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Flipping Haunted Homes – The Next Big Money-Maker

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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 Mortgage?

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Are you interested in a hard money mortgage? These asset-based loans could make a big difference to you if you’re hoping to pursue your real estate dreams. There are some things you should know about hard money loans before you sign on the dotted line.

What are Hard Money Loans?

Let’s start with the basics. You may be wondering what exactly is a hard money mortgage. Well, this is an alternative form of funding that’s oftentimes easier to secure than traditional mortgages.

Residential hard money lenders lend money to home buyers not based on their credit scores and credit history. They look at the value of their property. So, oftentimes hard money loans involve a private investor lending money to a buyer who isn’t able to secure a more traditional loan.

You often see hard money loans in cases of foreclosures and house flipping. Chances are you know someone or have at least heard of someone who is involved in home flipping. Just flip through HGTV and you’ll see lots of people who are making it big by buying run-down properties.  Then they complete the renovation before selling at a profit.

If that sounds like something you want to do, then hard money mortgages may be in your future. Traditional forms of funding can be good, but you have to qualify for them. The application process for these loans can be tough.

After all, banks and mortgage lenders need to look at your credit score and borrowing history to evaluate if you’re worthy of receiving a home loan.

That’s why hard money loans can be good. The process tends to be quicker with a better rate of acceptance, as long as you have that property value to back you up.

Of course, as with anything in life, there are some factors of hard money loans to think thoroughly about before jumping to any major conclusions.

What You Need to Know Before Getting a Hard Money Mortgage Loan

Before you secure a hard money mortgage, you need to think about your real estate and funding options. According to the U.S. Census Bureau, the median sales price of new homes sold in July 2019 was $312,800; the average sales price was $388,000.

You want to make sure a potential hard money loan would make sense for you financially.

Notable financial expert Dave Ramsey  said, “You don’t want to have so much money going toward your mortgage every month that you can’t enjoy life or take care of your other financial responsibilities.”

This concept certainly applies to hard money mortgages. Before you get such a loan, you want to ensure you can pay it back comfortably.

Due to the loan conditions, the interest rates on hard money loans are higher. Interest rates may be more around 8-11 percent depending on the lender. Most borrowers are looking to sell their property at a profit within five years. That way they can pay back the loan without too much interest.

Hard money lending usually has an LTV, or loan to value within 65 to 70 percent of the property’s value. With this low LTV rate, the lender can be assured that the property will sell for at least the amount owed against it in the case of a default. It’s pretty rare to find a hard money lender who will borrow you more than 70 percent.

What Should You do Next?

So, what does this mean for you? Hard money lenders are eager to guarantee that the property will be valuable enough to pay off an existing mortgage in case anything happens. Cross collateral for the hard money loan is one way the private hard money lenders can protect their investments.

You have to remember the increased interest rates while understanding that these higher fees are justified because of the risk factors. Private lenders need to protect their investment, the same way you need to protect your property.

If you have been struggling to secure a mortgage or you want to get into home flipping, hard money mortgages present a great opportunity.

If you are aware of the fees and interest rates associated with this loan hard money loans can help you tremendously. Speaking to a reputable hard money lender is a great place to start.

Sources: (Quote) https://www.brainyquote.com/quotes/dave_ramsey_520304?src=t_mortgage

“Dave Ramsey Quotes.” BrainyQuote, Xplore, https://www.brainyquote.com/quotes/dave_ramsey_520304?src=t_mortgage.

(Statistic) https://www.census.gov/construction/nrs/pdf/newressales.pdf

Cornish, Cheryl, et al. “New Residential Sales.” Census.gov, 23 Aug. 2011, https://www.census.gov/construction/nrs/index.html.

 

 

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

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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.