Monthly Payments vs. Home Worth

It’s not a secret that the real estate market is hot all across the country right now. There’s a high demand for homes and other residential properties—yet the supply is low. The result? Homes are selling for significantly more than most homeowners initially paid for them.

If you’re thinking about selling your home to pocket the earnings or move to a new place in this seller’s market, there are a few questions to ask yourself before you proceed.

Where is Your Home Located?

Start by considering the location of your home; while it’s true that property values have increased across the country as a whole, there are some areas where values have stayed stagnant or even decreased. This is most common in rural areas or other areas where people may be skeptical to buy (such as areas of high crime). 

If you live in an in-demand area, it’s safe to assume that the value of your home has risen since you purchased it. However, this may also mean that it will be harder to find an affordable home to move to if you want to stay in the same area.

What Are Your Property Taxes Like?

Property taxes can vary greatly from one county to the next, so you’ll want to take this into consideration when deciding whether to sell or not. If you live in an area with high property taxes, you may be able to sell and move to an area with lower property taxes as a means of reducing your monthly payment. On the other hand, if you live somewhere that enjoys relatively low property taxes, your monthly payment may not go as far in another county with higher taxes, so this is something to keep in mind.

Rent it Out or Sell?

Another thing to think about is whether it would make more sense to sell your home or possibly even rent it out instead. Selling your home will result in more money into your own pocket up-front (along with no responsibility to become a landlord). However, renting out a home can be a great way to generate lasting monthly income while retaining ownership. Can’t decide whether to rent or sell? Consider exploring what current rentals are going for in your area to help you make an informed choice.

The Bottom Line

There’s a lot to think about when you’re wanting to sell your home in today’s market, but these questions can guide you. And of course, if you need funding for a real estate venture, Hard Money Lenders Arizona is here to help. From fix-and-flip loans and rehab loans to new construction loans and everything in between, we’ve got you covered.

Is Investing In Building New Real Estate Worth It?

There’s no doubt that real estate is often–but not always–a wise investment. Building new real estate comes with particular perks and drawbacks, which you need to know to decide if it’s right for you.

Why You Should Invest in New Real Estate

As long as you can afford a plot of land, you can start a new build on any lot that’s available. You can even place a building so that it sees the best morning light. Depending on existing real estate, you can build up a location exactly as you like it. You don’t get the same flexibility with existing buildings.

New buildings, especially homes, appeal to consumers because they’re new. Plus, you can design a new project to have an open floorplan and other amenities that older buildings lack. On the other hand, you can customize the building to fit your budget. And if you plan to rent out properties, you’ll find that new builds require less maintenance than older homes, saving you time and money. Not only is the project new and in pristine shape, but you can choose windows, insulation, and HVAC systems that are much more efficient than what you’ll find in existing buildings. Similarly, as you outfit new rentals with new appliances, repairs and replacements will be covered by warranties.

With new real estate, upfront deposits are lower, so you get to keep more money in your pocket until the closing date. To grow your investments, you need to build equity. With the right choices, you can increase the new property’s appreciation rate to do just this. Look for growing markets with high demand for rental properties if you plan to go this route.

When Real Estate Investments Aren’t Worth It

Like any investment, real estate comes with risks. There are many factors you cannot control, however. Delays are par for the course when working with contractors. 

While you choose the location and the building, you’ll typically have to build outside of city centers, which can be risky when new builds cost more out of pocket. New neighborhoods simply lack the charm of established ones.

Real estate isn’t a liquid investment, either. This is especially true with new builds, which take time to complete and can be slowed down by weather or supply shortages.  The selling process may also be longer than you’re comfortable with or can spare. Still, you can diversify your investments to ensure you’ve always got some liquidity.

Finally, you’ll need to gather a good team. The right lender, contractors, and property managers ensure that every aspect of your investments runs smoothly. This is especially important as you add more investments to your portfolio.

Defaulting On A Hard Money Loan?

A hard money loan can be the best way to start investing in property. A hard money loan is backed with the value of the investment property — and it’s often used by house flippers, wholesalers, and more. 

But what happens if you default on a hard money loan?

How Long Do You Have to Pay Back a Hard Money Loan?

A hard money loan is usually short-term. It’s anywhere from 12 months to 3 years. A hard money loan can even be just a few months if you’re looking for a hard money bridge loan.

So, you need to keep current on the loan. Hard money loans are popular with house flippers. You just hold the property for a few months and you pay off the entire loan when you flip the property.

But you can get in trouble. Let’s say your flip takes longer than you thought it would and now you’re behind on your loan. The next part of the process is the same as any other loan: default. In this case, it’s essentially the process of foreclosure. With a hard money loan, it just happens much faster and has more significant consequences.

What Happens When You Default on a Hard Money Loan?

When you default, you fall into foreclosure. That’s the same as if you stopped paying your mortgage loan. A lot of people don’t realize how quickly a mortgage company can move to foreclose on a property. It’s a matter of a few months.

Your hard money loan, when in default, will cause the lender to reclaim the property. The property will become theirs and they will sell it. Now, there’s a difference here between a regular loan and a hard money loan.

Let’s say you bought a $150,000 property, paid $50,000, and then defaulted. A bank would sell the $150,000 property, deduct $25,000 in legal fees, and you would get $25,000 back. You would get the difference.

A hard money property doesn’t give you back the difference. You’re out the $50,000 you paid. And that’s because hard money lending is very high risk. The lenders need to recapture their costs. 

That being said, it doesn’t become an issue if you don’t default on the loan. Often, a hard money lender will be willing to work with you. But you need to communicate with them; you have to tell them that you’re going to be late on the loan and that you need an extension. If they don’t hear from you, they will simply start the process of foreclosure.

So, it’s not a great idea to default on a hard money loan. But that doesn’t make a hard money loan a bad idea; it’s often the best way to fund a short-term investment. Sometimes it’s the only way. To learn more, read more from the experts at Hard Money Lenders AZ.

When Is It Time To Sell A Rental Property?

You’re thinking about selling your rental property. But is it time? You’re right to be hesitant. Every investment has hard times. It’s not always wise to drop an investment too quickly. Let’s take a look at when you might want to sell a rental property.

You Can Make a Lot of Money By Selling

“A lot” is, of course, variable.

But there are times when a market can rise very fast (essentially, bubble). At that time, you might find yourself aware that you have the opportunity to cash out. Cashing out might be a good idea, especially if you have another area in which you want to invest. You can talk to a real estate agent about the local market.

Alternatively, Your Value Is About to Drop

Let’s say they’re about to put a highway right by your rentals. Your rental value is going to drop and your tenants are probably going to flee.

It’s a good idea to think about the future of your property. If you think your value is going to drop significantly in the future, it may be time to sell to someone who might not care as much (such as someone looking more for a home than an investment).

Your Rental Income Has Dropped Precipitously

A good rental is a combination of factors: location, upgrades, budgeting, and more. But there are some situations that are out of your control. What if a gas station is built directly next to your rental? What if the city industry has shifted? If your rental income has been dropping, it may be time to sell your rental property.

But keep in mind that some rental drops are temporary. If it’s a seasonal issue and the first year you’ve held your property, you shouldn’t worry. 

Your Life Situation Has Changed

Maybe you can’t manage your rentals anymore. Or, maybe you can but you just don’t want to. Sometimes investors just want to cash out and switch to completely passive income. You could find a property management company… or you could just cash out your rentals.

This frequently happens when someone moves. You may move to another state and not want to manage rentals in another area. You can use a 1031 exchange to sell your existing properties and purchase new rental properties in a new area.

You Need the Cash

What if you just need the cash? Actually, this is one reason you might not want to sell your property. You can usually leverage the equity of a property for cash rather than selling the property altogether. There are a lot of advantages to doing this if you still want to maintain the rental. 

Sometimes it’s better to sell a rental property that you’re unsure of to purchase a property that you’re more certain about. Consider getting a hard money loan from Hard Money Lenders AZ if you want to continue your investments.

House Flipping? What Is The 70% Rule?

In house flipping, you may have heard of the 70% rule. Or you might just be wondering about how much you should invest in your next property. The 70% rule isn’t a hard-and-fast rule, but it’s excellent guidance.

What is the 70% Rule?

In short, you should never invest more than 70% of the property’s after-repair value — less any repairs that may be needed. 

Let’s take a look at this in practice.

You have a property that you think you could sell for $160,000. But it needs about $30,000 worth of repairs. That leaves $130,000 — the amount of money that you would net. You should not buy the property for more than $91,000. If you’re completely correct and sell the house for $160,00, you’ll have made $39,000.

The 70% rule doesn’t, however, tell you that you will make $39,000. It provides a buffer. Many projects don’t go exactly as you’d expect. Because of that, you need to compensate and make sure you’ve left yourself enough space for delays.

Should You Always Follow the 70% Rule?

The 70% rule isn’t always used by professional house flippers or professional renovators. Many experienced professionals simply run the numbers and see if the property is profitable to them.

In the above example, let’s say that those $30,000 of repairs were pretty minor repairs and you were certain that you could complete them under budget and that you could complete them within a month. In that situation, $39,000 is a pretty hefty buffer.

Alternatively, let’s say that you thought those $30,000 repairs might spiral, or you were uncertain about the property and its real value. You might bid much, much lower to leave space for that uncertainty.

Over time, most professionals start to develop a feel for what they can borrow for a house. But the 70% rule is a great rule of thumb for those who are starting out or for those who just want another metric to consider. Following the 70% rule is going to be safe for most projects. And when it comes to house flipping, you want to be safe.

Do Lenders Use the 70% Rule?

Lenders use different rules. For the most part, lenders will lend up to a certain amount of the future value of the property. So, if they think the property will be worth $160,000, they may be willing to loan a percentage of that. But you will need to be able to show that the property could be worth that. 

Of course, whether you’re investing 50% or 70%, you need a lender. If you’re interested in getting a loan for your next investment property, contact the experts. Connect with Hard Money Lenders AZ today.

A Smart Move: Real Estate Investing

Investing your money is all about striking a balance between risk and reward. One of the best ways to protect the money you put into your investments is to diversify where that money is going.

There are a lot of misconceptions about investing in real estate. People often consider real estate to be too expensive for them or they see it as being unnecessarily risky. However, real estate is one of these smarter and safer Investments and you can make.

Here’s why investing in real estate is a smart move. 

It’s All About Leverage

There’s not a lot of leverage that your dollar can acquire in the stock market. An investment of $15,000 in stocks only gives you access to $15,000 of that stock. Whether that stock goes up or down over time is beyond your control.

Real estate is a different game. A $15,000 down payment on a piece of real estate can ultimately net you $150,000 in real estate property. Unlike stocks, the value of your real estate is going to go up over time as you continually make payments and move towards ownership. 

Appreciate Real Estate Appreciation

Stocks don’t naturally appreciate over time. This means that the value of your stocks changes based on the market, and not based on the stock’s becoming inherently more valuable. Real estate has a natural appreciation of around 3 to 5% every year.

The appreciation of your real estate can also be directly under your control. You can make renovations, improvements, and develop your property to increase its overall value. 

Improving Your Long-term Cash Flow

Real estate can also start increasing your cash flow long before you fully pay off the property.

Whether you’re renting commercial or residential, you have the potential to rent out your property to new tenants. This is a way that you can get some monthly cash flow coming in.

There are a variety of companies that can help you with this process. 

Tax Benefits

There’s a whole host of tax benefits that come with being a property owner. These are going to change based on your relationship to the property, but you can expect to have access to a wide range of benefits.

You can deduct things like the properties depreciation, interest paid on the loan, and even homeowners association fees. There are fewer tax incentives for investing in stocks than there are for investing in real estate. 

Financial Security for Your Future

Real estate investments can be more resilient to the changes that can throw the stock market into chaos. Real estate is a great option for diversifying your investments and protecting your financial future. Contact Hard Money Lenders Arizona for more information.

Condos: Are They Worth the Investment?

Purchasing real estate is one of the largest financial decisions one can make in your lifetime. If you are considering purchasing a condo, you will need to consider the pros and cons of the investment. We have put together some of the pros and cons to consider before investing in a condo. 

Pros of buying a condo

Less maintenance 
One of the biggest pros of investing in a condo is that you are not responsible for the maintenance. The monthly fee you pay goes towards the management company to cut the grass, shovel the snow, and make repairs to common areas. A condo could be a good investment if you are a busy person who does not have time for home maintenance. 

Condos tend to have more amenities than single-family homes. People who enjoy a pool, fitness center, community center, or rooftop BBQ might want to consider a condo with high-end amenities. If you like to socialize, the amenities tend to be a great place to get to know your neighbors. 

Condos also tend to be located closer to downtown areas. So, if walking to restaurants, stores, and coffee shops is an important factor for you, a condo purchase would be a worthwhile investment. 

Cons of buying a condo

Monthly HOA fees
While you may be enjoying those amenities, they come at a cost. When you purchase the condo, you will know the current monthly fees, but you don’t know what the future increases might be. Condos fees will increase over time. In addition, if the condo needs to do a large improvement project such as a new roof, you could be hit with a one-time special assessment to help cover it. 

Slower to grow in value 
A condo will typically take much more time to grow in value than single-family homes in the area. So, if you are not planning on holding the condo for a significant amount of time, you may not see your value increase.  

Rules and Regulations 
If you do not like following the rules, a condo purchase may not be the right choice for you. The HOA will have a rule book that you will need to follow. These rules can include the rental policy, the pet policy, and the BBQ policy. If you consider purchasing a condo, you will want to read the HOA rules very carefully to make sure they will work for you. 

Difficulty with financing 
Sometimes it can be difficult to sell a condo because the lender will no longer issue a mortgage for a particular condo. Oftentimes this is because the building has too many units occupied by non-owners. In other words, a lender will not lend on a building if there are too many rentals. Check with the HOA and see if they have a cap on the number of units that can be rented simultaneously. 

Reality vs. TV Shows: Fix & Flips

Reality fixes and flip TV shows have given the real estate investment industry a boost. However, what you see on reality TV shows isn’t exactly what you could expect in reality. Understanding the differences will help you decide if this type of venture is right for you.

How Easy Is It to Sell?

If you’ve watched fix and flip reality shows, they make it seem like there’s always a buyer waiting in the wings when the project is over. It’s important to remember reality show hosts are well known, and people are eager to buy from them. For most real estate investors, you will likely need to aggressively market the home to reach potential buyers. Prepare to wait months to complete the sale.

How Common Are Big Surprises?

Fix and flip shows almost always discover some big surprise while renovating a house. It makes for engaging TV. There’s also the possibility they are already aware of these “surprises,” and it’s all an act. When completing your own fix and flip, it’s essential to look carefully at a home before buying. Look for severe problems like pests, faulty wiring, water damage, and foundation issues. It will save you money in the long run.

How Fast Is It Done?

It’s essential to remember fix and flip reality shows are taped over a long period and consolidated into the appropriate time frame. Some of these shows even use rapid flips as part of their appeal. For most real estate investors, however, renovating a home to make it profitable takes time, often weeks or months. If you’re not prepared to work over the long haul, fix and flip investments aren’t right for you.

How Easy Is It to Find Properties?

Fix and flip shows frame buying a home as a fast process. They may talk to fellow investors or real estate agents, browse through listings, or attend auctions, but you need to remember much of the time spent ends up on the cutting room floor. It’s unlikely you will find the most appropriate property in a short time. It’s essential to choose carefully, so you don’t end up working on a home you don’t have the money or time to complete properly.

What Kind of Funding Is Available?

Funding is one of the most essential aspects of a successful fix and flip. Few real estate investors have the capital available to handle financing on their own. Celebrities featured on fix and flip shows often use their own money or get funding from sponsors, making their tactics unrealistic for most investors. Instead, many real estate investors have to turn to options like a hard-money loan to afford the purchase and the renovations they need to do. This is often the best lending option available to real estate investors interested in the fix and flip process. You can make payments while renovating the home and pay off the remainder of the loan when it sells or roll it over into a new investment.

If you’re thinking about getting involved in the fix and flip real estate investment options, contact us. We can help you get the funding you need for your project.

Extending vs. Refinancing Your Hard Money Loan

Also referred to as a bridge loan or a fix-and-flip loan, hard money loans are essential for short-term real estate projects. Whether an individual or business is seeking to establish an effective fix-and-flip business, they will need to understand how to deal with their loans as they mature. Most hard money lenders tend to focus on short periods of time per loan, creating issues down the line if the receiver cannot fully repay their loan.

When dealing with a maturing hard money loan, it becomes important to understand your options. Today, we are going to highlight the age-old question: should you extend or refinance a hard money loan?

Pros & Cons: Extending a Hard Money Loan

Extending a hard money loan is often the easiest way to get the ball rolling with your debt. A hard money loan gets quicker approval thanks to the pre-existing relationship between the lender and their client. Additionally, extending a hard money loan is typically done after creating a steady and positive payment history between both parties.

Benefits of Extending a Loan

-Based on Established Relationship
-Quick Approval Process
-Positive Repayment History

Even though extending a hard money loan can be a frictionless approach, there are downsides to this effort. The primary reason fix-and-flip investors may want to avoid extending a loan is that the extension likely won’t be long enough to tackle the entirety of the debt. This creates a problem pertaining to timelines, so it is imperative to have a plan in place before extending your loan.

Negatives of Extending a Loan

-Short Term Extensions 
-Harder to Cover

Pros & Cons: Refinancing a Hard Money Loan

On the other side of the coin, investors may want to consider refinancing the entirety of their hard money loan. Working with groups like Hard Money Lenders AZ, clients can acquire a better interest rate while pursuing more convenient cash-out opportunities. Refinancing a new hard money loan will allow you to also bypass any extension fees that you might have struggled paying. Finally, refinancing a loan may lead you to better terms, particularly if your credit and cash flow has changed.

Benefits of Refinancing a Loan

-Get Better Interest Rates
-Avoid Paying Extension Fees
-Convenient Cash Out Options

Refinancing a loan helps in many situations, but that isn’t always going to be the case. When refinancing a hard money loan, you will have to work with a lender to complete an entirely new underwrite. You will also have to find an entirely new hard money lender, a process that can create some frustration and tension as you navigate the many options available to you.

Negatives of Refinancing a Loan

-Complete New Underwrite
-Find New Hard Money Lender
-Negotiate Completely New Terms

Contact Hard Money Lenders AZ!

When the time comes to refinance your hard money loan, make sure the team at Hard Money Lenders AZ is on the job. As the top-rated Hard Money Lender on Google for the state of Arizona, clients have enjoyed fast funding, proven results, and effective communication through a team of industry-leading specialists.

Contact Hard Money Lenders AZ today to see if you are approved!