“Real estate investing is a capital intensive enterprise requiring a constant and reliable source of funding to generate profitable expansion.”
Or more simply, it takes money to make money in real estate. But it doesn’t mean you have to use your own money. By carefully and effectively using the right lending sources you can quickly build a solid your real estate portfolio using very little of your own out of pocket cash.
When using private loans to finance your real estate business, fees and interest carrying costs during the 6-12 month term of the loan are of utmost importance. Can you and your property cover those costs over this time period? Ultimately, are you going to profitably sell the property or are you able to refinance the loan with a conventional bank mortgage? Even if you are planning to sell your investment property shortly after you purchase it, commonly known as “flipping”, there remains a financial need to cover taxes, insurance, electric/gas/oil and interest costs and other “carrying costs” until you actually sell the property.
Private loans are best used for this short term financing. While the rates and fees are higher than bank loans, those costs are offset by the speed and efficiency created by being able to quickly obtain a loan with a minimum amount of paperwork and processing delay. The key to successfully using a private loan is a well thought out exit plan. Before you purchase investment real estate you need to think about how you are going to pay back the loan. Are you going to hold it to rent or rehab to sell the property? You should always have a clearly constructed exit plan before you borrow money. For example, if purchasing a property for rental income, will the rental income be sufficient to pay operating expenses, pay the monthly loan interest, and ultimately, the long term interest on the new long term refinance mortgage.
With our extensive background in real estate funding, commercial lending, rehab and construction, we possess a unique level of expertise to ably help you structure your deals. Finally, we can help you positively present your personal financial situation to traditional refinance institutions to optimize your ability to refinance your project. We will work with you to give the bankers the right information to improve your chances when it comes time to refinance your loans.