Guide To Financing Investments A Real Estate Investor’s Guide to Hard Money Lending

What Is Hard Money Lending? Everything You Need To Know

 
The basics of understanding what is a hard money loan represent the first step in breaking down real estate financing. Hard money loans are, after all, a real estate investor’s best friend; they are the quickest path to securing a deal. Nonethelesshard money lending can get complicated quickly, so you need to realize what you are getting into before making any decisions for yourself.
When exploring real estate hard money lending, you need to comprehend several questions: What are the pros and cons of such a strategy? When should you use private financing for real estate? Where can you find hard money lenders for real estate? The more you know about hard money, for that matter, the better. This guide should serve to lay a solid foundation for everything you need to know about one of today’s greatest sources of capital.
 

What Is Hard Money Lending?

Many investors looking for alternative financing that doesn’t involve their local bank may have heard the term “hard money.” They may have even asked themselves a simple follow-up question: what is hard money lending?
Hard money lending is a short-term loan obtained from private investors or individuals at terms that may be strict than a traditional loan. Though the terms of this creative financing option may be stricter, this form of private financing for real estate generally has more lenient criteria.
 

Hard Money Lending FAQs

1. The Big-Picture of Hard Money Lending
Hard money lending is another way an investor can finance their real estate projects outside of the traditional mortgage means. This is a short-term loan secured from private investors or individuals instead of other traditional institutions like banks or credit unions.
Hard money lending is often used by investors who aim to improve or renovate a property and sell it. Given that you can usually get a loan in a matter of days (as opposed to weeks from banks), this is a fine choice for house flippers and real estate developers. This is also an option for investors who only need to do quick fixes to raise a property’s value, then secure another loan based on the new value to pay off the hard money lender.
2. Hard Money Lending Vs. Other Lending Types
The main difference between hard money lending and other types of loans is that this type of financing does not focus on your credit history or income as collateral. Instead, lenders will see the property’s value as the determining factor, emphasizing its after-repair value (ARV). ARV is the worth of the property once your renovations are done.
Other differences include:
· Hard money lenders do not invest in primary residences. Owner-occupied residential properties are subject to many rules and regulations, thereby increasing the risk for lenders.
· Hard money lenders do not sell loans to Freddie Mac or Fannie Mae. Often, lenders use their own money or raise it from a pool of investors. The loan amount is based on their property specialization (if there are any) and the risks they are comfortable taking.
· Hard money loans are short-term. You will not have the luxury of 15 to 30 years to repay your loans. Hard money loans are typically needing to be repaid anywhere between 6 to 36 months.
· Hard money lenders have their own lending criteria. A private lender, for example, could be your friend, family, or business associate. As such, they may not have any preset criteria before lending you money, giving you more flexibility in negotiating terms. Hard money lenders, on the other hand, come with a specific set of upfront points, interest rates, and defined durations.
3. What Are Hard Money Loans Used For?
Hard money loans can be used for a wide variety of investment types and purposes. In the real estate industry, hard money loans are commonly used to purchase both residential and commercial properties. This is partly because of the approval requirements and because hard money lenders can work on the quick timeline that closing deals often demands.
Imani Francies, an investing expert with Loans.com, says that “loans of last resort or short-term bridging loans are called hard money loans. Real estate serves as collateral for a hard money loan. Due to their lack of red tape, hard money loans are ideal for wealthy investors that need to get funds for an investment property swiftly”.
Hard money loans are also commonly used to fix and flip properties. These investors may be less worried about higher interest rates because the end goal is to sell the property for a profit once the rehab is finished. Hard money loans make a perfect fit because they can be used to purchase properties and make renovations.
 

The Pros And Cons Of Hard Money Loans

I maintain that hard money loans represent one of the single most advantageous funding opportunities for investors to take advantage of. If any, few sources of capital can compete on the same level as hard money and offer the same competitive edge. It is hard money loans, after all, that many investors must thank for acquiring their deals in the first place. That said, hard money is not without its own caveats. Loren Howard from Real Estate Bees states that “hard money loans are fast to approve and fund and can speed up the entire real estate investment process. However, they have much higher rates than a traditional loan and are not suited for non-real estate investors”. Despite its superior benefits, there are downsides to hard money that warrant the consideration of every investor.
Let’s look at the pros and cons of hard money so you can weigh the pros and cons yourself.
 

Pros

Securing financing with a hard money lending loan offers you several benefits, including:
·        Speed: The Dodd-Frank Act is financial reform legislation enacted in the past decade. It came with new regulations on mortgage lending, which means a lot of time (often, months) is needed for an investor to close a loan. On the other hand, hard money lending is fast, as you can secure a loan in days or weeks (depending on negotiations). Time is essential, especially for large development projects, and hard money lending can help speed that process along.
·        Flexibility: Terms can be negotiated with hard money lending loans since you are dealing directly with individual investors. Banks are not as flexible.
·        Collateral: With hard money financing, the property itself is your collateral for the loan. Some lenders even accept other assets, like your retirement account or residential property under your name, as a basis for starting a loan.
·        No “Red Tape”: Getting a loan for an investment property with a traditional mortgage is difficult, if not impossible. Traditional borrowers need to worry about credit score, LTV ratios, debt-to-income, and several other indicators they need to meet criteria for. However, hard money lenders function as asset-based lenders who are more concerned with the property than the borrower’s credentials.
·        Convenience: There is something to be said for the convenience of being able to close with cash. Having to supply a lender with bank statements, income documentation, tax returns, and leases can become overbearing and consume your focus and energy. Hard money, on the other hand, cuts out the middleman and a lot of the headaches.
·        Volume: Hard money lenders allow investors to leverage other people’s money. That means investors could potentially fund more than one deal at a time. Traditional loans will do no such thing. If you want to fund multiple deals at a time, you should consider a hard money loan.
·        Competitive Edge: Hard money allows investors to beat out the competition, or at least those using a traditional loan. If for nothing else, sellers prefer the two things hard money offers: cash and a timely transaction.
 

Cons

There are, however, certain disadvantages to using hard money for real estate investments:
·        Cost: The convenience that comes with hard money lending may be its primary benefit; however, it is also its main drawback. Given that hard money lenders are at higher risk than borrowers, many may demand up to 10 percentage points higher than traditional loans. Interest rates range from 10 to 18 percent. Expect other fees to be also at a relatively increased rate, including origination fees and closing costs.
·        Short Repayment Schedule: A shorter repayment period is the price to pay for being able to get a property listed on the market ASAP. This can be anywhere between 6 to 36 months. Make sure that you can sell the property and profit the soonest time possible.
 

Hard Money Loan Rates

Hard money loan rates are typically much higher than fixed-rate mortgage loans. Compared to the average 5.5% fixed-rate mortgage loan, a hard money loan typically falls between 8% and 18%. In addition, hard money loans may not cover the full value of the property you seek to finance. If a hard money loan does not cover the full value, you may be required to present a higher down payment on the property or find an additional source of financing to close the deal.
 

When To Use Hard Money for Real Estate

Though hard money lenders will often issue loans for almost any type of property, certain types of property investments were absolutely made for hard money. Rehab projects, construction loans, and land loans were made to be financed through hard money.
For example, when flipping a house investors need access to funding for both the purchase and renovation costs. André Disselkamp from Finsurancy advises that “these projects typically happen on a quick timeline, meaning investors do not have time to wait through the process of a traditional loan approval”.
This doesn’t mean that other types of investments should not be financed through hard money. If you, the buyer of a property, have credit issues, or you need to act quickly on a deal before it disappears, the speed and convenience afforded by a hard money loan can be worth its weight in gold. In these cases, hard money loans can be used to purchase residential or commercial properties.
 

Finding Hard Money Lenders for Real Estate Investing

Many new investors fret over how they will find hard money lenders to get moving on the financing of their projects. But here are a couple of simple ways to approach this:
·        REIA or MeetUp Meetings: Often hard money lenders will speak at local real estate events. If not, ask fellow members to see if they know any trustworthy lenders.
·        Real Estate Agent or Traditional Lender: Ask that realtor, or mortgage broker, in your real estate network if they know a hard money lender you could do business with.
·        Google “Hard Money Lender”: Just be careful, there are some unscrupulous individuals out there. Be sure to ask for references and talk to fellow investors to get their opinion.

Working With Hard Money Lenders

Working with hard money lenders will be less different than going through a traditional bank for financing. To begin with, hard money lenders are not regulated in the same way as traditional financing institutions. The lack of regulations means the rules of the loan will be different. Borrowers can negotiate directly with lenders on the loan terms. Hard money lenders will decide what to accept at their own discretion, specifically in regard to credit scores, debt-to-income ratios, and more. Keep in mind that the most important thing hard money lenders are looking for is a return on investment. Melanie Cohen from Instaya advises to “make sure that the property is worth investment and communicate its potential to your lender. When compared to a traditional loan, working with hard money. lenders are more about investment potential than your own financial standing”.
 

How Does Hard Money Lending Work?

Given that these are private individuals, every hard money lender is different. As stated above, these lenders come with their own requirements, including the process they need to close the transaction.
To give you a general idea, this is the usual course hard money lending takes:
1.     Find a hard lender near you. Do not let the rejection of a bank loan drive you to desperation. Research and make sure the lender can be trusted. Do they have a legitimate website? Are they in good standing with their own investors? Do they have pending lawsuits over bad loans?
2.     Arrange a meeting with the lender. This is also the time when you can inquire whether they specialize in a kind of investment property or if they have worked with projects previously that mirror yours. Assess the time frame specified for the loan and see if this is something you can work with.
3.     Prepare a contract. Make sure that you are offering a good deal with a sound financial plan.
4.     Inform the lender of your contract price. Most lenders are willing to fund 60 to 80 percent of the property’s ARV. The remaining 30 to 40 percent is up to you. You will increase your chances of getting approved if you already have this at hand.
5.     Get the property appraised. The lender will either send a list of their trusted appraisers or have their own.
6.     Prepare additional documents needed. Some lenders may require that you present other documentation, like W-2s, bank statements, pay stubs, etc.
7.     Wait for the lender’s approval. If it is a deal that the lender finds satisfactory, then they will inform you of the amount and terms for payment.
8.     Consult with a lawyer. Make sure that you are legally protected, especially after getting the lender’s counteroffer.
9.     Close the loan. Typically, this will be done at a title company or a lawyer’s office. The lender will then put the money into escrow at the title company. The title company would make sure all paperwork is completed and that checks are issued to all parties involved. Additional costs may include any closing fees and property insurance.
Often, lenders grant money to properties that will not be in the market for long, and that have good selling potential. Make sure your team budgets ample time to complete renovations. There’s no sense in coming up with unrealistic projections. This cannot only set you back financially but possibly burn a possible future relationship with your hard money lender.
 

Alternatives To Hard Money Loans

Hard money loans are not the only form of financing with approval requirements that differ from a traditional home loan. Numerous alternatives may help you buy your next property:
·        Home Equity Loans: If you are trying to finance your second property (or an investment property) consider tapping into your existing equity with a home equity loan. The approval requirements are largely based on the value of the property and the amount of equity you have built up. These loans are also associated with lower interest rates when compared to hard money loans.
·        FHA Loans: Federal Housing Administration (FHA) loans are an option for borrowers who do not meet the traditional criteria. FHA loans have lower approval requirements and do not consider past financial challenges (namely bankruptcy) during the application process. Read our guide to FHA loans to learn more.
·        VA Loans: Loans by the Department of Veterans Affairs require no down payment and have much lower approval standards. These loans are only provided to qualified veterans, active-duty service members, and their spouses. The interest rates and application requirements are often much more favorable if you do qualify.
 

Summary

Learning what is a hard money loan for real estate acquisitions has become commonplace in the housing sector. If for nothing else, a hard money loan gives investors an edge over those using traditional financing methods. Not only should hard money borrowers be able to secure capital faster, but sellers will also favor their offers because they are made with cash. That said, if you are looking to fund a deal, you may not want to ignore hard money; it could be the one thing that gets you what you need.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
 

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2022 Level 4 Funding LLC. All Rights Reserved.
Copyright | Privacy Policy | *Terms & Conditions
          

Finding Money for your Fix and Flips.

Finding Money for your Fix and Flips. Source of funding for Investments are Conventional, Hard Money Lenders and OPM.

If you have been around the real estate investing business before, you are probably aware of the acronym O.P.M., which stands for other people’s money.  Leveraging the funds of others, for that matter, is one of the best ways to get a new real estate business off the ground. And to that point, there are two basic strategies centered around using O.P.M.: private and hard money. Each of them serves the same basic function but offer two completely different ways to go about funding a deal. With private money loan, you are tapping into friends, family and co-workers to form a financial partnership on the deals you buy. With private hard money, you are using funds from an individual or partnership to earn a higher return on their capital. Almost all successful real estate investors have multiple options for using O.P.M. They may not use them on every deal, but in the right situation, it makes perfect sense. For as many people that swear by O.P.M., there are still a few detractors. Let’s look at some of the reasons people may not want to use O.P.M., and why it may pay to ignore them:

“The rates and fees are too high!”

There are times in the real estate business when beggars can’t be choosers. If you do not have access to your own capital or do not want to use traditional lender options, funding is limited. Your only options may be hard and private money lenders. As simple as it sounds, making something on a deal is better than not making anything. Increased hard money options have pushed rates and fees down considerably. With private money lenders, you can negotiate the best terms and fees that you are both comfortable with. Whatever the terms are, they give you an entry into the business. Having access to capital allows you to make more offers, and to ultimately have more of those offers accepted. Making a smaller return on numerous deals adds to your bottom line and accelerates the speed in which you can accumulate your own funds. If you are using these funds for rehabbing properties, the impact of the interest rate will only be felt for as long as you own the property. In most cases, you can turn a rehab property around in as little as 30-90 days. O.P.M. rates and fees are higher than a traditional lender, but they should be they have the funds and can dictate the terms. Just because the rates are higher than you may like, however, doesn’t mean you should ignore them.

“My local lender has rates around 4%.”

There are many investors who have done quite well using traditional lender options. However, there are significant restrictions on how quickly you can close, and even if you can get approved. Your local lender does have much lower interest rates, but only if you can take advantage of them. For starters, you will need a down payment anywhere between 20-30%, coupled with strong credit scores. You will also need to document all of your income and be prepared to wait anywhere from 30-45 days. Most sellers do not want to deal with a lender financed option. If there is a cash offer at a slightly lower price, most would rather accept the sure thing. Additionally, the industry norm allows for a maximum of 10 total loans on your credit report, which includes second mortgages. Even if you don’t mind the process, sooner or later you will hit ten and be forced to find alternatives.

“I don’t know where to find a hard money lender.”

In recent years, there has been an influx of hard money lenders in most markets. Last decade there were only a handful of these lenders. They were considered a last-ditch option that was used for foreclosure prevention or other emergencies. Today, there are more hard money lenders than ever before. Most of these companies have websites and operate very much like lenders, in that they have defined rates, fees and terms. The biggest difference is that they are not bound by specific guidelines. Finding hard money lenders is as easy as asking your real estate agent, attorney, or accountant. There are usually a handful at most real estate clubs and networking events. There is an instinct to be intimidated by what you don’t know. With so much competition, you can shop around. Talk to as many different hard money lenders as possible and find the best fit for you. What you will find is that they want your business just as much as you want to work with them.

How does a Hard Money Lender Qualify You.

Most hard money lenders first look at the property you are purchasing. They calculate a Loan to Value Ratio and that is the amount of money the are willing to lend on the property.  It’s based on the current value, which is the value you are probably pay to purchase the property.  Future value is nice to see, but a hard money lender will base the loan amount it on current value.  
 
Once you develop a relationship with a lender, you will begin to gain trust. Instead of constantly looking over your shoulder and giving updates, you are given freedom to work. It will take a while to get to this point, but once you do it will change your business. You can focus on finding good deals and making offers that work for you. Using O.P.M. may not be perfect, but it is a perfectly good way to get started or take your business to the next level.
 
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
 

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2022 Level 4 Funding LLC. All Rights Reserved.
Copyright | Privacy Policy | *Terms & Conditions
          

The Best Real Estate Investor’s Guide To Financing Investments

Guide To Financing Investments A Real Estate Investor’s

 
Private hard money lenders are the most important people to establish a relationship within the real estate industry – at least if you want to run a sustainable business. Whether you are a new real estate investor or a seasoned veteran, chances are you will want to scale your business sooner rather than later. However, volume isn’t contingent on skill alone; you must bring something else to the table. There is one more piece to the puzzle that every successful real estate investor must find on their own: funding. That said, any hopes of completing more deals would depend on building relationships with those that have the necessary capital. There are exceptions of course, but private hard money lenders are a critical component to any real estate investor’s arsenal.
 
Private hard money lenders are integral to the growth of every new investor. They essentially provide the confidence and funding required to complete more deals. Of particular importance, however, is the liquidity private hard money lenders can offer investors and their businesses. Additional funds insulate people in our industry from risk and allow them to diversify their portfolios, at least more so than without private or hard money lenders getting involved.
 
Both sources are certainly worth their own considerations, but investors are advised to be able to differentiate between the two. To help you understand the differences between private money lenders and hard money lenders, my partners over at CT Homes and I have provided the following:
 

Breaking Down Private & Hard Money

Funding Deals With Private Money

 

In their simplest form, private money lenders are those people with the means and intent to invest capital. Consequently, anyone with a little extra money and an interest in what you do may be typecast into the role of a private money lender. It is up to you, however, to see to it that the convergence between your business and their interests takes place.
 
It is important to note that private money lenders are just as interested in working with you, as you are interested in working with them; it is really the quintessential symbiotic relationship. Both sides stand to gain something from every deal that is struck. In return for interest on their investment, private money lenders are entirely capable of bringing speed and efficiency to every transaction. Additionally, your leverage will increase exponentially when you offer to purchase a property with private-cash funds.
 
It is not uncommon for the funds from a private lender to go towards the purchase price of a property and subsequent renovation costs. The lender, however, will receive both the mortgage and a promissory note at the time of closing. Think of this as their insurance policy. The investor, on the other hand, will proceed with the renovation and put the funds to work. Following the completion of the rehab and its inevitable sale, the lender will be given their principle plus interest payment, and the borrower will collect what’s left.
 
As I mentioned before, private investors can benefit immensely from investing their own capital in the ventures of others. First and foremost, their money will work on their behalf, coming back with interest on top of the principal investment. Their investment is also protected, as they will receive the deed and promissory note as a form of collateral. In fact, private money lenders are awarded more safety than many other investment vehicles can boast.
 
At the cost of somewhere between six and twelve percent interest on the money borrowed, real estate investors will be given the opportunity to close on more deals in a shorter period. What you pay in interest comes back in the form of volume and efficiency. It is truly the definition of a win, win scenario for both parties involved.
 
Often, private money lenders tap into their own bank accounts to fund a deal. That said, you won’t have to wait an extended period and can move quickly on time sensitive deals. Consequently, traditional bank loans can offer nowhere near the efficiency of a private money loan.
 

Funding Deals With Hard Money

 

It’s no secret; savvy investors know that they need to complement their private money sources with a hard money lender. That said, I could argue that a hard money lender is the most important person you will work with on a project at any given time. Not unlike private money lenders, hard money provides short-term, high-rate loans, and will also typically cover the cost of purchase and rehab expenses. However, hard money lenders are typically more organized and semi-institutional. Perhaps even more importantly, however, they have been licensed to lend to investors like yourself.
 
Hard money funding is typically distributed in draws against the work being done. It is, therefore, relatively common for a hard money lender to set up a payment schedule for completed work.
 
It is also important to note that the term “hard money” does not imply a degree of difficulty in acquiring said funds; in fact, it’s quite the contrary. While the terms and criteria that accompany a hard money loan can be extensive, they are typically easier to overcome and more reliable than your standard institutional lender. If for nothing else, receiving hard money approval is easy in the face of a promising asset. You see; most hard money lenders make their decisions based off the asset in question. It isn’t until after the home has been deemed promising that they will even see if the borrower qualifies. In other words, the more promising the project, the more likely you are to receive a hard money loan.
 
While hard money is certainly more expensive to borrow, it is more reliable. That said, it is not subject to traditional credit guidelines (the same ones that protect banks). Instead, fees for borrowing hard money are often delineated in points (three to five to be exact). Points represent an additional upfront percentage fee based on the loan amount. It is important to note that these fees are not universal, and different hard money lenders will bring different terms to the table.
 
Subsequently, hard money lenders are trying to mitigate risk by increasing interest rates, thus charging investors more for their services. But that increased rate is more than worth it, considering investors will be able to move on deals much faster than they would be able to with a traditional loan.
 
It is rare that a hard money lender will fund an entire deal. It is more common that they will only fund a percentage of the purchase price or the after-repair value (ARV) – usually, around 70 percent. Also, hard money lenders tend to favor deals that take less time. Having said that, it is common for the duration of a hard money loan to top off at 12 months. If your deal looks to be lengthy, you may need to side with a private money lender, or someone willing to fund your project for an extended period.
 
In the end, chances are a hard money loan is your best bet to secure a deal with a great profit margin. While five points may sound difficult to overcome, sometimes the profit margins awarded to those who can close on a home quickly are well worth the investment.
 
Even with all of this in mind, investors are still advised to use caution when working with a hard money lender. I encourage you to have multiple exit strategies lined up in the event something unexpected happens.
 
Private hard money lenders have become a trusted source of funding for real estate investors on nearly every level, regardless of their experience. Both hard money and private money, for that matter, have become the backbone of any successful real estate entrepreneur. You simply can’t beat the speed and efficiency they have to offer. While they may come with a heftier price tag, I can assure you their positives greatly outweigh their negatives.
 

For More Information On Private & Hard Money Lending:

 

If you are interested in how to find private money investors that may be interested in teaming up with you on your next project. That way you won’t have any problems finding funding for your next deal. Are you ready to start working with private hard money lenders?
 
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
 

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2022 Level 4 Funding LLC. All Rights Reserved.
Copyright | Privacy Policy | *Terms & Conditions
          

A Real Estate Investor’s Guide To Financing Investments

A Real Estate Investor’s Guide To Financing Investments

 
Getting a short-term loan quickly can be difficult for real estate investors and wholesalers, especially if a great potential deal is coming up soon. However, you don’t necessarily need to go with a sketchy loan or a high interest offer. Instead, you might be able to rely on transactional funding to finance real estate deals and other investment opportunities. But before you put all your eggs in one basket, let’s take a closer look at this process and break down whether it’ll be a good choice for your investment goals.
 
What is Transactional Funding?
Also called same-day funding or flash funding, transactional funding is a unique financial strategy in which investors take out very short-term loans to make purchases, then pay back those loans much more quickly than normal, oftentimes within the same day or week. They pay the loans back with profits made on the purchase. Through this alternative form of financing, investors, especially real estate wholesalers, can buy and sell target properties quickly without risking their capital. Because of their extremely short-term nature, these agreements are best used for real estate deals where a buyer will close on a deal and resell the same property (in a separate deal) for a profit within a few days at most.
 
How Does Transactional Funding Work?
There are several key agents in a transactional funding process:
  • A lender that provides the money for the transactional funding
  • An intermediate agent, like a real estate investor or real estate wholesaler
  • An initial seller, who sells the target property to the real estate investor
  • An end buyer, who buys the target property from the real estate investor once the investor gets the cash they need from the lender
In most cases, capital is available from hard money or private money lenders. Additionally, transactional funding is usually only possible when the intermediate agent (such as the real estate wholesaler) has a well-documented and established end buyer in place for the second deal. That’s because the second or end buyer needs to be ready to buy a real estate wholesaler’s property immediately after the investor buys their target property from the initial seller. In other words, this type of financing only works when all the players in such a transaction are ready to go and trustworthy.
You can use transactional funding for any real estate purchase and sale so long as the closing agent is willing to facilitate all the transactions and the lender agrees to the terms. In many cases, the lender will need important details made available to them to trust in the transaction. Note that transaction funding was available on a “pass-through” basis before the 2008 recession. This allowed an investor to sign a contract to buy an excellent deal for real estate at a low price, then sign a secondary contract promising to sell the property at a higher price for a profit. Then the investor could use the end buyer’s money to fund the initial transaction to kick off the entire process. However, new regulations now require the purchase of the target property and the selling of the property to be two separate transactions.
 
How Much Does Transactional Funding Cost?
It depends on the comfort levels of different lenders. Some lenders may be more comfortable with certain deals than others. Even with this variability, real estate investors should assume that lenders will charge between 2% and 12% of the total loan amount. For example, if you need a $100,000 loan, you may need to pay between $2000 and $12,000 to facilitate the transactional funding process.
 
Transactional Funding in Wholesaling
Transactional funding is often useful when trading wholesale properties. Investors can get the cash they need to get a deal from a seller and quickly resell the property they purchased for a profit in a separate, transaction. This funding method gives investors more versatility and can replace the assigning contracts method of real estate trading, which is sometimes not permitted depending on your area. Because of its benefits and speed, transactional funding is of great use to real estate wholesalers.
 
What Do You Need To Be Eligible?
Although eligibility requirements may vary from lender to lender, there are generally 3 things you need to be considered eligible:
  • A motivated seller
  • Proof that you represent a business entity, such as an LLC
  • An end-buyer who is ready to close the deal immediately.
Note that the title company must be able to send a written confirmation stating that the money is in their escrow account.
 
Is A Proof Of Funds (POF) Letter Provided By The Lender?
Yes, the lender will provide a proof of funds (POF) letter. This letter proves to your seller that you have the funds available to purchase the property. Your deal is more likely to move forward once you have a POF, representing official backing from a legitimate financial institution.
 
Are There Any Upfront Fees?
Borrowers are expected to pay an origination fee, which is the equivalent of a few percentage points of the loan amount. When it comes to wholesaling, borrowers don’t have to pay a down payment on top of an origination fee. Wholesaling is an investing modality that allows you to access capital with minimal costs.
 
Is There A Processing Fee?
Yes. Borrowers must pay a processing fee that is separate from the origination fee. The fee pays for an attorney who will review the documents and certify that the property and title meet any legal criteria required for it to close. The closing fee varies from lender to lender but expect to pay at least $1,000.
 
Transactional Funding in House Flipping
Not surprisingly, transactional funding is an important tool used by house flippers and rehabbers. Most notably, it increases optionality and the ability to secure more deals. Thanks largely to the speed at which transactional funding may be deployed, investors may gain access to deals they would have otherwise lost out on to the competition. In securing and deploying money faster than others, investors can make offers sooner than those seeking traditional financing. Through this transactional method, house flippers can get the funds they need to rapidly purchase a wholesale deal, then flip the house and sell it to an end buyer without rehabbing it or spending lots of money fixing it up.
 
Example Of Transactional Funding
 
Let’s walk through an example of transactional funding to help solidify the concept. Let’s say that you’re a wholesaler working with a buyer who wants to move to Arizona from Illinois. You identify a property that needs minor upgrades and negotiate a selling price of $300,000.
You put the property under contract such that the property will be sold from your seller to your buyer for $350,000. You then secure a transactional loan and coordinate closing dates. You also arrange for a contractor and their workers to make the necessary upgrades within the next two days.
You put $10,000 of your potential profit into contractor and lender fees. After closing, you walk away with a profit of $40,000, all without having to put in a dime of your own funds.
 
Pros & Cons Of Transactional Funding
Transactional funding is a proven strategy that has found its way into investors’ playbooks. The optionality and speed of implementation transactional funding awards investors are invaluable. That said, the method in which transactional funding grants those who use it access to capital isn’t without downsides. Taking on debt to secure an investment does come with inherent risk. As a result, investors need to weigh the pros and cons associated with transactional funding and decide for themselves if it’s worth pursuing.
 
Pros of Transactional Funding
 
The pros of using transactional funding include, but are not limited to:
  • Loans Cover The Entire Cost Of The Property: There’s minimal risk for real estate investors and wholesalers, as the loans provide 100% of the loan amount to purchase a property.
  • Straightforward Processing: The paperwork is straightforward, and most deals don’t require your credit score or income to be reported for approval.
  • Relatively Easy Qualifications: All you need is a proof of funds letter from the end buyer for your target real estate property.
  • Speed Of Implementation: Funds can be acquired extremely quickly, sometimes in a matter of hours.
  • Optionality: Transactional funding allows you to take advantage of “flash in the pan” real estate deals that don’t come around very often.
  • Accelerated Process: Most transactional lenders don’t require insurance, appraisals, or full title reports, which accelerates the process and may increase your profit margins.
  •  
Cons of Transactional Funding
The cons of using transactional funding include, but are not limited to:
  • Closing Costs: The funds from a transactional funding deal come with closing costs. Fees will usually be taken out of your profits at both deals’ closes.
  • Short-Term Loan Duration: Transactional funders usually offer short-term loans, so you must be prepared to settle with your end buyer very quickly after taking out your loan.
  • Payments Due Within Weeks: Transactional loans are often due within two weeks of being taken out or may even be due within 48 hours.
  • Deal Dependent On End Buyers: Any end buyers must qualify for financing for the deal to go through.
 
How to Qualify for Transactional Funding
 
While transactional funding can be effective, you’ll need to qualify for these deals to take advantage of them. Generally, you’ll need:
  • An end buyer contract that proves the end buyer’s funds are present to convince the transactional lenders that the deal can go through ASAP
  • Possibly a credit report and background checks for the borrower
  • Some due diligence for the property, like a desktop valuation or examining pictures from the interior and exterior of the property
  • Many lenders may also require a letter, which evaluates the borrower based on the “5 Cs of Credit”
  •  
Alternatives to Transactional Funding
 
Given the risk inherent with transactional funding, some real estate investors may wish to consider alternatives, including:
  • Hard Money Loans: Offered by private lenders, hard money loans offer short-term capital, which is backed by the subject property. Hard money loans typically come with lower interest rates than their private money counterparts, but approvals can be harder to come by for some investors.
  •  
  • Private Money Loans: Private money loans are not associated with an institution but rather private investors with access to capital of their own. Without an attachment to an institution, private money lenders are easier to qualify for and faster to act. However, private money lenders will ask for higher interest rates, upwards of 12% to 15%.
  •  
  • HELOCs: Otherwise known as home equity lines of credit, HELOCs allow investors to borrow against the equity in their own homes to finance subsequent real estate purchases.
  •  
  • Joint-Venture Capital: A joint venture, as its name suggests, is a convergence of two or more parties that seek to invest in a single property for profit. In addition to sharing risks, joint ventures will also usually share the acquisition costs.
  •  
Summary
 
All in all, transactional funding can be an excellent tool in your real estate investing repertoire, particularly if you stumble upon a great deal you want to jump on ASAP. But keep in mind that you will need a guarantee of an end buyer’s funds, plus their willingness to pay, to secure transactional funds from a suitable lender. Furthermore, you may be on the hook for paying back the loan faster than you anticipate, so make sure to close both transactions in a deal quickly.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
 

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2022 Level 4 Funding LLC. All Rights Reserved.
Copyright | Privacy Policy | *Terms & Conditions
          

6 Sources to Raise Capital For Real Estate Investing

6 Sources to Raise Capital For Real Estate Investing
Raising capital for real estate can be a challenge for many new investors, but it is necessary for anyone looking to succeed in the industry. The key to learning how to raise capital for real estate is to focus on identifying what today’s lenders covet the most (and give it to them). If you succeed, there’s no reason you shouldn’t be able to raise the real estate investment capital you need for your next deal.
 
Other People’s Money (OPM) is what makes real estate investing possible for a considerable percentage of aspiring investors.  Even the most successful real estate professionals and legendary investors almost exclusively use OPM to reduce liability and maximize returns. Daniel Chan from Marketplace Fairness suggests “It is important for investors to know how to raise capital in the real estate world because it gives them more options and opportunities to invest in the market. Even if an investor has their own money, knowing how to raise capital can help them get better deals and make more money in the long run”. As you can see, raising capital is critical for investors of every level.
 
However, both novice and seasoned real estate investors struggle to connect with potential private investors and close the deal. (Or even understanding how capital works with an alternative strategy such as tax lien investing.)
 
This is a shame, considering there is more real estate investment capital out there than ever before. Remember, private money lenders want to work with you just as much as you want to work with them.  Private lending has never been so attractive or widely accepted, and the benefits for you and your lender are endless.
 
Raising real estate investment capital is about more than a simple message or conducting a presentation that resonates. It must be more than a pretty website, thousands of inorganic Facebook friends, glossy folders, and a nice suit.
 
What Is Investment Capital?
 
Investment capital is the money used to fund a given investment deal. This can include the costs of acquiring a property, initial renovations, and upfront costs. There are generally two types of investment capital: debt and equity. Debt refers to investment capital from hard money lenders, such as banks, and often requires interest payments. An advantage of using debt investment capital is that hard money lenders will not have a say in the company. However, many investors may find it difficult to secure capital with hard money lenders. This is where equity (and OPM come in).
 
Equity refers to money secured by selling ownership of a property or business. Private money lenders may invest in a company if they see the investment as potentially profitable. Using equity as a form of investment capital has different pros and cons to utilizing debts, so investors must consider both options. For entrepreneurs ready to put the work in, raising private money can offer the chance to pursue various investment opportunities and expand their portfolios.
 
Top Sources Of Private Money
 
Private money can be found all over the real estate industry, but it may not be easy to identify if you don’t know what to look for. Here are some of the top sources of private money to be aware of:
 
  • Business Partner: A common business arrangement is for one partner to manage the heavy lifting in terms of workload, while the other supplies the capital (called a silent partner)
  • Peer-to-Peer Lending: P2P lending is made possible through online lending platforms that partner you with other investors.
  • Crowdfunding: Real estate crowdfunding has become increasingly common over the last several years, and again allows you to utilize an online lending platform to finance investment deals.
  • Family, Friends, or Colleagues: Many private money deals are funded by sources close to the investor, such as a family member with extra capital.
  • Hard Money Lenders: It is also possible to finance a deal with an investor you haven’t worked with before. Ask around your network for trusted lenders to learn more.
What Are Money Partners?
Money partners are anyone you decide to work with to fund a given deal. When it comes to raising capital for real estate, money partners can be beneficial because they can enable investors without significant capital to get started. Money partners can finance a deal, provide advice, and even share a given investment risk depending on the arrangement at hand. Because of this, money partners are often highly sought after in the investment world. However, it is important to note that partnering with other investors is mutually beneficial. Business partners stand to benefit from the success of a good deal just as much as you do, something that is important to keep in mind as you get ready to approach potential lenders.
Money partners exist throughout the real estate industry, though it is important to approach each potential investment carefully. It is not uncommon for even the most seasoned real estate investors to fail to close a deal with private money lenders or money partners. To ensure this does not happen to you, research potential investors you are trying to work with and put in the time and effort to ensure you are prepared every step of the way. If you are interested in learning more about how to find private money lenders or money partners, read this guide.
 
Uses For Private Money
Those who want to raise capital for real estate most commonly use private money for refinancing a property or buying a new property. For example, suppose you purchased a property using a conventional mortgage but want to want to negotiate for a shorter repayment plan or lower interest rate. In that case, you can use a private money lender to help you refinance.
If you are interested in condos, single-family homes, multifamily homes, or apartments, private money can be used to purchase your new investment property. To get a private money loan for a new investment property, you will have to pitch the potential profitability of the property with reliable numbers and predictions. Raising capital for real estate using private money is typically easier for experienced investors as they have records of successful deals they have made.
 
How To Raise Capital For Real Estate
Private money lenders will often have their own set of rules and guidelines. While many will exercise similar practices, their borrowers’ criteria are different. I maintain, however, that there are several universal things private money lenders look for.
If borrowers can identify what it is their money partners want, it’s more likely that they will receive the loan. You see, lenders are in the business of making money, too. There are 6 P’s that you can remember when it comes to private money lenders. If you can give them the things I outline below, you could find yourself with the money needed to buy your next deal:
  1. Protect their capital
  2. Promise realistic returns
  3. Prove your potential
  4. Procure a great deal
  5. Provide your track record
  6. Promote relationship building
 
1. Protect Their Capital
The primary concern investors have is protecting what they’ve loaned out. If they lose that, they won’t be able to profit, which is the whole point. That’s why so many money partners have recently invested in low-yielding real estate-related products and ventures. When contemplating this factor, most look for collateral and how easy it will be to get their money back in the worst-case scenario. So be ready to answer these questions and have a plan B in your back pocket. It should go without saying, but the best way to work with a private money lender and raise the real estate investment capital you need for your next deal is to convince them that it’s worth their time.
 
2. Promise Realistic Returns
Where most real estate investors go wrong when trying to raise capital is promising huge returns. If you sound overconfident, your presentation will automatically appear to be a “high-risk investment” or “scam,” which is certainly not the message you want to send.  You will have to be above average market rates – of course – but don’t project too high.  The last thing you want to do is overpromise and under-deliver.  Even if you think your goals are possible to achieve, start by underestimating and then deliver more later, which will create a sense of loyalty and reliability between you and your first line of money partners. If you tell them they will receive an ROI of 8 percent, and they actually make 14 percent after all is said and done, you can bet they’ll put you at the front of the line in their contact database and beg you to take their money for your next deal.
 
3. Prove Your Potential
On the other hand, you need to make your investment sound appealing.  Savvy investors with bigger pockets and heavy-weight venture capital firms are, of course, intrigued by the promise of big wins. So, while keeping projections conservative, don’t be afraid to hint at the full upside potential – those big numbers you are hoping you’ll really hit.
 
4. Procure A Great Deal
Everyone wants a “deal.” There are two reasons for this. The first is that it is simply human nature. If someone thinks they are getting a good deal on a product, it automatically gives the impression of value.  The second is that these individuals and money managers want to look smart and feel like they are making a sound investment. They all have someone they need to impress. It could be their boss, co-worker, spouse, competitor, or even themselves.  Regardless of who, your potential money partner will want to be able to boast about how intelligent they were to discover this high-yielding or trendy investment before everyone else. Help them out.
 
5. Provide Your Track Record
Of course, most investors expect to see a proven track record. They want to know that you can deliver on your plans. If you don’t have direct experience in real estate investing, what other relevant experience do you have or who else can you partner with?  Have your portfolio ready to go with your successes on top.  You’ve got to have the numbers to prove yourself.
 
6. Promote Relationship Building
Surprisingly – or perhaps not so surprising – having a personal relationship between both investing parties trumps the rest of the qualifications.  So how can you build more authentic relationships or find like-minded individuals – whom you might already know – that might want to work with you? This is one of the most important habits to acquire as a real estate investor. Try attending a local networking event to get your face out there.  Building and maintaining relationships is necessary if you want to discover a potential money partner and achieve success.
 
5 Tips For Raising Private Real Estate Capital
 
The best advice for raising private capital in real estate will vary depending on who you ask. This is because over time, investors find the way of doing things that work best for their real estate businesses. However, this is not helpful to newbies. What I can say is that it takes time to develop a surefire system for raising private capital. In the meantime, —here are some tips to help you get started:
 
  1. Use Your Own Money First: Before you start fundraising a new project, assess how much capital of your own you can rely on. Not only will this help you frame the budget for the project, but it will also lower the amount of cash you are paying interest on should you find a private lender. To increase your personal capital, consider redoing your monthly budget and reducing expenses for a while; you may even be eligible for a home equity loan.
  2. Attention To Detail: The details included in your portfolio are going to make or break your pitch to private money lenders. Ensure you have an accurate purchase price, property value, rehab cost, and rental value wherever it applies to you. If this is your first investment deal, make sure the figures and estimates in your deal analyzer are as accurate as possible. Strong attention to detail could mean the difference between choosing a potential investment and securing enough financing.
  3. Showcase Your Success: When you complete a successful real estate deal, don’t be modest! Share the good news with your network, website, and social media following. Investors can and should showcase their successes (or wins) as they come along. This can help establish your credibility over time in the real estate industry when done right.
  4. Build Relationships: Networking is not as simple as exchanging business cards, and you shouldn’t want it to be. If you want to have a successful career in real estate, building relationships across the industry is critical. Keep up with your connections, celebrate their successes, and check-in from time to time. Building genuine relationships will help your career more than you can imagine.
  5. Educate Others: Sometimes, you may encounter potential lenders who are mostly unaware of the intricacies of a real estate deal or the dynamics of private lending. That’s okay; it could be the perfect opportunity to educate someone else about what you do. As you build relationships with other real estate professionals, have conversations about lending and acquiring deals, share the resources you find helpful, and put people in contact with one another when fitting. This will help you build relationships (as I mentioned above) and potentially introduce investors to a mutually beneficial real estate aspect.
Raising Capital For Residential Vs. Commercial
When comparing residential and commercial deals, financing is going to look very different. Residential properties almost always cost less than commercial properties, and investors need to secure less funding overall. It can take a shorter amount of time to raise the capital necessary for a residential deal. Commercial deals, on the other hand, require much more capital but come with higher profit margins. For this reason, some investors may find it easier to secure commercial properties. Overall, it comes down to your network and preferred lenders. Raising capital for residential vs commercial properties requires an understanding of the different income projections.
Continue Learning How To Raise Capital For Real Estate
Raising capital for real estate has become one of the most discussed topics associated with real estate investing. If for nothing else, it’s the one concept anyone could stand to improve on, there’s never too much funding. As a result, there are volumes written on the subject of raising capital for real estate, and perhaps even more knowledgeable people talking about their own strategies just about anywhere someone is willing to listen. Truth be told, it’s not hard to find someone willing to offer their own opinion on raising capital for real estate investments; the hard part comes in distinguishing between those who are truly knowledgeable and those who are, for lack of a better word, ignorant.
It should go without saying, but incorrect information can be damaging to one’s career. Therefore, it’s important to gather information from trusted sources, not the least of which include:
 
  • Books: To this day, books represent one of the greatest ways to filter through the volumes of information made available to investors. However, the number of books one can find on raising capital for real estate can be staggering. Instead of sifting through everything, and risking learning from someone that may not know what they are talking about, save yourself some time and consult “The Real Estate Wholesaling Bible,” by my friend and business partner Than Merrill. As the name suggests, aspiring investors will learn how to wholesale real estate, but a large portion of the book deals with raising capital and funding. As a compliment, my own book, “The Real Estate Rehab Investing Bible,” will teach readers the importance of raising capital for real estate and the best ways of going about doing so.
  • Podcasts: Relatively new to their written counterparts, podcasts are not to be underestimated. Oftentimes free, these downloadable audio files are filled with information from today’s top minds in the real estate industry. Get Wealthfit, for example, is a compilation of podcasts by investors who have been exactly where many aspiring investors hope to be one day. Get Wealthfit covers everything from money management to marketing strategies and everything in between.
  • Blogs: Not unlike books, blogs offer knowledgeable individuals the ability to share their knowledge with the masses. Only, instead of releasing once every year or so, writers can publish blog content daily. 
Summary
Raising capital for real estate doesn’t need to be nearly as hard as many make it out to be. For those learning how to raise capital for real estate, remember, working with money partners is as simple as doing two things: learning what it is they want the most and giving it to them. The investors can identify what today’s lenders are looking for that stand the best chance at getting the money they need for their next deal. That said, pay special considerations to the steps above, as they offer insight into what the majority of today’s lenders look for in a borrower. Only when you can give a lender what they want will your chances of receiving real estate investment capital increase dramatically.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
 

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2022 Level 4 Funding LLC. All Rights Reserved.
Copyright | Privacy Policy | *Terms & Conditions
          

6 Sources to Raise Capital For Real Estate Investing

6 Sources to Raise Capital For Real Estate Investing
Raising capital for real estate can be a challenge for many new investors, but it is necessary for anyone looking to succeed in the industry. The key to learning how to raise capital for real estate is to focus on identifying what today’s lenders covet the most (and give it to them). If you succeed, there’s no reason you shouldn’t be able to raise the real estate investment capital you need for your next deal.
 
Other People’s Money (OPM) is what makes real estate investing possible for a considerable percentage of aspiring investors.  Even the most successful real estate professionals and legendary investors almost exclusively use OPM to reduce liability and maximize returns. Daniel Chan from Marketplace Fairness suggests “It is important for investors to know how to raise capital in the real estate world because it gives them more options and opportunities to invest in the market. Even if an investor has their own money, knowing how to raise capital can help them get better deals and make more money in the long run”. As you can see, raising capital is critical for investors of every level.
 
However, both novice and seasoned real estate investors struggle to connect with potential private investors and close the deal. (Or even understanding how capital works with an alternative strategy such as tax lien investing.)
 
This is a shame, considering there is more real estate investment capital out there than ever before. Remember, private money lenders want to work with you just as much as you want to work with them.  Private lending has never been so attractive or widely accepted, and the benefits for you and your lender are endless.
 
Raising real estate investment capital is about more than a simple message or conducting a presentation that resonates. It must be more than a pretty website, thousands of inorganic Facebook friends, glossy folders, and a nice suit.
 
What Is Investment Capital?
 
Investment capital is the money used to fund a given investment deal. This can include the costs of acquiring a property, initial renovations, and upfront costs. There are generally two types of investment capital: debt and equity. Debt refers to investment capital from hard money lenders, such as banks, and often requires interest payments. An advantage of using debt investment capital is that hard money lenders will not have a say in the company. However, many investors may find it difficult to secure capital with hard money lenders. This is where equity (and OPM come in).
 
Equity refers to money secured by selling ownership of a property or business. Private money lenders may invest in a company if they see the investment as potentially profitable. Using equity as a form of investment capital has different pros and cons to utilizing debts, so investors must consider both options. For entrepreneurs ready to put the work in, raising private money can offer the chance to pursue various investment opportunities and expand their portfolios.
 
Top Sources Of Private Money
 
Private money can be found all over the real estate industry, but it may not be easy to identify if you don’t know what to look for. Here are some of the top sources of private money to be aware of:
 
  • Business Partner: A common business arrangement is for one partner to manage the heavy lifting in terms of workload, while the other supplies the capital (called a silent partner)
  • Peer-to-Peer Lending: P2P lending is made possible through online lending platforms that partner you with other investors.
  • Crowdfunding: Real estate crowdfunding has become increasingly common over the last several years, and again allows you to utilize an online lending platform to finance investment deals.
  • Family, Friends, or Colleagues: Many private money deals are funded by sources close to the investor, such as a family member with extra capital.
  • Hard Money Lenders: It is also possible to finance a deal with an investor you haven’t worked with before. Ask around your network for trusted lenders to learn more.
What Are Money Partners?
Money partners are anyone you decide to work with to fund a given deal. When it comes to raising capital for real estate, money partners can be beneficial because they can enable investors without significant capital to get started. Money partners can finance a deal, provide advice, and even share a given investment risk depending on the arrangement at hand. Because of this, money partners are often highly sought after in the investment world. However, it is important to note that partnering with other investors is mutually beneficial. Business partners stand to benefit from the success of a good deal just as much as you do, something that is important to keep in mind as you get ready to approach potential lenders.
Money partners exist throughout the real estate industry, though it is important to approach each potential investment carefully. It is not uncommon for even the most seasoned real estate investors to fail to close a deal with private money lenders or money partners. To ensure this does not happen to you, research potential investors you are trying to work with and put in the time and effort to ensure you are prepared every step of the way. If you are interested in learning more about how to find private money lenders or money partners, read this guide.
 
Uses For Private Money
Those who want to raise capital for real estate most commonly use private money for refinancing a property or buying a new property. For example, suppose you purchased a property using a conventional mortgage but want to want to negotiate for a shorter repayment plan or lower interest rate. In that case, you can use a private money lender to help you refinance.
If you are interested in condos, single-family homes, multifamily homes, or apartments, private money can be used to purchase your new investment property. To get a private money loan for a new investment property, you will have to pitch the potential profitability of the property with reliable numbers and predictions. Raising capital for real estate using private money is typically easier for experienced investors as they have records of successful deals they have made.
 
How To Raise Capital For Real Estate
Private money lenders will often have their own set of rules and guidelines. While many will exercise similar practices, their borrowers’ criteria are different. I maintain, however, that there are several universal things private money lenders look for.
If borrowers can identify what it is their money partners want, it’s more likely that they will receive the loan. You see, lenders are in the business of making money, too. There are 6 P’s that you can remember when it comes to private money lenders. If you can give them the things I outline below, you could find yourself with the money needed to buy your next deal:
  1. Protect their capital
  2. Promise realistic returns
  3. Prove your potential
  4. Procure a great deal
  5. Provide your track record
  6. Promote relationship building
 
1. Protect Their Capital
The primary concern investors have is protecting what they’ve loaned out. If they lose that, they won’t be able to profit, which is the whole point. That’s why so many money partners have recently invested in low-yielding real estate-related products and ventures. When contemplating this factor, most look for collateral and how easy it will be to get their money back in the worst-case scenario. So be ready to answer these questions and have a plan B in your back pocket. It should go without saying, but the best way to work with a private money lender and raise the real estate investment capital you need for your next deal is to convince them that it’s worth their time.
 
2. Promise Realistic Returns
Where most real estate investors go wrong when trying to raise capital is promising huge returns. If you sound overconfident, your presentation will automatically appear to be a “high-risk investment” or “scam,” which is certainly not the message you want to send.  You will have to be above average market rates – of course – but don’t project too high.  The last thing you want to do is overpromise and under-deliver.  Even if you think your goals are possible to achieve, start by underestimating and then deliver more later, which will create a sense of loyalty and reliability between you and your first line of money partners. If you tell them they will receive an ROI of 8 percent, and they actually make 14 percent after all is said and done, you can bet they’ll put you at the front of the line in their contact database and beg you to take their money for your next deal.
 
3. Prove Your Potential
On the other hand, you need to make your investment sound appealing.  Savvy investors with bigger pockets and heavy-weight venture capital firms are, of course, intrigued by the promise of big wins. So, while keeping projections conservative, don’t be afraid to hint at the full upside potential – those big numbers you are hoping you’ll really hit.
 
4. Procure A Great Deal
Everyone wants a “deal.” There are two reasons for this. The first is that it is simply human nature. If someone thinks they are getting a good deal on a product, it automatically gives the impression of value.  The second is that these individuals and money managers want to look smart and feel like they are making a sound investment. They all have someone they need to impress. It could be their boss, co-worker, spouse, competitor, or even themselves.  Regardless of who, your potential money partner will want to be able to boast about how intelligent they were to discover this high-yielding or trendy investment before everyone else. Help them out.
 
5. Provide Your Track Record
Of course, most investors expect to see a proven track record. They want to know that you can deliver on your plans. If you don’t have direct experience in real estate investing, what other relevant experience do you have or who else can you partner with?  Have your portfolio ready to go with your successes on top.  You’ve got to have the numbers to prove yourself.
 
6. Promote Relationship Building
Surprisingly – or perhaps not so surprising – having a personal relationship between both investing parties trumps the rest of the qualifications.  So how can you build more authentic relationships or find like-minded individuals – whom you might already know – that might want to work with you? This is one of the most important habits to acquire as a real estate investor. Try attending a local networking event to get your face out there.  Building and maintaining relationships is necessary if you want to discover a potential money partner and achieve success.
 
5 Tips For Raising Private Real Estate Capital
 
The best advice for raising private capital in real estate will vary depending on who you ask. This is because over time, investors find the way of doing things that work best for their real estate businesses. However, this is not helpful to newbies. What I can say is that it takes time to develop a surefire system for raising private capital. In the meantime, —here are some tips to help you get started:
 
  1. Use Your Own Money First: Before you start fundraising a new project, assess how much capital of your own you can rely on. Not only will this help you frame the budget for the project, but it will also lower the amount of cash you are paying interest on should you find a private lender. To increase your personal capital, consider redoing your monthly budget and reducing expenses for a while; you may even be eligible for a home equity loan.
  2. Attention To Detail: The details included in your portfolio are going to make or break your pitch to private money lenders. Ensure you have an accurate purchase price, property value, rehab cost, and rental value wherever it applies to you. If this is your first investment deal, make sure the figures and estimates in your deal analyzer are as accurate as possible. Strong attention to detail could mean the difference between choosing a potential investment and securing enough financing.
  3. Showcase Your Success: When you complete a successful real estate deal, don’t be modest! Share the good news with your network, website, and social media following. Investors can and should showcase their successes (or wins) as they come along. This can help establish your credibility over time in the real estate industry when done right.
  4. Build Relationships: Networking is not as simple as exchanging business cards, and you shouldn’t want it to be. If you want to have a successful career in real estate, building relationships across the industry is critical. Keep up with your connections, celebrate their successes, and check-in from time to time. Building genuine relationships will help your career more than you can imagine.
  5. Educate Others: Sometimes, you may encounter potential lenders who are mostly unaware of the intricacies of a real estate deal or the dynamics of private lending. That’s okay; it could be the perfect opportunity to educate someone else about what you do. As you build relationships with other real estate professionals, have conversations about lending and acquiring deals, share the resources you find helpful, and put people in contact with one another when fitting. This will help you build relationships (as I mentioned above) and potentially introduce investors to a mutually beneficial real estate aspect.
Raising Capital For Residential Vs. Commercial
When comparing residential and commercial deals, financing is going to look very different. Residential properties almost always cost less than commercial properties, and investors need to secure less funding overall. It can take a shorter amount of time to raise the capital necessary for a residential deal. Commercial deals, on the other hand, require much more capital but come with higher profit margins. For this reason, some investors may find it easier to secure commercial properties. Overall, it comes down to your network and preferred lenders. Raising capital for residential vs commercial properties requires an understanding of the different income projections.
Continue Learning How To Raise Capital For Real Estate
Raising capital for real estate has become one of the most discussed topics associated with real estate investing. If for nothing else, it’s the one concept anyone could stand to improve on, there’s never too much funding. As a result, there are volumes written on the subject of raising capital for real estate, and perhaps even more knowledgeable people talking about their own strategies just about anywhere someone is willing to listen. Truth be told, it’s not hard to find someone willing to offer their own opinion on raising capital for real estate investments; the hard part comes in distinguishing between those who are truly knowledgeable and those who are, for lack of a better word, ignorant.
It should go without saying, but incorrect information can be damaging to one’s career. Therefore, it’s important to gather information from trusted sources, not the least of which include:
 
  • Books: To this day, books represent one of the greatest ways to filter through the volumes of information made available to investors. However, the number of books one can find on raising capital for real estate can be staggering. Instead of sifting through everything, and risking learning from someone that may not know what they are talking about, save yourself some time and consult “The Real Estate Wholesaling Bible,” by my friend and business partner Than Merrill. As the name suggests, aspiring investors will learn how to wholesale real estate, but a large portion of the book deals with raising capital and funding. As a compliment, my own book, “The Real Estate Rehab Investing Bible,” will teach readers the importance of raising capital for real estate and the best ways of going about doing so.
  • Podcasts: Relatively new to their written counterparts, podcasts are not to be underestimated. Oftentimes free, these downloadable audio files are filled with information from today’s top minds in the real estate industry. Get Wealthfit, for example, is a compilation of podcasts by investors who have been exactly where many aspiring investors hope to be one day. Get Wealthfit covers everything from money management to marketing strategies and everything in between.
  • Blogs: Not unlike books, blogs offer knowledgeable individuals the ability to share their knowledge with the masses. Only, instead of releasing once every year or so, writers can publish blog content daily. 
Summary
Raising capital for real estate doesn’t need to be nearly as hard as many make it out to be. For those learning how to raise capital for real estate, remember, working with money partners is as simple as doing two things: learning what it is they want the most and giving it to them. The investors can identify what today’s lenders are looking for that stand the best chance at getting the money they need for their next deal. That said, pay special considerations to the steps above, as they offer insight into what the majority of today’s lenders look for in a borrower. Only when you can give a lender what they want will your chances of receiving real estate investment capital increase dramatically.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
 

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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6 Sources to Raise Capital

Raising capital for real estate can be a challenge for many new investors, but it is necessary for anyone looking to succeed in the industry. The key to learning how to raise capital for real estate is to focus on identifying what today’s lenders covet the most (and give it to them). If you succeed, there’s no reason you shouldn’t be able to raise the real estate investment capital you need for your next deal.
 
Other People’s Money (OPM) is what makes real estate investing possible for a considerable percentage of aspiring investors.  Even the most successful real estate professionals and legendary investors almost exclusively use OPM to reduce liability and maximize returns. Daniel Chan from Marketplace Fairness suggests “It is important for investors to know how to raise capital in the real estate world because it gives them more options and opportunities to invest in the market. Even if an investor has their own money, knowing how to raise capital can help them get better deals and make more money in the long run”. As you can see, raising capital is critical for investors of every level.
 
However, both novice and seasoned real estate investors struggle to connect with potential private investors and close the deal. (Or even understanding how capital works with an alternative strategy such as tax lien investing.)
 
This is a shame, considering there is more real estate investment capital out there than ever before. Remember, private money lenders want to work with you just as much as you want to work with them.  Private lending has never been so attractive or widely accepted, and the benefits for you and your lender are endless.
 
Raising real estate investment capital is about more than a simple message or conducting a presentation that resonates. It must be more than a pretty website, thousands of inorganic Facebook friends, glossy folders, and a nice suit.
 
What Is Investment Capital?
 
Investment capital is the money used to fund a given investment deal. This can include the costs of acquiring a property, initial renovations, and upfront costs. There are generally two types of investment capital: debt and equity. Debt refers to investment capital from hard money lenders, such as banks, and often requires interest payments. An advantage of using debt investment capital is that hard money lenders will not have a say in the company. However, many investors may find it difficult to secure capital with hard money lenders. This is where equity (and OPM come in).
 
Equity refers to money secured by selling ownership of a property or business. Private money lenders may invest in a company if they see the investment as potentially profitable. Using equity as a form of investment capital has different pros and cons to utilizing debts, so investors must consider both options. For entrepreneurs ready to put the work in, raising private money can offer the chance to pursue various investment opportunities and expand their portfolios.
 
Top Sources Of Private Money
 
Private money can be found all over the real estate industry, but it may not be easy to identify if you don’t know what to look for. Here are some of the top sources of private money to be aware of:
 
  • Business Partner: A common business arrangement is for one partner to manage the heavy lifting in terms of workload, while the other supplies the capital (called a silent partner)
  • Peer-to-Peer Lending: P2P lending is made possible through online lending platforms that partner you with other investors.
  • Crowdfunding: Real estate crowdfunding has become increasingly common over the last several years, and again allows you to utilize an online lending platform to finance investment deals.
  • Family, Friends, or Colleagues: Many private money deals are funded by sources close to the investor, such as a family member with extra capital.
  • Hard Money Lenders: It is also possible to finance a deal with an investor you haven’t worked with before. Ask around your network for trusted lenders to learn more.
What Are Money Partners?
Money partners are anyone you decide to work with to fund a given deal. When it comes to raising capital for real estate, money partners can be beneficial because they can enable investors without significant capital to get started. Money partners can finance a deal, provide advice, and even share a given investment risk depending on the arrangement at hand. Because of this, money partners are often highly sought after in the investment world. However, it is important to note that partnering with other investors is mutually beneficial. Business partners stand to benefit from the success of a good deal just as much as you do, something that is important to keep in mind as you get ready to approach potential lenders.
Money partners exist throughout the real estate industry, though it is important to approach each potential investment carefully. It is not uncommon for even the most seasoned real estate investors to fail to close a deal with private money lenders or money partners. To ensure this does not happen to you, research potential investors you are trying to work with and put in the time and effort to ensure you are prepared every step of the way. If you are interested in learning more about how to find private money lenders or money partners, read this guide.
 
Uses For Private Money
Those who want to raise capital for real estate most commonly use private money for refinancing a property or buying a new property. For example, suppose you purchased a property using a conventional mortgage but want to want to negotiate for a shorter repayment plan or lower interest rate. In that case, you can use a private money lender to help you refinance.
If you are interested in condos, single-family homes, multifamily homes, or apartments, private money can be used to purchase your new investment property. To get a private money loan for a new investment property, you will have to pitch the potential profitability of the property with reliable numbers and predictions. Raising capital for real estate using private money is typically easier for experienced investors as they have records of successful deals they have made.
 
How To Raise Capital For Real Estate
Private money lenders will often have their own set of rules and guidelines. While many will exercise similar practices, their borrowers’ criteria are different. I maintain, however, that there are several universal things private money lenders look for.
If borrowers can identify what it is their money partners want, it’s more likely that they will receive the loan. You see, lenders are in the business of making money, too. There are 6 P’s that you can remember when it comes to private money lenders. If you can give them the things I outline below, you could find yourself with the money needed to buy your next deal:
  1. Protect their capital
  2. Promise realistic returns
  3. Prove your potential
  4. Procure a great deal
  5. Provide your track record
  6. Promote relationship building
 
1. Protect Their Capital
The primary concern investors have is protecting what they’ve loaned out. If they lose that, they won’t be able to profit, which is the whole point. That’s why so many money partners have recently invested in low-yielding real estate-related products and ventures. When contemplating this factor, most look for collateral and how easy it will be to get their money back in the worst-case scenario. So be ready to answer these questions and have a plan B in your back pocket. It should go without saying, but the best way to work with a private money lender and raise the real estate investment capital you need for your next deal is to convince them that it’s worth their time.
 
2. Promise Realistic Returns
Where most real estate investors go wrong when trying to raise capital is promising huge returns. If you sound overconfident, your presentation will automatically appear to be a “high-risk investment” or “scam,” which is certainly not the message you want to send.  You will have to be above average market rates – of course – but don’t project too high.  The last thing you want to do is overpromise and under-deliver.  Even if you think your goals are possible to achieve, start by underestimating and then deliver more later, which will create a sense of loyalty and reliability between you and your first line of money partners. If you tell them they will receive an ROI of 8 percent, and they actually make 14 percent after all is said and done, you can bet they’ll put you at the front of the line in their contact database and beg you to take their money for your next deal.
 
3. Prove Your Potential
On the other hand, you need to make your investment sound appealing.  Savvy investors with bigger pockets and heavy-weight venture capital firms are, of course, intrigued by the promise of big wins. So, while keeping projections conservative, don’t be afraid to hint at the full upside potential – those big numbers you are hoping you’ll really hit.
 
4. Procure A Great Deal
Everyone wants a “deal.” There are two reasons for this. The first is that it is simply human nature. If someone thinks they are getting a good deal on a product, it automatically gives the impression of value.  The second is that these individuals and money managers want to look smart and feel like they are making a sound investment. They all have someone they need to impress. It could be their boss, co-worker, spouse, competitor, or even themselves.  Regardless of who, your potential money partner will want to be able to boast about how intelligent they were to discover this high-yielding or trendy investment before everyone else. Help them out.
 
5. Provide Your Track Record
Of course, most investors expect to see a proven track record. They want to know that you can deliver on your plans. If you don’t have direct experience in real estate investing, what other relevant experience do you have or who else can you partner with?  Have your portfolio ready to go with your successes on top.  You’ve got to have the numbers to prove yourself.
 
6. Promote Relationship Building
Surprisingly – or perhaps not so surprising – having a personal relationship between both investing parties trumps the rest of the qualifications.  So how can you build more authentic relationships or find like-minded individuals – whom you might already know – that might want to work with you? This is one of the most important habits to acquire as a real estate investor. Try attending a local networking event to get your face out there.  Building and maintaining relationships is necessary if you want to discover a potential money partner and achieve success.
 
5 Tips For Raising Private Real Estate Capital
 
The best advice for raising private capital in real estate will vary depending on who you ask. This is because over time, investors find the way of doing things that work best for their real estate businesses. However, this is not helpful to newbies. What I can say is that it takes time to develop a surefire system for raising private capital. In the meantime, —here are some tips to help you get started:
 
  1. Use Your Own Money First: Before you start fundraising a new project, assess how much capital of your own you can rely on. Not only will this help you frame the budget for the project, but it will also lower the amount of cash you are paying interest on should you find a private lender. To increase your personal capital, consider redoing your monthly budget and reducing expenses for a while; you may even be eligible for a home equity loan.
  2. Attention To Detail: The details included in your portfolio are going to make or break your pitch to private money lenders. Ensure you have an accurate purchase price, property value, rehab cost, and rental value wherever it applies to you. If this is your first investment deal, make sure the figures and estimates in your deal analyzer are as accurate as possible. Strong attention to detail could mean the difference between choosing a potential investment and securing enough financing.
  3. Showcase Your Success: When you complete a successful real estate deal, don’t be modest! Share the good news with your network, website, and social media following. Investors can and should showcase their successes (or wins) as they come along. This can help establish your credibility over time in the real estate industry when done right.
  4. Build Relationships: Networking is not as simple as exchanging business cards, and you shouldn’t want it to be. If you want to have a successful career in real estate, building relationships across the industry is critical. Keep up with your connections, celebrate their successes, and check-in from time to time. Building genuine relationships will help your career more than you can imagine.
  5. Educate Others: Sometimes, you may encounter potential lenders who are mostly unaware of the intricacies of a real estate deal or the dynamics of private lending. That’s okay; it could be the perfect opportunity to educate someone else about what you do. As you build relationships with other real estate professionals, have conversations about lending and acquiring deals, share the resources you find helpful, and put people in contact with one another when fitting. This will help you build relationships (as I mentioned above) and potentially introduce investors to a mutually beneficial real estate aspect.
Raising Capital For Residential Vs. Commercial
When comparing residential and commercial deals, financing is going to look very different. Residential properties almost always cost less than commercial properties, and investors need to secure less funding overall. It can take a shorter amount of time to raise the capital necessary for a residential deal. Commercial deals, on the other hand, require much more capital but come with higher profit margins. For this reason, some investors may find it easier to secure commercial properties. Overall, it comes down to your network and preferred lenders. Raising capital for residential vs commercial properties requires an understanding of the different income projections.
Continue Learning How To Raise Capital For Real Estate
Raising capital for real estate has become one of the most discussed topics associated with real estate investing. If for nothing else, it’s the one concept anyone could stand to improve on, there’s never too much funding. As a result, there are volumes written on the subject of raising capital for real estate, and perhaps even more knowledgeable people talking about their own strategies just about anywhere someone is willing to listen. Truth be told, it’s not hard to find someone willing to offer their own opinion on raising capital for real estate investments; the hard part comes in distinguishing between those who are truly knowledgeable and those who are, for lack of a better word, ignorant.
It should go without saying, but incorrect information can be damaging to one’s career. Therefore, it’s important to gather information from trusted sources, not the least of which include:
 
  • Books: To this day, books represent one of the greatest ways to filter through the volumes of information made available to investors. However, the number of books one can find on raising capital for real estate can be staggering. Instead of sifting through everything, and risking learning from someone that may not know what they are talking about, save yourself some time and consult “The Real Estate Wholesaling Bible,” by my friend and business partner Than Merrill. As the name suggests, aspiring investors will learn how to wholesale real estate, but a large portion of the book deals with raising capital and funding. As a compliment, my own book, “The Real Estate Rehab Investing Bible,” will teach readers the importance of raising capital for real estate and the best ways of going about doing so.
  • Podcasts: Relatively new to their written counterparts, podcasts are not to be underestimated. Oftentimes free, these downloadable audio files are filled with information from today’s top minds in the real estate industry. Get Wealthfit, for example, is a compilation of podcasts by investors who have been exactly where many aspiring investors hope to be one day. Get Wealthfit covers everything from money management to marketing strategies and everything in between.
  • Blogs: Not unlike books, blogs offer knowledgeable individuals the ability to share their knowledge with the masses. Only, instead of releasing once every year or so, writers can publish blog content daily. 
Summary
Raising capital for real estate doesn’t need to be nearly as hard as many make it out to be. For those learning how to raise capital for real estate, remember, working with money partners is as simple as doing two things: learning what it is they want the most and giving it to them. The investors can identify what today’s lenders are looking for that stand the best chance at getting the money they need for their next deal. That said, pay special considerations to the steps above, as they offer insight into what the majority of today’s lenders look for in a borrower. Only when you can give a lender what they want will your chances of receiving real estate investment capital increase dramatically.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
 

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2022 Level 4 Funding LLC. All Rights Reserved.
Copyright | Privacy Policy | *Terms & Conditions
          

Different Sources of Capital

Raising capital for real estate can be a challenge for many new investors, but it is necessary for anyone looking to succeed in the industry. The key to learning how to raise capital for real estate is to focus on identifying what today’s lenders covet the most (and give it to them). If you succeed, there’s no reason you shouldn’t be able to raise the real estate investment capital you need for your next deal.
Other People’s Money (OPM) is what makes real estate investing possible for a considerable percentage of aspiring investors.  Even the most successful real estate professionals and legendary investors almost exclusively use OPM to reduce liability and maximize returns. Daniel Chan from Marketplace Fairness suggests “It is important for investors to know how to raise capital in the real estate world because it gives them more options and opportunities to invest in the market. Even if an investor has their own money, knowing how to raise capital can help them get better deals and make more money in the long run”. As you can see, raising capital is critical for investors of every level.
However, both novice and seasoned real estate investors struggle to connect with potential private investors and close the deal. (Or even understanding how capital works with an alternative strategy such as tax lien investing.)
This is a shame, considering there is more real estate investment capital out there than ever before. Remember, private money lenders want to work with you just as much as you want to work with them.  Private lending has never been so attractive or widely accepted, and the benefits for you and your lender are endless.
Raising real estate investment capital is about more than a simple message or conducting a presentation that resonates. It must be more than a pretty website, thousands of inorganic Facebook friends, glossy folders, and a nice suit.
What Is Investment Capital?
Investment capital is the money used to fund a given investment deal. This can include the costs of acquiring a property, initial renovations, and upfront costs. There are generally two types of investment capital: debt and equity. Debt refers to investment capital from hard money lenders, such as banks, and often requires interest payments. An advantage of using debt investment capital is that hard money lenders will not have a say in the company. However, many investors may find it difficult to secure capital with hard money lenders. This is where equity (and OPM come in).
Equity refers to money secured by selling ownership of a property or business. Private money lenders may invest in a company if they see the investment as potentially profitable. Using equity as a form of investment capital has different pros and cons to utilizing debts, so investors must consider both options. For entrepreneurs ready to put the work in, raising private money can offer the chance to pursue various investment opportunities and expand their portfolios.
Top Sources Of Private Money
Private money can be found all over the real estate industry, but it may not be easy to identify if you don’t know what to look for. Here are some of the top sources of private money to be aware of:
  • Business Partner: A common business arrangement is for one partner to manage the heavy lifting in terms of workload, while the other supplies the capital (called a silent partner)
  • Peer-to-Peer Lending: P2P lending is made possible through online lending platforms that partner you with other investors.
  • Crowdfunding: Real estate crowdfunding has become increasingly common over the last several years, and again allows you to utilize an online lending platform to finance investment deals.
  • Family, Friends, or Colleagues: Many private money deals are funded by sources close to the investor, such as a family member with extra capital.
  • Hard Money Lenders: It is also possible to finance a deal with an investor you haven’t worked with before. Ask around your network for trusted lenders to learn more.
What Are Money Partners?
Money partners are anyone you decide to work with to fund a given deal. When it comes to raising capital for real estate, money partners can be beneficial because they can enable investors without significant capital to get started. Money partners can finance a deal, provide advice, and even share a given investment risk depending on the arrangement at hand. Because of this, money partners are often highly sought after in the investment world. However, it is important to note that partnering with other investors is mutually beneficial. Business partners stand to benefit from the success of a good deal just as much as you do, something that is important to keep in mind as you get ready to approach potential lenders.
Money partners exist throughout the real estate industry, though it is important to approach each potential investment carefully. It is not uncommon for even the most seasoned real estate investors to fail to close a deal with private money lenders or money partners. To ensure this does not happen to you, research potential investors you are trying to work with and put in the time and effort to ensure you are prepared every step of the way. If you are interested in learning more about how to find private money lenders or money partners, read this guide.
Uses For Private Money
Those who want to raise capital for real estate most commonly use private money for refinancing a property or buying a new property. For example, suppose you purchased a property using a conventional mortgage but want to want to negotiate for a shorter repayment plan or lower interest rate. In that case, you can use a private money lender to help you refinance.
If you are interested in condos, single-family homes, multifamily homes, or apartments, private money can be used to purchase your new investment property. To get a private money loan for a new investment property, you will have to pitch the potential profitability of the property with reliable numbers and predictions. Raising capital for real estate using private money is typically easier for experienced investors as they have records of successful deals they have made.
How To Raise Capital For Real Estate
Private money lenders will often have their own set of rules and guidelines. While many will exercise similar practices, their borrowers’ criteria are different. I maintain, however, that there are several universal things private money lenders look for.
If borrowers can identify what it is their money partners want, it’s more likely that they will receive the loan. You see, lenders are in the business of making money, too. There are 6 P’s that you can remember when it comes to private money lenders. If you can give them the things I outline below, you could find yourself with the money needed to buy your next deal:
  1. Protect their capital
  2. Promise realistic returns
  3. Prove your potential
  4. Procure a great deal
  5. Provide your track record
  6. Promote relationship building
1. Protect Their Capital
The primary concern investors have is protecting what they’ve loaned out. If they lose that, they won’t be able to profit, which is the whole point. That’s why so many money partners have recently invested in low-yielding real estate-related products and ventures. When contemplating this factor, most look for collateral and how easy it will be to get their money back in the worst-case scenario. So be ready to answer these questions and have a plan B in your back pocket. It should go without saying, but the best way to work with a private money lender and raise the real estate investment capital you need for your next deal is to convince them that it’s worth their time.
2. Promise Realistic Returns
Where most real estate investors go wrong when trying to raise capital is promising huge returns. If you sound overconfident, your presentation will automatically appear to be a “high-risk investment” or “scam,” which is certainly not the message you want to send.  You will have to be above average market rates – of course – but don’t project too high.  The last thing you want to do is overpromise and under-deliver.  Even if you think your goals are possible to achieve, start by underestimating and then deliver more later, which will create a sense of loyalty and reliability between you and your first line of money partners. If you tell them they will receive an ROI of 8 percent, and they actually make 14 percent after all is said and done, you can bet they’ll put you at the front of the line in their contact database and beg you to take their money for your next deal.
3. Prove Your Potential
On the other hand, you need to make your investment sound appealing.  Savvy investors with bigger pockets and heavy-weight venture capital firms are, of course, intrigued by the promise of big wins. So, while keeping projections conservative, don’t be afraid to hint at the full upside potential – those big numbers you are hoping you’ll really hit.
4. Procure A Great Deal
Everyone wants a “deal.” There are two reasons for this. The first is that it is simply human nature. If someone thinks they are getting a good deal on a product, it automatically gives the impression of value.  The second is that these individuals and money managers want to look smart and feel like they are making a sound investment. They all have someone they need to impress. It could be their boss, co-worker, spouse, competitor, or even themselves.  Regardless of who, your potential money partner will want to be able to boast about how intelligent they were to discover this high-yielding or trendy investment before everyone else. Help them out.
5. Provide Your Track Record
Of course, most investors expect to see a proven track record. They want to know that you can deliver on your plans. If you don’t have direct experience in real estate investing, what other relevant experience do you have or who else can you partner with?  Have your portfolio ready to go with your successes on top.  You’ve got to have the numbers to prove yourself.
6. Promote Relationship Building
Surprisingly – or perhaps not so surprising – having a personal relationship between both investing parties trumps the rest of the qualifications.  So how can you build more authentic relationships or find like-minded individuals – whom you might already know – that might want to work with you? This is one of the most important habits to acquire as a real estate investor. Try attending a local networking event to get your face out there.  Building and maintaining relationships is necessary if you want to discover a potential money partner and achieve success.
5 Tips For Raising Private Real Estate Capital
The best advice for raising private capital in real estate will vary depending on who you ask. This is because over time, investors find the way of doing things that work best for their real estate businesses. However, this is not helpful to newbies. What I can say is that it takes time to develop a surefire system for raising private capital. In the meantime, —here are some tips to help you get started:
  1. Use Your Own Money First: Before you start fundraising a new project, assess how much capital of your own you can rely on. Not only will this help you frame the budget for the project, but it will also lower the amount of cash you are paying interest on should you find a private lender. To increase your personal capital, consider redoing your monthly budget and reducing expenses for a while; you may even be eligible for a home equity loan.
  2. Attention To Detail: The details included in your portfolio are going to make or break your pitch to private money lenders. Ensure you have an accurate purchase price, property value, rehab cost, and rental value wherever it applies to you. If this is your first investment deal, make sure the figures and estimates in your deal analyzer are as accurate as possible. Strong attention to detail could mean the difference between choosing a potential investment and securing enough financing.
  3. Showcase Your Success: When you complete a successful real estate deal, don’t be modest! Share the good news with your network, website, and social media following. Investors can and should showcase their successes (or wins) as they come along. This can help establish your credibility over time in the real estate industry when done right.
  4. Build Relationships: Networking is not as simple as exchanging business cards, and you shouldn’t want it to be. If you want to have a successful career in real estate, building relationships across the industry is critical. Keep up with your connections, celebrate their successes, and check-in from time to time. Building genuine relationships will help your career more than you can imagine.
  5. Educate Others: Sometimes, you may encounter potential lenders who are mostly unaware of the intricacies of a real estate deal or the dynamics of private lending. That’s okay; it could be the perfect opportunity to educate someone else about what you do. As you build relationships with other real estate professionals, have conversations about lending and acquiring deals, share the resources you find helpful, and put people in contact with one another when fitting. This will help you build relationships (as I mentioned above) and potentially introduce investors to a mutually beneficial real estate aspect.
Raising Capital For Residential Vs. Commercial
When comparing residential and commercial deals, financing is going to look very different. Residential properties almost always cost less than commercial properties, and investors need to secure less funding overall. It can take a shorter amount of time to raise the capital necessary for a residential deal. Commercial deals, on the other hand, require much more capital but come with higher profit margins. For this reason, some investors may find it easier to secure commercial properties. Overall, it comes down to your network and preferred lenders. Raising capital for residential vs commercial properties requires an understanding of the different income projections.
Continue Learning How To Raise Capital For Real Estate
Raising capital for real estate has become one of the most discussed topics associated with real estate investing. If for nothing else, it’s the one concept anyone could stand to improve on, there’s never too much funding. As a result, there are volumes written on the subject of raising capital for real estate, and perhaps even more knowledgeable people talking about their own strategies just about anywhere someone is willing to listen. Truth be told, it’s not hard to find someone willing to offer their own opinion on raising capital for real estate investments; the hard part comes in distinguishing between those who are truly knowledgeable and those who are, for lack of a better word, ignorant.
It should go without saying, but incorrect information can be damaging to one’s career. Therefore, it’s important to gather information from trusted sources, not the least of which include:
  • Books: To this day, books represent one of the greatest ways to filter through the volumes of information made available to investors. However, the number of books one can find on raising capital for real estate can be staggering. Instead of sifting through everything, and risking learning from someone that may not know what they are talking about, save yourself some time and consult “The Real Estate Wholesaling Bible,” by my friend and business partner Than Merrill. As the name suggests, aspiring investors will learn how to wholesale real estate, but a large portion of the book deals with raising capital and funding. As a compliment, my own book, “The Real Estate Rehab Investing Bible,” will teach readers the importance of raising capital for real estate and the best ways of going about doing so.
  • Podcasts: Relatively new to their written counterparts, podcasts are not to be underestimated. Oftentimes free, these downloadable audio files are filled with information from today’s top minds in the real estate industry. Get Wealthfit, for example, is a compilation of podcasts by investors who have been exactly where many aspiring investors hope to be one day. Get Wealthfit covers everything from money management to marketing strategies and everything in between.
  • Blogs: Not unlike books, blogs offer knowledgeable individuals the ability to share their knowledge with the masses. Only, instead of releasing once every year or so, writers can publish blog content daily. 
Summary
Raising capital for real estate doesn’t need to be nearly as hard as many make it out to be. For those learning how to raise capital for real estate, remember, working with money partners is as simple as doing two things: learning what it is they want the most and giving it to them. The investors can identify what today’s lenders are looking for that stand the best chance at getting the money they need for their next deal. That said, pay special considerations to the steps above, as they offer insight into what the majority of today’s lenders look for in a borrower. Only when you can give a lender what they want will your chances of receiving real estate investment capital increase dramatically.
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701

Equal Housing Opportunity. This is not a Good Faith Estimate and this is not a Guarantee to lend and should not be considered as such. Costs, rates, estimates and terms can only be determined after completion of a full application. Actual payments will vary based on your individual situation and current rates. APR for loans vary from 7.99 – 29.5% and is based on Credit Score, Down Payment, LTV, Income. Mortgage rates could change daily. To get more accurate and personalized results, please call 623 582 4444 to talk to one of our licensed mortgage experts. Terms and conditions of all loan programs are subject to change without notice. Level 4 Funding LLC, 22601 N 19th Ave Suite 112, Phoenix AZ 85027, 623-582-4444 NMLS 1018071 AZMB 0923961 This e-mail is for the exclusive use of the intended recipients, and may contain privileged and confidential information. If you are not an intended recipient, please notify the sender, delete the e-mail from your computer and do not copy or disclose it to anyone else. Your receipt of this message is not intended to waive any applicable privilege. Neither this e-mail nor any attachment’s establish a client relationship, constitute an electronic signature or provide consent to contract electronically, unless expressly so stated by Dennis Dahlberg RI/CEO, Level 4 Funding LLC, in the body of this e-mail or an attachment. To the extent this message includes any tax or legal advice this message is not intended or written by the sender to be used, and cannot be used, for legal or tax purposes or advice.
 

About the Author: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2022 Level 4 Funding LLC. All Rights Reserved.
Copyright | Privacy Policy | *Terms & Conditions
          

4 Warning Signs of a Bad Wholesale Deal

Wholesaling is among the most popular exit strategies for entering the competitive world of real estate. With minimal capital and no experience, wholesaling offers new investors the quickest method for generating a healthy income in real estate. However, not all wholesale deals are created equal. Truth be told, some deals are not worth your time, or your money, and you need to be able to recognize them before you make your next move. To identify a good wholesale deal, it is important to understand the fundamentals of what real estate wholesale is.

Wholesaling is the act of buying a property, marketing it to a potential buyer, and then selling or assigning the contract to a buyer. Often, the wholesaler will never actually purchase the property but instead sell the home before the contract with the original seller closes. To gain a better understanding of real estate wholesale, and distinguish the difference between a good and bad deal, here are four warning signs of a bad wholesale deal.

4 Warning Signs Spotting – A Bad Wholesale Deal

No Seller Motivation

The earliest sign of a bad wholesale deal is a distinct lack of motivation on behalf of the seller. As a foreshadowing of things to come, lack of motivation from the seller will hinder almost any deal — no matter how profitable it may be — and should be eliminated during the early stages of property analysis. Asking the following questions will assist in determining a seller’s motivation:

What is your reason for wanting to sell currently?

How quickly are you looking to sell the property?

What is your ideal closing date?

What are your plans if the property does not sell?

If the seller is not motivated, and the property does not appear to have a significantly higher after repair value (ARV) compared to the price, it may not be a good deal. However, a last-ditch effort may be to make a very low ball offer over the phone to ensure you didn’t miss something.

General Property Information Does Not Match

Most bad wholesale deals can be eliminated by simply minding your due diligence. The first step in evaluating a good wholesale deal is to gather the critical information about the property, including the seller’s situation, which can usually be found from either the seller, agent, or a third party. It is important to know the status of a property and whether it’s owner-occupied, vacant or a rental, as this will provide insight and better information on the seller’s motivation to sell.

Owner-occupied: This is when the seller is currently living in the property. Not only will they have a stronger emotional attachment to the home but arranging buyer showings will be much more difficult.

Vacant: A vacant property is ideal for wholesalers for two reasons: for one, there is no one living in the property so it’s much easier to schedule buyer showings and two, this could be a sign of distress depending on the seller’s situation which means more motivation to sell.

Rental: It is important to gather as much information as possible on rental properties. You should educate yourself on the number of tenants, their rents, and lease terms for a potential property because the buyer will essentially inherit them.

To ensure information is correct, it’s important to obtain its property card. As the city’s record of information about a property, including ownership and all of its improvements, a property card will ensure there aren’t any discrepancies between what the agent or seller has told you.  

No Equity/Not Enough Upside

The magic word when locating a wholesale deal is equity and securing this information beforehand will make it much easier to decide if you want to make the seller an offer. If there is little or no equity and the seller is current on his mortgage, there will not be much you can do with this deal. To make a profitable deal that is worth your time, it is crucial you consider the following:

What does the seller currently owe in total against the property?

Does that include all liens and mortgages?

Is the seller current on payments? If not, how many months behind?

If there is little or no equity and the seller is behind payments, then the only way for you to create equity is to negotiate a short sale with the bank. Remember that when wholesaling there needs to be enough upside for you to not only get the property at your price point, but also getting an investor to see the value.

ARV (After Repair Value) Is not High Enough

Valuing real estate accurately is a major cornerstone of success for any wholesaler. It is also a make-it-or-break-it moment for wholesale deals.

When assessing the ARV (After Repair Value) of a potential wholesale property, it is important to use a sales comparison approach–the litmus test to figuring out if a deal has potential. This approach will directly compare the potential property against three or four recent sales of similar properties, as well as comparing common significant property variables that warrant price adjustments. For wholesalers, using the 70 percent of ARV rule is a great formula to measure profit margins when purchasing distressed real estate, as it will calculate the maximum you can pay for a given property.

Remember, you are ultimately trying to determine what the subject property will be worth once it is fixed up. This is quite different from trying to appraise the property in its “as-is” condition. As a wholesaler, you must show a rehabber that he or she can make a profit from the transaction by adding value to the property.

To locate data on comparable properties, there are a slew of paid and free services such as Redfin and Zillow, as well as the Multiple Listing Service (MLS) for more detailed information. It is also important to speak with a local real estate agent or expert in the area, as they are best at determining an accurate after repair value. To gauge the ARV of a property accurately, relying solely on online tools and websites is not recommended. Instead, a combination of online resources and due diligence is preferable and will ultimately provide the most comprehensive insight.

At the end of the day, wholesaling is not a get-rich-quick business but rather an entrepreneurial path to achieving financial freedom. With some hard work, planning, time, energy, and resources, you too can find the right wholesale deal to get started wholesaling.

Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel:  (623) 582-4444
Texas Tel:      (512) 516-1177
Dennis@level4funding.com
Dennis Dahlberg Broker/RI/CEO

NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About:  Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
© 2019 Level 4 Funding LLC. All Rights Reserved.

Copyright | Privacy Policy | *Terms & Conditions

Are you interested in Trust Deed Investing?

Trust deed investments can be incredibly successful. But there is a lot to learn and much to know about them. Learn more about the pros and cons that come with Trust deed investing.

Trust deed investments are incredibly appealing due to the fact that most investors make an average of 20-50% profit annually. However, trust deed investing are not for everyone and every situation. Very often people suffer substantial losses because of poor decisions, or just bad luck. There is usually a specific kind of person that has what it takes to make a large profit.
Becoming one of those who succeed in Trust deed investing takes certain skills as well as personal qualities. There are some things that can help you as you being the process.
1. It is important that you take an active role in your Trust deed investing. It may sound obvious, but take the time to investigate the property yourself. Know what you are looking at, which may mean some earlier research, but will be worth it in the long run if you can identify what will be incredibly counter-productive cost wise, and what will be a quick easy fix. Also be sure to educate yourself on the location. Some areas may seem like a good spot, but careful research is also necessary. Sometimes construction work is planned around the area that may lower the value. A good rule of thumb is to avoid houses that are considerably more appealing, or less appealing, than the surrounding properties in the area. Be on site, talk to people, and be active in your research. That knowledge will pay off!
2. Along with having on site knowledge of your potential investment, it is vital that you have the knowledge of a good realtor. Having a thorough understanding of the market is key to being successful. Commercial, office, and residential markets vary from each other so knowing about one will not necessarily give you the answer that you need concerning another. The different stages of growth and decline in the market will also have a bearing on your decision. And it is not just the current market that you should concern yourself with. The future markets are also key in your success with Trust deed investing.
3. While it is important to know much of this yourself, it is sometimes necessary to seek outside help and advice. There are good people who are good at their jobs, and it would be senseless to pass on their knowledge. Trust deed investing take a lot of work and a lot of planning in various stages. Delegating some of the details to those who have extensive history in that area is very wise. That does not excuse you from taking an active part in the process, it just limits much of the runaround and expedites matters.

What are the risks of Trust deed investing?

There are many risks if you choose to pursue Trust deed investing. A very big one is that this is not a liquid investment. That means that you cannot cash this in for immediate capitol like you would be able to with a government bond or shares in a company. No, this is one investment that you have to ride it through. You will have to wait until the borrower pays of the loan, or in the event such as a foreclosure, sold the property.
Another risk comes with the legal side of things. If there is any error in the documentation or due diligence of the trust deed investing papers, than there is the potential for great risk. You may face litigation or title disputes which may force you into court. Such legal matters are expensive, but they would be necessary to protect your investment. A lot of people are involved with trust deed investments, and if one or more of them are not trustworthy, you could have a potential loss on your hands.
One of the most likely risks is that the borrower defaults on the loan. Then it will be up to the investor to sell the property. Best case scenario is that the amount of the loan will be recovered, but oftentimes, there will be a loss.
How can I decide if this is for me? Do the risks outweigh the profit opportunity in Trust deed investing?
There are a lot of risks involved in Trust deed investing. They take a lot of time and knowledge and hard work to be successful. But the potential profit is very alluring. Be sure to take the time to fully understand what you are getting into, find good solid people who have a knowledge of the business, and you will have the opportunity to make a lot of money! If all of this sounds like something you can do, than Trust deed investing may just be for you

What do I need to do before I begin Trust deed investing?

Trust deed investments can be profitable for those who have the know-how and money to begin. But there is much you should know before you decide if they are right for you. Below are some of the things you should consider before trust deed investing?
Most people are very interested in Real estate trust deed investing because those who are successful can make an average of 20% profit annually. But like every other investment, it may not be for you. There are some things that you should be aware of before you begin in order to avoid large losses. While some losses are due to bad luck, a lot of the loss is a result from poor decisions. To be sure that you are successful in your investment, pay attention to following tips and tricks.
1. Many problems in Trust deed investing is that many people do not take as active a role in the early stages as they should. Be sure to inspect the property yourself. Research the favorable parts of real estate you should be looking for, and know what may be problematic down the road. This research may take some time, but if you can identify whether the property has the potential to make a profit you will be starting out way ahead of the game. Investigate the area as well. Location is key in reselling property. Talk to those in the neighborhood and research any potential construction going on the area. The answers can make or break your project. Another good piece of advice is to avoid properties that are more or less value than the surrounding properties. Taking an active role will highly increase your chances of success.
2. A knowledge of the property and its location will be useless unless you have the information that any good realtor would know. To be successful at trust deed investing you should learn as much as you can about the market in your area. You should also look at the markets in your certain area of investment. Commercial, office, and residential markets have such a different market that knowing about one will not necessarily help you with another. Because the borrower may be hoping to sell in the future, it will help if you can look ahead and make as best a prediction you can on what your profit will be in future markets. There are different stages of growth and decline in real estate markets. It is helpful to know when to buy and at what stage.
3. It is necessary to know most of this yourself. However, it is very often important that you seek those professionals who have made this their living. They have a lot of information and often will know what questions to ask, things that you may have never even thought of. To be a success at real estate trust deed investing you will have to learn how to delegate. With a large sum of money, you will want to be sure that you are delegating to the right people, but there are many out there that can be a major asset in this type of investment. You will still need to be involved, but you will not have to worry over as many of the details. And with Trust Deed Investing, there are many.

Are there any risks with Trust Deed Investing?

There is no such thing as a sure thing, and that is especially true with Trust Deed Investing. One such risk is that this is not a liquid investment. You will not be able to cash it in quickly for ready capitol like you may with some government bonds or shares. The money is tied up in someone else and you will have to wait until the loan is paid back. So until the borrower pays off the loan, or if there is a foreclosure, until the property is sold.
There are also a lot of risks on the legal side. With so much important paperwork, there is sometimes a risk that there may be an error in the documentation or in the due diligence side of the Trust Deed Investing papers. This may lead to litigation or title disputes that will have to be settled in court. These legal problems may escalate, making it very expensive in the long run, but you will have to do what you can to protect your investment. It is incredibly important that you have people working with you that you can trust. It also helps to go over the paperwork many times to make sure every detail is correct before you finalize.
The biggest risk, of course, in providing a loan, is that borrower will default. It will then be up to the investor to handle the property. You will have to oversee the sell, and hoe that the market is good enough to sell quick and fast so that you can make a profit.
How can I make good decisions regarding Trust Deed Investing? Is it worth it for me to do this type of investment?
While there are a lot of risks that you need to be aware of in Trust Deed Investing, there is also a potential for a good return on your investment. It is wise to proceed with caution, but the chance for a profit is alluring!

What do I need to know about Trust Deed Investing?

I have heard a lot of promising things about Trust Deed Investing, but I am worried about a lot of the potential pit falls associated with them. How do you make money by investing in trust deeds?

Trust Deed Investing does have many certain alluring qualities. For those that have a firm grasp on what they are doing, Trust Deed Investing can make a very sizable return on your investment. Like most things, it is important to understand exactly how it works to become successful. Let me outline some of the major points of Trust Deed Investing so that you can decide for yourself if it is for you.
First of all, it is vital that you understand what a deed of trust is. A deed of trust is a real estate transaction that is used in some states use instead of mortgages. This involves three different parties. They consist of a lender, a borrower, and a trustee. As you would expect, the lender gives the borrower money. In exchange the borrower gives the lender promissory notes, or a signed document that promises to pay a certain amount by a certain date. The borrower will also transfer real property to a third-party trustee. If the borrower does not pay the loan and defaults, the trustee can then take control of the property.
Most of the time, the trustee is a title company. There are two ways this is handled, dependent upon the state that you live in. One way is to actually transfer the legal title to the trustee. Another way is where the trustee has only a lien on the property. Trust deeds usually come with a “power-of-sale” clause. This allows the trustee to sell the property without having to get a court order. By doing this, those who are interested in Trust Deed Investing secure their investment.

How exactly does Trust Deed Investing work?

With an understanding of the basics provided above, it is easier to understand the entire picture of Trust Deed Investing. To state is simply, it is investing in loans that are secured by real estate. You will find that most trust deeds are relatively short term loans. These generally mature less than five year, but many loans are two years or even less than that. Professional real estate investors are taking advantage of the current economic climate. They are buying properties at the low foreclosure prices and then fixing them up and selling them for a sizable profit. The real estate professionals do have their work cut out for them though. They must have a sound understanding of the market and climate, as well as make good decisions regarding the property after its purchase. They also need the startup capital to purchase in the first place. Because the homes are generally already foreclosed, and many times are not “move-in ready” along with the risk factors of selling it in the future, banks are unlikely to lend. That is where the trust deed investor comes in. They lend to the borrower, charging high interest rates because essentially the borrower has nowhere else to go, but also because they are expecting a high return of 20-50% so they believe they can afford it. The investor makes money through the monthly payments on the initial capital as well as the interest rates until the loan is paid off.
While I understand that all investments come with risks, I want to be fairly safe in a solid investment. Is Trust Deed Investing for me? Do the risks outweigh the benefits?
While most Trust Deed Investing opportunities are successful in receiving a profit, they can be risky. There are definitely some questions that you will need to ask yourself. Be sure that you are comfortable with the people you are working with. Do you know if the borrower has had prior experience? And what about his cash reserves? Can he/she handle the property and pay back the loan? And as mentioned before, this property will be yours if the borrower defaults on the loan. Be sure that you are comfortable owning such a piece of property. Not necessarily for yourself to live in but as a rental or with the potential to sell. Are you satisfied with the value of the property? Do you think that location has the potential to become a profitable spot? And this is not an investment that you can quickly get capital from. Unlike stocks or bonds, you cannot cash it in quickly. If you are comfortable with having that much money tied up for the long haul, then Trust Deed Investing can be a good bet.
Also, take the time to talk to professionals at all stages of this process to decide how to proceed, and when. You can benefit from their expertise and advice. This is a pretty elaborate process and lots of collaboration is needed. Take advantage of their knowledge and get started with Trust Deed Investing!

What should I know about Investing in deeds of trust?

What are the risks that come with investing in trust deeds? What are some of the things that I need to research before I get started? Why is this a moneymaker?

Investing in deeds of trust is a very lucrative field. If you play the cards right, it may be possible to make a lot of money! But to do that, you need to be able to understand some of the risks, as well as the ins and outs of trust deeds. While the chances for a good return are often so exciting, it is very important that you also familiarize yourself with what could go wrong, or what the risks are with this type of investment. Below are some of the most common risks with Investing in deeds of trust.
1. Like almost every other investment out there, investing in deeds of trust is not a stable game. You will find that you are subject to fluctuating market conditions and real estate values. There will be times when this will be a great benefit to your investment. But, of course, the contrary is also true. The future marketing conditions and real estate values are vital in your success. But these are also very hard to predict, even for the most expert.
2. All investors are feeling the effects of the recession. The feeling of the public is still fairly hesitant. While things are starting to pick up, there is still some problems with the economy that are going to affect your trust deed investment. However, most trust deed investors can also benefit from this exact thing! It is because of the foreclosures and the unwillingness of the banks to loan that created the market of investing in deeds of trust in the first place!
3. You are also going to be dealing with incredibly variable interest rates. This usually comes with the real estate territory anyway, but especially so for those who choose to begin investing in deeds of trust.
4. Bankruptcy is a big concern as well. If your borrower files for bankruptcy you will be in a very shaky position. To avoid this, be sure that you make sure all the paperwork is in order. Most trust deed investors have the title to the property so that if there is any problem with payments, your investment will still be protected. You will have to deal with the property on your own if this happens. Make sure that even before you begin that you feel that this is a property worth having and that you can do something with it, whether that be renting or selling.
5. Besides business disasters you may also encounter other concerns from nature. Natural disasters and environmental concerns are also hard to predict, thus the risk. But you can mitigate the risk by choosing a house in a safe location. Avoid locations such as hurricane zones, earthquake prone areas, and overdevelopment on hills that may be prone to landslides. While you can never out predict Mother Nature, it is possible to even the odds a little bit.

What should I research before I start investing in deeds of trust?

It is very helpful to be familiar with some of the terminology and steps that are associated with investing in deeds of trust. You should understand market value, the equity in the property, and the security of the loan. You are dealing with these things throughout the whole process, so a thorough knowledge is key. Also, it is vital that you take time to research the borrower. Check their financial standing and credit. Do not forget to do the same with the Mortgage Loan Broker. You want to know how much knowledge, experience and integrity they have before going into a business transactions with them. Know about the escrow process from the funding of the loan or purchasing notes. It may help to have someone you trust go through the documents that describe, evidence, and secure the loan. Also, before you even start, it would be helpful to know what to do if the borrower fails to pay. Have a plan in place, and know what your next step would be.

What are the profits that come with investing in deeds of trust?
How can I benefit from this kind of investment? What will my return be?

We talked a lot about the risks, but let me tell you about the attractive side of investing in deeds of trust! If done properly, most trust deed investments have a pretty appealing yield with mostly low risk. Those that choose to begin investing in deeds of trust usually receive high single digit annual returns that are paid by the month. Some investors even receive over 10%! The amount you receive is much more favorable than other options with similar risks.
Even when you consider all the risks, there is something that you can do to mitigate them, making investing in deeds of trust a pretty sound option with the chance of high rates of return!

How to Make Money by Investing in Deeds of Trust

There is a lot of noise about investing in deeds of trust right now. How does it work? How can you make a profit with this kind of investment?

There are a lot of options out there when it comes to investing your money. It can be hard to know what a good option is for you, and what can give you the best return possible for your money. Especially with the recent struggles of the economy, most people are hesitant to try to invest money without a thorough understanding of how they can get it all back, with a sizable return. Here is an outline of how most people investing in deeds of trust are making money right now.
Let me break it down to the very basics for you. When you are investing in deeds of trust you are essentially becoming the lender. You will become the bank for someone else (the borrower). A bank will take your money through deposits and give you a certain percentage of interest when you keep it in the account (usually a savings account). Then they lend it out to others at a much higher rate of interest, thereby giving them a sizable profit margin. They will also secure these loans by having promissory note that is secured by a recorded Deed of Trust. By doing this, they are not risking their money in a situation like the stock market because they will gain the property recorded in the deed of trust if there is a default on the loan.
This is exactly what you will be doing. But instead of using other peoples deposited money you will be putting up your own. But you will also have a higher rate of interest you can make back because you will not be paying your customers their rightful share of interest, and you can generally charge a higher rate anyway.

Do people actually need to borrow from those looking to begin investing in deeds of trust?

While investing in deeds of trust is a good choice, now is an especially attractive time to do so. The current market is making it harder for most people to get loans. Because of the restrictions by lending banks, more people are looking for lenders. And a lot of these people are not as high risk as you would suspect, just restricted by the low amount of loans that banks are lending. Often, the interest rates are even better than what the banks are offering.
Most of the people who are borrowing from trust deed investors are experienced businesses or people that purchase properties that are selling at a very low price (often foreclosures) with the intent to fix them up and then resell them for a profit or to rent to people. Their success lies in buying them at a very low discount, fixing them up quickly and then selling them fast by implementing a smart marketing program. This usually happens in the period of 6 to 8 months, or a few years. The quicker they sell, the more money they make. Because most banks are reluctant to lend to those that will be purchasing a non-occupied dwelling, these people look to those that are interested in investing in deeds of trust to help them out. They also have the advantage of quickly receiving their money and finishing paperwork, unlike some banks that may take 45-90 days.

What are the steps I need to take to begin investing in deeds of trust? What can I do now to start the path to making money on this investment?

To begin with, you should learn all that you can about investing in deeds of trust. Familiarize yourself with the jargon, the people, and the properties. Find out as much as you can about the people and properties you may be working with. Many times you will go through a trustee that will have available properties along with details on each one. Decide which ones you may be interested in investing with. Read all the necessary forms, then sign and return them. These will be the investor forms and agreement. You should also request a due diligence package that will usually contain a certified appraisal so that you can inspect your trust deed investment. Then you will take the plunge by signing the right forms and sending wire funds to escrow. You will then receive the loan package and the interest will begin to accrue. Congratulations, you are now making money! The borrower will then begin to pay the amount that was put into the promissory notes and you will being to make a return on your investment.
There is a lot that goes into investing in deeds of trust, but you may find that this kind of investment is that best place for your money in this market.

How Can I Make Money by Investing in Deeds of Trust?

Right now there are a lot of interesting thing being said about investing of deeds of trust. How can I make a profit?

We all want to make the right kind of choices with our money. Sometimes it is hard to know what can be the best option for your money and how you can best make a profit. With the struggling economy, it is more important than ever to thoroughly research your options. Many experts think that trust deed investment company is a great way to make the invested money back, along with a good amount of return. You will want to understand how most people are making money by investing in deeds of trust.
The process of making money by investing in deeds of trust you is becoming the bank. You are just the bank for someone else. The bank makes money by using the money its customers puts in savings and then lends it out in loans to other customers. They have to pay a small amount of interest to the customers but they get a larger amount of interest from the loans. As a trust deed investor you will be doing the same thing but without having to pay out interest. You will just make money! Like banks however, you will secure your loan with a promissory note secured by a recorded Deed of Trust. When they do this, they have a limited risk because they will get the property on the note is they are not paid. You will also have the same limited risk. This is exactly what you will be doing with a little more risk, but a chance of a higher profit. Instead of using other people’s money you will be loaning out your own. All the money comes to you, instead of the bank, and minus the small amount of interest paid on the deposited money.

What do I need to get started investing in deeds of trust?

There are some restrictions in some states on how investing in deeds of trust can work for an individual. For example, in California, no one trust deed can be worth more than 10% of your net worth. So you cannot have more than 10% of your total net worth invested in trust deeds.
How much money you will make per year depends on the length of the individual investment. Some investments last for only three months and some will last for several years, depending on what you choose to pursue and someone interested in investing in deeds of trust.
What are some of the risks? What do I need to be aware of before I begin investing in deeds of trust?
There are some risks, but if you are aware of them you can make a plan to lower some of the risks. Here are a few of the biggest risks that come with investing in deeds of trust.

  1. Investing in deeds of trust can be an unstable investment. It will be impacted by the fluctuating market conditions. Real estate values will most likely go up and down. There will be times when it will help you, but there will be other times when it may hurt your profit margin. And you will need to realize that not only the present market, but the future one may affect your investment as well. These can be difficult to predict, even for the most knowledgeable.
  2. You will also find that many people are hesitant to purchase. The problems with the current economy are going to impact your profit margin. However, most trust deed investors can certainly benefit from this current market trend! It is because of the poor economy and the resulting foreclosures that make the amount of money you can make possible. Because the banks are unwilling to loan, you can charge higher interest rates.
  3. Bankruptcy is also a big concern. If your borrower files for bankruptcy your investment will be a big problem. It is very important to be sure that all the paperwork is in order. Make sure you have the title to the property they have borrowed on so that if there is any kind of problem with payments, your investment will still be protected. This is a good choice for all interested in Trust Deed investments San Diego.
  4. Natural disasters and environmental concerns can be a danger to your property investment. Avoid known locations for natural disasters like hurricane zones, earthquake areas, tornado ridden counties, and overdevelopment on hills that may lead to a landslide. To help mitigate any problems with Mother Nature, invest in some home insurance to take the edge off should something happen.

Trust Deed Investments San Diego can be a good opportunity, and as long as you make a plan to avoid these risks, you can make a lot of money.

What you need to know before Investing in Trust Deeds

Before you begin Investing in Trust Deeds, there are some things that you will want to know. Deeds of trust are a different kind of investment than stocks or bonds, so you will want to familiarize yourself with the different terms and practices that make up First Trust Deed Investing. Below are some important things for you to know before you begin.
In most cases, trust deed investmentsinvolve purchasing existing fund loans or promissory notes. Then you become the person the borrower pays the remaining amount to, plus the interest. Sometimes it is not an existing loan, but a new one that goes between you and the borrower. In either case, you will be given the deed of trust against real property in order to secure your investment. If the borrower is unable to make the payments, then the property becomes yours.
But what exactly is a promissory note? This is crucial information, as it is a big part in Investing in Trust Deed. A promissory note is really a contract, or a written promise, that states that they will pay a certain amount of money by a certain time. It may state the number of installments, as well as the payment of interest. The person receiving the loan will legally become obligated to pay the debt when they sign the note. Along with the amount of the loan, the interest rate, number of payment installments, and when it must be paid by, it also states any penalties for late payments.
You obtain a promissory note by either purchasing the note or lending to a borrower. If you are doing this privately, without the use of a real estate broker, you will most likely be subject to an “interest rate ceiling” that is determined by whatever state you are doing business in. If you are charging over the amount of the ceiling, then you would be guilty of “usury.” It is often helpful to use a mortgage loan broker to assist you in following the laws while still receiving a fair profit on your investment.

How can I safely begin Investing in Trust Deeds?

Because you are investing in trust deeds privately, and therefore do not have all the resources that a bank does, you will surely have to take some precautions. You will secure your investment by a deed of trust that is recorded against the property title of the borrower’s property. Because you are a private institution and you are unable to be insured by the FDIC. That is more risk to you. However, if the borrower could go through the bank, you would be unable to invest in this kind of opportunity. That is why you have the title. It is in some ways the insurance on your investment.
Along with the deed of trust, you may consider actual insurance. Home insurance will protect your investment from natural disasters. These are hard to predict, but such a step will save you a lot of money in the long run, if such a disaster took place.

What else should I be doing as I prepare to begin Investing in trust deeds? How can I get ready and give myself the best chance of being successful?

You will find that knowing a lot of the real estate jargon will be very helpful as you begin investing in trust deeds. Along with that, an understanding of how the market works, what the projections are like, and other investment terms will help considerably. Learn to understand market values, what the equity in the property is, and what the security of the loan is.
You will also want to be sure of the borrower. Take time to research what their financial standing and credit is, along with their character and integrity. You will be involved with them for quite some time, so make sure that the business relationship will work. You will want to do the same with the mortgage loan broker. These people are also what you are investing in and if you feel uncomfortable, it’s better to stop before you even begin. Many investing in trust deeds end up going to court because of problems with the relationship. And have a backup plan. What will you do if the borrower falls through on payments? How will you handle late payments? Most of that should be decided in the beginning and on the promissory note, but it is good to know in advance.
Like any investment, investing in trust deeds does have some risk, but you may also find it to be very rewarding. You may find that the risk is very much worth it as you begin to make a profit. Just be wise, do your research, and find honorable people to do business with and this may be the most rewarding investment you have ever made.

What do I need to know about Investing in Trust deeds?

I have heard that investing in trust deeds can be a lucrative field, but I am hesitant to invest in anything without knowing more about it. How can I make money by investing in trust deeds?

Investing in trust deeds is a good option for a lot of people. If you have a sound knowledge of the field, investing in trust deeds can certainly make you richer by making a good return on your investment. But if you go into without research and a firm grasp of the concepts and terms involved with deeds of trust you may be at risk for some losses. There are some things you will need to know before you begin.
First, you should know what exactly a deed of trust is. A trust deed is basically a real estate transaction that many states use instead of a mortgage. These transactions are usually made up of three different parties: a lender, a borrower, and a trustee. The lender lends to the borrower and the borrower gives the lender a promissory note. A promissory note is a signed document that states information crucial for the transaction like how much they are borrowing, a payment plan and interest rates, etc. The borrower will also transfer property deeds to a trustworthy trustee. If the loan defaults, the trustee will take control of the property.
Usually, the trustee will be a title company. Sometimes there is an actual transfer of the legal title to the trustee, but in some cases they only have a lien on the property. This usually depends on what state you live in. In most cases, there will be a power of sale clause that allows the trustee to sell the property without having to get a court order. By doing this, those who are investing in trust deeds San Diego can insure their investment.

What are the risks that occur when investing in trust deeds?

While investing in trust deeds can be very profitable, there are some certain risks that you should also be aware of. But there are also some ways that you can mitigate the risks so that you can plan for the best possible outcome. Planning for what can go wrong is not pessimistic, it is a smart move. You can then plan to succeed!
5. Investing in trust deeds is not a sure thing kind of game. Your investment will be impacted by the fluctuating marker conditions. Real estate values may go up and down. Sometimes this will help your investment, but of course the opposite can happen as well. Not only the present market, but the future one can affect your investment as well. These can be difficult to predict, even for the most knowledgeable.
6. You will also find that many people are hesitant to purchase while still feeling the heat of the recession. Some things are picking up but the problems with the current economy are going to impact your profit margin. However, most trust deed investors can certainly benefit from this current market trend! It is because of the poor economy and the resulting foreclosures along with the unwillingness of the banks to loan that has produced the market of investing in trust deeds!
7. Bankruptcy can also be a concern. If your borrower chooses to file for bankruptcy your investment will be seriously compromised. It is very important to be sure that all the paperwork is in order. As most other who are investing in trust deeds will do, make sure you have the title to the property they have borrowed on so that if there is a problem with any payments, your investment will still be protected. You will have to sell or rent the property yourself, so before you even start investing in trust deeds, make sure that it is a property you feel comfortable dealing with on your own.
8. Besides business disasters you may also find your investment being pounded by natural disasters. Natural disasters and environmental concerns are hard to stop, and even harder to predict. Avoid known locations for natural disaster like hurricane zones, earthquake areas, tornado ridden counties, and overdevelopment on hills that may lead to a landslide. Also invest in some home insurance to take the edge off should something happen.
Is it worth investing in trust deeds if there are so many risks? Can I make this work when so many things can go wrong?
Investing in trust deeds can be very lucrative. As stated above, there are certainly things you can do to prevent most losses on your investment. But every investment comes with risk. As long as you research, mitigate any potential risk that you possibly can and have the help of good people you can make a solid return on your investment.

How can I begin Investing in Trust deeds?

You may have heard about all the opportunities that come from investing in trust deeds, but may be worried about how it all works. Are you interested in learning more about how investing in trust deeds can become extremely lucrative?

Many experts believe that investing in trust deeds is one of the best investments out there. You will need to have a thorough understanding of how it all works, but if you learn all you can you can certainly turn a profit with the right property and good research. If you take the time to learn the correct jargon and a good knowledge of the how it works you can make the right decisions regarding our investment and make some money.
To begin with, you will need to know what a deed of trust is. A trust deed is a real estate transaction that that is used instead of a mortgage in some states. Investing in trust deeds is a transaction that is made up of three different parties. There is a lender, a borrower, ad a trustee. The lender will lend the money to the borrower and the borrower will give the lender a promissory note, or a signed document that contains all the crucial information that is necessary for the transaction. This will include how much they are borrowing, what the payment plan will look like, the amount of interest that will be charged, etc. They also need to transfer property deeds to a third party trustee. In case of a non-payment and the loan defaults, the trustee will then take over the property.
In most cases the trustee will be a title company. Often, there will be a transfer of the legal title to the trustee. Sometimes the title company will only have lien on the property. Whatever one that will be used is dependent on the state that you live in. There will be a power of sale clause in the signed documents. This means that the trustee and sell the property without having to get a court order. By having the deed of trust, those who are investing in trust deeds can insure that they will get a return on their investment.

Who looks for loaning from people interested in investing in trust deeds?

Most experts think that investing in trust deed is a great choice, and with the current market now it an especially good time to do so. Because the market is struggling, it is hard for most people to get loans, even if they are reasonably good candidates. The banks just are not giving out many loans. Because of the limited amount of loans available from the banks, there are more people looking for lenders from someone else to loan to them. So, you are able to loan to people who are willing to pay a little higher interest rates. They are also not as much a risk because of the limited amounts of loans.
Many of the people looking for loans from those Trust Deed Investment Company instead of banks are “flippers.” These are people that purchase properties, usually at foreclosure prices, and then decide to fix them up with the intent to resell them as quickly as possible. These flippers need to buy low and sell high, and they need to do all of this as fast as possible. Most borrowers will hope to pay back the loan within a very short time, from six months to a few years. The faster they sell the more they make.
It is because the banks do not want to lend to these business people that they are looking for other options. Most banks do not want to take the risk of lending money to buy a home that is already foreclosed, because they do not have the ability to protect themselves. Those who are investing in trust deeds will have the deed to the property so they will have to take over the property if there is a default on the loan. It is important that the lender is willing to take responsibility of the house if that happens.
Another advantage in going to trust deed investors is the speed they get their money. Moving quick is key in making a profit, and most loans can be processed in a matter of days rather than 45-90 days that it will take a bank.

What do I need to do to begin investing in deeds of trust?

Find out as much as you can about the people and properties you may be working with. In Trust Deed Investing you will usually go through a trustee. They will have different available properties with details on each one. Read all the necessary forms, then sign and return them. If you need advice, be sure to ask for help in understanding what you are getting into. Request a due diligence package containing an appraisal so that you can inspect your trust deed investment. Then you will need to sign the right forms and send wire funds to escrow. The borrower will then begin to pay the amount that was put into the promissory notes and you will being to make a return on your investment. Dennis
Dennis Dahlberg
Broker/RI/CEO/MLO
Level 4 Funding LLC
Hard Money Lender
Hard Money Loans
Hard Money Loan
Arizona Tel: (623) 582-4444
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Dennis
Dennis Dahlberg Broker/RI/CEO
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
About: Dennis has been working in the real estate industry in some capacity for the last 40 years. He purchased his first property when he was just 18 years old. He quickly learned about the amazing investment opportunities provided by trust deed investing and hard money loans. His desire to help others make money in real estate investing led him to specialize in alternative funding for real estate investors who may have trouble getting a traditional bank loan. Dennis is passionate about alternative funding sources and sharing his knowledge with others to help make their dreams come true. Dennis has been married to his wonderful wife for 43 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.
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