I prefer working with a commercial lender as my primary lender for multiple reasons. First, they treat me as an investor, which I am. Second, they have more streamlined underwriting processes. This means that there is less chance for surprises as the loan moves toward closing. Third, I am not restricted by the mortgage limit that is currently in place in the secondary market. Send me a note to get some commercial lenders that I prefer to work with.

Now, I still like to keep in touch with the market through a trusted mortgage broker. They are more in tune with the current market restrictions, new loan products, and lending rules. For many new investors, this is a good place to start. Just remember to make sure that your broker has experience with non owner occupied! There are a lot of different rules in this sub market.

The third source is http://www.mortgagenewsdaily.com/. I like a lot of things about this site, such as the current market rates, and their explanation of WHY the market is moving the way that it is. I have not had luck with any of the sites that provide multiple bids on a loan. My experience has been quotes of decent market rates and overpriced closing costs.

Very similar with real estate investing.  Now is the time to plant excellent deals into your portfolio and nurture them for big profit later.   In this market of difficult credit, low appraisals, scarce retail buyers, it is the time to pick up great deals, and not focus on trying to get top dollar for your property.   Now, I still suggest buying properties that put money in your pocket with monthly cash flow and have equity, but I intend to wait until the market turns around before turning that equity into cash.   Many previous successful investors bought properties in times like this, and focused on selling books and their properties when times were booming.   I plan to follow that success path and build a solid portfolio and not try to harvest my investments right after they are planted.  

Dan Shafron

Learnrei.com

If you want any chance of financing your deals, or negotiating with a seller or sellers agent, you need to know the lingo.   Not only do you need to know the lingo, you need to understand the meaning of these terms and how they affect your investment.   By knowing the rules of the game, you can apply a strategy to meet your goals.   OK, lets start out easy….

Interest Rate for investment property

This is the rate of interst that the bank charges you for borrowing their money.   This rate can vary depending on many factors, such as borrowers credit, loan term (or length of loan), type of property, etc…   You can find many different interest rates out there for investment property, so you need to shop carefully.   When dealing with property that is not your primary residence (non-owner occupied), you need to be careful and read the fine print on the loan you are applying for.   Make sure that the loan officer has history of ACTUALLY closing on a similar type property within the last few months.   Do not take their word for it, or accept that they did a deal like this a year ago!   A great rate that never makes it to the closing table gets you nowhere.  

ARV   – (After Repaired Value)

This is a very important and highly misunderstood term in real estate investment.   All of the properties that I buy are distressed and need repairs to make them “homes”again.   When evaluating a deal, I analyze what the property will be worth after I make repairs to it.   I do this by searching the MLS for comparable sales of SIMILAR properties that were sold in good to excellent retail condition.   If I determine there is enough potential in the deal, I will offer to buy it.   My lenders will usually require an Certified Appraisal to back up my comparable sale analysis and get a independant third party opinion.   Since the property is not currently in retail condition, I will submit my list of intended repairs and the Appraiser will take that into account when determining value or ARV

LTV – Loan to Value

Loan to Value is simply the loan amount divided by the current or after repaired value of the house.   In these times and for non-owner occupied properties, 70% LTV is about the highest a lender will loan.   There are exceptions, but this is a good rule to start from.   Many banks will not loan based on the after repaired value of the property, but there are a few out there that will.   It is important to note that value is usually determined by an appraisal, especially when a bank is involved.

DSR – Debt Service Ratio

Debt service ratio is basically your cash flow number.   You divide your income from the property (usually the rental income), with all of the expenses assoicated with that property.   Expenses are usually mortgage payments, real estate taxes, real estate insurance, maintenance budget, association dues, any utilities due by the owner.   Banks want to make sure that your investment will provide you with positive income and therefore suggest a ratio of 1.15 to 1.25 as the threshold to lending.  

I am not a banker, but I have been to the closing table many many times.   Let me know your thoughts and thanks for reading.   Of course, you can also send suggestions for other topics for me to write about.

Dan Shafron

When I worked in the corporate world, a 5% raise was pretty good.   An employee usually had to be working on the right projects and putting in a very solid effort to earn this.   In this economy, many are just glad to have a job, let alone worried about getting a raise. This morning I had a realization!   I have been providing investors with properties that cash flow between $300 and $400 per month in positive cash flow.   I just realized that for someone making a good income, this equates out to roughly a 5% raise.

Since I am a numbers guy, check out this recent deal that one of my investors did:

Step 1. Purchase a distressed home:  $49,000
Step 2. Rehab the home:  $10,000

Now the property is comparable to properties selling for $110,000 in the local area, so we use this as our After Repaired Value (ARV).

Step 3. Borrow $59,000 @ 6.75% APR amortized over 25 years with a payment of $671 including Principal, Interest, Taxes ($3000/year) and Insurance (PITI)

Step 4. Rent the property for $1000 per month, which is the going rate for a property in good condition and of this size.  

That comes out to over $300 per month in positive cash flow   $1000 – $671 = $329 to be exact.  

Now if you make $75,000 per year, a 5% raise would be about $3750 annually, where just this one property, that you have $0 of your own money invested into, and a little bit of time, will pay you over $3600 per year.

Here is the best part!   You can repeat this multiple times to keep adding to this number!  Since you have $0 of your money invested, it is easy to repeat this process.   And of course, there usually some decent tax deductions to go along with this and make the net number even higher.

Going back to positive affirmations, if you focus on keeping your job, that is probably as much as you will get, where if you focus on increasing your income and free time, the sky is the limit.   Next time your boss says he is unable to give you a raise, go out and get your own. 

Regards,

Dan