It’s too bad so many people don’t succeed at getting funding and successfully profiting on a deal.
It’s not that the process is impossible, many people just tend to “go for it” without considering what they could do to improve their success rate.
I tend to talk a lot about what NOT to do in Real Estate Investing. Sometimes, it seems like I speak more on this subject than what you SHOULD do (but logically, I don’t). I’m truly looking out for your best interest when I make these posts, because no matter how much training I offer over at The Lee Arnold System of Real Estate, and no matter how many articles I post about the subject of best investing practices, there’s always a way to help you improve.
Unfortunately, private money mistakes are common. The sad truth is that some people will never get funding because they don’t know what they need to succeed. Others may receive funding on a deal, only for the property plan fall apart along the way.
These are the top 3 reasons you either won’t find financing or you won’t make money on your deal:
3. They believe approval is contingent upon their personal financial history, therefore never structuring the deal right or even taking the leap to look for funding.
MONEY FOLLOWS DEALS!
The thing that matters most in private money lending is that you have a good deal. But I understand the confusion. Let’s run a scenario:
(This is what most people believe happens)
You: Hey! Can you lend me $100,000?
Lender: For what?
You: I’d like to find a property to flip.
Lender: Have I lent to you before? Do you have a history with me? How much experience do you have? Do you have the expertise needed to find a good property? How much money do you have to put down?
Yeah. That’s not the way it works. If you’re going to turn to a private money lender for a loan option, this is how you SHOULD expect it to go
You: Hey! Can you lend me $100,000?
Lender: For what?
You: I have this great deal! Here is the address, the lot size, the bed/bath count, comparable surrounding sales and the after repair value (ARV), and here is the profit margin. And (most importantly), here is the contract with my explicit, contractual right to purchase this property with the amount of money I need to borrow.
Lender: Great! We have something to move forward on. Let’s get started on the process.
2. They don’t understand the importance of the 70% rule.
If you aren’t getting funding, math may be the reason. I can’t tell you how many times I’ve heard, “But I got the property for WAY less than the ARV/asking price/appraised price. Why won’t you fund my deal?”
It comes down to a simple equation.
You don’t make money when you sell a flipped property, you make money when you buy it. You need to purchase a property right, or you’re already on the wrong foot. So, how do you determine how much to off on a property in order to make money on it? The formula is easy!
Take the ARV (after repair value of the property, i.e. the retail value), multiply it by 70%, and subtract the cost of repairs. Whatever is left is your MAO (maximum allowable offer).
Let’s say you want to put an offer in on a property that has an ARV of $200,000. Take $200,000 x 70% = $140,000. If the renovations will cost $40,000 (get several estimates by licensed and bonded contractors), that’s $140,000 – $40,000, which = $100,000. The maximum amount of money you should offer on this property is $100,000, and if you can get it for less, you’ll make more!
So, $200,000 (ARV) x 70% = $140,000
$140,000 – $40,000 (rehab cost) = $100,00 (MAO)
It depends on the deal and your history with investing, but you can expect to get funding between 60% and 70% of the ARV.
1. They lack the education on how to structure a deal.
It’s truly a shame when people let a potentially profitable flip turn sour because they miss managed the project. Think about it. You spent a weekend at an event, learn the basics, find a property that is ~60% of the ARV, get it under contract, secure funding through Cogo Capital (or another private money lender), only to pour month-after-month into the mismanagement of the rehab because you jumped in too soon.
Should you have avoided the deal because you didn’t have enough education?
Becoming a Certified Rehab Specialist doesn’t take year’s worth of education or the student loans of an average bachelor’s degree (that’s an average of $5,750-$15,680 per year for four years, and that’s after average scholarships, grants, and student aid). No, a certification through The Lee Arnold System of Real Estate won’t cost you that by a long shot.
In fact, we’re running a limited-time special NOW, giving you $1,000 off. CLICK HERE to learn more.
If you don’t know what you’re doing, the best place to start is by cozying up to someone who does. Not only will a good education, mentor, or coach save you a lot of unnecessary time, cost, and headache, you will learn faster and turn a profit sooner.
Whether you want to expand your investing business by getting your Certification in Private Money Brokering, become your city’s GO-TO investor to snatch up properties for pennies on the dollar by becoming a Certified Lien Abatement Specialist, or you want to make sure you are flipping houses like the pros from day one by becoming a Certified Rehabber, you aren’t going to get a deal like this on such a pivotal moment in your career for long.
Or, call 800-533-1622 today to speak for your FREE educational consultation and to see what the Lee Arnold team can do for you.
To Your Success;
Lee A. Arnold
The Lee Arnold System of Real Estate Investing
Follow me on Twitter: @CogoCapital and @LeeArnoldSystem
Have a deal under contract that you would like a quote on? Let us know. You can fill out a quick questionnaire at CogoCapital.com to receive a rate quote via email or you can call us anytime at (800) 747-1104 to talk to a loan officer. With millions deployed and millions to deploy, we want you to get the capital you need for your real estate investing.
Timothy just left a new 5-star review of Lee Arnold System of Real Estate Investing:
I would highly recommend this company to all first time investors that I come across that seek funding. I enjoyed the entire team that was out in Milwaukee to train those of us in attendance.
Gary Meyers and Jarrod done a wonderful job during this weekend. I really enjoyed the bus tour to the properties in South Milwaukee. Secondly, it’s a faith based company and this is very rare in the business and I see that God has blessed and will continue to bless those around Lee Arnold.
This is an education company as far as Real estate, training and funding. I wish I had met these guys a little earlier before I actually invested with the other companies which I won’t name. I am currently in debt to the tune of $100K due to the other companies. If I known what I know now, I could have bought 10 homes and be on my way to financial freedom.
I would like to thank the entire team that was in Milwaukee for the weekend for a wonderful experience and I hope that we meet again.