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How Private Lending Works for Investors

 What do private-money lenders like to see from investors who are seeking financing?

We look for investors who have a well-thought-out plan that they can execute. That includes having comps that make sense, a good idea of a property’s repair costs and a team of contractors ready to go to work.  You also should understand the market you are investing in. For newer investors, I highly advise them to operate in the market they are comfortable with, or even live in. By targeting a neighborhood within a 20-minute drive of your house, you will be more likely to know its strengths and weaknesses, its potential problems and opportunities.

What kind of advice would you give someone who’s seeking a private-money loan for the first time?

The first question they should answer is, are we a good fit for them right now? That is, are they ready to work on multiple projects at the same time, and do they need the leverage that our loans can offer?  Some investors like to pay only cash for any properties they acquire. But that ties up their resources and can limit them to one deal a year. By seeking financing, they can do more and grow their portfolio of properties faster.  We like new investors because we can build loyalty and new investors eventually become experienced investors.

What do the investors who consistently get approved for financing do differently?

Once someone’s done one transaction with us, they are much more apt to be approved again.  We love repeat borrowers.  But generally, someone who has done 10 or more transactions has seen the good, the bad and the ugly of real estate. They have learned from their mistakes, so they are nimbler and can react quickly when problems arise.  For example, they probably will not overestimate the after repair value (ARV) of a property. They also know to include a buffer in their repair budget in case there are any cost overruns. A cushion of 10 percent is a good idea.

What are the most common mistakes that borrowers – especially new ones – make?

The No. 1 thing we see is not knowing where to invest. Some applicants might have taken a course and are now very excited about getting into investing. But before they try to line up financing, they should know what areas they are targeting. That is because finding a good property, finding the right deals, is HARD.  They should also be careful not to rely on Realtors and other third parties to tell them if a deal is good. They are trying to sell you something, after all. If you do not know the market, the deal might not materialize like you expect.

Why is it important for investors to build a long-term relationship with a lender?

It is the time component. You want someone who can close on time and reliably. You want a sense of certainty that, once you have made an offer on a property and put up your earnest money, that your lender will deliver that check for you.  Plus, there’s the convenience. If I had to find a new accountant or lawyer every year, I would not be very happy.

 

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Posted by Charlie Einsmann in Real Estate Blog

YEAR END CLEAN UP FOR REAL ESTATE INVESTORS

Charlie Einsmann's Weekly Food for Thought
The year’s end is near. 2016 is coming to a wrap, and it’s time for real estate investors to start tying up loose ends and preparing for next year. However, just because the year is almost over doesn’t mean that it’s time to relax. In fact, there’s no better time to dive head-first into your business. The end of the year is perfect for revising your real estate strategies, preparing for taxes, preparing for banks and of course calculating your liquidity!!!  With that in mind, here are some real estate business tips you’ll want to implement before the ball drops.
 

Evaluate and Revise your Business Plan

As you approach the end of the year, you need to take a look at your business plan. Evaluate the information in it, and compare it with the statistics from the year. This will allow you to revise so you can eliminate tactics that did not work, change your goals as needed, and readjust the information so that it’s more accurate. This is an important real estate marketing tip, as the more precise your business plan, the easier it is to achieve your goals moving forward.

Prepare for Taxes

The end of the year may not be the end of your fiscal year but for us it is our end of year.  However, it may still be the perfect time for you to gather, organize, and prepare for taxes.  In addition, by covering this task now, you can free up your schedule for later when you might need to better focus on marketing. So, hire an accountant or purchase a tax software system, gather your receipts, analyze your income, and take care of taxes while you have the availability to do so.
 

Prepare for Banks

If you are like us you might have some credit lines with a bank or two or three.  There are a few things that you need to do for the banks.  The first thing each bank will want to see is your taxes (see previous section).  The second thing the bank will want to see is a year end balance sheet (or net worth statement).  A balance sheet is just simply a compilation of your assets and liabilities used to compute a net worth.  We do this on many fronts.  We do this for all of our LLC’s which eventually become part of our personal balance
sheet.  The next thing that a bank will want to see is an income statement.  This is a spreadsheet of your income minus you expenses.  Again we will do this for our LLC’s and then factor that into our personal income statement.  Having these things ready by late January early February is always a good way to get a head start on the year.
 

Liquidity

We do this at least once a quarter but you should ALWAYS do this at the end of the year.  Liquidity means how quickly you can get your hands on your cash. In simpler terms, liquidity is to get your money whenever you need it.  Liquidity also plays an important role as it allows you to seize opportunities.  Liquidity is the sum of your cash on hand, availability on HELOCs (Home Equity Lines of Credit), easily cashable instruments such as bonds etc, other bank line availability (including credit cards, be careful here), access to other forms of cash from friends and family etc…  If you have cash and easy access to fund and a great deal comes along, then it’s easier for you to seize that opportunity.  Again for us we have two different forms of liquidity.  We have it in the form of our LLC’s and on our personal side.
 
Coming out on top for the year’s end may require different tactics from what you use throughout the year. However, these small adjustments to your real estate business can end the year successfully, whether it’s with more sales, more investment properties or a clear and organized path for the future.
 
 Let us know in comments below your thoughts, questions, concerns. We’d love to hear from you!
 

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Posted by Charlie Einsmann in Personal Finances and tagged , , , , , , ,