Owner occupied hard money loans are the unsung heroes of the real estate biz. Knowing how to leverage them is key for those who have dreams of going big but are just starting out.
Many people dream of getting into real estate because it’s a solid way to build wealth, yet quickly back down when they realize it’s also an expensive “game” to get into. Although few realize it, owner occupied hard money loans are often a gateway to wealth, giving those with an entrepreneurial mindset a chance to build even if they come to the table with very little to start. Before getting into how to leverage them, let’s break down how they’re different.
Owner Occupied: As the name implies, the person making the purchase intends to live on the property. This is common with foreclosures and HUD homes, with the latter requiring that the owner reside in the home for a full year before converting into a rental. Some co-ops and homeowner’s associations have a similar stipulation, though it’s generally permanent, meaning the owner must always be the one occupying the residence. Whether the owner intends to reside on the property or not will impact loan terms too, with those intending to stay generally receiving more favorable terms. It’s also worth noting that guidelines will vary from one contract to the next, so it’s important to read all contracts carefully to determine what an entity considers “owner occupied” and what stipulations come along with the designation.
Non-Owner Occupied: Generally speaking, the term “non-owner occupied” won’t appear much outside the mortgage industry. In this case, it’s used to designate risk. Perhaps not surprisingly, an investor dealing with money troubles is likely to let a loan for a rental or investment property go into default before he’ll put his primary residence at risk. For this reason, banks tend to be a little cautious here. It can be more challenging to get a non-owner occupied loan and the terms won’t be quite as good as they would have otherwise been.
A Win-Win Solution for Those Starting Out
Naturally, those just starting out don’t generally have strong records and pockets lined with cash like the banks like. However, one thing those who do make it have is tenacity. They’re willing to put in the work to see good returns. They just need a clear path to follow. By opting for an owner occupied loan, you’ll naturally get more favorable terms. Many people prefer this anyway because the first home they invest in is something they work on in their spare time, so being on site is a no-brainer. Plus, they aren’t paying a separate mortgage or rental payment to have a place to live at the same time. Opting for owner occupied hard money loans versus a traditional bank loan also opens up more doors, like closing fast and not having to struggle with all the requirements traditional mortgage companies have. From there, you can fix up the property as you have time and then flip it a year or two down the line when you’re ready.
It’s important to have clear expectations before getting into fix-and-flips.
Before you get into fix-and-flips, particularly if you plan to live in the home while you work on it, it’s essential to have an exit strategy and timeline. While some savvy entrepreneurs sell after a year or two, picking up anywhere from $10k to more than $50k per sale depending on their level of expertise, others convert their homes into rentals and build up a portfolio. Knowing where you plan to go after and what your anticipated timeline is will ensure you maximize your earnings. If you think owner occupied hard money loans may be the first step on your path to wealth, call us today for details.
Level 4 Funding LLC
Hard Money Lender
Arizona Tel: (623) 582-4444
Texas Tel: (512) 516-1177
NMLS 1057378 | AZMB 0923961 | MLO 1057378
22601 N 19th Ave Suite 112 | Phoenix | AZ | 85027
111 Congress Ave | Austin | Texas | 78701
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 42 years. They have 2 beautiful daughters 5 amazing grandchildren. Dennis has been an Arizona resident for the past 40 years.