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Documents Required to Qualify for a Hard Money Loan

You’re trying to invest in a new real estate project and you want a hard money loan. There’s good news and bad news. The good news? It’s usually easier to qualify for a hard money loan than a traditional mortgage. The bad news? “Easy” is relative. You need to meet fewer strict requirements, but you are going to have to put together quite a few documents.

Here’s what you need to get started.

Capital: What Are You Using for Your Down Payment?

Thoroughly document your capital. Unlike a traditional mortgage, they usually don’t care how you got your capital. But you should be able to show that you have the down payment liquid already. You can show this through your most recent bank statements.

Cash Flow: What Are Your Personal Income/Expense Statements Like?

In addition to your down payment, they also want to see your monthly cash flow. This usually comes in the form of bank statements. They should be able to see that you can easily pay for the loan payment, even if the project goes long. This is due diligence for your sake and for theirs.

Experience: What is Your Portfolio?

You’re basically starting a small, temporary business. So what have you done in the past that’s similar? You should show your portfolio of projects, as relates to home renovations, tenancy, property investments, and so forth. At minimum, you or your business partners should be well-versed in investing in real estate. Otherwise, how can they know that you’ll be able to pull off the project?

Housing Documents: What Are Your Projections for the Project?

This is probably the most extensive area, yet it’s the area that will most often differ. Different hard money lenders will have different requirements. In general, they will want to know:

  • How much the property is appraised for.
  • How much you intend to put into the property.
  • How much contractors have bid for the related jobs.
  • How much you stand to gain from the investment.

Some companies will want to see the basics; an appraisal and an inspection report, just like a mortgage company. But other companies will want a full business plan. Sometimes, it’ll depend on the amount of money they’re investing. And some lenders are just more conservative than others.

That’s a lot. But it’s less than it seems. Realistically, if you’re qualifying for a hard money loan, you need to get these documents in order anyway — these documents would be the foundation of your business plan.

Any questions? Reach out to IMCMoney today!

The Top 5 Fix & Flip Cities in California

California is an attractive location because of its beaches, economic opportunities, and sunny weather, along with the diverse cultures and food options, natural landscapes, and tech and entertainment industry opportunities. However, it’s also an expensive place to live. The good news is, the expense hasn’t made the state any less attractive to real estate investors. In fact, the fix and flip market is incredibly active in California. Before you get started on this type of real estate investing, it’s essential to learn about the five top cities to consider when shopping for a fix and flip investment in California.

Modesto

If you’re looking for a smaller city with plenty of farmland and nature around, Modesto is the ideal location in Central California. The median home value in this city is just over $260,000, which is a nearly five percent increase over the last year. Many flippers love this area because the overall cost of buying a home is lower than many other areas of California, making it an ideal location to invest in a fix and flip project.

Rancho Cucamonga

Rancho Cucamonga is a more prominent city located in Southern California, surrounded by breathtaking mountain views. Although the area tends to be expensive with a median home value of nearly $470,000, the city offers a small-town, quiet feel, particularly when compared to the larger cities like Los Angeles. Home values are expected to continue to rise about 4.5 percent each year.

Sacramento

Sacramento is the state capital and is located in Northern California. It’s an excellent place to engage in fix and flip projects with an excellent return on your investment.The city offers a median home value of around $300,000 with many fix and flip investors generating an average profit of $90,000 for each home they buy and renovate. You won’t find a more affordable place to invest in real estate in the state without spending more money.

Ontario

Ontario isn’t just a city in Canada. It’s also the name of a city close to Los Angeles and San Bernardino. It’s the next door neighbor to Rancho Cucamonga with home values around $387,000. However, the rate of appreciation is higher in this city at 5.2 percent, making it an excellent alternative to more expensive areas of the state.

Irvine

Orange County in California is the central location for technology and education with higher incomes and a strong economy. If you have more money to invest in real estate, Irvine is the ideal location. The city boasts median home values of over $790,000, making it a much more expensive location than the other cities on our list. Fortunately, the profit potential is high because the area attracts a wealthy crowd.

Home Inspections: Tips and Common Findings

In 2020 alone, more than 6.5 million homes were sold across the United States of America. Before every single one of these properties was sold, both buyer and seller were likely to undergo a home inspection. Home inspections are pivotal to the real estate market because they ensure both parties are protected from potential issues that may manifest following a sale.

Let’s take a closer look at home inspections, what to expect, and why they are so important.

What To Expect From a Home Inspection

Home inspections are thorough assessments of a property’s overall physical condition. Inspections are performed by licensed professionals who have been trained to visually assess and identify issues. Inspectors will traverse every inch of a property, from foundation to attic, to find issues that may manifest into costly or dangerous scenarios.

Common Findings During a Home Inspection

Home inspections are vital to the real estate industry as they give both parties a chance to assess issues before going through with a deal. For a buyer, this means potentially saving themselves from buying a property with hidden damage. For the seller, home inspections provide the opportunity to upgrade and maximize the value of a home.

The most common results of a home inspection will yield the following information.

  1. Roofing Damage – Nearly 20% of home inspections will yield at least one issue with the roof of a property. Roofing issues can vary in terms of how problematic they are. Leaks, material degradation, and ventilation issues are the most common inspector-detected roofing problems.
  2. Electrical Wiring – Nearly 52,000 electrical fires are started every single year within residential buildings due to improper wiring practices. Make sure that your property is up to code before buying or selling it. Frayed insulation, mismatched wiring, and rodent-related damage can all be identified during an inspection.
  3. Plumbing Issues – Plumbing issues may range from severe to barely noticeable. A leaky faucet won’t cause an inspection to fail, but outdated pipes and mismatched DIY solutions can cause serious headaches.
  4. Termite/Pest Damage – Don’t buy a home with a shaky foundation and don’t purchase a home that is infested with termites, two concepts every property owner should live by. Termite damage can cause structural issues that go unnoticed for years, often long after there is any time to prevent the issue. A skilled inspector can suss out any potential infestation during an inspection.

IMC Money was founded in 1993 to provide the best services and lowest possible rates in the lending industry. Experts in financing for individuals angling to flip property, contact IMC Money for more information.

Finding the Perfect Fix & Flip Houses

Fixing and flipping houses is both emotionally satisfying and lucrative labor. But if you choose the wrong house, it could be disastrous. There’s an art to finding the perfect houses to fix and flip. Let’s take a look.

Know Your Limits

As a flipper, you’re going to be doing the majority of the work. Don’t take on more than you think you can do; if there’s something you know nothing about (such as an old well on a property, a broken septic tank, major foundation issues, etc), you shouldn’t be buying. There are many things that can be easy to fix or extraordinarily expensive (such as electrical systems that may not be to code), and if you’re not well-versed in it, you may not be able to tell the difference.

Avoid Major Structural Issues

When it comes to foundation problems, framing issues, and other structural issues, it’s often less expensive to just knock down the house. When houses have major structural issues, they’re usually only repaired out of practicality or sentimentality. As a flipper, you don’t want to get into these major, expensive changes; you want to be able to concentrate on improving a house that’s already “almost there” rather than rebuilding one from scratch.

Keep the Neighborhood in Mind

It’s better to buy a cheap house in a great neighborhood than a great house in a bad neighborhood. While the property might be fantastic, a neighborhood is always going to pull a house in its direction. Focus on up-and-coming areas if you really want houses that are going to deliver in value. The only exception is for houses that are truly fantastical and eye-catching — and those usually aren’t going to need the services of a flipper.

Get Creative About Your Sourcing

If you’re in a hot market, it’s likely there are other flippers out there. So, you might want to get creative about the houses you source. Network with other agents, look at things like estate sales or garage sales, drive through neighborhoods, and otherwise find properties that might not yet be on the MLIS.

Your project begins with finding the right house. It’s important to take your time. It’s also important to find the right capital. Check out IMC Funding for the latest in financial news and resources, and feel free to contact us for more information!

Fix & Flips vs. Buy & Holds

You’re buying a property. You can either “fix and flip” or “buy and hold.” Both of them have pros and cons; one is a very active form of investment and the other is mostly passive. Which is the best option for you? Let’s take a look at the pros of both and why you might want to invest in them.

The Pros of Fix and Flips

When you fix and flip, you try to fix a property and sell it as quickly as possible. Some major benefits of a fix and flip are:

  • You may be able to make a lot of money. You can buy a property for $100,000, put in $20,000, and sell it for $180,000. That’s a lot more money than you’d get for renting the property over the same amount of time.
  • You can use the capital almost immediately for something else. That means you can buy another property to fix and flip. You can even buy another property to buy and hold. It’s whatever you want to do.
  • You don’t have any long-term responsibilities. Once the project is over, it’s over; you aren’t going to need to worry about it. You can take a break and relax between your projects. You can also wait until the market is more favorable, during downturns.

So, once your project is over, it’s over. You’ve done it. You walk away with the cash to do whatever you want with it. But, of course, that also means that you’re starting again from square one, without a property to call your own.

The Pros of Buy and Holds

Many fortunes have been made of buy and holds. The theory is simple: property is always going to appreciate in value. It’s finite. Thus, you can build equity through property while still making money through rentals. Benefits of buy and hold include:

  • You build equity to leverage. Not only are you building net worth, but banks and creditors will be more likely to lend you money because you have so much equity. Over time, if managed correctly, you can create a significant portfolio of work.
  • You have a consistent income. While you aren’t getting a large lump sum every few months, you are regularly getting income (as long as your properties are rented out). This can be more predictable, especially for those who are interested in retiring.
  • You don’t need to worry about managing big projects. Your property management company can help you get renters, along with managing repairs and maintenance. This is a far more passive rather than active method of investing, especially if you have help.

But there are downsides, too. Buying and holding is a responsibility. You need to manage your rentals. And occasionally they can cost you more than they’re bringing in. Fixing and flipping might make you a lot more money, but it also won’t build equity; it’s a trade-off. If the rental market in your area is poor, you also may not have significant profit margins.

Which Do You Want?

Obviously, if you’re trying to build equity, you want a “buy and hold.” Buy and holds provide you with more predictable income — if you’re nearing retirement, you’ll want to hold onto your properties rather than sell them. But if you’re trying to make money fast, fix and flips just make more sense. Fix and flips offer less risk exposure, higher gains, and a quicker turnaround.

But either way, you’re going to need a lender. Contact IMC Money today to find out more.

How Do You Determine An Offer Price on a Fix-and-Flip?

One of the most important aspects of making sure your fix-and-flip venture is profitable is knowing how much you should pay for a property. When you add on the cost of any repairs and renovations you make to a home to the price you paid, you need to be able to sell the home for more than that amount in order to consider the project profitable. If you end up paying too much for the property, you will struggle to break even when it comes time to sell. The following tips will help you determine how much you should offer when you’re buying your next flip property.

Calculate the ARV

The ARV, or after repair value, refers to how much you can expect to sell the home for when you’re done renovating. Starting any project without knowing the ARV already puts you at a disadvantage. The best way to accomplish this goal is to work with a realtor you can trust. Their knowledge of the current market, as well as how much similar homes in that area are selling for, is invaluable in determining what you can expect buyers to pay. Focus on homes that recently sold, rather than those that are currently listed to ensure you know how much buyers are actually paying versus what other sellers are expecting. Only use data that is three to six months old because of how rapidly the market can change.

Determine Your Costs

Renovations will always cost money, whether you handle them on your own or hire contractors to complete them for you. The cost of these repairs and renovations is critical to determining how much you should pay to ensure you can make a profit in the end. Some changes, such as new carpeting or painting a few rooms, can be done rather affordably, but if the home needs more extensive work, be sure you get several quotes from contractors, so you know exactly how much to budget. Keep in mind homes that require more extensive repairs are a riskier investment than those that simply need cosmetic changes or upgrades because of the risk of hidden problems you may uncover through the process. Always plan for a few extra expenses to give yourself a cushion.

Don’t Forget Other Expenses

When calculating your costs for your fix and flip, don’t forget about the usual real estate costs that come with this type of investment. You will need to cover closing costs when you purchase the home and may even pay the buyer’s closing costs when you sell, if that’s part of the deal you make. Unless you have the funds to invest yourself, you’ll also need to get a loan to buy the property, which means making payments with interest until you’re able to fix and resell the home. Finally, if you work with a realtor, there will be commissions to pay on the selling price of the home. When calculating how much you should offer for a property, don’t forget to factor in these costs as well.

Should Your Project Be a Rental or a Fix and Flip?

When you’re looking at a potential investment property, one of the most important questions you’ll need to answer is whether the property is better suited as a rental or a fix-and-flip project. This is one decision that even some of the most experienced investors struggle with.

If you’re considering a real estate investment and aren’t sure which route will be best, there are some considerations you should keep in mind to help you make the right choice.

The Property’s Current Condition

The current and overall condition of the property, as well as its age, should play a major role in your decision to either buy the property as a rental or flip it. Generally, older properties will require more long-term maintenance and upkeep, which tends to make these homes better candidates for fix-and-flip investments.

Meanwhile, a newer property that needs some up-front work but is otherwise in decent condition may be more suitable as a rental. The exception to this may be a property that is located far away, which can create additional headaches for you as a property manager/landlord. If you’re investing in a property from afar, your best bet is typically to treat it as a fix-and-flip (unless you’re comfortable shelling out monthly fees for a property management company’s services).

Local Real Estate Trends

You’ll also want to consider local real estate market trends when deciding whether to buy a property as a rental or a fix-and-flip. While there are currently more renters in the residential real estate market than ever before, this won’t necessarily be the case in the exact area where you’re looking to invest. Taking some time to truly get to know your local real estate market and whether people are looking to rent or buy can make your decision a much easier one.

Your Budget and Preferences

If you’re looking for a property that can start generating income for you sooner rather than later, then a rental may make more sense. On the other hand, flipping a property rather than renting it out can prevent your money from being tied up in any single real estate investment for too long.

Of course, part of your decision to rent or flip will ultimately come down to personal preference. Some investors simply don’t like the hassle of playing “landlord” and would thus refer to flip and property, sell it, and be done with it. Likewise, other investors may enjoy the long-term income string that a rental property can provide.

Need a Hard Money Loan?

Regardless of whether you end up flipping or renting out an investment property, you’ll need to secure the right funding to get started. If you’re searching for a hard money loan for a real estate investment property, IMC Money is here for you. We offer a wide range of hard money loans and other financing options to suit your needs. Contact us today to find out more about our services!

How Do You Find Fix & Flip Opportunities?

If you’re interested in getting involved in fix and flip opportunities, the first step in the process is learning how to find properties. The key is to find properties offered at a low price that don’t require more work than you can handle. The good news is there are several ways you can find the ideal property to fix and flip for a profit when you know where to look.

Foreclosure Sales

While you will need cash to make this type of purchase, foreclosure sales are an excellent way to find properties, usually in relatively good condition. Anyone can fall on hard times and fall victim to foreclosures. Be sure to check the foreclosure listings in your local paper often so you can check out properties before the sale hits and you know which ones you want to try to buy. These sales typically require 10 percent of the purchase price as a down payment with the remainder due within 30 days, giving you enough time to secure a loan for the rest.

For Sale by Owner

Many homeowners attempt to save money by selling their homes without the assistance of a realtor. You can often get these homes for less than going through a realtor because homeowners are typically more flexible when they don’t have to deal with realtor fees. They also often want to sell quickly, making them more likely to accept your offer.

Take a Direct Approach

Another option is to drive around areas you’re interested in working in and look for homes that show signs of neglected upkeep. These homeowners may have either moved away or may not have the ability or money to take care of the home properly. Approaching these homeowners directly could result in someone selling to you when they were simply holding on to the property to avoid the hassle of selling it. Homeowner information is often available in property tax records.

Probate Court

When a family member passes away, families often struggle to figure out what to do with a home their loved one left behind. They are also more likely to accept a lower offer simply because they have no need for the home and want to get rid of it quickly so they can split the money between the next of kin. Check local newspapers and other resources to identify properties that have entered probate. This process can take anywhere from a few months to over a year so be mindful of that. Reaching out to the executor of the estate can expedite the process.

Tax Auctions

Foreclosure isn’t the only reason people lose their homes. Those who fall behind on their property taxes may find their home is sold at a tax auction instead. However, you must register as a bidder prior to these auctions to take part. There are two types of tax auctions. You want to look for tax deed auctions where you buy the property outright versus tax lien auctions that simply make you the homeowners landlord with the potential for foreclosure if payments aren’t made.

Rental Properties

A final option is to look for rental properties, especially those that seem to advertise for a long period of time between tenants. Sometimes landlords grow tired of dealing with tenants and would rather sell the home than continue renting it. However, don’t be discouraged if you’re turned down for your offer to buy.

Tips For Flipping A House For The First Time

Flipping a house for the first time can seem a little intimidating. However, if you follow these tips, it should be smooth sailing.

Know and Analyze the Local Estate Market

It’s important to know the neighborhoods you want to invest in like the back of your hand. You need to familiarize yourself with the sales prices for different types of homes, schools, neighborhoods and demographics. Real estate sites like Trulia and Zillow can give you some data on current home selling prices. And you get the rest of the information from other local realtors. Once you get this information together, go ahead and analyze it. By analyzing the data, you’ll know how much local buyers are willing to pay and you’ll know the types of properties that buyers are interested in buying. Knowing this information will allow you to avoid winding up with a home that sits on the market for a while versus one that flips quickly.

Get a Team

Building yourself with a skilled team is critical for a successful flip. You’ll need a team of general contractors, realtors, lenders, accountants and real estate attorneys. You get a team together through referrals and networking. Start to go to meetings of local real estate investment organizations, join some business networking groups and become a member of the chamber of commerce. Realtors can give you access to properties that are currently on the Multiple Listing Service. You should speak to as many realtors as you can. This includes both selling and buying agents. Having a team is essential for a profitable flip.

Find a Flippable Property

Once you’ve identified what types of homes sell best, focus on those ones. For example, if four-bedroom houses are selling well, rehabbing one of these is likely your best bet. In addition, you need to know who your likely buyers are. It may be empty nesters, seniors or singles. Know what their needs are. A family with young kids may need a four-bedroom home with two bathrooms.

Keep an open mind, too. Your leads may wind up coming from a variety of sources, such as friends, banks, realtors, family members or trustee sales. Another good source for flappable properties is foreclosures. Just keep in mind that you’ll probably need a cashier’s check or cash to pick up a foreclosure. You also may not be able to view the foreclose. So, you may have to deal with squatters or hidden liens on the title.

Structuring the Deal

Once you’ve established the value of the property, you then need to calculate the after repair value. This will tell you if it’s a good deal for you. When you inspect the property, work with a good general contractor and review the budget repair sheet. You need to know all the repair costs in order to determine the after repair value. Follow the 70 percent rule. Only take on projects when the after repair value is less than 70 percent of the final selling price. Once you make the sale, use an experienced real estate lawyer to write up the contract.

Manage the Rehab Process

Keep yourself in the loop and work closely with a general contractor. This will keep you on track with the renovations and within budget. Obtain estimates from contractors and keep track of their progress on your project. Make a written timeline and make sure everything goes according to plan in a timely manner. This will help avoid carrying costs.

Hard Money Loans in California

Homeownership in California falls about 10 percent lower than the national average at just 54 percent. With the high cost of homes and the challenges financing through traditional mortgages can bring, many homeowners, especially in southern California, turn to less traditional types of financing to get the home they want. Although hard money loans are generally offered to investors who flip homes or purchase them to rent out to others, they can also be used to finance a mortgage to buy a home you intend to live in. This allows individuals to use their home as collateral and to get approved for the loan much faster than going through traditional banks. It also means less paperwork that needs to be filled out and understood.

Foreclosure Laws

For California homeowners who are facing foreclosure, the process is usually handled outside of court through a non-judicial process. Typically only cases that involve state-owned property or property in probate court require the courts to get involved.

Property Redemption

While some states give homeowners the opportunity to buy their homes back, even after the completion of a foreclosure sale, this isn’t the case in California. Once a home is sold on the auction block, homeowners are unable to buy it back.

Deficiency Judgments

Another issue homeowners may experience in some states is the ability for the bank to go after the homeowner for any deficiencies once the foreclosure process is completed. This allows the bank to recover any money owed beyond what the sale of the home brings in. Fortunately, this isn’t allowed in California.

Deed in Lieu of Foreclosure

When it becomes clear a home will go into foreclosure due to a homeowner’s inability to pay, they can often go through a process known as deed in lieu of foreclosure. This means they voluntarily turn the property over to the bank and move out of their own accord without waiting for the foreclosure process. This avoids going to court and sometimes even allows the homeowner to leave the property with a little money for the effort because if saves the bank the cost of foreclosing. This money can help individuals with the costs of moving, including putting a down payment on an apartment or other rental property.

Grace Period Notice

California is one of just a few states that has a grace period built into their foreclosure process. Lenders are required by law to personally contact, or at least attempt to contact, the homeowner to discuss their options to avoid the foreclosure process. This must be done 30 days prior to the foreclosure notice period. The notice of default is sent to the homeowner with a three-month notice filed with the county recorder’s office within 10 days. At the end of this three-month period, the lender then files a notice of sale and sends it to the homeowner at least 20 days prior to the date of sale. This means the sale date cannot take place sooner than three months and 20 days after the foreclosure process begins. The notice of sale must also be publicly posted, often in the local newspaper, as well as on the property in question.

Service Member Mortgage Protection

Certain individuals who are members of the military are often protected under Servicemembers Civil Relief Act, which is a federal mandate. In addition to the military, California extends these benefits to National Guard members and those who are ordered into active state service by the governor. Reservists are also covered under this act, giving them peace of mind they won’t lose their homes while serving their country.

High-Risk Mortgage Protection

Abusive loan practices can create problems for individuals. This is why the state government has put protections in place to combat these practices. Judges have the power to order lenders to reform their practices to ensure equity. These protections don’t apply to mortgages through the secondary market, such as Freddie Mac, or those who don’t know the loan origination violations.

Other Statutes

There are other laws in California in reference to foreclosures that are important to learn about. For instance, the law caps interest rates for mortgages at no more than 12 percent for sales and seven percent for judgments. However, there are exceptions to these rules in certain situations. Many banks and similar institutions are exempt from these rules. Real estate brokers can also help individuals obtain a loan that falls outside these limitations.

Another way California protects homeowners is with their homesteading regulations This law protects the equity the homeowner already has and must be requested by the individual living on the property or a relative of that person. This automatic homestead exemption can stop a foreclosure if the lender is unable to prove the sale can produce the funds to repay any liens and the exemption amount. If the sale is sufficient to cover it, the sale proceeds and the homeowner receives the exemption amount to be used to establish a new residence.