By tungphoto, published on 10 March 2011 Stock Photo - image ID: 10033486 |
Deciding on a lender can make or break a deal because the
profit margin depends on your interest rate, points and loan term. Having a low interest rate can keep your
costs low and for buy and hold investors this is crucial in determining if a
deal is profitable. For fix and flip
properties the interest rate is not as important just so long as you can turn
the property around and sell it in a short period of time. The key for fix and flip deals is to keep the
points low and to also have a buffer of time in case the renovation is taking
longer than expected. However the longer
you have a loan for renovation the more money you’re spending which can eat
into your profits in the long run.
Private Money lenders are more suitable for fix and flip
properties than they are for buy and hold but you can make it work for a buy
and hold property if it’s your last option.
For people who have bad credit, private money is usually the only option
and that means you have to have really high profit potential from a property to
make it worthwhile for a buy and hold property.
One way to make private money work for a buy and hold
scenario is to buy the property and then use it for collateral for a bank
loan. Banks are more likely to give you
a loan if you have real estate as collateral.
This way you can pay off your private money loan faster, get a lower
rate from a bank and save money on your rentals. Community banks and credit unions are the
best option for rates and more lenient terms than larger banks.
Just remember that private money is for short term solutions
and make sure you create a relationship with your private money lender so they
will be more willing to loan to you again.
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