Posts

Flipping Haunted Homes – The Next Big Money-Maker

/in /by

The paranormal, ghost hunting and spiritual activities are very popular and fashionable right now. Yet, in all of this country, there is just one recognized haunted house. It is in Nyack, NY, and is legally recognized as being haunted.

“As a matter of law, the house is haunted.” This sentence in a ruling by the New York Supreme Court in July, 1991 generated international headlines for a real estate dispute surrounding the sale of 1 La Veta Place.

This is of significance because according to law people cannot just describe their house as being haunted when they want to. This, in turn, makes it an important issue for real estate professionals, who must make sure that they represent their properties properly.

Meanwhile, every year, thousands of people travel to Salem, MA, during Halloween in the hopes of being able to witness some spooky goings-on. There is a real appetite for the paranormal, such as for things that make noises in the dark. And that includes haunted properties.

Are Ghosts an Investment Risk – Or the Opposite?

Trulia has completed a piece of research that indicated that a haunting was not good for house prices.

We found that most Americans consider both deaths and hauntings when finding their next home. Millennial men are the exception, with some possibly dying to live in a haunted home, according to Trulia’s September survey, conducted online by Harris Poll among 2,098 U.S. adults ages 18 and older.

What this research showed more than anything, however, is that it presents a very interesting possibility for investors. On average, 43% of us will not buy a haunted property, rising to 50% among those who did not complete high school. What this means, in conjunction with the fact that there are legalities involved with whether or not a house is haunted, is that people have the opportunity to snap up properties at reduced prices because of suspected hauntings.

Fix and Flip – Seance and Flip?

It seems that there is a real market for haunted properties. Indeed, the haunted house in New York was sold and is now worth quite a bit money. Men who are between the ages of 18 and 34, meanwhile, are also a target demographic as they would like to purchase haunted properties. Meanwhile, those with a graduate degree and those over the age of 65 don’t care about ghosts, so they are also a purchase demographic.

But then, there are those properties that you could snap up because of the worry that there are ghosts, and hold a seance or other event to “evict” the ghosts, only to then sell it at a profit. This is perhaps the easiest, as well as quickest and cheapest, way to fix and flip a loan, and you are guaranteed that hard money lenders will be interested in it.

Paranormal Disclosures

Hard money lenders want to see a quick profit. They will happily lend you money to purchase a property if they believe you will be able to sell it within no more than three to five years and at a profit. This is easily achieved with a haunted home. However, you do have to be aware of the paranormal disclosure laws, which lead us back to the property in New York.

Essentially, some states require homeowners to disclose certain events. Those events include hauntings and also recent deaths, or any criminal activity that took place in the home. Hence, you need to make sure that you remain within the law, and that you find out how long after those events you no longer have to disclose them. Buy cheap because of a ghost, sell expensive because it is probably gone. It is the perfect way to flip real estate.

Hard Money Lending Advantages

/in /by

Being able to get money for a property investment in a short period of time isn’t always easy. Many borrowers tend to go to financial institutions to try to get a loan to finance a property, but that isn’t always the best option. It’s important to consider other financing options, such as hard money loans. With the average home in America costing over $300,000, having multiple finance options is crucial for buyers. Hard money loans sometimes get a bad rap because people don’t take the time to really understand why they can be so beneficial. The following guide walks you through a few of the advantages that come with a hard money loan.

Repayment Terms with Hard Money Loans Are Often Negotiable

When you get a loan from a financial institution, you are bound to the terms they set for the loan. This could mean the interest rate you pay, the date the payments are to be made, how large of a down payment you have to give and more. You do not have a say with most of the terms of the repayment agreement.

Hard money loans work differently. The private lenders work with you to ensure the payments are feasible for you to make. They want to be sure that the payment dates fall on a date that works with your financial situation. This means you can often pick the dates payments are due. If you have to juggle multiple debts at one time, this can be really beneficial overall. According to Consumer Finance, “Getting quotes from multiple lenders puts you in a better bargaining position.” You can compare the rates multiple lenders are offering to negotiate the best terms for your situation.

Qualify for the Loan by Meeting Less Requirements

When applying for a loan with most financial institutions, there are often a lot of hoops to jump through. A hefty down payment is often required. A high credit score and proof of income is needed, as well. With a hard money loan, these factors don’t come into play. The lenders allow you to use the property as collateral for the loan. This makes getting approval the loan less of a hassle.

Avoid Penalties for Repaying the Debt Early

Traditional lenders often charge a fee when you pay off the loan early. This is because they counted on the money, they were going to get from you in interest over an extended period of time. When you pay off the debt early, they acquire far fewer interest payments.

Hard money lenders don’t often require you to pay a fee for paying off the loan early. An origination fee is charged at the beginning of the loan that covers fees for processing the loan. Hard money lenders actually like when you pay off the loan early. They get their money back so that they can invest it in other things. It can also build a rapport with the lenders to make it easier to get approval for a loan in the future.

Gain the Ability to Make Offers on Properties Quickly

The downfall of loans from traditional lenders is that they can take a long time for approval. Every day that you go without approval for the loan is a day that someone else may be buying the property that you want to buy. You can often get approved for a hard money loan in as little as a few days. This allows you to make offers on homes quickly and easily.

Better Your Chances of Getting a Property

When someone is selling a property, they often want the buying process to finish as quickly as possible. Being able to get money quickly betters the chances of a seller accepting your offer over someone else. This can mean that you are able to get premium properties at rock bottom prices.

When choosing a hard money lender, it’s important to talk to them about the property that you plan to buy. You need to know how long you plan to own the property because you will be responsible for the payments until you are able to sell it. Hard money loans are designed to be short term. This means you have a very short term to pay them off. Be sure that any property you choose to purchase can be sold quickly so that you can pay off the loan on time.

References:

https://www.consumerfinance.gov/owning-a-home/explore-rates/

https://www.census.gov/construction/nrs/pdf/uspricemon.pdf

Hard Money Lending And Self-Directed IRAs

/in /by

Hard money lending is quite a complex financial construction. However, it is also one that can greatly benefit real estate investors. This is due to a variety of reasons, although one of the key ones is the speed with which these loans can be arranged.

Using a Self-Directed IRA to Build Wealth

Meanwhile, another important aspect of hard money lending is how they benefit those who provide the money. Indeed, it is becoming increasingly common for people to use a self-directed IRA to build their wealth through the provision of hard money loans.

Because most financial institutions continue to require solid credit scores and spend weeks reviewing financial statements, tax returns and business plans, there is a growing need for quick financing for many individuals, small business and investors, especially real estate developers and builders for their real estate projects.

Benefit of Diversification

It is important to understand, however, that only those who have a very high risk tolerance should even consider making this type of investment. On the other hand, if you have that tolerance, then there are some considerable benefits to providing real estate investors with hard money loans. One of the key benefits is the diversification of your investment portfolio.

Diversification is a risk management technique that mixes a wide variety of investments within a portfolio. The rationale behind this technique contends that a portfolio constructed of different kinds of investments will, on average, yield higher returns and pose a lower risk than any individual investment found within the portfolio.

Benefits of Hard Money Lending for Both Lender and Borrower

Clearly, therefore, hard money lending, when done properly, is beneficial to both the lender, and the borrower. However, being practical is incredibly important. Those who request hard money loans tend to be the type of people who are denied bank loans and other forms of traditional funding. This means that they are high risk borrowers. Not just that, these loans are used for real estate purchases, and there is never any real security in real estate either. Finally, it is common for the borrowers to be newly created real estate enterprises that have not yet demonstrated their viability. It is a significant gamble to take, therefore, but also one that could truly pay off, if managed properly.

Essentially, when people first take out a hard money loan, they usually have little to no cash flow. Most of the time, no repayments are made for the first few months, or even more, of the agreement. Rather, the loan will mature at a later stage, requiring a balloon payment that pays the investors the value they expected. Naturally, they hope for growth on their investment and this is why a self-directed IRA could be so beneficial, as this provides a tax-protected environment.

Investing with a self-directed IRA isn’t much different than investing outside of an IRA. There are a few minor differences and some rules to be aware of.

Obviously, therefore, if an investor has a high risk tolerance for a long term investment, then this could be an ideal situation. It will not, however, work for someone who is approaching retirement, or who does not have a lot of money set aside.

Overall, what financial experts agree upon is that hard money loans have so many different avenues for all the different players involved in them. While some feel that these loans are incredibly risky, the reality is that they give people the chance to make investments, which in turn is good for the economy. At the same time, it enables those who have some money put aside, to see this grow, albeit over a longer period of time. While all financial constructions have risks associated with them, this seems to be the best solution of all.

House Flipping On The Rise Again, Thanks To Hard Money Lending

/in /by

When the financial crisis started in 2008, there were fewer people flipping houses. However, it seems that house flipping is now back with a vengeance. In 2016, it reached a 10 year high, in fact.

193,009 single family homes and condos were flipped – sold in an arms-length transfer for the second time within a 12-month period – in 2016, up 3.1 percent from 2015 to the highest level since 2006, when 276,067 single family homes and condos were flipped.

Rising Popularity of House Flipping

What flipping properties means is that investors need quick and smooth access to a lot of cash, even if that means paying a higher rate of interest as well. Because there is usually at least an 8% return on the loans provided to investors engaged in house flipping, hard money lenders find those loans attractive. Providing loans for house flipping has been an interesting industry for a very long time, but it is becoming more and more popular again, despite the fact that there are some significant risks attached to the loans.

Risks of Providing Loans to House Flipping Investors

Some of those risks include an inability of a developer to pay the loan back. Additionally, there is always a chance that there will be a decline in real estate prices. When that happens, it becomes impossible to sell the property for a profit, and charging rent will usually not be enough to cover the cost of the hard money loan.

Today, there are numerous lenders that focus specifically on the hard money industry. They have increased their transparency and their underwriting process is becoming more conservative as well. At the same time, this can be risky for investors, because these type of constructions have not yet been tested by the market.

That said, the loans remain very attractive, specifically because of their speed and ease of access. Yet, some experts say that it was house flippers who were behind the financial crash, rather than people who borrowed beyond their means.

The latest comes in a new NBER working paper arguing that it was wealthy or middle-class house-flipping speculators who blew up the bubble to cataclysmic proportions, and then wrecked local housing markets when they defaulted en masse.

Lessons Have Been Learned from the Previous Financial Crash

Yet, it seems that lessons have been learned. Bank mortgages are much less stable, because they have such a low loan-to-value (LTV) ratio, which is what is used as a risk assessment. On average, the LTV is around 55% for hard money loans, where it stands at between 75% and 80% for a bank mortgage. This means that, if a property does indeed lose its value, the lenders are still protected. It also means that flippers won’t walk away from the property, since nearly half of its value is their own money.

Why Hard Money Lending Works

Many also feel that hard money lending works because it is a form of partnership. The lender wants the borrowers to be successful and what they do. With a bank mortgage, the goal is simply to earn as much money as possible. Hence, if a problem does occur, a hard money lender is more likely to help find solutions. This is particularly true because the loan itself is usually only in place for 12 months.

Lenders do not believe that there is a possibility that another bubble burst will happen because of the short duration of each of these loans. At the same time, however, they do diversify their own portfolios as well. Mainly, they do this by investing in different geographical areas, and by focusing on a wide range of real estate properties, such as land, commercial properties, and residential properties.

Of course, this does mean that capital has to be raised from individuals as well. Hard money lenders are, more often than not, individuals or small groups of individuals. They need to be attracted to these systems by making it clear that their portfolio will instantly be diversified. Furthermore, there is a chance of an 11% return within 12 months, which is very significant. Meanwhile, for lenders, one of the greatest benefits is the speed at which the loan can be made available.

It is possible to score a hard money loan very quickly! This is one of the great benefits of choosing a hard money lender versus a traditional bank. The first step is to gather together all of your deal points and fill out an application. Within a 10-minute conversation with the lender, assuming you present the circumstances of your plan in a clear and organized fashion, they should be able to tell you whether or not it seems like a deal they are interested in funding.

Price to Pay for the Speed and Convenience of Hard Money Loans

Of course, there is a price to pay for this speed and convenience, one of which is the high interest rate. In fact, interest rates are often around 12%. Added to that are fees, charged as percentage points, which usually stand at a further 4%.

Yet, what makes these loans so attractive is the fact that there is a lot of money to be made in this industry. Choose the market right, and a return of 35% to 40% is possible. That said, returns tend to be quite lower, but certainly more than enough to repay the loan and the interest rates, and still have a significant profit at the end of it.

The big worry at the present time, however, is whether a collapse is looming or not. When we consider, however, the fact that many high net worth individuals are moving towards providing hard money loans rather than moving away from it, it seems that they feel quite confident about the market still continuing to be strong. Just like with every type of investment, you must consider each option on an individual level. Calculate the cost of fixing the property before flipping it, what the market in your geographical area is like, your ability to invest not just your money but also your time, and so on. It seems unlikely that the crash of 2008 is only just around the corner, or even that it will happen at all. However, that does not mean you can become complacent when investing in real estate either.