People are moving. Single-family houses in the suburbs are opportunities real estate investors should consider.
According to an article in Mansion Global, apartment living in densely populated urban areas is already losing its appeal to Americans as they process their experiences during the coronavirus pandemic. Many people are eyeing options for relocating to the suburbs and a single-family home after facing the challenges of coming into contact with infected individuals in apartment building common areas and restrictions on their use of outdoor spaces like pools and game rooms.
Buyers crave —ROOM— living space, outdoor space, privacy, flexibility, and safety.
When you are researching a purchase of a rental property, evaluate:
Is there room for an office in the house?
Does the house have a good-sized yard?
Is there a pool in the backyard?
Is there a deck or porch that offers a sheltered option to living indoors?
Is the neighborhood safe to walk around in at night?
Is there a neighborhood association and is it restrictive?
Did local authorities try to restrict people’s use of their yard during the pandemic?
Consider taxes. People are richer in states where taxes are lower.
Big or tiny, single family homes in suburbs near major cities offer good opportunities for people to escape living in densely populated apartment buildings where entrances and recreation space is shared and access is restricted. If you need funding, apply now. I am working online with the rest of you.
The loan-to-value (LTV) ratio is the amount a borrower can borrow from a lender compared to the appraised value of the property that he or she wants to buy. The LTV determines the amount of a down payment a borrower has to supply from his own pocket to invest in the property.
Loan-to-Value ratio = Mortgage amount ∕Appraised value of the property.
For example, if the lender offers a loan at a 90% loan-to-value ratio, the borrower must supply 10% of the total cost of the purchase. In a fix-n-flip loan the same is true, the lender that supplies up to 90% (for example) of the home purchase price, requires the borrower to provide the other 10% of the price.
The Coronavirus pandemic has changed things rapidly including the market value of homes, thus affecting the LTV ratios lenders depend on. Please call for the most up-to-date loan-to-value ratios on our loans for your upcoming projects. 512-213-2271
If a borrower defaults on a home loan, which is more likely to happen if they do not have much of their own money in the home, the lender takes back the home and sells it to get back the money they lent. Market fluctuations can cause lenders to lose money if the value of a house goes down and the borrower defaults on the loan. The value of the home may be less the amount of the loan. The coronavirus pandemic may make home prices goes down, but that is not certain and may not be true in all locations.
If the borrower had equity in the home and defaults, then the borrower loses the equity they have in the home because the lender takes the property and sells it to recoup their investment and expenses as quickly as possible.
Equity is the amount of money that would be returned to homeowner if the asset is liquidated (sold) and all debts are paid off. It is in a home owner’s best interest to sell a home before they default on a loan and pay the loan off if possible both so they can get their equity out of the home and so that they can keep their credit history in good shape.
FICO Score Requirements
The FICO score required on loans relates to the buyer’s credit history. It reflects how often they have been late or defaulted on loans in the past. Before the coronavirus pandemic set our lives, marketplace, and economy into a spin, REI Capital Resources required a FICO score of 650 on a hard money loan with a term of up to 24 months. Many people have lost their jobs and their credit scores have suffered. Watching the unemployment rate go up, lenders across the country have tightened up their FICO requirements and these requirements are changing daily. Please call me for our latest FICO requirements. 512-213-2271.
Selling to Avoid Foreclosure
Owners in default or facing default will sometimes take less than the market value for a house to avoid foreclosure. They may settle for only getting part of their equity back, reasoning that some is better than none. None is what they will get if they go into foreclosure and the lender takes back the property and sells it for the balance owed on the loan. The borrower may even give up all their equity to sell the house before defaulting to keep their credit history intact and their FICO scores high.
The distressed homeowner’s situation becomes the buyer’s opportunity. The homeowner needs help to retain their high FICO score and some equity, and the fix-n-flip buyer needs to purchase a property for the lowest price. It can be a win-win deal.
As a direct lender, it is my job to help you get a purchase and rehab loan as quickly and as easily as possible. The perfect fit is still out there. Call me though for the most up-to-date information.
Real Estate is waking up. U.S. mortgage applications to purchase a home 🏠 rose 9% last week from the previous week and from a year earlier, according to the Mortgage Bankers Association’s seasonally adjusted index. It was the sixth straight week of gains and a 54% recovery since early April. Investopedia.com.
This is despite the sobering news from the Labor Dept. Weekly pay fell 11% in April from the prior month. That was the biggest drop on record, but it will likely be broken in May. Investopedia.com This, plus historically high unemployment, will be immense hurdles for people buying homes but might be incentive to start a business fixing and flipping homes to add to your own income and to provide homes, maybe small homes, to young and old consumers alike. Both want to get out of community living and out of big mortgages. I have the funds to help you fill this void in housing.
Real estate agents are using more virtual tours to showcase their homes. You might be able to use a video 🎥 to showcase your remodeling experience on a loan application for a private money loan for your next project.
The coronavirus pandemic has cast a shadow of mortal danger over senior community-living and assisted-living options, nursing home options, and the option of living fulltime on a cruise ship grazing the buffets and watching people, waves, and whales. Instead of looking forward to being safe with others our own age, with staff to care for us, and convenient medical care, we find that living in community might expose us to a virus we have no immunity to and a particular susceptibility for.
Even if one eyes being sick alone with anxiety, aging in place, at home has become even more attractive in recent months, and it has also become more possible. Advances in electronic technology have given many seniors more tools to use to assist them in staying at home while they age. Online shopping and delivery of even groceries and the surge in telemedicine are a couple of the technologies that have taken off during the pandemic. According to the Wall Street Journal article by Peter Grant, Senior-Housing Communities Face Higher Vacancy Rates Amid Coronavirus, virtual “doctor visits through American Well, also known as Amwell, increased 1000% during a six-week period (1).”
While senior community investors are taking a beating right now, a fix-n-flip real estate investor might be able to turn a profit on small rundown houses by remodeling them into the perfect haven for a senior citizen who wants to avoid community living. The task will mean focusing on details that seniors would be looking for and then marketing those amenities when you sell the home. I’ve scoured several articles for ideas about what to remodel in a fix-n-flip for seniors.
The first Advice I found was “buy a single-story home.” (3)
Make a no-rise entry by adding a ramp instead of steps. (3)
Repair uneven or cracked walkways outside and add nonslip surfaces. (3)
If stairs must stay, add 1 ½-inch diameter rails on both sides. (3)
Add reflective strips to top and bottom of stairs. (3)
Create doorways that are wide enough for a wheelchair.
Add benches and hooks for packages both inside and outside an entrance. (3)
Make a cleanup station or mud room near the door so guests can wash hands, remove shoes, discard coats, and pick up a face mask at the entrance and not expose inhabitant to pathogens.
Put a roof over at least one entryway. (3)
Install appliances with easy-to-read controls and push buttons. (3)
Install a wall oven. (3)
Make a microwave drawer. (3)
Use lazy Susan’s, rollout drawers, glass doors, and open shelving in cabinets and pantries. (3)
Install a single lever kitchen faucet. (3)(4)
Removing small step ups and down between rooms and replacing them with ramps.
Install flooring that is nonslip even when wet in bath and kitchen. (2) (3) (4)
Install outlets where they will be most useful, such as on walls where a flat screen would be used so cords don’t show and a little above desk height on walls and in the corners for charging devices or plugging in computers.
Install u-shaped and vertical grab bars in the shower and near the bathtub (2) (3) and add back bracing to the walls in these areas. (3)
A walk-in tub.
Install a curb-less entrance to the shower. (4)
Give shower floors a non-slip coating. (4)
Install shower seating, some are fold down. (2) (3)
I am sharing with you a blog from a science writer that contains information about respiratory coronavirus transmission. The blog, The Risks – Know Them- Avoid Them, by Erin Bromage, offers information that we laymen and women might not have processed yet. The information is biological and physical and spelled out very clearly. We need to reopen for business, but we need to do so safely, and in order to do that, we need to know the risks and how to avoid them. I was most impressed by how the article, highlights how being in an enclosed space, sharing the same air for a prolonged period increases your chances of exposure and infection. Our guidelines for reopening our economy tend to emphasize distance but have not mentioned much about exposure to the virus over time.
“Infection could occur, through 1000 infectious viral particles you receive in one breath or from one eye-rub, or 100 viral particles inhaled with each breath over 10 breaths, or 10 viral particles with 100 breaths. Each of these situations can lead to an infection (Bromage Blog).”
Although we have not determined just what the infectious load is for COVID-19, for other coronaviruses the number is 1000 virus particles. It is this principle that is behind why grocery stores can open and bars and restaurants must close. It is this principle that should concern you if you share a small office or work in an open space with a lot of people, or work 8 hours on an assembly line 6 feet from another human being who is potentially infected. In the grocery store you pass through quickly, shelves break up the aisles, and you typically don’t talk much as you shop. In bars and restaurants, you linger and talk. At work, you talk and breathe for hours near or in the same room with others.
Taking this to heart, I would suggest that real estate buyers, agents, and lenders pass through homes that you are viewing quickly. Don’t linger too long. Don’t carry on discussions face to face in small rooms or cars. If you must discuss things, do it outside the home and stand more than 10 feet apart with the wind behind both of you.
Keep greater than 6 feet of distance between you and another person, especially if that person is talking, yelling, or singing and is upwind of you. In an Indoor situation, up wind means between you and an open window, the air conditioner blower, or a fan.
Don’t drive in the same car to a property.
If you are showing a house, make sure it has been vacant for several hours before showing it, so all airborne virus particles have had time to fall out of the air. This doesn’t address surface contamination, but at least your clients won’t breath in an infectious dose as they move from room to room. You should wipe down counters, door handles, and surfaces that will be touched.
Do in-person showings and meetings by appointment only. This way you can judge how many people are around you.
Always pay attention to the physical situation when you are moving about the community. Ask yourself, how many people are here? How big is this room? Is there ventilation and enough of it?
Be sure to read this great article by Erin S. Bromage and apply the knowledge you gain to your work and play.
There is one thing that we can all be sure of: no one knows what will happen next.
The coronavirus has thrown all the cards into the wind and the stock market goes up even along with virus infections and deaths while main street eyes reopening a percentage of their business capacity keeping their distance and wearing masks. Forecasting is impossible.
REI Capital Resources would like to know your plans so we can put funding strategies together and find private lenders that will fit your plans and goals as you forge ahead into the murky future. Please take this brief pole for us.
Many jobs have been lost, at least temporarily. Texas has lost 50,900 jobs in the month of March. Louisiana had lost 21,000, Georgia, 7,000, and Florida 36,600. Nevertheless, homes are still selling. Realtors are advising home sellers to be flexible and willing to negotiate if they want to sell their home right now in the middle of the coronavirus pandemic (Forbes.com). Many people may not be comfortable committing a lot of money on a property when they are unemployed.
However, if you are in the business of real estate investing, such as fix-n-flip house buy and selling or buying for rental income, this may be a good time to buy. With fewer houses on the market, competition will be even more intense than usual, but sellers might be more amiable to negotiating.
I can help you get private funding for a real estate purchase for an investment. The terms would be 6 to 9 months. No appraisal is required, you can fund up to 90% of the purchase price and up to 100% of the rehab cost. Interest rates would start at 12% with points as low as 3.0%.
When you go to see a house, make an appointment and take safety precautions, such as wearing gloves and a mask when you see the home and discarding the gloves as you leave before you touch your car handle or steering wheel. Limit close contact with the real estate agent, seller, or lender. Complete as much paperwork electronically as you can. Wash your hands often. Avoid touching your face.
Let’s get our economy started again but be safe about it.
Although many states are exempting building, utility, road, and bridge construction from “stay-at-home” work shutdowns carried out to prevent the spread of the coronavirus, some states are calling for a cessation of all residential construction because it is not defined as “life sustaining” work or “construction of essential infrastructure.” If you read the recent Dallas County Shelter in Place order, you will see that Dallas County has not shut down residential construction. However, some states and counties across the country have. A fix-n-flipper needs to pay attention to the exemptions and inclusions in the work-stoppages orders that are being issued by state or county governments because it may affect your schedule and costs in ways you cannot predict.
Dallas county residents are being ordered to stay in their homes except for crucial work and errands, beginning 11:59P.M. Monday. All businesses that aren’t deemed essential also must stop operating.
Dallas Morning News, Updated 3/22/2020
Your construction loan has or will have terms and limits, usually 24 months for a fix-n-flip loan that will pay 100% of your estimated rehab costs. In an epidemic, you may find that you cannot finish construction in 24 months or within the costs you estimated months ago. If you are faced with a situation like the coronavirus pandemic, something you could neither foresee or prevent, you need to review your contracts for “Force Majeure” and price escalation clauses to understand who bears the risk in the case of work stoppages or rising material costs and shortages that are due to situations that cannot be predicted or avoided.
Be proactive. Start working this out with the organization or lender that lent you the money. Be sure to understand that if the project needs to be stopped and the contract rewritten who calls the stoppage and who and how everyone involved must be informed.
Delays often ripple through a project and can cause you to miss the deadline for your loan to be paid back, increasing your interest and penalties. Perhaps you can’t get a plumbing fixture delivered or a critical subcontractor is quarantined, and the next trades scheduled to work cannot proceed. Jump in and be aggressive about finding local alternative materials and even workers.
Louisiana becomes the ninth state to announce a statewide shelter-in-place order since California did so on Thursday night. Residents in Connecticut, Illinois, New Jersey, New York, Ohio, Oregon and Pennsylvania have begun or are about to begin staying at home for at least two weeks.
The Advocate, March 22, 2020
Below is a list of ways the coronavirus pandemic might affect your fix-n-flip project:
Sick workers who must quarantine for 14 days
Exposed workers who must quarantine for 14 days
Workers required to take off work to care for children when schools close
You have to take off work to care for your children when schools close
Subcontractors or specialty contractors who do not show up
Government permitting offices shutdown
Material shortages caused by epidemic in China or elsewhere
Shipping delays due to port-of-entry quarantines
Construction work stoppages in your area ordered by government to slow the spread of disease.
Material shortages cause prices to rise
Shipping costs rise owing to transportation shutdowns
If you are in the process of negotiating your loan and calculating your expenses, you need to be very careful in estimating your materials. Right now, in the middle of this epidemic, it is for me, or might be for you, impossible to tell how long impacts to business will last. Review your contracts to include appropriate “Force Majeure” and price acceleration provision clauses in your contracts. Look for local alternative suppliers.
A blanket loan is a loan or mortgage used to fund the purchase of 2 or more pieces of real estate (Wikipedia, Investopedia). The real estate is held as collateral for the mortgage, but the individual pieces of property may be sold without retiring the entire mortgage. Builders and developers, investors in multiple apartment communities, or investors in more than on single family rental property use blanket loans to buy a large tract of land to subdivide or multiple properties to manage as a business. The rental investor may sell one property without redoing the mortgage on the other properties. The developer can create many individual parcels to be sold one at a time without securing a new mortgage each time the sale of a parcel is made.
The blanket loan has a release clause that allows the owner to sell a portion of the secured property and make a corresponding payment on the loan. The outstanding balance on the loan is adjusted accordingly without being completely redone or retired. Most single-house traditional mortgages contain a “due-on-sale clause,” which means the entire outstanding debt is due when the securing property is sold. If this is the type of mortgage a developer or an investor with multiple rental properties has, then each time they sell a property they have to redo all the paperwork to remake the mortgage.
The financial benefits for an investor include
Only have to pay the fees and costs of one loan rather than applying for and closing multiple mortgages.
Negotiated terms, such as the monthly payment may be better under the blanket mortgage, freeing up capital for further investment.
Acquiring more than one house to fix-n-flip under one loan when several come on the market at the same time would allow a flipper to take advantage of the opportunity to buy multiple properties all at once (saving time and fees) while still being able to sell them one at a time after they are refurbished.
The danger to the owner is that if he or she defaults on the mortgage, the lender may seek control of all the properties secured by the loan.
There are several reasons why a fix-n-flip investor might want to secure a fast loan to cover a gap. A gap loan, as the name implies, is a loan that bridges a span of time. It helps you gain control of a property quickly even if you are still scrambling to get all your paperwork done for a full rehabilitation loan.
A Buyer in a Hurry
At some time or other, you might face a seller in a hurry. One situation that puts a seller in a hurry is foreclosure. Many property owners in this situation are in denial so they wait until the last week or so, or even days, before the foreclosure sale to act on saving their credit. To save their credit, they must pay the bank all they owe on the mortgage right now. The house might actually be worth much more than what they owe if they have been paying on the loan a long time or put a large payment down on it. But, a foreclosure on their record will ruin their credit. So, for them, it is better to sell at a discount and survive to buy another house another day.
In this scenario, an owner in foreclosure has agreed to sell the property to you at a steep discount, but they need to close the deal quickly. You, the investor, want to buy this property and you make an offer. However, the competition is extremely stiff, and another investor is sitting in the wings waiting to obtain the property. Your offer locks up control of the property temporarily. You need to move quickly to secure a loan. Normally the loan process takes a minimum of 7 working days and typically takes 10-15 working days.
A Nonrefundable Deposit
Another reason you might need funding in a hurry is that you have stumbled upon a wholesale purchase with a tight deadline to close, perhaps 2 to 5 days. The property is ideal for your purposes and you want to make an offer. However, if you don’t get the deal closed by the deadline, you will lose the nonrefundable deposit you are required to put down and control of the property you are seeking.
Getting Control of the Property
Here is where obtaining a gap loan is useful. A gap loan allows you to purchase the property as is while you are in the process of obtaining a rehab loan. The gap loan can be secured in 2 to 3 days typically. Your strategy is to obtain control of the property through this gap loan, begin paperwork to refinance the loan immediately and eventually complete the rehab and offer the property for sale.
REI Capital Resources has funds available for fix-n-flip loans with terms up to 6 to 9 months with a minimum of 3 months.
E-mail or call for more information on minimum and maximum loan amounts, interest rates, terms, and fees for specific project. I can help you with first liens only and these loans are limited to the Austin, DFW, Houston, and San Antonio Metro areas.