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Funding Real Estate Deals: What You Need To Know In 2020

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on Thursday, 09 January 2020
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What do you need to know about financing real estate deals in 2020?


It’s shaping up to be another exciting year for real estate investors. Financing is expected to continue to grow in use this year, and it will be a big part of every real estate investor’s business. Here’s what you need to know.


Interest Rates

The great news is that interest rates ought to remain low through 2020. They will need to remain low to prop up the economy and keep things going through the presidential election. Of course, that didn’t stop the fed from sabotaging the market back in the run up to 2008. Though rising rates shouldn’t be an urgent concern, yet.


Available Capital

There still appears to be more capital than deals. Big funds, banks and international investors are still looking to deploy billions of dollars in US debt. Lenders are still wary of lending to owner occupant home buyers, and that will probably increase with current market trends and more states demanding lenders go through judicial foreclosures. Investors will benefit from this.


Declining Markets

Watch out for the snowball effect from declining house values. Some homeowners are already experiencing deep declines in their equity and potential resale prices. When lenders deem certain areas as ‘declining markets’ it can be very difficult to finance houses there. They can get blacklisted. Or at least expect lower LTV loans, repeat appraisals to keep up with declining values, and tougher underwriting. Credit lines may also be cut off.


More Competition For The Money

Investors have plowed an enormous amount of cash into the US real estate market over the past decade. Some have severely depleted their liquidity already. With the threat of a recession and downturn on the horizon, it is smarter to keep more cash. Instead of just 3 to 6 months of living expenses and operating costs as an emergency fund, upping that to 24 months of capital reserves may be a crucial move. That means more investors competing for loans. Even many who have only used cash up until now.


More Mortgage Defaults

Expect to see even more homeowners in negative equity positions and defaulting on mortgages this year. It’s worth noting that Zillow stopped up dating their data on mortgage defaults and underwater properties back in 2018. That could be a sign that there is a lot more happening under the surface than most are aware of.

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Why You Can’t Rely On Traditional Mortgage Lenders To Flip Houses

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on Thursday, 24 October 2019
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The data shows that real estate investors still can’t rely on traditional mortgage lenders and banks for their financing. The good news is that there are alternatives.

The latest mortgage lending statistics from Ellie Mae and National Mortgage News show it hasn’t gotten much better for real estate investors over the past year. These are just some of the challenges that demand investors use alternative financing sources for their house flip and wholesale deals.

Time

The time it took to close a purchase loan grew by almost 10 days last year, to nearly 50 days on average. When more sellers and agents don’t want to sign a contract for more than 30 or 45 days, this type of financing just doesn’t cut it.

Credit Scores

If you do use your own credit as a real estate investor, you know that the system is notoriously rigged to penalize you the more you do. Instead of getting extra credit for experience they punish you for having taken out more mortgages. 58% of completed loans still have credit scores of 700 to 799. 71% have credit scores above 700. Taking out one loan on your personal credit can knock you off of that tier and derail your plans to scale.

Loan Costs

Conventional loan costs are still high. Even despite all the technology which is making it easier to obtain and process loans. A lot of it is made up of miscellaneous third party fees and mandatory purchases to get the loan.

No Common Sense

There doesn’t seem to be any more common sense in underwriting mortgage loans. It’s one of the downsides of artificial intelligence and going too big too fast. Just between Google and Facebook lenders should have all the data they need to approve more loans. They can even tell if you made it to work today or called in sick with a hangover.

Completion Rates

Far fewer mortgage loan applications may make it to closing than you think. Last year barely 65% of VA home loans, and 70% of all mortgage loan applications actually made it to closing. Those are not good odds to build a business on, have your income rely on, or to gamble deposits on. If you put down a $2,500 deposit on average, you’re already losing $7,500 to over $10,000 for every 10 properties you put under contract. That has to be deducted from any profits you do make on other deals.

A Better Way To Fund Your Mortgage Deals

Hard money is an alternative. Though still often an expensive one which is far more like dealing with a traditional bank than it used to be. Private lenders can be an option, but can be a huge distraction from just making money on real estate deals.

Transactional funding is different. No credit score requirements, no losing the deal over an appraisal and funding available in hours. Try it out on your next deal.

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5 Factors To Watch When Buying Wholesale Properties

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on Monday, 29 January 2018
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Looking for and finding low priced wholesale properties is one thing. Ensuring you have a viable deal, that comes with plenty of appeal for end buyers, and which they can actually buy may require a little more attention.

Make sure you are watching these factors…

Deed Types

There are several types of deed used to transfer real estate. Wholesalers need to know what type of deed they can get and provide. Savvy end buyers will, and should be wary of only being offered quit claim deeds. These really offer no protection or security. End buyers want to be confident in their investment, ability to get title insurance and resell in the future.

Unpermitted Property Changes

Many low priced distressed properties (and even some very expensive ones) are so much cheaper because they have illegal changes. That can be additions, garage conversions, subdividing units, and so on. Those can lumber new buyers with big fines, prevent them from re-selling or refinancing, and from obtaining a mortgage loan to buy your property. They can still be deals, just know the challenges. Make sure your buyers do to.

Realistic & Appealing Spreads

Offering a property with a $68,000 ARV for $48,000 doesn’t really leave much of a spread for the next investor. Not when you factor in 2 sides of closing costs and repairs. It may be a nice discount for a retail buyer, if they have the cash and want to spend it in that neighborhood, but make sure you know your buyers and what they want.

Changing Mortgage Rules

It is important to anticipate changing mortgage lending rules and programs. If they tighten, they could cut plans and deals short. Fortunately, we are are expected to be in a period of loosening mortgage criteria. Most analysts don’t expect Dodd-Frank to disappear yet, but it could be stripped down.

Who Pays the Costs

One of the quirks in the market since 2008 is more distressed property sellers trying to get buyers to pay the burden of past due property taxes, liens, and fines. Sometimes even there closing costs. Those costs can often exceed the purchase price too. Know who pays what.

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What To Expect From Mortgage Lending This Year

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on Thursday, 19 January 2017
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What should real estate investors expect from the mortgage lending industry this year?

This could be a year of massive changes in the mortgage lending industry. What can investors expect? How might it impact them, their plans, and the best strategies for making money in real estate?

Interest Rates

If there is one thing investors can count on this year, it is probably higher interest rates. Most of those in the game now have never experienced normal interest rates, or high interest rates. Investors have to build this into their models and plans. It will affect the cost of everything. On the bright side it could encourage more transaction activity, and lending.

Dodd-Frank

Trump has made a lot of noise about repealing the Dodd-Frank Act, and making it easier for mortgage borrowers to access credit. This may not be a fast or easy thing to change. However, doing away with these regulations which have really made things difficult for agents, investors, borrowers, and private lenders could make a big difference in the market.

Credit Scores

It is believed that millions of Americans are now experiencing rebounding credit scores as the damage of the crises fades out. This could flood the housing market with more qualified borrowers, just as the number of cash buyers is dwindling. However, it is also important to watch the effect of higher rates on the ability to maintain debt, and new credit scoring models which are being developed.

New Loan Programs

Expect to see a variety of new loan programs come into the market. Few anticipate a return to the good old subprime lending days, but lenders could develop new programs which push the limits, in expectation of a strong market, and relaxing of regulations under the new White House administration.

Demand to Borrow

With consumer and business confidence strong expect demand for mortgage loans to increase sharply. This could be vital for mortgage lenders and brokers who are facing a dramatic drying up of refinance activity.

Easing, but Not Easy

Just because lenders want to make more loans, doesn’t mean that we’ll see 100% no-doc or NINJA or NINA loans making a comeback just yet. Lenders have been used to demanding a lot over recent years. It may be hard for them to change. They like making the rules and staying in control.

Competition for Capital

While there is still a lot of capital out there, expect there to be more diverse demands for it. Recently it has been drawn to financing investment property loans in the US. This year, expect foreign markets like Italy which may bottom out to attract big funds, for more crowdfunding portals to be battling for back channels to sell loans, and for there to be an increased split in between the desire to fund residential buyers and investors.

Transaction Funding

Transaction funding will still remain the most reliable, efficient, and easy to access types of investment property financing for wholesalers and flippers this year.

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How Will New TRID Rules Affect Real Estate Wholesalers?

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on Thursday, 08 October 2015
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New TRID mortgage and closing rules threaten the biggest shake up in the industry so far. How will they affect real estate wholesalers?

A new set of rules went into effect on October 3rd, 2015. The TILA-RESPA Integrated Disclosure rules a.k.a ‘TRID’ are the most notable changes to the industry since at least Dodd-Frank. The head of the Mortgage Bankers Association warns that these new commandments of mortgage lending and real estate closings will impact everyone from loan officers to Realtors to individual home buyers and sellers. Some companies have reportedly spent millions on restructuring to be prepared. Others still may have little clue what they mean for their transactions.

There is sure to be some closing mayhem ahead. Whether these new rules and forms will really make a positive difference will have to be seen. Much of that depends on whether the rules are followed. After all, the previous issues that the Consumer Finance Protection Bureau is reportedly attempting to fix with these changes, were in reality a lack of following the rules and forms that were already in place. Unfortunately it could be the end consumer who is hurt worst as normally happens with regulatory changes like this.

TRID rules which are meant to simplify the mortgage and closing process with 2 new documents have 2,000 pages of guidelines. So no one should be surprised if there is a lot of confusion over the next few months.

The four main things you need to know are:

  1. The amount of paperwork lenders can collect upfront is being limited
  2. The old Good Faith Estimate is being replaced with the ‘Lending Estimate’
  3. The old HUD 1 Settlement Statement is being replaced with the ‘Closing Disclosure’
  4. There is now a 3 day waiting period between receiving the final Closing Disclosure and actual completion of the transaction

Real estate wholesalers can be better prepared to navigate TRID challenges by; building extra time to close into real estate contracts, requiring copies of buyers’ official loan commitments faster, making sure all parties for both transactions have their Closing Disclosures 3 days in advance, and by working with title companies that are on top of new TRID rule implementation.

Authored by Best Transaction Funding BestTransactionFunding.com is the leading source of transactional funding and hard money loans for real estate wholesalers in the US, where 100% financing, and saying “Yes” is what we love doing all day long.

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New Mortgage Promises, But Who Wants Bank Loans Anymore?

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on Thursday, 23 October 2014
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Regulators are promising an imminent easing of mortgage credit for home buyers, but does anyone really need, or want conventional bank loans anymore?

FHFA head Watt has declared a rapid easing in access to mortgage credit, through clarifying lending rules and liabilities, as well as putting pressure on lenders to make more home loans. However, is it a case of too little, too late?

Yes, tight underwriting has held many hopeful home buyers back from taking advantage of the best prices and rates in the market. However, after years of one major fraud and discrimination case after the next, and rising fees, with fewer services, many might not want to fuel new profits for their local banks simply out of principle.

Besides, new technology savvy lenders and social mortgage lending have quickly stepped in with new, and far more appealing solutions for borrowers. This is in addition to increased awareness of the advantages of inter-family lending and borrowing.

For real estate investors, a new wave of home buyers armed with higher LTV, and easier to close home loans might be welcome. It could be great for retail side profits. Retail home buyers ready to do their own rehabs can be highly profitable for flippers, or when wholesalers snag deals in builder closeouts and liquidations.

Overall these promises might make little difference to true wholesalers with established buyer lists, at least in the short term. End investors who will do rehabs and hold as rentals have plenty of other sources of capital today. In addition to cash on hand rental property investors have access to crowdfunding, partnerships, new buy to rent loans, streamlined working capital loans, and hard money.

For property wholesalers transactional funding is all they need to acquire all the deals they desire and turn them for fast profits.

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Best Properties for Flipping [fall 2012]

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on Tuesday, 11 September 2012
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What are the best type of houses for flipping for fall and winter 2012?

There is a widening opportunity opening in one real estate investing niche which is ripe for the picking and quickly emerging as a much better option for many investors…

What is it?

Luxury homes from upscale modern condos to estate homes on prized lots currently offer many of the best investment opportunities and could rapidly become even more appealing due to a combination of emerging market factors.

Unfortunately many investors have been hammered with the message to solely stick with cheaper ‘bread and butter’ homes and are missing out on huge profits.

Let’s take a look at 7 reasons you might want to switch up your strategy…

1. Even if the percentage of discounts shrinks the dollar volume is certainly there
2. Investors can make more money while doing fewer deals
3. Luxury homes set to see a great rebound
4. The best homes in great locations will always be in demand and demand a premium
5. Higher end buyers are often easier to work with (no penny pinching over the carpet color in the 3rd bedroom)
6. This is a unique moment for home buyers to get into estate homes in prime communities due to low interest rates and prices
7. There is likely a lot less competition for these homes from other investors compared to other REOs

Plus…

The one hold back in the housing market and what has really been retarding investor’s volume growth is access to mortgage financing for end buyers. However, new data and trends show private jumbo mortgage lending is already on the increase and signals that this type of credit may be easing slightly as banks find these loans more attractive. Plus, cash rich foreign investors often only want to buy the best and have no time for run down, low end foreclosures.

No More Excuses

Thanks to transactional funding investors no longer have any excuses for not diving into this market either as they do not have to be held back by cash limitations.

Where are these deals hiding? They are all over the country from the suburbs of Detroit to Fairhaven CT, to northwest Florida’s Emerald Coast’s golfing communities.

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