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The Rental Property Owner’s
Complete GuideTo Today’s Real Estate Market
The Why’s and How’s That’ll Keep You Ahead of the Game
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Contents
The Rental Property Owner’s Complete GuideTo Today’s Real Estate Market
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5
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9-11
Today’s Market Since 2007: How You Fit In…………………
Renters: Who They Are & What They Want………………
Investors Dilemma: Buy-n-hold vs. Buy-n-flip…………….
Costs of Preparing Your Rental………………………………..
Why Renting is a Good Idea………………………………..
Expanding Your Portfolio—Without Bank Loans………....
One Loan To Rule Them All: Why You Benefit……………
Testimonials………………………………….……………….12
The Professionals That Have Your Back……………….….13
3•(1) http://www.nytimes.com/2014/04/27/upshot/the-housing-market-is-still-holding-back-the-economy-heres-why.html?_r=0&abt=0002&abg=0
How You Fit In
The housing crash of 2007 completely turned the housing market
upside down. There were losses on every side, property prices fell,
credit was hard to come by, and real estate investors were hit hard.
Now, eight years later, we examine the scene and how today’s investor
can not only fit in, but succeed!
Overview: The financial crisis was resolved by 2009, but the market still continued to decline. Today
however, we see slow increases, although the market is still nowhere near where it was in 2005, before the
crash. In 2015 we are left with a surplus of houses (many unfinished), slowly rising housing pricing, and tight
credit, leaving many people to wait for longer periods of time before forming new households and buying a
home.
This means that multi-unit properties
have been on the rise, as more people
are renting. To give you an idea:
• Census reports show that the number
of households rose by an average of
569,000 a year from 2007-2013, a far cry
below the 1.35 million a year during
2001-2006.
• Before the recession, 27% of 18-to-34-
year-olds lived with their parents. Now
that share is 31%. (1)
The increase in the market is slow, purportedly due to a mix of high unemployment rates and
difficulty taking out loans, as well as interest rates. The banks tightened their regulations in order to
avoid the bubble that caused the crash in 2007, though they are literally just now beginning to loosen
them up again. This means that, depending on the market you’re in—as the housing market in some
cities is actually doing very well, like New York or San Francisco—the overall current trend shows
more new renters than new buyers. Although home sales are projected to increase next year, rentals
are also projected to increase.
Today’s Real Estate Market Since 2007
4(2) “America’s Rental Housing—Meeting Challenges, Building on Opportunities.” Joint Center For Housing studies of Harvard University
Renters can come from all walks of life, and are looking to rent for all types of reasons. However, there are certain patterns that we can depend on. In general you’ll find that renters are:
➢ Single- (35% of total renters), or single parents (16%)➢ Young- reports show that nearly 78% are under 25.➢ Past mid-life- about 20% of renters are over age 55.
(2)
Many young households turn to renting because of the lower costs of moving; it suits their stage of life, allows greater mobility, allows them to live on their own, and/or more easily adapts to changing relationships.
Renting also enables young householders to live on their own, and pursue new job opportunities in new locations more easily. Many lack the resources to buy their own place, making renting a very viable option.
Another reason that makes renting attractive, especially among the percentage of renters age 55 and older, is the limited responsibility for home maintenance, as well as lower financial risks.
Keep In Mind Certain Attractions Renters look for:
Residential Type:Singles and Elderly Renters are typically more likely to choose multi-family residences, while young families are more likely to rent single-family homes.
Renovations:All renters are attracted to finished, well-kept homes that offer, at minimum, the same benefits/amenities as their neighbors.
Location, Location, Location: Single professionals typically look for close access to work and entertainment. Young families look for good schools and safe areas for their children. Renters also look for accessibility to transportation, including bus stops, train stations, etc.
RentersWho They Are & What They Want
5(3) http://money.usnews.com/money/blogs/the-smarter-mutual-fund-investor/2015/01/01/flip-or-hold-best-real-estate-moves-for-2015(4) http://www.investopedia.com/articles/mortgages-real-estate/08/flipping-flip-properties.asp
The truth is, to know which is best will depend on your market and circumstance. There is no one right answer. To give you a better idea, let’s go over the pro’s and con’s of each.
Whether it makes sense to hold or
flip depends on your region and your
overall investment strategy. “Real estate
investors appear more likely to flip a
property in those regions where home
values are higher,” says Auction.com
Executive Vice President Rick Sharga.
“Higher prices can translate to a faster and
potentially more significant short-term
return on investment. The hold-and-rent
strategy seems most popular in markets
where home prices are lower, allowing
investors to charge a more competitive
monthly rental rate and still produce
reasonable returns over an extended
period of time.“ (1)
5
Some say it is beneficial to use flipping as more of
a tactical strategy than a long-term one, and that a mix
of the two works best.
Robert Stammers, CFA & Investment Consultant,
says that, “Overall, the long-term holding strategy is
generally more appropriate for those using real estate
as a core portion of their overall investment portfolios;
flipping properties is more appropriate when real estate
is used as an adjunct or a return-enhancement tactic.”
(4)
However, at the end of the day, you need to
determine your own strategy by considering your
region, its market, as well as the capital risk and time
you’re willing to spend.
Investor’s Dilemma:
Buy-n-Hold vs. Buy-n-Flip
Buy-n-Hold Buy-n-Flip
Pro’s:
-Well-known way to amass wealth
-On-going, long-term cash flows
-Possibly good for taxes on capital gains (IRS
considers you an “investor”, not a dealer.)
-Has made more sense since the crash because
investors can buy property inexpensively. (1)
-Risks can be diversified away if you have a large,
well-crafted portfolio.
Pro’s:
-Quick return on investment
-No need for property management
-Keeps capital at risk for a minimal amount of time
Con’s:
-Potential legal and managerial issues to deal with,
higher risk
-Management intensive: must find and service
tenants, while managing property maintenance and
upkeep.
-Higher responsibility
Con’s:
-Transaction costs could be high, both on the buy
and sell sides (potentially cutting into profits)
-IRS could potentially consider you a “dealer” instead
of an investor.
-Can cause potential tax and cost issues
-More likely to cause swings in income, creating cash
flow and tax management issues.
-More of a short term strategy, as sometimes these
opportunities are hard to find.
-If buying a fixer to flip, will need to invest in
remodeling
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Financial advisors
will tell you there are five
ways to earn a return on
any investment. The
best part about investing
in real estate properties
is that you earn through
all five!
Investing In Real Estate Gives You 5 Major Benefits Hard to Find Elsewhere
As an investment strategy, adding real estate to your portfolio also has many benefits. Besides the five major benefits listed below, you also benefit from rentals by:
Having more control over your investment. By improving the property (remodeling, adding amenities, etc) you are setting yourself up to create a profit if you later decide to sell it (especially if it was priced low when you bought it.) or to raise the rental prices.
Using inflation wisely. Inflation can drive rental prices up, while your own mortgage stays the same! Meaning higher profits for you!Diversifying. You are diversifying your investment portfolio and lowering your risk, while maintaining or raising your returns.
1. Cash Flow- One of the main reasons people think about owning rental properties is the monthly
cash flow they bring. After all costs, the cash flow is whatever profit is left for you, the more
properties you own, the more cash flow you have!
2. Federal Tax Benefits- One of the best ways to reduce your tax burden, buying rental properties
can potentially be tax deductible. Another great plus, is that rental income is considered passive
income and not subject to self-employment taxes.
3. Leverage of OPM (Other People’s Money)- It’s possible to structure the deal so that you get all
the benefits of owning the property without actually paying for it! You can buy the property on a
loan, and get a mortgage like most people do. With a time-frame of up to 30 years before you pay,
you can be growing your cash flow right from the start!
4. Building Equity- With each payment, you are paying both interest rates and part of the principal,
bringing you closer to full ownership.
5. Appreciation- We recently discovered the hard way that real estate does NOT always appreciate,
but the truth is, it always comes back up, just as it’s doing now. This is a great way to hedge
against inflation and protect yourself for the long-term. (1)
(5) http://www.biggerpockets.com/renewsblog/2012/10/01/real-estate-financial-benefits/
Renting
Why It’s A Really Good Idea
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Three levels of renovations that’ll give the most impact (and offer the most returns):
•The Basics. These are the things a buyer
expects when moving into a home. A non-
leaky roof, a water heater in good condition,
a functioning furnace, solid floors, walls that
are in good repair. The landlord will need to
ensure that the electrical, plumbing,
sanitary, heating, ventilating, and air
conditioning systems are running and
properly maintained. The property also
needs to align with local housing codes with
regards to structural support, facilities and
essential services such as plumbing and
heating, taking into consideration health and
safety standards.
•Curb Appeal. This includes any
renovations that make the property more
attractive when the renters arrive. It might
not add long lasting value, but will help the
property attract tenants faster. Things like
landscaping, fresh paint, new carpet and
new appliances.
•Adds Property Value. These are best in
helping the property sell, and perhaps in
justifying increased rental rates. In fact, the
National Association of Realtors cites
siding, kitchens and windows as some of
the most beneficial projects. Other projects
that’ll give you the most bang for your buck
include bathroom remodeling, wood floors,
decks and the addition of living space.
As the owner of a rental, it’s essential that
you maintain the property in good working order,
and that you have high standards so as to keep
the property habitable. If you’d like to go beyond
that and offer extra benefits or amenities to your
renters, it’s possible you will have more success
finding tenants at higher rental prices.
In any case, you need to know the costs
associated with preparing, keeping and
maintaining a rental property.
Rental Property Costs: Rehab
You’ll have major costs like mortgage payments, property taxes, utility charges, maintenance expenses, insurance premiums, or rent loss due to vacant units.
However, before you get to those things, you’ll need to have an idea about the (costs drivers to rehab) ? and the costs involved in preparing properties for rent.
Rehab refers to the rehabilitation costs of bringing the rental property up to habitable living standards. The costs involved vary widely and knowing them will ensure you’re prepared. It’s also wise to include an additional estimated 10-20% of the cost of repairs because you never know what emergencies could happen.
Before you decide which things require repairs,
and money, there are certain remodeling projects and
renovations that will have the most impact. The
information inside the blue box to the left will give you
a good idea of what they are, but price varies
dramatically so you’ll have to check with your local
contractors or service providers for an accurate cost
estimate.
The Costs
Of Preparing Your Rental
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Expanding Your Portfolio
1. Call Around. With persistence and diligence you should
be able to find a lender who will finance up to 10 properties.
2. Talk to a mortgage broker. You may be able to find a
mortgage broker who can help find you an appropriate lender.
3. Find a Portfolio Lender. With some networking, time
and research you may be able to find a local lender who offers
portfolio financing. In this case the bank is using their own money
to finance, rather than following guidelines of other larger
institutions (as is the case with Fannie Mae).
OR…
→So, how do we go about doing
this?
•Ask everyone you know in the real
estate industry. Ask realtors, lenders,
title companies, property managers
and other investors.
•Find local real estate investor clubs
who may be able to provide
information on portfolio lenders as well.
•Call local banks. Ask banks if they
loan their own money, what their
policies are for investors, and if they
don’t offer the right terms ask them
who might.4. Use a Specialized Program just for investors
with multiple properties. You could do all of the
above or you could cut to the chase. One of the
best options is to find a specialized program that
will allow investors like yourself to get ONE loan on
all of your rental properties. Whether your
portfolio is a mix of condos, single family homes, or
even some commercial properties, with the proper
program, you should be able to get financing
anywhere from $300,000 to $50,000,000 for a
number of properties. You can learn more about
one of the highest recommended financing
programs for investors on the following page.
Without Bank Loans
Expanding your real estate portfolio is an excellent strategy in order to generate higher cash
flow and receive more of the benefits we’ve previously discussed. The only problem comes when
you’re ready to expand but your bank isn’t. Most banks will allow you to take out a mortgage for 4
properties but that’s when it really starts to get a bit difficult. Although, some banks, like Fannie Mae,
technically will lend to investors for up to 10 properties.
Yet, in many cases, the banks don’t want all the risk they’re taking by lending you more and
more money, and if they decide they can’t lend you any more, what will you do??
Here are some ideas:
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The Blanket Loan
The Best Loan For Landlords; One Loan for Multiple Properties
This loan is trusted and used by landlords because it covers multiple properties and can give you
up to $50,000,000. Like we discussed on the previous page, it’s hard to get banks on board (with
something like) ?, but with a loan like the one we offer, you really don’t need to worry about that!
Basic Guidelines:• Loan amounts from $300,000 to $50,000,000.
• Up to 75% LTV as long as the loan size meets minimum DSCR of 1.15x
• 5 to 10 year loan term with 30-year amortization
• Recourse and non-recourse programs available
• Minimum of 3 properties, at appraised value of $50,000 each
• Typical turnaround time is 45 days upon receipt of required docs
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This loan is for you if you own any of the following:
Single Family Residential – 1-4 Units
Condos & Townhomes
Apartment/Multi-Family Properties— 2-4 Units
Mixed Use with up to 40% Commercial Properties
*No Modular or Manufactured
Homes
Why You BenefitOne Loan To Rule Them All
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What do you charge?
Interest rates will always be competitive based on current market conditions. We offer loan terms of 5 and 10 years with up to a 30-year amortization. A fixed rate can be locked for the life of the loan. A floating rate is also available for 5-year term loans.
You are responsible for paying for the appraisal for each property being financed. The estimated costs are $400-$500. Upon receipt of accepted term sheet and appraisal deposit, your request will then be processed.
What makes you different?
Most mortgage lenders require large down payments and loans based on your personal debt-to-income (DTI) ratio. We base your loan on the portfolio value and the projected cash flow from the properties. We calculate the value of your properties and loan up to 75% loan to value (LTV).
How much can I borrow?
Loans begin at $300,000. The amount is based on the estimated portfolio value and cash flow of the financed properties as determined by the lender’s underwriting team after analysis of your portfolio.
The lender offers up to 75% LTV and requires a 1.15x Debt Service Coverage Ratio.
This DSCR is calculated as follows:
Monthly Rent – (Property Expenses + Capital Expenses)
Scheduled PI Payments on the Loan
In what states do you lend?
We currently have the ability to make loans on residential rental properties in all 50 states.
We can cross-collateralize properties in multiple states. This allows investors who own properties across state lines to work with a single lender for all their portfolio financing needs.
How many properties can I finance?
We offer loans on portfolio consisting of multiple residential rental properties. A minimum of 5 units is required for portfolio loans. We can provide financing for your current property or for properties you wish to acquire.
Unlike traditional financing options, we do not limit the number of properties you can finance.
We also help you refinance existing loans for better terms. We can consolidate multiple mortgages and new acquisitions into a SINGLE loan. We can also make equity loans on existing properties to provide cash to buy more property. You can grow your rental portfolio and we make it easier to do it.
Am I personally liable for the loans?
The loans can be owned by a single, newly-formed limited liability corporation or other corporate entity. This structure limits your personal exposure to liability claims related to the rental properties.
Both full recourse and non-recourse loans are available.
FAQ’s
One Loan To Rule Them All
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Can I finance a vacant property?
To a limited extent, yes. We require that at least 5 units are (financed) (do you mean leased?).
At closing, the properties in the portfolio must be 90% leased. Those not yet leased must be in lease-ready condition.
What are other costs associated with the loan?
There are costs that you would expect with almost every mortgage loan, including:
--Standard loan origination fee
--Appraisal costs (to be deposited after your acceptance of the term sheet)
--Normal title fee charges
There is a one-time legal fee to form the corporate entity (LLC), unless you prefer a separate entity for each of your new properties.
Can I sell a single property?
When we finance your portfolio, the loan covers as many of the properties as you wish to include.
With some restrictions and pre-payment costs, individual property can be sold. A new property of equal or greater value can be substituted.
Our loans are fully assumable and you may sell the entire portfolio with the existing financing in place.
What are the monthly reserve requirements?
Monthly reserves for taxes, insurance and capital expenditures are required.
Our loan eliminates the worry associated with delinquent bills. We arrange monthly payment for taxes and insurance. No fuss, no muss.
For major capital expenditures such as roofing, appliances and HVAC, monthly reserves are collected. When needed, these reserves can reimburse you for major expenses.
FAQ’s
One Loan To Rule Them All
More questions?
We’d be happy to answer any questions you have!
To obtain a rate quote, please complete the Rent-Roll Worksheet.
A term sheet is provided in 48 hours upon receipt of your completed rent-roll worksheet.
We will provide you with a Rent Roll Worksheet upon request.
FOR MORE INFORMATION,
CONTACT THE
BUSINESS FUNDING GROUP LLC
1.888.630.6620
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Testimonials
Edward S. – Tacoma, WA
“Thank you for introducing me to this blanket loan program. I now can buy more properties in
multiple states. I have been able to expand my investment portfolio using this ONE loan concept.”
Robert C. – Las Vegas, NV“My partner and I just bought 5 more rentals properties using cash from your program. Thank
you. We couldn’t have done this without your help! We will definitely refer this program to other
people in our investor network.”
Debbie W. – Miami, FL“Awesome! What can I say! Thank you for your help. We are expanding!”
George A. – Cleveland, OH“this program resolved our cash flow problems we had last year. Now we are on our way to
become the best landlord of the Midwest region!”
Loretta G. – Atlanta, GA
“I wish I had found this program when I first started rental investing much earlier! Thank you for
the wonderful support and responsiveness.”
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That Have Your Back
Dear Fellow Investors,
Thank you for reviewing this E-Book. I hope it provides valuable
information for your rental investment.
Real estate has long been my personal passion. When the “dot-com”
industry cooled off, real estate investment was the next best opportunity.
With two partners, we started investing in real estate in 1990 and continuing
to expand our investment portfolio since then. We have invested in several
income-producing properties, both residential and commercial, in the Seattle
-WA, Las Vegas – NV, and Cleveland – OH areas. Our experience has been
in “fix-n-flip” as well as “buy-n-hold” properties.
Previously licensed as a realtor in the states of WA and OH for a combined
total of 8 years, I continued to serve investor clients in helping them achieve
their investment goals. During the financial crisis, we found that it was
difficult to obtain investment loans to purchase new properties. Due to these
difficulties, we searched for different funding options and came across this
ONE Loan (Blanket) program which has provided most of the answers and
solutions to problems facing most residential rental investors today. While
my partners and I are still looking for “killer deals”, we have been focusing
on helping fellow investors find funding solutions to their rental investment
needs.
I look forward to serving you.
Aura Alex, CEO
Business Funding Group LLC
1.888.630.6620
www.thefundinggroup.net
The Professionals
