Fluctuating LTV

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

Photo by Pixabay on Pexels.com

Default

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.

Equity

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.

Buying Opportunity

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.

I am working online with the rest of you. If you need funding, fill out the BLN application at   http://reicapital.blnsoftware.com/ or send me an e-mail or give me a call.

Patrick St.Cin

W – 512-213-2271

M – 505-239-3026

Patrick@REICapital.cash

www.REICapital.cash

Fix-n-Flip Time & Money

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.

Photo by Andrea Piacquadio on Pexels.com

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
  • Order cancellations

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.

We wish health and safety to you and yours.

Fill out the BLN application at   http://reicapital.blnsoftware.com/ or send my an e-mail or give me a call.

Patrick@InvestorsLendingSource.com

512-213-2271

Austin, Texas

Beauty of a Hard Money Loan

Like an old tin roof and gingerbread trim, hard money loans have a beauty all there own in the right hands. Hard money loans are short-term loans secured by real estate and used by fix-n-flippers to purchase and renovate property. They have high interest rates but only for a short time. These loans usually finance the purchase of the property and the renovations.

Secured by Real Estate

REI Capital Resources hard money loans finance up to 90 percent of the purchase price of the home, up to 100% of the renovation costs, and a maximum of 70% of the after-repair value (ARV). An appraisal is required.

High Interest Rates but for a Short Term

Hard money loans are intended to be paid back quickly (in 24 months) so the high interest rate does not hurt for long and is included in your budget calculations. Hard money loans usually do not have a prepayment penalty. REI Capital Resources interest rates start at 9.5%.

Lender fees, permit costs, property assessment fees, loan originating fees, loan processing fees, inspection fees, points, interest, closing costs are taken out of the loan. REI Capital Resources points are as low as 2.5%.

Payments

Monthly interest-only payments are made during the loan and the principal repayment is made at the end of the loan term when the renovated house sells.

Borrower Qualifications

REI Capital Resources hard money loans carry minimum qualifications of a credit score of a minimum of 600, debt to income ratio of 35% – 45%, and experience that includes two to three past renovation projects or a licensed contractor budgeted to help.

Photo by rawpixel.com on Pexels.com

More is Better

More experience and higher credit scores may qualify for lower rates and fees and higher borrowing limits.

REI Capital Resources

REI Capital Resources is a hard money lender and is able to help you fund your project based on your experience, the value of the property, and its after renovation value. We have money to lend, and you need money quickly. A perfect fit is out there.

We are focused on funding Your Success.

Patrick StCin

Call me at 512-213-2271

e-mail: patrick@REICapital.cash

Single-Family Rentals: Build to Rent

The single-family rental is the fastest growing segment of the housing market according to research done by the Urban Institute. This is a very interesting area of opportunity for private lenders and it pays to keep up-to-date on the market so that no opportunity is missed.

Single-family rentals have outpaced single-family ownership and multi-family housing in recent years. This is partly due to millennials that are forming households and entering the single-family housing market, moving up from multi-family living to single-family rentals to gain additional space for a growing family. Renting still works for them because they need the ability to be transient and move if their jobs require them to, and many cannot afford single-family ownership because they are carrying massive student loan debt, have not been able to save for a down payment, and are faced with stricter lending terms. Downsizing baby boomers are also attracted to single-family rentals for some of the same reasons, including no down payment, maintenance services, and the ability to move if they choose.

Photo by Thgusstavo Santana on Pexels.com

Wholesale Sales

According to an article on Builderonline.com by Lauren Shanesy, the demand for single-family rentals has allowed builders to increase sales by selling to rental operators on a wholesale basis and has prompted a number of developers to tap into the market with a new product, the cohesive single-family rental community filled by niche renters with lifestyle needs that are unlike those of apartment renters.

Planned Rental Home Communities

AHV Communities is one community builder that is building in Texas, offering resort-style amenities, energy efficient homes, maintenance-free living, and professional management with the freedom and flexibility of a lease. One of these communities is Pradera, luxury rental homes in San Antonio. Another is Creekside Ranch in New Braunfels. Both offer club house, pool, green space, maintenance services, and sophisticated floor plans.

Management Efficiencies and Flexibility

Shanesy continues, “Many individual investors who bought distressed or foreclosed single-family rental homes have been priced out of the market by competition from institutional investors in recent years.”  However, these individual rental homes are spread out and not located in communities, so the institutional lenders have a more difficult time managing them efficiently. Some investment companies have begun looking to builders to purchase whole communities of new homes that they can manage. They sell some of the homes and rent others, allowing the investors the flexibility to sell if homeownership goes up or rent if homeownership goes down.  

A Mature Market

Samantha Goldberg, in the article “Top Trends to Watch in the Single-Family Market,” at Arbor.com/blog/ reports that panelists at the State of the SFR Industry panel at the IMN’s 7th Annual Single-Family Rental Investment Forum, held in Hollywood FL say that incoming capital, new private lenders and institutional lenders, and technological innovations helpful for management are the top trends to watch in the single-family rental market over the next few years.

According to the same article, the single-family rental market sector achieved 3% year-over-year rent growth in 2018 and 2% year-over-year rent growth so far in 2019. The West Coast and the South East had the biggest rent gains in the last year.

There is still a shortage of housing for the U.S. workforce and this means that the nonluxury single-family rental market has room to grow, providing opportunities for private lenders, developers, and investors to add inventory in the workforce living space.

REI Capital Resources Long-Term Rental Funding Program

REI Capital Resources is a funding source for SFR Fix-n-Flip, Fix-to-Rent, build-to-rent, and Refinance projects as well as larger commercial projects such as office buildings, 5-40 door multi-family buildings, and many others.  These programs vary wide and far throughout the gamut of lending. Call or e-mail for more information. I’d like your business.

We offer asset-based and experienced-based long-term rental program loans on the following terms: at a min FICO of 650, a BPO is required, up to 85% of purchase price, Max of 80% ARV, Interest rates starting at 6.5%, and points as low as 2.25%.

REI Capital Resources Residential Construction Loan Program

We offer asset-based and experience based loans for residential construction on the following terms: Min FOCI 650, appraisal required, up to 90% of cost of lot + build, Up to 100% of construction costs if lot is free and clear, Max of 70% ARV, interest rates starting at 8.25%,and points as low as 3.5%.

Give me a call or send me an e-mail.

Patrick St.Cin

W – 512-213-2271
Patrick@REICapital.cash

References

Lauren Shanesy on Builderonline.com, “The Rise of the Single-Family Rental.”

Samantha Goldberg, “Top Trends to Watch in the Single-Family Market,” Arbor.com/blog/

http://www.urban.org/research

Have You Hired an Uber Driver Today?

House flipping has made it to the Wall Street Journal. In a recent article (May 28, 2019), Uber Drivers Seek Extra Cash Working for House Flippers,” I read about a new way house flippers are finding houses to buy in today’s competitive market. They are maximizing their chances of locating houses to fix-n-flip by paying Uber drivers to identify homes on their routes that are ripe for flipping. This cuts down on the amount of driving and scouting the real estate investor has to do to find potential homes to buy, and the Uber driver makes some extra cash.

Uber drivers take a picture of a property using an app developed by DealMachine, LLC. The app uses GPS and county online property records to identify property owners. The DealMachine website in the Google app store says that the app “is the fastest growing solution for investors and agents who want to build their own marketing list and find local deals.” It advertises that you can “See a run-down house, find the owner, and flip it for a profit.” Their app gets in touch with the property owner via direct mail or e-mail. The app user instantly sees the owner’s name, phone number, and e-mail address to contact them on the spot.

Driving for Dollars

Homes that have owners that might be eager to sell include houses that appear vacant and those that have newspapers piled up and a “for sale” or “for rent by owner” sign in their un-mowed front yards. Uber drivers take pictures of the houses and submit the referrals when they are not driving a client.

Some real estate investment companies pay the Uber driver a hefty commission if a lead pans out and others pay some for each good lead and more if a referral leads to a deal closing. One Uber driver interviewed by the WSJ writer has sent in 400 photos and has not had any of her leads close yet, but she says, “I understand real estate is a numbers game. What do I have to lose? I’m driving around anyway.”

REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options for real estate.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

Parker, Will and McWhirter, Cameron, Uber Drivers Seek Extra Cash Working for House Flippers,

WSJ May 28, 2019

https://www.wsj.com/articles/uber-drivers-seek-extra-cash-working-for-house-flippers-11559035802?mod=trending_now_2

https://play.google.com/store/apps/details?id=com.dealmachine&hl=en_US 0feffffff0

Vacation Rental Investment Property: Expenses

Summer is here and vacations are in the air.  Perhaps, it is also time to think about how we can pay for our vacation with income from an investment property purchased to rent. As we discussed yesterday, if you receive income from renting property for use as a dwelling, such as a house or apartment, you may need to report the income, and you may be able to deduct certain expenses. 

To make your tax life easier and less confusing for you, your tax preparer, and the tax authorities, be clear about your goals for the rental property.  Are you using the property partly for your own use and renting it out when you aren’t using it or are you operating it solely for a profit?  If you are using the property yourself and renting it, divide the portions of expenses between your investment and your personal tax forms based on days used or percentage used, and you will not run into tax trouble.

Types of Rental Expenses

In most cases expenses related to renting your property are deductible. These deductions can be applied against the income you receive from rent to lower the amount of the rental income that is subject to tax. These would general be reported on a form 1040.  According to the IRS, if you use the investment property to rent for a profit and do not use the dwelling as a residence, or for personal use, then your deductible rental expense may add up to more than your gross rental income. When you use the property for both personal and rental use, you will not be able to deduct rental expenses in excess of the gross rental income minus the rental portion of the mortgage interest, real estate taxes, casualty losses from federally declared disasters for the rented part, realtor’s fees, and advertising costs.

Deductible expenses include:

  • Advertising
  • Auto and travel expenses (if the primary purpose of the trip is to collect rent or to manage, conserve, and maintain your rental property)
  • Cleaning and maintenance
  • Realtor and Online Commissions
  • Depreciation: This expense begins when the property is rented or placed in service. It is taken over the lifetime of the property to cover the cost of the original purchase.
  • Insurance
  • Interest on loans other than the mortgage
  • Legal and other professional fees
  • Local transportation expenses (those incurred collecting rents, managing, conserving, or maintaining your property)
  • Management fees
  • Mortgage interest paid to banks, etc.
  • Mortgage expenses, including mortgage commissions, abstract fees, recording fees, are not deducted as expenses, but are considered part of the basis of your property as capital expenses and are depreciated.
  • Points. Points are prepaid interest and are deducted over the life of the loan and not all in the year the loan was made.
  • Pre-rental expenses: Expenses incurred maintaining your property from the time you make it available to rent
  • Rental payments for equipment
  • Rental payments for the property you lease
  • Repairs
  • Taxes
  • Utilities

Vacant Property

You can deduct expenses incurred maintaining and preserving your property when it is vacant, or vacant while listed for sale.

Uncollected Rent – Not Deductible

Don’t deduct uncollected rents. It is not included in your income, so it cannot be deducted.

Renting to Your Employer

If you rent part of your home to your employer and provide services for your employer in that rented space, report the rental income.  Claim the income and deduct the expense for that portion of the house. You can deduct mortgage interest, real estate taxes, casualty losses from federally declared disasters for the rented part of your home.

I would like to help you with funding for an investment rental property or vacation rental.  I have a long-term rental loan program that can help you get into an income-producing vacation rental investment property.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

IRS Publication 527 (2018) Residential Rental Property

IRS Tax topic 415 Renting Residential and Vacation Property

Image Credit, vacation rental, Seattle. Fred Ueckert, FJU Photography [CC BY-SA 4.0 (https://creativecommons.org/licenses/by-sa/4.0)%5D

Vacation Rental Investment Property: Income

Summer is here and our heads are full of vacation plans. Some of us rent summer vacation homes to stay in and some of us rent vacation homes out to others for income.

As a real estate investor, you may be considering buying a property to rent out for income or to remodel and resell. There are four points about income taxes that apply to rental properties that you should know about.

1.  If you rent the dwelling for fewer than 15 days a year, you do not have to report any of the rental income and cannot deduct any expenses as rental expenses.

2. If you receive income from renting property for use as a dwelling, such as a house or apartment, you will most likely need to report the income, and you may be able to deduct certain expenses.

3. The accounting method you choose to follow determines when you count income and deduct expenses.

4. Whether you use the property personally for vacations with your family and friends makes a big difference.

Accounting Method:

The accounting method you use determines when you claim income and deductible expenses.

Types of Rental Income:

Monthly rent is only one kind of income you may receive.  You may also receive rent in advance. You report monthly rent when you receive it. A tenant may pay you to cancel a lease. This income you report when you receive it. A tenant may pay some the expenses attributed to the rental dwelling (for example utilities). You declare the expenses paid as income. You can then deduct the expense if they are deductible rental expenses. A tenant may pay you with services (for example painting) or property (for example they construct a built-in grill). In this case you report the fair market value of the service or property as rental income.

Security deposits are not included in your income if you intend to return them to your tenant at the end of the lease. But, if you keep part or all of the deposit, include it as rental income in the year you receive it.  If a security deposit is used as the final month’s rent, include it as advanced rental income when you receive it.

Personal Use

According to the IRS, If you use the property for personal use 10% of the time or 14 days a year (whichever is greater) and rent it out at the fair market value for income, limitations apply on the rental expenses you can deduct. You will need to divide the expenses between the personal use and the rental income use based on the number of days of each. Of course for personal use, you will not receive income so there is nothing to report on the personal taxes. When you use the property for both personal and rental use, you will not be able to deduct rental expenses in excess of the gross rental income minus the rental portion of the mortgage interest, reals estate taxes, casualty losses from federally declared disasters for the rented part, realtor’s fees, and advertising costs.

One thing to note about personal use is that if you rent to a relative or friend for a token amount, less than the fair market value of a dwelling just like yours, you have to count this use as personal use, not as investment rental income use.

I have a long-term rental loan program that can provide funds for your real estate investment for the purpose of renting for income.

REI Capital Resources is a direct lender as well as a broker of funding solutions. We offer short and long-term financing options.

Please give me a call when you find that perfect real estate investment and know how much money you need.

Patrick St.Cin
512-213-2271
Patrick@REICapital.cash 

References

IRS Publication 527 (2018) Residential Rental Property

IRS Tax topic 415 Renting Residential and Vacation Property

Vacation rental Image in Florida. Jan Lieberman [CC BY-SA 3.0 (https://creativecommons.org/licenses/by-sa/3.0)%5D

Numbers: Prices, Percentages, Points

Despite the volatility of the stock markets and the Texas weather, no matter if it is raining, blowing, or baking, even if I have to walk uphill both coming and going, in a “snownado,” I am here to help you find ways to put your money and your time to good use making more money in big or small, short-term or long term, real estate investment adventures.

I have several loan programs to offer.

 

 

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Patrick@reicapital.cash

512-213-2271

 

 

 

 

 

 

2 Home-Buyer Surveys of Note

Buyer Surveys

Earlier this year, the National Association of Home Builders (NAHB) surveyed nearly 4,000 home buyers, those who have either recently purchased a home or plan to purchase a home within the next 3 years. Realtor.com also reviewed home transactions between January 2018 and September 2018 and compared them to the 2017 home sales to come up with some statistics about who will drive home sales in 2019.

These statistics become meaningful when you apply them to your own real estate investment plan as much as possible. As you approach your real estate fix-n-flip project, it is important to apply the money in your budget toward the areas that will give you the most buyer draw for the dollar. This is not easy, and the target is constantly moving as new products come onto the market, new buyer demographics emerge, incomes fluctuate, and young buyers learn from their parents, study what their parents have done and listen to what they would have done differently.

Millennial Generation Buyers

When you first start looking for the right property to remodel, you may want to consider looking in areas where the largest group of people are looking. The realtor.com survey of emerging home buyers in 2019 points out that affordable homes, jobs, and the availability of entry level homes are “magnets for young buyer.” A large segment of the millennial generation will be turning 30 years old in 2020, so they are starting families, and, as rents rise, moving out of apartments and buying houses.  According to the NAHB survey, 64% of buyers preferred to buy a home in the suburbs. 24% of buyers were looking for a house in a rural area. 11% of buyers were looking for a house in or near the center of a city.

Storage and Energy Efficiency

The information in the NAHB buyer survey gives you some general guidelines on what home buyers are looking for in their homes. After location, buyers prefer

  • laundry rooms
  • energy saving appliances
  • energy saving insulation
  • energy saving windows
  • home storage
  • garage storage
  • walk-in pantries
  • hardwood flooring
  • patios
  • exterior lightening

A few rising trends were noted in the NAHB buyer survey that may pique your interest and inspire some research, including: houses are getting smaller, engineered quartz countertops, vinyl and resilient flooring, wireless controls, open interior and exterior spaces in kitchens, and higher-end fixtures in bathrooms, such as wall-mounted sinks, faucets, and toilets, are becoming more popular.

REI Capital Resources built its reputation on finding private funding for investors for quick turn purchases and difficult situations.  This is still true today.  

Give me a call or send an e-mail and share with me your plans and needs, and I’ll see what lending solution I can generate for you.

Patrick St.Cin

512-213-2271
Patrick@REICapital.cash
Info@REICapital.cash Menti

Needed: Homes for Modest Incomes

“The lower end of the market is hot, while the upper-market is not,”

Lawrence Yun Chief economist at the NAR

According to the National Association of Realtors, developers built more expensive homes in recent years, while middle-income Americans are eager to buy cheaper properties. Thus, the high-end market has slumped and the market for mid-priced homes has increased slightly, equaling a 4.9% decrease in existing home sales in February 2019.

The article “Home Sales Fall 4.9% in Slow Start to Spring Buying Season,” Associated Press Wire Service, by AP Economics Writer, Christopher Rugaber. also says that mortgage loan applications are up, but cites no sources for that information.

As always, do your research and put your money where you see there is a need. In that market, it will sell.

gray house under blue and gray sky

If you find that modest home that you can remodel for a middle income family, let me know.  I have the funding tools to help you.

REI Capital Resources is a loan originator for select investor single-family residential projects. Our goal is to provide fast closing loans to fund your investment projects, so you don’t lose a great deal. This includes bridge loans for the acquisition of property.

Give me a call or send an e-mail for assistance funding your project.
Patrick St.Cin
512-213-2271
Patrick@REICapital.cash