Category "Uncategorized"

Novice Borrowing

- - Uncategorized

Real Estate is a long-term finance and management proposition.

You must be an efficient manager for your properties if you’re going to be a successful investor, but equally important, you need to secure a trusted source of financing.

Less money down equals more deals, more equity, more net worth, and more cash flow.

If you are just starting out in the investment world, the first source of financing you may think of is conventional, bank finance. That’s what you’ve secured for your primary residence, and it might be all you know. Especially if you’re new to this field. Conventional financing has perks, but not always for investing.

Let me explain the difference between conventional and private money.

As you may know, bank financing typically requires a down payment based on the appraised value of the home or the purchase price, whichever is lower. This doesn’t give you an advantage when buying a distressed home, and they’re not going to loan you money for repairs. All that additional cost will come out of pocket. This means that your investment into the real estate transaction is the down payment (up to 20%), the closing costs, and the bill for repairs.

**Let’s say you have a property for purchase at $55,000 that needs $20,000 in repairs to have an ARV (after repair value) of $100,000.**

  

Bank advantages; low-interest rate, long-term financing

Bank disadvantages; they require an inspection.

If the house needs $20,000 in repairs, the bank is not going to loan out the money until the repairs are done. You can go to the owners and request they do this for you, which isn’t likely going to happen. And if you’re buying the property as a foreclosure, that’s definitely not going to happen. Also, banks won’t allow double closes or assignments, so when you get a deal from a wholesaler or flipper wanting to assign the property to you, the bank isn’t going to allow it. This excludes many potential deals.

Now, let’s say you can get over all of this. Here’s the worst disadvantage for turning to a conventional loan for a distressed property; it can take 30-60 days to close. When you’re buying these properties from motivated sellers or from banks that want to get rid of the asset, time will kill the deal. A motivated seller will take a lower offer if you can assure them the property will close in, say, ten days.

Bottom line for this example; if you’re able to secure a bank loan for a distressed property, you’re looking at a 55% ROI. Not bad.


Now, let’s talk about private money, which comes from a private source specifically for real estate investors.

In contrast to a bank loan, these loans have a higher interest rate and a shorter-term loan, as they are designed specifically for short term investments. A private money lender knows the property could be in rough, distressed shape, and that’s okay. The cost of the repairs can be covered in the loan, which means no out of pocket from you for the rehab of the property. The biggest advantage–contrasting of course with the long process of a bank loan–is that a private money lender will close on the property in as little as a few days. This strengthens your offer, giving you an advantage over other interested parties who have bank financing.

Private money lenders will loan based on the ARV and not based on the purchase price. The lower you buy the property for, the less you’ll bring to the table. Less money down gives you the opportunity to do more deals, which is more opportunity for profit.

If you turn to a Private Money Loan for this example, your ROI jumps from 55% to 200%. Which would you choose?


Each finance option serves a purpose, but if you’re investing (and especially if you’re flipping), get a fast quote from CogoCapital.com. For more, check out: Cogo Capital _ Private Money For For Real Estate Investors

To Your Success;

Lee A. Arnold

CEO

The Lee Arnold System of Real Estate Investing

Follow me on Twitter: @CogoCapital  and @LeeArnoldSystem 

For our latest success stories, click HERE to read how others are finding, funding, and making money on their deals.

7 Mistakes to Avoid When Fixing and Retailing Houses

- - Fixing, Flipping, Uncategorized

Fixing and retailing houses can be an extremely lucrative business. I should know. I’ve spent almost my entire professional life using this avenue to create wealth. Not only am I an expert on the topic, but have created a comprehensive system for you to use that takes out the guess work, the headache, and the trial and error so you can set yourself on a path to success.

And my system of education doesn’t stop at rehabbing homes. I’m guessing that flipping is your main real estate focus, but we have something for everyone who is looking to get started, improve their current career, or striving to branch out into a new channel of real estate investing.

I’ve been there on every side, in every part from being an agent to contracting work to brokering to buying houses with cash.

I can promise you one thing; regardless of where you are in your career and what hurdles you are facing, I’ve been there. If I can help you to avoid some of the mistakes I’ve made and see others make consistently, then I will. After all, our company motto (and my PERSONAL motto) is “We get more of what we want by helping you get more of what you want.”

So, I want to steer you away from these expensive mistakes that could leave you disenchanted with an industry that could otherwise change your life!

1. Thinking this is an easy, “Get Rich Quick” model.

Yes, I can teach you exactly what to do and how to do it. But it’s still a lot of work, a lot of time, a lot of offers, a lot of rejection. This is no “get rich quick scheme.” I will never promise you instant riches.

You must make the phone calls, market yourself, stay the course, and continue to learn. If you follow the Lee Arnold System of Real Estate, you will reach your goals quicker and with less frustration and financial growing pains. It’s a proven system, and you’re in good hands if you implement what we teach. It’s important that you understand you aren’t 2 weeks away from your first paycheck yet.

This is an investment, and although I’ve seen great success happen to people in short periods of time, you’re likely looking at four months of full time, dedicated work from the start to the payoff. But you must be ready for the work!

2. Jumping in with only minor research.

90% of your time will be spent researching, viewing, negotiating, and then doing more research before you acquire the property. Why? Because the most direct and least expensive way to avoid mistakes is by understanding the market, the contractors, the fine print, and expectations.

Knowledge is power. You can do all this research yourself (good luck, I can tell you from experience that the internet is a black hole of information!) or you can follow a system that is proven. Let us show you exactly what to look for, how to do each task and in what order, and where to find the vital information you need to put together a successful deal.

3. Doing all the work yourself to “save money.”

I’ve been there. I’ve done this. I’ve ripped drywall out of basement walls with my buddies only to get covered in roaches—ask Gary Myers who likes to tell the story on the road! Don’t do what I did and assume that if you can do the work yourself that you should.

You should hire and outsource almost every single task related to property ownership and instead qualify the contractors to do the job for you. Once a property rehab is underway, your priority is to manage the workmanship to assure maximum profit in the resale of the house, keep things on schedule, and properly manage the draw system and budget. You can’t do these things if you’re busy installing tile.

If you chose to do a task that you could otherwise hire out for $35 an hour, you are proving to yourself that your time is only worth $35 an hour. You can do a contractor’s job for $35 an hour, or you can go out there and find another house that has the potential to make you thousands. See what I mean?

4. Quitting your day job too soon.

I do a lot of private consulting, and my clients always come to me with interesting goals. They want to make a million dollars in a year and quit their job. It’s a noble goal, but aside from not being realistic, most people wouldn’t be able to wrap their brains around that drastic and rapid of change.

What I tell people is to stay at their current job and build their business in tandem with their work. It’s a lot of late nights and weekends, yes. It involves sacrifices, but here’s why it’s good: You need stability in your income so you can make rational, smart decisions in real estate. If you quit your job and rely solely on real estate as a source of income before your business is stable enough, you’ll end up making poor decisions just to put food on the table.

Keep your job and let me help you build wealth so you can walk away from the 9-to-5 with confidence.

5. Not having a real exit strategy.

If your main goal is to rehab a home that will be purchased with conventional or FHA financing, are you considering the standards in which conventional financing or FHA standards dictate? If you aren’t building according to these standards, you are essentially playing a game of craps. What happens if the house doesn’t sell?

If your strategy is to then purchase the home with conventional financing at the end of your private money term, can you qualify for conventional bank financing? If not, you need to rethink your exit strategy. Understanding each scenario is vital to your future success.

Remember how I said I’ve seen it all? I promise you, if you sell every house you ever rehab without having to use a different exit strategy, you’re a lucky investor. Things come up, and if you need help developing new exit strategies, give us a call, and we’ll plug you into the right source of information for that. 800-533-1622.

6. Paying too much when you buy.

You make your money when you buy, not when you sell. That’s why 90% of your research goes into the acquisitions part of the process and not the sales aspect. Start with the final selling price and work backward to deduct the selling cost, profit margin, renovation cost, and buying costs. Don’t forget to factor in holding costs and margin for error. You figure out your MAO (maximum allowed offer) by first determining the ARV (after repair value) of a house. $80,000 for a house means something different in every single market, so do your research!

7. Paying too much for the rehab.

I can’t tell you how many people get into this business and treat the renovation as if they are designing their dream home. This is an expensive, unnecessary, headache-inducing mistake and should be avoided! Your main objectives in renovating a house is to address every safety issue, update and clean the house to current market standards, and design it to appeal to the masses. This isn’t a luxury rehab.

Want to implement the “wow factor?” That’s where a few strategically placed designs can come in such as a small backsplash or a cool sink faucet. (And STAGING! Click here for more about this vital step). Don’t go all out on cabinets that are 300% more than you budgeted. By overdesigning a house, you run the risk of going over budget, turning the right buyers away, or having someone purchase the house only to redo what you thought was a good idea. Your budget should dictate your choice. Otherwise, the style choice comes straight out of your profit.


If you’re still having trouble creating and managing a project that yields you the highest investment, let us help you.

You can spend money 2 ways. The first, by investing it in your continued real estate education which will foster the right environment for you to see a return on your investment with higher profits. Or second, by making your own (possibly expensive) mistakes and losing money. You can learn a lot that way, yes. But you had better have thick skin and a whole lot of fortitude.

Don’t take my word for it. Listen to what several of our valued clients have to say.

The education I received gave me an added layer of understanding of how to work in this real estate market, the integrity used in developing and processing a loan, and how to become a better business oriented individual. Before this education, I thought that I knew what I wanted to do, but I didn’t understand what I needed to do until I went through the program.” Anita Cothran, Master Broker.

As a visionary from Chicago, I’ve been to many events, but have never had an experience like the Lee Arnold VIP session. I’m blown away by how powerful and impactful it was to have Lee Arnold sit with us and breakdown every fear and hindrance. He helped me think of the big picture, and take bite-sized portions in order to get the first deal done. There’s no stopping you if you’re backed with Lee’s education and COGO Capital’s financing!” Ray Colon, Chicago, IL.

Through an intensive training with a coach received one-on-one attention. I went out marketing, got agents and investors excited, got some applications back, and learned how to present myself in a better way. I learned how to develop different scripts, what to say and how to say it, how to originate loans, where I can go if I have questions. I’m confident that I can get clients excited and in turn close more loans.” Sherry Falk- Jacksonville, FL

I’ll see you out there!

Lee A. Arnold

CEO

The Lee Arnold System of Real Estate Investing

Follow me on Twitter: @CogoCapital  and @LeeArnoldSystem 

Have a deal? Visit us at www.cogocapital.com to fill out your fast and easy quote. Want to learn more about COGO first? CLICK HERE to get to know all the ins and out!

 

Loan-to-Value and You

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An LTV (or loan-to-value) ratio is an important part of underwriting, and as such, deserves your understanding in order to comprehend the process of your loan.

The loan-to-value, or LTV, on a property is determined by taking the debt owed divided by the fair market value. Let’s say a house is worth $150,000 and the owner’s outstanding debt is $112,500.

$112,500 / $150,000 = 0.75 or 75%

The LTV on this property is 75%

You’ve probably seen this equation structured differently: Fair market value minus the debt owed, which equals EQUITY.

$150,000 – $112,500 = $37,500

The owner has $37,500 in equity in the home.

So why are these numbers important?

LENDERS

First, because it factors into determining the details of your loan, including how much money a lender can offer. All lenders evaluate the LTV to determine their level of exposed risk. This is why the value of a property alone is not enough information needed to process a loan application.

The higher the LTV, the more risk there is to a lender so the interest could be higher. The lower the LTV, the less risk to the lender, equaling a lower interest rate. Essentially, it shows if the value of the mortgage could be recovered from the value of the property. Private money lenders are also concerned with the amount of equity the borrower has invested in the property because it can be used as collateral.

BORROWERS

The LTV is equally important for a borrower. The lower the LTV, the higher the profit margin (depending on how much cash you have to put into it). If the appraised value is higher than the amount you need as a loan to purchase a property, then that’s a better deal. It also can mean lower payments, lower interest, and bigger savings!

When you understand terms like LTV and how if factors into your loan, you can better assess a deal and whether or not it will make you money. Keep crunching those numbers, my friends, and reach out to our loan officers if you have any questions!

Happy to do business with you;

Lee A. Arnold

CEO

The Lee Arnold System of Real Estate Investing

To read more articles click here.

Follow me on Twitter: @LeeArnoldSystem

Are Your Rehab Profits Sinking?

- - Flipping, Uncategorized

Are You Tricking Yourself out of Maximum Rehab Profits?

 

The reality for entrepreneurs is that to succeed, you must plunge into your work, “swim” until you get to the other side, and reemerge with enough fortitude left over for another dive. Sometimes a rehab project can feel like a leap of faith, especially when you’re jumping into new waters. I’m all for taking leaps of faith, as long as you learn from those who dove in before you. This way, you won’t resurface gasping for air, you’ll be thirsty for more.

 

Don’t trick yourself out of maximum rehab profits by making any of these 5 mistakes:

 

  1. You don’t watch the tides. Akin to understanding the ebb and flow of water when you swim, if you don’t understand the timing of the buy in real estate, you can miss out on serious cash. Do you know when houses are flying off the market and when inventory sits around, waiting to be purchased? If you stay dormant through the winter, expecting to pick up a piece of property when the weather improves, you could be stuck with contractor premiums, competitive offers, and missed opportunities. Know your market.
  2. You don’t manage your air supply. If your “dive” requires an hours worth of oxygen, why would you only bring an air supply for forty-five minutes? Not properly assessing repair costs will cost you in the end. Unless you have a solid understanding of construction, don’t ballpark the numbers. Know what things are going to cost, get inspections, be strategic about where the highest and best use of your money should go, and leave a buffer to account for a cost variance.
  3. You don’t swim in a straight line. Not managing the process of a rehab is like swimming in a circle, expecting to arrive at your destination sooner or later. You need to manage the contractors, the progress of the build, and the time line. Perform regular check-ins, make sure subcontractors are there when they need to be. Avoid wasting time and money.

Want to learn more? We have just the tool for you: Join us for a Project Management Specialty Event on March 23rd and 24th. Call us for details at 800-533-1622.

 

  1. You don’t know the waters. Would you swim in Lake Coeur d’Alene, expecting to see a clown fish? Of course not! As beautiful as Lake Coeur d’Alene is, you’re likely to see a Norther Pike, not a dolphin. Maybe I’m reaching here with this metaphor, but you aren’t shopping for your dream home, you’re completing a renovation that will sell quickly and profitably in the neighborhood in which the property already resides. If you blow your budget on high-end finishes in a part of town where that level of style isn’t expected, that’s money down the tube.
  2. You didn’t train for the swim. If you don’t train for an open water swim competition, how do you expect to finish, let alone place? If you want to get the most out of a rehab experience, it behooves you to study up. Otherwise, you waste money and time on making mistakes that you could’ve avoided by learning from people who’ve already made those mistakes. As Sam Levenson says, “You must learn from the mistakes of others. You can’t possibly live long enough to make them all yourself.”

 

Happy “swimming!”

 

Lee A. Arnold

CEO

The Lee Arnold System of Real Estate Investing

To read more articles click here.

What Is Owner Financing?

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two_way_puzzle_people_800_clr_4872This is the most common way to get a hundred percent financing. This is where the current owner agrees to finance all or some of the purchase price. If it’s just some, you can get the remaining amount from Cogo Capital or another local private lender in your market. If you have the financial or credit wherewithal, you could also go as far as getting conventional financing.

Common owner financing is where the principal will be paid at a later date, which is called a deferment. You can also defer the interest and stack all of the debt at the end where an exit strategy will occur. That exit strategy can be the sale of the asset or a refinance of the asset with either conven- tional financing or a new private money loan. We actually see this happen a lot in Cogo.

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Why Use Private Lenders Instead Of a Bank?

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keyhole_handshake_money_400_clr_18558The difference between banks and private lenders are these. For regulation as it relates to banks, regulation is very high and as it relates to private lenders it’s low. I don’t have a crystal ball and I’m probably going to regret saying this, but I don’t an cipate or foresee much regula on in the private money mortgage market any me soon other than the licensing requirements which we’re already seeing.

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Wholesale Case Study

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helping_hand_on_edge_400_clr_10663

 

I just want to walk you through a brief wholesale deal. Let’s assume now that you’ve gone out and you’ve put a property under contract for $100,000 and then you’ve assigned it to another buyer for $105,000. Now when you go to closing, your end buyer will actually bring $105,000 – $100,000 for the purchase and $5,000 for the assignment fee.

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How do you price the wholesale deal?

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Private-MoneyThis is a great question because one of the things you do not want to do is demand so much money for the deal that nobody will buy it. You need to leave enough of what we call “meat on the bone” for the next person. They still need to be able to make a profit after they have invested me, renovation costs, and paid off their contractors. There needs to be enough room after all the closing fees, real estate commissions, title fees, and your wholesale fee for them to still make a profit.

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