In the competitive world of real estate investment, having a solid foundation and a clear strategy is crucial for success. Whether you’re a novice or a seasoned investor, the following checklist will serve as your roadmap to financial freedom through real estate investment. It’s designed to bulletproof your business and give you the confidence to write contracts and close deals, setting you miles ahead of your competition. These are your real estate commandments; follow them with intent, and you become an instant dealmaker.

1. Credit Score: The Foundation of Your Investment

• Good credit score: Aim for a minimum of 680 for approvable status, 700 for Fannie/Freddie approvals on 1-4 homes financed, and a mandatory 720 for financing home #5 and upwards.

2. Loan-to-Value (LTV) for Optimal Rates

• Best rates requirement: Ensure your LTV is at 75% or less of the appraised value or purchase price for up to 4 homes financed. For the best rates on 2-4 family units, target a 70% LTV or less.

3. Cashing Out on Investment Properties

• Strategic cash out: Understand the guidelines for cashing out, especially the timing post-purchase and improvements beyond superficial updates.

4. Minimum Loan Sizes for Investment Financing

• Navigating small loans: Be mindful of the difficulties with loans under $50,000 and aim for a final loan amount that meets or exceeds this threshold to avoid financing challenges.

5. Down Payment Insights for Deal Makers

• Zero down possibilities: Discover how to leverage good deals with at least 30% equity of the After-Repair-Value (ARV) for 100% financing through Hard Money lenders.

6. Documentation for Investment Financing

• Comprehensive documentation: Prepare all necessary financial documents, improvement proofs, and insurance information to streamline the financing process.

7. Securing a 30-Year Fixed Loan

• Investment property loans: Learn the conditions under which you can secure a 30-year fixed loan and the impact of purchasing under your personal vs. business name.

8. Financing Multiple Properties

• Expansion strategy: Understand the limits on the number of properties you can finance and strategies for managing more than 10 properties through equity partnerships.

9. Property Seasoning Requirements

• Navigating refinancing: Familiarize yourself with seasoning periods for refinancing and selling, ensuring alignment with lender guidelines for non-seasoned loans.

10. Down Payment Seasoning

• Funding your investment: Ensure your down payment funds are properly seasoned in a personal account, and explore acceptable sources for your down payment.

11. Reserve Requirements: The #1 Deal Killer

• Building a safety net: Know the reserve requirements for your investment properties to ensure loan approval, considering reserves as a crucial component of your investment strategy.

12. Leverage Leases for More Approvals

• Rental income: Learn how to properly document and leverage lease agreements to improve your debt-to-income ratio for investment financing.

13. Closing in Personal vs. Business Name

• Strategic ownership: Understand the advantages of closing in your personal name for long-term financing and the role of asset protection strategies post-closing.

14. Rapid Acquisition: A Cautionary Tale

• Growth management: Recognize the risks of acquiring properties too rapidly and strategies for presenting a low-risk profile to lenders.

15. Ideal Loan-to-Value Ratios

• Buying right: Aim for optimal LTV ratios to ensure wiggle room for repairs and to enhance the appeal of your deals to hard money lenders and private investors.

16. Refinancing Listed Properties

• Strategic listing: Understand the implications of listing a property for sale on your ability to refinance, especially with looming hard money loan maturities.

17. Seller-Paid Closing Costs

• Negotiation strategies: Learn when and how much to request in seller-paid closing costs without jeopardizing your deal.

18. Managing Negative Cash Flow

• Investment planning: Identify scenarios where negative cash flow might not impact your deal and strategies for mitigating financial risks.

19. Rent Loss Insurance

• Protecting your income: Consider adding rent loss insurance to your policy for additional protection during tenant-related repairs.

20. Flipping Financing

• Lender relationships: Be mindful of the implications of flipping financing too quickly and strategies for maintaining good standing with your lenders.

21. Renovation/Rehab Financing

• Project funding: Learn the requirements for securing renovation financing, emphasizing the importance of equity and a solid analysis of your projects.

22. Embrace Your Competitive Advantage

Unlocking the Potential of Hard Money Loans

In the dynamic world of real estate investment, securing efficient and reliable funding is the cornerstone of success for both property flippers and rental property investors. Hard money loans, known for their flexibility and speed, can be a game-changer, especially when traditional financing falls short. However, the key to leveraging hard money loans effectively lies in your preparation and ability to ask the right questions. Below is a comprehensive guide designed to streamline your funding process, ensuring you’re well-equipped to make informed decisions.

1. Understanding Loan-to-Value (LTV)

Ask potential lenders about their required LTV of the After Repair Value (ARV) to qualify for 100% financing. Knowing this will help you gauge the feasibility of your project under their terms.

2. Deciphering Loan Terms

Inquire about the duration of their loan terms. Whether it’s 4, 6, or 9 months, understanding this aspect is crucial for planning your project timeline.

3. Navigating Loan Extensions

Discuss the possibility of loan extensions. It’s essential to know the terms should your project exceed the initial maturity date.

4. Credit Requirements

Determine if the loan decision is based solely on the property value or if your credit score plays a role.

5. Understanding Fees

Clarify the points charged and whether these can be incorporated into the loan amount. For deals with low LTV, ask if points and interest-only payments can also be rolled in.

6. Submitting Rehab Costs

Learn how lenders prefer rehab costs to be presented and if any specific contractor documentation is required for final approval.

7. Comprehensive Financing

Confirm if they provide financing for both the purchase and renovation costs.

8. Reserve Requirements

Ask about any required reserves for approval to ensure you meet their criteria.

9. Insurance and Appraisals

Understand their “Loss Payee Clause” for insurance and whether an appraisal is necessary to confirm ARV.

10. Additional Fees

Inquire about any hidden fees, such as application or construction disbursing fees, to avoid surprises.

11. Speed of Approval and Closure

Knowing the timeline for pre-approval and closing can help you plan your projects more effectively.

12. Repeat Business

For ongoing investors, ask if there’s an opportunity to work on multiple projects simultaneously after successfully completing one.

13. Submission Process

Clarify the submission process for deals, including the preferred contact person and submission format.

Special Note for Submissions:

Always include comprehensive details in your approval submissions, such as the property address, signed contract, closing date, estimated ARV, purchase price, repair costs, scope of work, contractor’s bid and insurance, project timeline, and your insurance agent’s information. Being thorough not only makes you stand out but also increases your chances of securing funding.

Conclusion

Navigating the realm of hard money lending with precision can significantly enhance your real estate investment strategy. By asking these targeted questions, you position yourself as a knowledgeable and prepared investor, ready to capitalize on opportunities with speed and efficiency. Remember, in the competitive landscape of real estate investing, those who are well-prepared not only secure the best deals but also foster lasting relationships with lenders, paving the way for future success.