hard money vs. the bank

comparing using hard money to a bank loan based on the cash on cash return of the investment

WHY USE HARD MONEY?

• hard money loans are based on the after repair value of an investment not the cost of that investment like most bank loans
• lower cash required per deal
• allows an investor to have cash in multiple projects rather than a huge sum tied to one
• hard money closes significantly faster than bank loans
• hard money makes your offer more desirable in a competitive market
• hard money is more flexible than bank loans
• should you decide to keep an investment, hard money can be re-financed to a bank loan after repair

How Do I Determine ARV?

When looking at purchasing a property for a fix and flip it is important to know what the ARV (After Repair Value) of the property will be after you are done rehabbing the property. The ARV will help dictate how much money you should purchase the property for and how much money you can put into the rehab.

When determining the ARV, you have to pull comparables within the neighborhood or surrounding neighborhoods. By comparables, if you are looking at rehabbing a home that is 1,200 sq. ft. and you aren't going to add square footage, you only look at homes that are near that square footage. It will not help if you are looking at homes that are 3,000 square feet because that won't give you a good idea for what the property will sell for. Choose 5-8 properties that have the following similarities:

• Square footage
• Style (ranch, two story, multi-level, etc)
• Exterior (brick, stucco, vinyl siding, etc) -Unless you plan on changing the exterior of the home
• Amenities (Backyard, Walkout, Attached or Detached Garage, etc) -Unless you plan on adding a garage or a backyard

After you have identified the 5-8 properties that are very similar to the property you are looking at rehabbing, with the exception of level of finishes and whatever you plan on adding, take the average sold price of the homes. That is your ARV.

To determine if the home will make you a profit, look for our future blogs!

What To Submit in a Loan Package?

As Lenders, we are very excited to hear about your project and look forward to a successful working relationship. We just can't give you any clear cut answers without information first.

Most lenders will need the following:

• their application filled out to the best of your abilities and as complete as possible
• application fee paid if applicable
• details on your rehab budget (don't just say you're going to put $50k into the home, what exactly will you do with the $50k)
• comparable homes (to the level yours will be rehabilitated, but same style i.e. ranch, two story, split level) try your best not to cross major streets to keep your comparables in the same area
• if you have experience flipping in the past or you work in the industry as a carpenter, handyman, etc.
• what cash are you able to put in
• what capital you need from a lender
• any other information you deem necessary

If you are able to submit a complete packet to a lender, you will be very pleased with their response time!

How to Make Your Curb Appeal!

Tips & Tricks

• Curb Appeal begins online: Most buyers in today's market look at homes online before ever speaking with a Real Estate Agent. Have professional photos taken that show the exterior of your property.
• Walk a Mile in the Buyer's Shoes: walk around the property and pretend you are purchasing it. What would you like fixed if you were buying this home? If you need a second opinion - get one, the more critical the better. You don't have to fix everything, but it is important to see what the buyer sees.
• How's the Roof?: Not only will most buyers be concerned about a roof, all inspectors they hire will be. Make sure you know if something needs to be done. Better to fix it before getting to the negotiation.
• House Numbers: Can a buyer find the house? If not, that needs to be corrected. With modern fonts, you can really dress up the exterior as well.
• Cleanliness is Next to Holiness: Rent a pressure washer and make sure the exterior is clean.
• Color: Either place or ask your Real Estate Agent to think about placing some colorful plants near the entrance.
• Freshen the Paint: If there is room in the budget, repainting the exterior of the home could add $10k+ to your offer says some Real Estate Agents
• Mow the Lawn: I know that it isn't a big ticket item that buyers get excited about like kitchens and bathrooms, but don't turn a buyer off before they get inside. Make sure the yard looks presentable.

Hope these tips lead you to quick closings!

To Stage or Not To Stage

The National Association of Realtors released some information about Home Staging in 2015, here are some points to know

• Among REALTORS® who typically represent the buyer, 49 percent report most buyers are affected by home staging
• REALTORS® report that home staging will positively impact the value of the home if it is decorated to the buyer tastes (45 percent) and buyers are more willing to overlook other property faults (28 percent) if staged
• In order of importance, these are the rooms to be staged: living room, kitchen, master bedroom, dining room, bathroom, children’s bedroom, and guest bedroom
• $675 is the median dollar amount in 2015 spent on home staging
• You could find a Real Estate Agent who includes this in their list of services (for some their commission might be a higher rate for this service), or you could spring for this cost as the seller
• As a real estate investor looking for top dollar resale of their investment, it is something to consider in the budget of the home in order to get more buyers into the home and imagining themselves living there

Foreclosure Timeline 201

we are sorry that we are a little behind on our blog! but below we have the second part of the foreclosure timeline. please be aware that this process is complex and you should consult an attorney before making any decisions regarding the foreclosure process.

Right to Cure

The borrower must give a minimum of 15 days written notice, prior to the sale of their intention to cure.

• then, the public trustee must deliver a request for a statements of the sums to cure to the lender's attorney a minimum of 12 days before the sale. if this is not accomplished in time, the sale will be postponed 14 days.
• the public trustee must receive the cure amount from the borrower by noon the day before the sale.
• the statement must be valid for 10 days but no more than 30 days.

Failure to provide the statement within 10 business days of receipt of the request to cure or 8 days before the date of sale (the earliest of the two), then:

• sale is automatically postponed for 1 week and continuously week after week until the cure statement is provided (but must be within 12 months from the original date)
• interest is charged at the regular rate not the default rate during this time.

Default Cured

If the default has been cured, then:

• a formal withdrawal must be filed with the public trustee if the NED has been recorded.
• all costs to date must be paid including the fees of the public trustee and the withdrawal fee.
• if a rule 120 proceeding has commenced, the proceeding must be withdrawn, or the order vacated - if the order has been granted.

if the foreclosing party fails to withdraw the sale, the public trustee can withdraw the sale after 45 days after the last possible date of sale.

Rule 120 Hearing - Colorado Rules of Civil Procedure Rule 120

• the proceeding provides a court supervised procedure to confirm the existence of the default, the exercise of the power of sale in the deed of trust, and compliance with the Service Member Civil Relief Act 
• the notice of the Rule 120 proceeding must be served on the borrower, record owner of the property, and all other persons who have an interest in the property at least 15 days before the date set for the hearing
• not less than 15 days prior to the date of the hearing, a notice of the hearing must be posted in a conspicuous place
• at least 15 days prior to the sale, the foreclosing party must obtain an order authorizing the sale from the district court.
• the public trustee will not go to sale without this order and sale held without the order is invalid

Sale of Property by the Public Trustee

• the lender must submit its bid no later than noon on the second business day prior to the date of the foreclosure sale. if this deadline is missed, the sale is continued for 7 days.
• the public trustee will auction the property at the time and place stated in the notice of sale, but no less than 16 days after the date of the scheduled Rule 120 hearing.
• on completion of the sale, the public trustee will issue a certificate of purchase to the successful bidder, and record a copy within 5 days of sale.

Rescission of the Sale

• the sale can be rescinded without a court order, if the holder of the certificate of purchase is the foreclosing party.
• rescission must be requested within 8 days after the sale.
• if the sale has been rescinded, the lender can commence a new foreclosure sale scheduled not less than 30 days and not more than 45 days after the request for a new sale.

Redemption by Junior Lien Holders

• all lien ors must file a notice of intention to redeem with the public trustee within 8 days after the sale, with copies of instruments evidencing the liens and a statement of the amounts required to redeem this lien.
• the public trustee must fix the date of redemption on the 9th day after the sale. no redemption period is shortened or altered by the fact that a prior lien holder redeemed prior to the end of that lien holder's redemption period.
• the lien holder having the most senior priority may redeem no earlier than 15 days and no later than 19 days after the date of sale.
• thereafter, the lien ors holding the next junior lien may redeem within 5 days from the expiration of the previous lien holder's redemption period.
• redemption periods cannot be shortened.
• the redemption amount must be paid to the public trustee no later than noon on the last day of the redemption period.
• special redemption periods apply for liens filed by the IRS, where the redemption period is 120 days from date of sale, and for liens in favor of the federal government

Expiration of Redemption Periods

• on the expiration of all redemption periods, if no junior lien holder has redeemed, title vests automatically in the holder of the certificate of purchase.
• if there has been a redemption by a junior lien holder, title will vest in that lienor, if no other junior lien holder has redeemed.

Confirmation Deed

The public trustee must execute and issue a public trustee's deed within 9 days after the expiration of all redemption periods, if the public trustee has received all fees and costs, 10 days, or 10 days after the date that the public trustee has received all fees and costs.

Foreclosure Timeline 101

Foreclosure properties are a very important subset of distressed properties that are dealt with in real estate investing. Below is a timeline of how the process works. This is a complex statute and an attorney should be consulting before taking any steps or making any decisions regarding the foreclosure process.

A loan is in default as soon as soon as any payment has been due and unpaid for more than 30 days. Below is an outline of the foreclosure process after a loan is in default.

Pre-Foreclosure

• At least 30 days before filing the notice of election and demand and at least 30 days after default, the lender is required to mail a notice to the borrower with numbers for the Colorado foreclosure hotline and the lender's loss mitigation department.

Commencement of Foreclosure

• The lender/lender's attorney files with the public trustee of the county where the property is located.
  • Notice of Election and Demand for Sale; Original Evidence of Debt, or lost instrument bond if the evidence of debt is mislaid, unless the lender is able to provide an indemnity as a financial institution; mailing list containing names and addresses of owners, guarantors, lessees, and occupants, who will receive notice of sale; the combined notice that the public trustee mails to the persons in the mailing list; a deposit on the fees of the public trustee

Foreclosure Deferment

• Owner-occupied primary residence who is personally obligated to the debt and the principal amount is less than $500,000
• No more than 15 days after the filing of the documents by the attorney, and acceptance by the public trustee, the lender/attorney must personally serve on the borrower, or post in an obvious place on the property (front door or gate) a notice that the property is being foreclosed
• The lender/attorney must file an affidavit with the public trustee within 20 days after the initial filing stating that the posting has been made
• No more than 30 days after initial contact, the counselor must decide if the borrower is eligible for deferment

Commencement of Sale - Public Trustee Procedures

• Record NED (10 business days after receipt)
• Advertise in local newspaper the scheduled date of sale for 5 consecutive weeks (between 45-60 days prior to scheduled date of sale)
• Mail copies of combined notice (20 days after NED is recorded)
• Mail copies of combined notice to parties shown on supplemental mailing list (45-60 days prior to scheduled date of sale)
• Schedule Sale (not less than 110 and more than 125 days after recording NED

Expedited Sale

• Applies only to a residential mortgage in first lien position and the deed of trust does not specify a longer publication date. Does not apply to judicial foreclosures.
• Lender is able to elect to have an expedited sale (40-55 calendar days after NED is recorded)
• A court must issue an order for expedited sale with a copy being filed with the public trustee

More about the Foreclosure Process to be published in future blogs.

What is a Mechanic's Lien?

Most people that we have come in contact with are unsure of what a mechanic's lien means but also are unaware of the dangers of having a mechanic's lien recorded on their property.  First, a lien is a claim to a property to satisfy a debt, in simplest terms. There are many different forms of liens, but we will focus on what a mechanic's lien is and why it is important from a real estate investor's perspective to pay their contactors and suppliers timely and for the appropriate amount, but also require signed lien waivers from their contactors and suppliers.

If a contractor performs work on a property or supplies construction materials for that property but the owner doesn't pay the contractor for the work or the supplies, then that contractor can file a mechanic's lien on that property. There is also the ability to claim interest on the money that is owed to the contractor. There are time stipulations of when a contractor can record the lien from when the contractor wasn't paid.

So what does a mechanic's lien do when it is filed on a property? When a mechanic's lien is filed on a property it means that the owner of the property will not be able to sell or refinance their property until the lien has been paid off or a bond has been posted. That lien could turn into a court judgment and if the contractor wins the lawsuit then the contractor might be able to force the sale of the property.

As you can see, from a real estate investor's perspective (also any owner that is doing upgrades to their property) it is important that the real estate investor/owner pay the contractor for the work that they performed in a timely manner. Thus TABS, LLC for all construction loans that we provide, we require lien waivers. We require three different types of lien waivers:

• Conditional Lien Waiver
• Unconditional Lien Waiver
• Final Unconditional Lien Waiver

Hopefully it is clear that it is important for real estate investors that are doing renovation/upgrades on their property to pay their contractor(s) and supplier(s) for the work that they perform and the supplies that they provide.

This blog is intended as general information only, and not as legal advice for any specific situation. If you have a legal problem, you may want to check with an attorney.

Why Use a Hard Money Lender?

Hard money lenders are usually widely misunderstood, especially with investors new to Real Estate. As soon as we mention what our range is for interest rates, we see THAT look. It would be beneficial to explain why hard money lenders exist and how they can help new and experienced real estate investors become successful in the real estate industry.

First of all, if everyone was able to get approved for a loan through a large financial institution, then there really wouldn't be a reason for hard money lenders to exist. The majority of us would want the less than 5% interest rate rather than 10-15% interest rate. Unfortunately, not everyone can get approved for those. Most of us have a mortgage on the home that we live in - going against the steadfast debt-to-income ratios required by banks.  Do you have perfect credit? Not everyone does. People with spotty credit or people that have many different loans in their name have a hard time getting approved through large financial institutions. That's where TABS, LLC comes in.

Hard money lenders lend on the asset more-so than the borrower. If the deal is good, the credit of the borrower does not need to be perfect. However, most lenders will still run a credit report on the borrower. Most hard money lenders instead, focus on the asset itself. While we can't speak for every hard money lender, we can speak for us.  The first thing we focus on is the project: what is the investor paying for it and how much will it be worth after repair.

The good thing about hard money lenders is that we provide short term loans and we can close quick! Most real estate investors can turn to a hard money lender who offers bridge loans between acquiring the property and seeking permanent financing for the property. Especially if time is of the essence and they know it's a great deal but they don't have time to wait to get approved through a bank. Additionally, most sellers that real estate investors work with are motivated and want to get the property out of their hands immediately. However, be cautious and knowledgeable about the minimum holding period before you can refinance out of a hard money lender.

Another advantage of a hard money lender is that most of us provide the construction/renovation costs for the property. As you can imagine it takes time to get approved for a construction loan through a bank (and could be very difficult if there is already a loan on the property), why not combine the two?

We hope that this clarifies what a hard money lender does and how they can help you and your business. Remember, also that we are a resource and want to help you make money!

Wishing you success in all of your endeavors!

Do's and Don'ts of Real Estate Investing

Everyone who does real estate investing should treat it as a business. If you start off on the right foot, then there is a higher probability for success. It's important to know the basics of real estate investing, prior to making any large mistakes. This blog will help you out with some fundamentals and help you be successful.

Do's of Real Estate Investing

Do keep great records

Many new real estate investors seem to think record-keeping isn't important.  If you don't keep good records of your investments, how do you really know how they are performing? If you keep excellent records on all of your investments it makes every year around April 15th go much smoother as opposed to rummaging through your piles of paperwork trying to put everything together just weeks before tax time.  If you have a renovation loan with a lender, it is especially important to keep meticulous records of all the receipts and payments you have made to construction laborers and suppliers. Most lenders, if they are providing construction loans want all the work and material that have been done on the home accounted for. And if you are partnering with another party for your real estate investment, they will also want to see how monies were spent.

Do have an exit strategy

Whether you are planning on fix and flipping a home or buying and holding it, you better know before you purchase the home. Especially if you are utilizing a hard money lender, they like to know what your plan is. Not having an exit strategy is like having the cart before the horse; it becomes very challenging to make a successful real estate investment. This is especially important with market volatility. Unfortunately, no one is able to predict the market, so it's important to have a plan in place in case the housing market crashes, again. You shouldn't just count on everything working out perfectly, but run several scenarios so that you cover yourself.  Have a plan for if you are not able to sell the property for your estimate because of a market shift. Are you able to hold it and rent it out? Can you move in and assume payments?The last thing you want to happen is lose the property in its entirety and have a foreclosure on your record.

Do know your investment expenses

This will tie in to a latter point of unrealistic math. Before you purchase a property, know what your investment expenses are going to be. Do factor in carry costs such as utility, water/sewer, taxes and trash. Some first time real estate investors seem to forget to factor in the carry costs and later find out that it might not have been the best investment. Not only should you factor in your carry costs, but you should also factor in other costs as well such as potential legal fees, improvements/maintenance, bookkeeping and eviction if necessary. Does the investment still work if you have to pay the loan for a longer amount of time than your original estimate.

Do know how to recognize neighborhood trends

Most successful real estate investors envision the future of the neighborhoods in which they build. As the population continues to increase, there will be more up-and-coming neighborhoods than just the ones that are currently popular. If you own real estate in future areas of redevelopment and hold onto them for the next 15-30 years it makes not only finding and keeping good tenants easier but also it will maximize your return. You will find yourself paying a higher premium in the already established neighborhoods. It's also extremely important to drive by the property at different times/days in the week to make sure you are comfortable with your investment. If there is a freight train that comes barreling right by your investment at 5 am every morning, it may make buyers think they could get your property at a discount.

Don'ts of Real Estate Investing

Don't over-leverage yourself

Don't get me wrong, leveraging yourself can be extremely beneficial and useful. It is when you start to over-leverage yourself that you can get into trouble. When you over-leverage yourself it means that you have too much debt that you can't make the monthly interest payments. Most successful real estate investors build their real estate investment portfolio over a period of time not right away. Especially if the market crashes, and you are overleveraged and housing prices fall, it will be hard to recoup anything and most likely you will be facing foreclosure and perhaps even bankruptcy.

Don't under-estimate your expenses and over-estimate your profit

First of all, if you are renting a property don't just assume the vacancy rate is going to be 5%. Do your research and check the average vacancy rate within the area of your rental property you are planning on purchasing. Additionally, I see the biggest error on maintenance/improvement expenses. Don't just plug in a number into your excel spreadsheet, do the research to find out exactly what type of improvements and repairs you will need to do and which ones will help your bottom line the most. Lastly, make sure you are coming up with realistic numbers for the ARV (after repair value). Do your research, check recent market comparables to make sure your numbers are accurate. Also have the data to back up your numbers. Don't just trust your real estate agent to come up with the correct ARV, double check their work to make sure it's accurate.