Key Numbers

by Brandon · 0 comments

So you want to buy a house.

Unless you have all cash, you are going to need to obtain a loan – called a mortgage.

So how do you get a mortgage?

Whether it is for an investment, a personal home, or any other reason – mortgages in today’s market can be tricky and difficult to obtain. However, mortgages are not a mystery and the rules are fairly straightforward when trying to obtain a mortgage. This post is going to look at the top three different areas that a lender is going to analyze before saying “yes!” to your mortgage request.

  1. Your Credit –  This is most widely known and the easiest of the bunch to understand. Your credit score is a number given by one-of-three private scoring companies. Your score is determined using computer-driven algorithms that take into consideration the amount of debt you have, the amount of late payments you have had, the length you have had that debt for, and several other factors.   A credit score can range between 300-850.  Lender’s want to know they are making a safe investment lending you money, so before applying for a mortgage, make sure your credit is at least 640. The higher your credit score, the lower you will pay on your loan.
  2.  Your Debt-To-Income:  This number is a ratio that looks at the amount of monthly debt you have compared to the amount of income you make. In other words, a lender looks at all the loans you have (credit card minimum monthly payments, auto loan monthly payments, other mortgages minimum monthly payments, etc) plus the monthly payment on the new loan and divides it by the total gross income you make per month.  For example, if I have a $300 car payment, $100 in credit card payments, and I am looking to pay $800 per month on my new mortgage, my total debt would be $1200 per month ($300+$100+$800).   If my total gross (before taxes are taken out) income for the month is $3800, my debt-to-income ratio is $1200/$3800 or roughly 32%.   In order to qualify for a mortgage, make sure your total debt-to-income percentage is below 50%, but ideally below 40%.
  3. Loan-to-Value: The loan-to-value (also called LTV) is another ratio that looks at the amount of the loan you are trying to get compared to the total value of the property. Generally speaking, the difference between the loan amount and the value is going to be your down payment. For example, if a property is worth $100,000 and you put down 20% and obtain a loan for $20,000 – the “loan-to-value” would be 80%.  This number is also important when you try to “refinance” a home.   What is an acceptable LTV? It differs widely between lenders and programs, but for a normal loan lenders do not like to loan at higher than 80%.  However, if you use an FHA loan (a loan guaranteed by the US Government), you can get up to 96.5% loan to value.

If you fall within the guidelines of the three areas above, there are still several other features that a bank will looks at before giving you money. For one, they like to see consistency at your job. If you recently (within two years) changed jobs, getting a loan can be much more difficult. Also, if you have never used any “credit” before, obtaining a loan can be difficult as well. Finally, remember that each lender has different programs and even within the same programs some mortgage professionals are simply much more competent and can help you get the loan you want.  If you are interested in buying a home for yourself, your first step is to talk with a mortgage professional. The meeting is always free and you will learn exactly what you will qualify for.

 

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Four Reasons Why Partnerships Work In Real Estate Investing

by Brandon · 0 comments

What do Fred and Barney, Bert and Ernie, Abbott and Costello, and Starsky and Hutch all have in common?

Successful partnerships.

I am a big believer in partnerships.  I believe everyone is equipped with different skills, abilities, and positions in life and by finding the correct corresponding puzzle piece, you can achieve together much more than you can achieve apart.

In a recent post I suggested using a partner’s income and down payment to secure property. This is a technique I have used several times, with great success. I received an email recently asking how to overcome a potential partner’s objections to doing this.  The underlying question is

“why would a partner put down all the down payment plus their income and credit to get a 50/50 partnership when they could just do it by themselves?

This is an excellent question.  I am often asked this by others when I mention this strategy. The funny thing is – I have never been asked this by my partners. Why not? There are four reasons why this is not an issue and how to overcome those objections when they do arise:

  1. 50% is better than 0%.  The truth is, most people with good income, stable jobs, and perfect borrowing ability don’t invest. It’s not because of lack of resources, but rather a lack of knowledge and motivation.  The simple truth is that although they could buy a real estate investment on their own – they won’t.
  2. My 50% is worth it. It is important that a partner knows that although I am not putting any money into the deal it doesn’t mean I’m not putting anything into it. I am putting years of experience, knowledge, and deal-making ability into the deal.  In many cases, I am going to be running the day-to-day operations of the rehab (if needed) and managing the property for years to come.
  3. I’m selling a valuable product – When I seek out partnerships, I do not come “begging” for help. I am not looking for a favor. I am offering a solid return backed by years of experience and the probability of profit many times greater than the stock market. When I made this shift in my thinking, my investment world was transformed. I have the deal – I found it, put it together, ran the numbers, and got the property under contract. I have an amazing investment opportunity, and I am giving others the chance to be a part of it.
  4. The property is an amazing deal – I believe that if you have a great deal, the financing is the least of your concerns. If you are having difficulty finding financing or partnerships – you need to ask yourself: “Is this deal really that great of a deal?”  I only buy properties that cashflow extremely well and have great amounts of equity (its worth more than I owe) . I only buy incredible deals. If you do the same, you’ll find eager funding.

Will some partners still have problems with this? Yes.  They will say “Well, I could just do it myself.” However, when you find a killer deal and make it work, those same people will regret not working with you. They will see that they have done nothing while you made a killing. You can guess who will be first in line to be your 50% partner on your next deal.

 

 

 

 

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Don’t (Just) Invest for Retirement!

by Brandon · 0 comments

I recently had the honor of having John Fedro write the first of three posts here on RealEstateInYourTwenties.com.  If you haven’t checked out his site yet head over there!

While you are there, check out the article I wrote for him as well! I wrote a post on his blog titled “Don’t (Just) Invest For Retirement.”  Make sure you head over there to read my article!
(Click Here To Read It!)

 

Peace!

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Add this Investment Bullet to Your Real Estate Ammo-Belt: An Introduction to John Fedro

by Brandon · 3 comments

The following post was written by a colleague and super-intelligent real estate investor John Fedro. This is blog post number one in a three part series from John. He has a highly interesting niche in Real Estate Investing, especially for those just starting out.  Make sure you bookmark his blog as well.

Add this Investment Bullet to Your Real Estate Ammo-Belt

“What do you want to be when you grow up?” This is the question that gets pounded into our brains over and over again by nosey adults encouraging youth to look ahead and consider their options for the future or by adults looking for a cute and whimsical answer.  So, what did you want to be when you grew up?  Did you become it? [please comment below]  This was my list starting at the age of 5:  a cowboy, Elvis, a grocery-store bagger, an executive chef, and lastly a physical therapist.  The last choice landed me at Notre Dame studying Medicine in the hopes for a well paying job with security in the next 7 years.
I had everything to look forward to in life– graduating, starting my career, getting a mortgage, settling down, working for the next 50 years at a job I wasn’t thrilled about, and growing old with just a moderate income.  I hated the very thought!!!  Not all of it mind you, only the unhappy-part slaving away at a career for the next 50 years making someone else wealthy. 

Do you ever feel this way?

So it is safe to say that many of us are here to make money with real estate, whether in passive monthly payments such as rent and owner-financing to BIG paydays from short-sales, wholesales, rehab projects, and the list goes on…
In fact for many starting investors simply choosing the right specialty or niche of real estate investing can make or break that investor’s drive and/or spirit from moving forward and ever closing a deal.  I was recently talking with a local Real Estate Investors Club President and asked him how many of his members have yet to do their first deal, my jaw-dropped when “Mr. President” replied over 90% of his regular audience has yet to acquire their first R/E investment!  Come to find out that this statistic is common in many real estate investing clubs and meet-ups.

Why go after the Big Fish first?

When I first started investing in 2002 I read a popular investing course at the time and implemented the exact techniques I was being taught.  I mailed letters, hung signs, cold-called sellers, made over 200 offers via Realtors alone without a single deal accepted.  In addition every private seller I spoke with seemed to be wanting retail prices for their home or only wanted all-cash (as opposed to creative financing).  I was spinning my wheels spending my savings on marketing and was losing deals to local big-named investors with the available-cash to purchase homes quickly and at a low cost.

I needed a way to make serious cash-flow fast without risking much money (because I didn’t have much left) and did not require credit (as I was 20 at the time and had a lack of established credit).

Failing Forward

Three months after making my first investment offer I was out of money and running low on morale.  Around this time I was feeling uneasy and unsure about my next move.  I received a call from a seller selling a unique home that seemed to be unsellable.  In fact every other investor told her to “get lost” (I’m paraphrasing).  This was soon to be my first investment property! The home is a beautiful 3 bedroom 2 bathroom plus den house overlooking the water near Tampa, Fl.  Best part is she was only asking $8,000 for the entire 1,200 sq ft home!
Have you guessed it yet?

Hint #1: The land the home is on is rented monthly by the home owner from the land owner.
Hint #2: You think many of these homes have wheels, but many do not.

If you have ever thought about investing an inexpensive mobile home and reselling it to a park approved buyer for cash-flow payments of $300-$600 per month, it’s time to think again.  Here’s a little about what you’ll discover in my next blog posts here at RealEstateInYourTwenties.com.

  • How you can get started immediately investing in mobile homes with little capital and almost zero risk
  • Which mobile homes make you the most money
  • Case study:  How to structure a deal using the 3/2 mobile home example above

Thank you again to Brandon Turner for allowing me to publish these thoughts for all of you awesome readers and fans to enjoy.  I am always available at the email below.  Everyone here has helped make this blog and network a wonderful place to grow and learn as active real estate investors.  Rising waters lift all boats!

Impact a life daily,

John Fedro

John Fedro is a leading expert in creating passive-income utilizing mobile homes for beginner and novice cash-flow seeking audiences with an award winning blog, an online podcast series, do-it-yourself video tutorials, and an E-magazine that benefits national charities. He has helped close over 120 real estate transactions in over 27 states.  He also co-established the first interactive performance-based online education classroom for mobile home investors. John has helped redefine investing in mobile homes as a popular and lucrative addition to traditional real estate investments for cash-flow.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

How To Buy Real Estate When You Are Broke

by Brandon · 16 comments

Buying real estate costs money. However – it doesn’t have to be your money.  With the right mix of resourcefulness, creativity, and knowledge you can buy real estate with no money of your own. Don’t believe me? I speak from experience! Nearly every single property I have ever purchased has been without any money from myself.  The following are seven strategies that can help you buy real estate without spending any of your own money.

  1. Use Hard Money– hard money lenders are private individuals who loan on property based primarily on the value of the property (read my post on Hard Money Lenders here).  Although lenders have been tightening their standards in recent years, they still will generally lend 100% of the purchase price and possibly even repairs if the deal is good enough. They need to feel secure in their investment, so if you only need $50,000 for a property that is going to be worth $100,000 – you may not need to put in any money. Just remember though – lenders are going to be conservative on their values so don’t overestimate the future value.
  2. Use your Home Equity – Do you already own your own home? Did you know you can pull out equity in the form of a Home Equity Line of Credit (usually a variable but low interest rate) or Home Equity Loan (usually a fixed interest rate but higher) to use to buy an investment? Not only is this money relatively cheap to borrow, you may also be able to deduct the interest on your taxes (but see a CPA for details).
  3. Use a Partner – Do you have knowledge, motivation, and skill but lack financial resources? You are in luck! Much of the professional world has financial resources but lack knowledge, motivation, and skill! Use your networking skills to find others who have the missing piece in your strategy and become partners. Make sure that everything is spelled out clearly up front and everything is in writing.
  4. Raise Private Money: Similar to a hard money lender, you may be able to find wealthier individuals who want to earn more on their investments than the stock market or a savings account can pay. Many real estate investors will offer their clients a set 12-20% return on their investment, secured by a lien on the property. This creates security for the private lender and funds for the real estate investor. A true win-win.
  5. Use a Lease-Option –  A lease-option is a strategy used in real estate to buy homes from homeowners without actually taking legal ownership. Instead, the real estate investor signs a long-term lease with the house owners as well as signing a legal “option” to buy the property at a specific price in the future. The owners are not legally allowed to sell the property until the option period is up, and the investor gets to lock in his future purchase price as well. The investor can then easily rent the property out for cashflow or find a buyer to sell his “option” to.
  6. Buy properties “Subject-To” – Buying a home using a “subject to” strategy involves actually transferring legal title from the old owner to the new investor – without paying back the original mortgage that the old owners had.  While the bank may not appreciate not being paid back, as long as payments are continued to be made, usually the bank will either never find out or never care. This strategy is a bit riskier, but as long as you have a backup plan, it is perfectly acceptable.
  7. Use a Combination – Finally, you can mix and match using any of the above scenarios. Perhaps use a hard money lender to purchase the property and use a partner to refinance into a thirty year fixed mortgage after the repairs are done? Or perhaps use a lease-option until you can raise private money to cash out the sellers?

As you can see, there are a huge variety of ways to buy real estate without sacrificing your own money. If you are resourceful and the deal is a good one, you will have no problem buying real estate without any money of your own. Don’t let “I’m too broke” become an easy excuse not to invest.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

Post by Alan Corey: How to Save Money when Buying a Rental Property

by Brandon · 0 comments

The following is a post from one of my favorite authors Alan Corey. Alan has been featured in multiple media sources such as  US News & World Report,  Money Magazine, The Boston Globe, The NY Post, CNN, CNBC, ABC, and Fox.  He has also appeared on several nationally and internationally-broadcast television shows including Bravo’s Queer Eye, NBC’s The Restaurant and the ubiquitous The Jerry Springer Show.

I first read his book “A Million Bucks by 30” several years ago and it quickly became one of my favorite financial books around. Alan was awesome enough to take some time writing a post just for RealEstateInYourTwenties.com.  Besides being an all around awesome guy, he also has great insight and experience into how to use real estate to propel your future.  Thanks Alan!

 

How to Save Money when Buying a Rental Property

By: Alan Corey

Alan Corey is the author of “A Million Bucks by 30”. You can learn more about him and his book at www.alancorey.com.

 

If you are looking into buying real estate to rent out for some passive income, it all comes down to buying a property at the best price possible. The following are some tips I’ve employed to get the purchase price down as little as possible, sometimes saving me as much as 25% on the purchase price.

The number one way to instantly save on a purchase price is to make your offer before a property is listed with a real estate agent or broker. The seller of a property is responsible for the fees paid to real estate agents and brokers, which can run around 5-7% of the purchase price. Knowing this, many properties are listed higher than necessary by homeowners just to cover these selling fees. So getting ahead of the agents can instantly save you 5-7% on your home purchase.

For me, finding properties that are not listed yet takes some leg work (literally). I begin by walking around neighborhoods I’m interested in buying in. If I see a vacant or abandoned home, I’ll talk to neighbors who may know who I could contact about purchasing it. Sometimes there are unclaimed mail and magazines on the front step for you to get a name, leading your internet research in locating the owner. You may stumble upon a house in pre-foreclosure, which could allow you to purchase it at a deeply discounted price.

Furthermore, while on my neighborhood walk, if I see a house getting renovated or under construction, it’s an also sign I have a chance to beat the real estate agents. Many times these houses are owned by house flippers looking to unload of the property as fast as possible. So the key here is to get in before the work is done. Often house flippers choose to put in expensive upgrades to have the house sell quickly by distinguishing it from other homes on the market. I’ve negotiated a lesser workload and lesser upgrades on a construction site in exchange for a reduced home price, to the benefit of both parties. A house flipper is always worried about carrying costs of a house while it sits on the market and secondly, a quick sale will allow him to start looking for his next project. In the end, the house sells for less money, which in turn saves you a lot of coin.

Lastly, walking and talking to people you meet in a neighborhood is another word of mouth way to network for properties. Someone you meet may know about a house about to get listed or one that was just taken off the market because it didn’t sell (a sign the agent contract has expired.) You can even talk to renters who are about to move out, which may be a concern to the homeowner and help pave the way for you to get a purchase offer on the table. Either way, you can start talking at a lower price point and it may lead you to bargain deal.

To recap, get in on a property before the agents do. Most times the cost savings all come down to timing. Cutting out the middle-man is a great way to save money, so the best time to buy a rental property is when you can buy it directly from the owner. It may take some patience and some persistence, but that’s the foundation of a great real estate buy. And great real estate buys make successful real estate investors.

P.S. looking for hard money loans in California? Be sure to check out my friends over at northcoastfinancialinc.com. They have very competitive rates, can fund within a week and specialize in fix and flip loans and other hard money loans.

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