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Property Investment Loans Come In Handy In A Buyers Market

Dirt cheap properties left in a jumble of foreclosures and short sales by the crash of the economy and the real estate industry is an indication for savvy investors, like you, that the time to buy property investments is ripe. With so much bargain available in the market, you need all the capitalization you can get. You can stretch out your buying capacity by leveraging on property investment loans. Besides expanding your buying power, let us see how property investment loans can benefit your investing exploit.

Property Investment Loans Magnify Your Buying Power

Investing in a property requires a substantial amount of funds that is why many people cannot really afford it. Property investment loans can magnify your buying power allowing you to acquire more properties than what your current bank account could afford you. Buying investment properties like this  props you up in building your net worth. Just make sure to work out the numbers on how to pay off the loan. Stabilizing your financial standing is the best way to prepare for a buyers’ market. Bolster your financial affairs so that you can easily qualify for property investment loans. Getting a pre-approved loan makes you all geared up for the killing.

Property Investment Loans Let You Leverage on OPM

The most significant benefit you get from property investment loans is that you  can leverage on other people’s money (OPM). You make money by using OPM. Property investment loans allow you to own entire properties even if the payment you have paid is only a certain percentage of their worth. You can profit from the properties through rental income or appreciation, even if you have not paid off their entire value yet. With property investment loans, you do not need to use your own funds, thus, making them available for other investments, such as the stock market. Even with 20% down payment requirements on rental properties, that is much more leverage than anything available when investing in the stock market.

Property Investment Loans Offer Affordable Interest Rates

As earlier mentioned, stabilizing your finances primes you for the buying season. A passing FICO score allows you to avail of property investment loans with reasonable interest rates. A rickety credit standing will most likely get your loan application disapproved and your next option would be to approach private lenders who are lenient with credit scores but charge hefty interest rates.

Approval For Property Investment Loans Is Easy As Pie

Majority of creditors have clear-cut criteria when approving applications for property investment loans. You can easily tell if you get approved or not. The importance of financial stability is again stressed here. Lenders will rubber-stamp your application for property investment loans if your finances are well anchored.

Property investment loans are a beneficial facility for real estate investors to stretch their buying capacity and leverage on other people’s money and they can easily be availed at reasonable interest rates provided you have a good credit standing.

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Buying an investment property is no joke as it requires substantial amount of financing. All the more for multi-unit rental properties. However, savvy real estate investors know that they do not have to own plenty of cash to invest in a property. As long as they can secure a good investment property loan, they can get into a deal without shelling out funds from their own pockets. It would be wise to get pre approved for an investment property loan so that when the right investment knocks on your door, you are ready with your financing. But how does one obtain an investment property loan?

Preparing the Field For An Investment Property Loan

Raise That Score!

A good FICO or other credit ratings can give you access to a heap of funding not just for your personal property, but for your investment property, as well. If you are thinking of obtaining an investment property loan, take the time to tidy up your records and correct possible incorrect data that may have been mistakenly logged as well as update old information. Who knows, these inaccurate details may become the culprit why your investment property loan application gets declined.

Save Up For Down Payment

While there are ways where down payment is not required, such as seller financing, it is a good idea if you can squirrel away some funds while still looking for an investment property. Saving up to pay for 20 percent of your estimated amount for your investment property loan would be a good figure as it is the industry standard. You may want to try to obtain 100 percent funding by allowing the bank to hold your money in a Certificate of Deposit or other account that bears interest as collateral for the mortgage.

Study the Numbers and Be Ready To Justify The Investment

The bank or lender would want to know about the investment property and the forecasted profitability of the investment as shown in computations such as Return on Investment and Cash-on-Cash Return. Letting them know that you are well-versed with these figures demonstrates that you know what you are doing and will show them the color of your money when you make such investment. They would also want to know about your exit strategy for that particular real estate deal, whether you would be flipping it, rehabbing it or renting it out, among others. If you have real estate investing experience to boast of, let the lenders know. This will be brownie points for you because such experience indicates that you have a full grasp of the type of decisions that a real estate investor typically encounters.

Window-Shop For The Best Investment Property Loan Option

You can obtain your investment property loan from a number of sources. They may be banks or private money lenders. Compare the different terms and interest rates that they offer. If your credit standing is not that good, obtaining your investment property loan from a hard money lender may suit your needs. When making an inquiry, let the lenders know that you are shopping around and try to haggle for a lower rate. The proliferation of lenders and lending companies now will help you get a competitive price for your investment property loan.

The formula for securing an investment property loan includes polishing the magic numbers in your credit rating, growing the numbers in your wallet for downpayment, sharpening the numbers in your head to show mastery of the investment to lenders and weighing the numbers offered by different lenders.

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In the past, real property has been a symbol of wealth and power. The moneyed elite own vast lands and were the landlords. Today, buying investment property has stood the test of time as a vehicle for accumulating wealth. In recent years, the idea of investing in real estate with little to no money-down has become popular especially since it means that anyone can own a property even without much funds. Many people also look into buying investment property as another investment vehicle to prepare for retirement. With the profitability of real estate investing, many people were said to be able to achieve early retirement.

Buying Investment Property for Appreciation

“Don’t wait to buy real estate. Buy real estate and wait.” This is real estate guru Robert Allen’s way of saying buy, hold and wait for the value of your property to appreciate. This was the common idea of investing in real estate in the past where only the well-heeled can afford to speculate and plonk their extra funds in property.

Buying Investment Property to Satisfy a Universal Need

Real estate is a commodity needed by everyone wherever they may be. While the world population is growing, the expanse of land is constant in this world. It cannot be manufactured like other commodities.  Although the demand for real estate in some markets plummeted, when the economy bounces back, the demand will rebound with it.

Buying Investment Property to Leverage

Another powerful advantage of buying investment property is you can invest only 10 to 30 percent as downpayment. When you are able to act fast and find a hot buyer for your newly-acquired property, then you do not have to produce the entire amount but still make the same amount of profit. This translates to higher cash-on-cash returns. You can also use it as collateral to make a loan should you need the full amount or to make other personal loans.

In contrast, if you invest in the stock market, you cannot just make a downpayment for the stocks that you want to buy. Moreover, when you invest in the stock market, you leave the profitability of your investment in the hands of those managing the company of the stocks you bought. In many instances, buying investment property is also less volatile than paper assets.

Buying Investment Property and Control How You Rake In Profits

If you are not the type to leave fate into the hands of chance, such as hoping for the value of your property to appreciate soon, then you have a handful of other options where you can control how you profit. You can buy and wholesale or flip a property to make a quick buck. You can also buy a property, rehab it to increase its value and sell it with a higher margin. You may also make buying investment property into a cash machine regularly spewing cash into your account. This is by buying a property, maybe fix it and then rent it out. Although this may entail more work such as property management, the cash flow it can potentially bring you may mean semi-retirement if you develop the right system. You can also hire property managers to do the extra work for you.

Buying Investment Property to Defer Tax

Buying investment property, maybe a bigger one, using the proceeds of the sale you made for another property entitles you to a tax deferment under the Internal Revenue Code Section 1031. You do not get taxed until you liquidate the investment. This is not applicable to paper investments.

The advantages of buying investment property makes it a lucrative and versatile way to accumulate wealth and a great vehicle to fund retirement.

Buy Investment Property – Learn How To Buy Investment Properties and The Things To Consider When Buying A Buy To Let Property

Buy Investment Property Now!

With the benefits of buying investment properties spelled out above, topped up by the current rock-bottom interest rates and prices of homes in a market that is starting to bounce back, the question you must be asking now is not anymore “should i buy an investment property?” but “where to buy investment property?” and “how to buy investment property?” The following discussion will answer these two significant questions of a newbie real estate investors.

How to Buy an Investment Property

Strategy. The first important thing to do is to decide on your strategy, whether you want to buy a rental property (or buy to let investment property if you are buying investment property in UK), buy, fix and resell, wholesaling and flipping, or buy and hold to wait for appreciation. The type of property you buy will greatly hinge on this strategy helping you to decide whether to buy a multi-door apartment building, 3BR/2TB single family units, handyman specials, or commercial properties.

Financing. Your buying investment property checklist must also include your strategy on where to source your funding, be it from your own deep pockets, from your self-directed IRA, from hard money or private money lenders, from banks and other traditional mortgage lenders, or using equity to buy investment property. Here is a helpful article on obtaining financing when buying property investment.

Real Estate Agent and Attorney. You will find the expertise of a veteran real estate agent and attorney who work in this niche very valuable in your real estate business. So invest time in looking for competent people in your team who can give you valuable advice and deliver competent services.

Location. This consideration is more important than the structure itself. It can dictate how easily you can rent out or resell the property. It also holds sway on the asking price you can quote, as well as the type and quality of tenants or buyers you can lure. Understand the needs of your target tenants. Think about what type of neighborhood they would want to live in. Consider the following discussion in locating the best place to buy investment property.

The Best Place to Buy Investment Properties Should Be…

…In a neighborhood with low crime rate. Who would rent in a well-built multi-apartment building that is located in a high-crime-rate neighborhood? You may also be putting yourself at risk if you invest in such a neighborhood when you visit your property for inspection or when dealing with tenants.

…Accessible to schools, shopping malls, and work places. So you must consider a location where the  local economy is bustling offering a host of employment opportunities that way you can be sure of tenants that have the capacity to pay for rent.

….Ideally accessible from where you live so that when you need to inspect, supervise some maintenance work, or talk to the tenants, it will not incur you additional costs, such as substantial gas expense, plane fare and hotel fees.

….In a neighborhood or area negatively affected by new regulations or changes in the laws related to zoning, land use planning, and the like, as these may affect the value of your property.

Buying Investment Property With No Money Down

Do you want to know how to buy investment property with no money down? Yes, buying property for investment is not just for the moneyed, as what most people think. You can buy investment property with no money down with the help of traditional, hard money, and private lenders. Savvy real estate investors have also developed creative techniques in buying investment property with no money down, such as by negotiating an installment plan for the down payment, by taking over existing mortgage, negotiating foreclosed properties, and many others.
Here are some more helpful articles on buying an investment property tips and property investment buying.

What Is A Buy To Let Investment Property

Buy-to-let investment properties are UK’s version of rental properties. Investors buy investment properties and rent it out to tenants for monthly cash flow, and some years later when property values have appreciated, they can sell it for profit. Just like in the US, the British real estate industry is also struggling making it a tough time even real estate investors with buy to let investment properties. Rising mortgage rates are eating up cash flow, while falling values of properties is threatening prospective capital gains.

Buying investment property is indeed a lucrative business that can be done with little to no money down. Although it can be a gnarly undertaking and market conditions can be against you, once you understand the mechanisms of the market, the techniques of trade, and know where and how to buy an investment property, it can be developed into a semi-automatic source of income.

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Investing in real estate can be truly financially rewarding when you know what you are doing. When you buy investment property, you should already have in mind what many real estate investors call the exit strategy that you are going to implement for that particular property. This means that when you get involved in a deal, it must be clear in your mind how you are going to make money out of it. When you buy investment property, you can consider five ways of earning.

Buy Investment Property for Appreciation

Some people who are unacquainted with the real estate business think that the only way to make money when you buy investment property is by buying and holding the property until its value appreciates. You make money through capital gains. Although the value of real estate has always been shown to eventually rise, however, this is rather speculative and there is no exact science that can calculate when and how much the rise would be.  Hence, if you rely on appreciation alone to make money, you are not in the locus of control. Also, certain cycles in the real estate market, such as now, may devalue the worth of your property. Only those who have a glut of funds can afford to park their money in this guesswork for an uncertain period.

Buy Investment Property for Rental Income

To address the uncertainty issue of the buy and hold strategy, you can just put appreciation at the back of your mind in the meantime. While waiting for appreciation to take place, you can be at the helm of your earnings by renting out your property and establish cash flow through rental income. You must keep in mind, however, that being a landlord is altogether a whole new ballgame where you have to deal with tenants and toilets. If you do not have the time or patience to manage the property, you can always hire a property manager to delegate the work for you.

Buy Investment Property for Cash Flow Sans the Hassles of Property Management

To help you sleep better at night and not worry over what damage your tenants could possibly do to your property, you may offer Lease Options. With this agreement, the tenant has the option to purchase your property. With the possibility of owning the place, your tenant will surely take care of it. The waves of earnings in Lease Options usually start with a considerable downpayment from the tenant-buyer.

Buy Investment Property for Quick Cash

A popular strategy for many real estate investors today, especially those who do not yet have sizable capitalization, is they buy investment property below market value and sell them usually also slightly below market value for quick cash. Buying investment property below market value ensures you of a wider profit margin. Selling slightly below market value helps you sell the property much faster so that you can get on with the next deal.

Buy Investment Property and Rehab for a More Handsome Profit

Many seasoned real estate investors also buy investment property that needs fixing at a bargain, rehab it and sell or rent it out for profit or cash flow. Buy-Rehab-Sell (or Rent Out) strategy requires a deeper pocket to fund the renovations. It also requires particular savvy in dealing with contractors and the rehab project itself. These demanding requisites are well compensated for by handsome profits. Rehabbing increases the market value of the property that is why with this strategy, you can also earn more than just simply flipping.

When you buy investment property, you can adopt any of the five strategies of making money according to your preference and style; you may even do a combination of them, or perhaps think of a new one.

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The Lure of Buying Investment Properties

Fed up with the mercurial temperament of the stock market? Multitudes of people have instead been drawn to buying investment properties that can provide cash flow for years to come in the form of rental income. The many landlords enjoying semi-retirement funded by their steady streams of income from their rental properties indicate the bankable rewards of investing in the real estate. However, it also has its share of hurdles that any investor must be aware of and brace for.

The Setbacks of Buying Investment Properties

Vacancies and Funding Mortgage Payments From Somewhere Else

The promised steady stream of income from your rental property may not be as steady as you may have hoped for because there will be times when you will experience vacancies. Buying investment properties entails regularly paying the mortgage even when rental income dries up. During times of vacancies, mortgage payments will eat away at your cash flow, hence, you may need to finance these payments from other sources of income. Vacancies may occur when maintenance work needs to be done or when a tenant goes and you cannot immediately find a replacement. There are also areas where an oversupply of rental properties is giving landlords a hard time renting out. So before buying investment properties, make sure that these are not located in such areas. A Tenant’s Notice of Intention to Vacate attached to the Lease Agreement when you admit in a tenant is a way to avoid this hurdle.

Problem Tenants, Every Landlord’s Incubus

Okay, your rental property may be fully occupied, but who are the occupants? Beware of problem tenants who can wreak havoc to your property or to your cash flow as they may refuse to pay. A thorough background check, by calling previous and current landlords, or even by visiting the current place they are renting, before admitting them as tenants is a helpful way to steer clear of them. Also ask for security deposit, an amount which you can keep and use to fund the repair in case the angelic tenant grows horns and destroys your property.

Maintenance Costs That May Cost Too Much

When buying investment properties, consider the age of the building and the maintenance costs that goes along with it. The selling prices of older buildings may make you salivate and gung-ho to acquire, but always remember that the cost of its upkeep will whittle away at your cash flow.

Taxes and Other Costs

You have to pay for capital gains tax on the appreciation of your property and you are expected to pay for it once you sell it. Also consider in your finances the other costs incurred when selling or buying investment properties.

Less Liquid Than Stocks

When you grow tired of playing the landlord role and would want to sell your property, this may not be as easy to liquidate as compared to stocks which you can conveniently sell the next day. It may take many months for you to find a buyer if you are not inclined to selling it below its market value.

When buying investment properties, you do not just buy the prospect of reaping in substantial cash flow, but the possible problems that may go with real estate investing, as well. By anticipating them and proactively preparing for ways to mitigate them will help put your steady stream of income on an even keel.

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The drop of mortgage rates and the oversupply of properties in the real estate market have encouraged a number of beginning real estate investors to take a plunge into the market opportunities. Hence, many are now on a treasure hunt, not just for investment properties, but for investment property loans to finance their deals, as well. Generally, an investor can tap investment property funding from four sources.

Low and Slow Investment Property Loans From Banks

Savvy real estate investors tend to shy away from banks because they take at least 30 -45 days to approve a loan especially investment property loans. They are also more stringent in terms of credit rating and in requiring some paperwork to establish the financial stability of the borrower. The strong point about banks though is that they charge lesser interest rates than other providers of investment property loans.

If you still wish to get your investment property loans from banks, secure a pre-approved loan. In this way, you can still confidently offer to buy houses in cash, thus, knowing that you have a pre-approved loan. Buying in cash is your license to command low prices and take advantage of great deals. Not only that, with a pre-approved loan, you will also know in advance how much amount the bank can loan you. This can serve as a guide as to the price range of properties to concentrate on.

Hard and Fast Investment Property Loans From Private Lenders

Hard money lenders, also called private money lenders, are the answer to the real estate investors’s need for fast cash to fund their great deals. They are less stringent than banks in terms of paperwork and your credit score. That is why they are able to release funding in a matter of days. However, hard money lenders these days have tightened their guidelines and may also delve into your tax returns, bank statements and recent pay slips. So take extra care with your FICO score.

The price for getting investment property loans faster with these lenders are higher interest rates and some may charge hefty prepayment penalties for advance payments. So read and understand the fine print before doing anything.

Easy and Negotiable Investment Property Loans Through Seller Financing

If your credit score is not impressive, you can also source your investment property loans from your seller. Desperate sellers with properties that are hard to sell are usually amenable to this. Under this arrangement, you will pay the seller for the property you invested over an extended period. You make the payments but the loan still stays under their name until you settle the whole balance. Because the loan is between you and the seller, both private parties, the terms are flexible. Thus, sharpen your negotiating skills to haggle interest rates, loan period and the amount to be paid.

Funding From No-Time-But-Has-Cash Investor Partner

There are a number of people with deep pockets but do not have the time, inclination nor expertise to do the actual work in real estate investing. You may know some of these people. You can invite them to partner with you and share the profit (or loss) 50:50; or you can just ask them to just be a lender and maybe offer them 10 to 15 percent earnings of the amount they invested. Having them as a lender rather than a partner, will save you from the hassle of him meddling with your business decisions.

Creativity is one of the factors in the success of a real estate investor, be it in acquiring or selling properties or in looking for ways to secure property investment loans. Sourcing property investment loans is just a matter of matching your needs with what is available.

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REI Doors Open To All

The relative ease of entry is luring more and more people to turn their hands to real estate investing, or REI, not to mention that information about running the lucrative housing business is all over the Internet; you just have to discern which tips and advice to follow. It requires little, some would even say zero, capitalization that is why it is welcoming to beginners. Less capitalization also means lesser risk for losses for the newbies. However, the most enticing lure why people get into REI is the substantial profits that could be raked in in a relatively short time if you get things right.

ROI in REI

One of the most common measures of the quality of an investment is the Return on Investment or ROI. It measures the value of your Net Profit in proportion to the total amount you invested. This measure tells you how much increase you get on your total investment. For example, you bought a house at $100,000 and flipped it for $110,000. In this investment, you get a 10 percent ROI. Note that computing for ROI is not this simple. Remember to factor in all the Expenses you incurred for the property, such as Taxes, Repairs, Marketing Expense and many others.

What if, before selling the house, you rented it out first and you raked in some Rental Income? You also have to add this in computing for your Net Profit. Of course, this is together with the expenses that go along with running a rental property such as Property Management Expenses, Maintenance Expense, Contingency for Vacancy, Insurance, and Real Property Tax. Another item you must not forget to consider is Amortizations.

ROI Versus CCR in REI

What if instead of paying in cash, you used bank financing? This factor can totally tell a different financial story. Going back to the same house in our example, you get a 10 percent increase in your $100,000 total investment. This is the ROI and CCR (cash on cash return) you get since you paid in cash.

What if you only paid a 10 percent downpayment or $10,000? Then your ROI is still 10 percent, but your CCR is now 100 percent. This is the profit you get on the actual cash outlay that you made. The $10,000 actual cash that you invested increased by $10,000.  Obtaining a investment property mortgage when purchasing a rental property is akin to buying stock on margin but supercharged.   For real estate investors, achieving 20%, 30&, or 50% plus cash on cash returns on investment is common place.

ROI and CCR are just two measures that gauge the quality of your investment in real estate, and if you compare these figures with those of other investment vehicles, such as bonds and stocks, you will appreciate REI even more given the leverage available for buying investment property.

What Are Section 8 Tenants?

These are low-income families who qualify to avail of the Section 8 housing assistance provided by the US Department of Housing and Urban Development. They are given Section 8 vouchers as tokens to their entitlement to such subsidy. Many of these Section 8 Tenants are single mothers with children while a handful of them are grandmothers with grandchildren.

Why Accommodate Section 8 Tenants?

Ensure Timely Rental Payments

The government will pay for at least 60 percent of the rent, but if your rental fee is rather low then a 100 percent subsidy may be provided for the tenant. Your rental fee must be between 90 and 110 percent of the local Fair Market Rent determined by the housing authority. With Section 8 tenants, monthly rental collection becomes a duck soup because the government will just transfer the due to your specified account monthly. Also, if the tenant has a share of the rental, do not worry as most Section 8 voucher holders are keen on settling dues on time because they do not want to tarnish their records and squander this housing benefit.

Protect Your Property From Vandalism

If you have been in the business for some time, you may have encountered difficult tenants who damage the rental property to get back at you for serving them overdue notice. The security deposit cannot really secure your property as these tenants owe you rent for how months already. However, by accommodating Section 8 tenants, you can give them the heads up that you will report them to the housing authority should they damage your property so that they get booted out of the assistance program.

Lower Turn-Over and Shorter periods of Vacancies

Since most Section 8 tenants are single moms with children, these moms would surely prefer to stay put in a pleasant community especially if the kids have started school already. Moreover, as a Section 8 landlord, you would be required to set the rental period for a year. This translates to long-term tenants. And long-term tenants  could mean lesser vacancies and responsible tenants who would take care of your property because it will be their home for quite some time. Additionally, supply of Section 8 homes are short, hence, you can immediately find a replacement for a leaving tenant shortening the period of vacancy.

Get Satisfaction from Helping the less Fortunate

Besides enjoying property security, the assurance of timely monthly payments and lesser vacancies by dodging the bugbears of many landlords, housing Section 8 tenants may also give you that satisfying feeling no amount of rental income could beat when you are able to be of service to others especially the less privileged. However, you do not want your rental property to be branded as a welfare building, so also keep in mind to maintain a good mix of Section 8 and compliant non-Section 8 tenants.

The market of Section 8 tenants is one unsaturated niche that rental property landlords should consider because accommodating them could mean effortlessly receiving timely payments, security for your property and lower turn over and vacancy rates.

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Landlord Tips on Rental Applications and Lease Agreements

Prevention is better than cure. The cliche surely applies to renting out properties, and legal documents such as Rental Applications, Lease Agreements and lease clause inserts are your prophylaxis to the headaches that many landlords suffer from when they have not taken the trouble of getting vaccinated. Some experienced landlords and lawyers handling landlord versus tenant cases prescribe some landlord tips for the beginning landlords who are most often still legally blind and additional landlord tips for those who have been in the business for a time.

Landlord Tips on What Legal Documents to Prepare

For a smooth-sailing contract-signing with the tenant, require him to bring the necessary documents including a copy of his social security card, driver’s license, and the amount due in cash, certified funds or money order. The main legal documents you have to prepare to be signed by the tenant are the Rental Application and Lease Agreement.

A Tenant’s Notice of Intention to Vacate attached to the Lease Agreement and a Property Condition Report are also recommended. The former will prepare you when the time comes to look for a new tenant while the latter will help you “look after” the property to ensure that tenants properly maintain it. This may or may not include a Security Settlement Statement that computes for the deductions based on the damages done upon moving out. Take the time to read out the lease with the tenant highlighting the significant parts to ensure that there is a meeting of minds. If the meeting ends in disagreement, go ahead and tear up the Lease Agreement and move on to the next prospect.

Check data in the rental application is a must before turning over the keys to the tenant. Always remember to ask for past and current landlord references and validate these by asking the landlords to validate the address of the previous place they were renting. But sometimes a simple call to the “landlord” may not be enough. Some landlords tell the candidate upfront that they are going to inspect the place which the candidate tenant is vacating. If he argues about this, then they do not take him in. If he comes from out of town or his place is out of the way, then they require him to double the deposit. The same goes with candidates who lived with relatives or friends. If after six months, things appear to be peachy, the tenant gets refunded for the additional deposit. If you plan to copy this strategy, ask for advice from your lawyer if these inspections are considered legal in your region.

Furnish the tenant with a copy of the Rental Application which he signed. This is for your protection as it includes statements that authorizes you to retain the deposit should the tenant breaches his commitment to rent.

Landlord Tips on What Legal Documents and Document Changes To Avoid

To avoid a possible headache, do not allow the prospect to delete clauses or make changes to vital parts of the lease. Some tenants may have their own versions of the Lease Agreement, it would be best for you to stick to your own. Obviously, his version will include tenant protection wordings. Now whose welfare are you trying to protect?

To avoid the headaches of managing a property and dealing with problem tenants, it will serve you well if you ink a Lease Agreement with all bases covered. Most landlords know this that is why they share experiences and exchange landlord tips for their protection.

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These days, getting funding for your handyman specials from hard money lenders are getting harder as their requirements become more rigid. Traditionally, getting funding from these private lenders was almost as swift as their speed of driving by the property involved in the deal for inspection.  At the present real estate climate, however, many of these lenders may check on the tax returns, bank statements and current pay slips of borrowers. For this reason, some REI’s may be seeking for other financial fountainheads to fund their deals. Usually in their search for alternative source, they give Federal Housing Administration’s 203K loans the brush-off.

Giving 203K Loans A Second Thought

Ever since the Department of Housing and Urban Development set down the moratorium on investor involvement in the 203k Rehabilitation Program, ethical REI’s avoid this loan program lest they be charged of mortgage fraud. But hold your horses! There can be some ways you can benefit from this financial reservoir.

3 Ways on How REI’s Can Dip Into The Financial Reservoir of 203K Loans

Despite the exclusion of investors to avail of 203k loans, it does not necessarily mean that you cannot use it to your advantage. It just takes a matter of expanding your context and thinking outside the box. Below are some ideas. You may be able to think of more.

1. This will not apply to all but will serve well for REI’s who are looking into buying and doing up their own homes. Well, this scenario is obvious. This is also applicable to REI’s who just recently bought their place of residence. It is expressed in the program that homebuyers who bought their property with cash within six months may refinance the house by availing of the 203k loan. It is as if the homebuyer bought the house through the said loan. If you are a recent homebuyer, you can claim a cash refund which is net of down payment and the closing cost that goes with obtaining a 203k loan. And presto! You can use the cash-back to fund one of your rehab projects.

2. Some resourceful REI’s also suggest to work around the provision that says that the loan can be utilized to refashion a single-family home into a double-, triple, or quadruple-family building. It is not clear whether these newly converted units can be rented out to tenants or not. A residential property which is also secondarily used for commercial purposes is also eligible for this loan. However, the commercial purposes seem to imply an office or store. In this case, it was not clear whether the owner must be the one occupying the commercial space or it can be rented out to other businesses. Probably, this may only apply to non-profit institutions which are also eligible for 203k loans. It is best to clarify these issues to avoid trouble.

3. This is applicable to any REI and is more of a “selling”, rather than a “buying”, strategy. You do not directly apply for a 203k loan so that you can buy and rehab the property, but you can help your buyer to avail of the government financing. As a consequence, you get to sell your property and you are freed from the trouble of rehabbing the property. It is akin to the ethical house flipping. Just make sure that you do not overprice and your buyer really has the wherewithal to pay back the mortgage. Your buyer gets to choose the color of the carpet and the paint and all other personal preferences he may have for his new dwelling. This means that you satisfy your buyer and with this, you could possibly get a referral to another homebuyer for your other fixer-uppers.

The Hurdles of 203K Loans

As with other government and bank loans, leveraging on this loan will encumber you with the red tape that rarely exist when dealing with private lenders, although it charges lower interest rates. The extra paperwork can snatch your time and speed in doing things so it would be great if you do not source financing from 203k loans often.

If you are running low on funds but have plenty of time to allocate for the processing of 203k loans, then you can consider the ways mentioned above on how you can use it for your REI business.