Blanket Mortgage Loans – Definition, Pros & Cons of Using for Real Estate

For real estate investors, juggling multiple property deals and loans can get complicated.

Blanket loans often help simplify matters. Borrowers take out a single loan to cover multiple properties.

Even so, blanket loans come with their own quirks and have their pros and cons. Before entering into a blanket loan as an investor, make sure you understand exactly what you’re getting yourself into.

What Is a Blanket Loan?

A blanket loan is simply one loan that attaches to several real estate investment properties.

For example, if you buy a portfolio of five properties, a blanket loan allows you to take out one mortgage that covers all five buildings. The lender attaches a lien against each property, so if you default on your loan, the lender can foreclose on all five properties to recover their money.

Lenders do typically include a release clause, allowing the borrower to sell individual properties held as collateral as part of a blanket loan. However, they require the borrower to either repay a portion of the loan at the time of sale or put the money toward another investment. The lender then attaches a lien to the new investment property as a replacement for the sold collateral property.

That keeps their collateral — your remaining properties secured by the blanket loan — sufficient to cover their loan risk.

Who Takes Out Blanket Loans?

Blanket mortgages are exclusively for real estate investors and developers, not homeowners.

Investors can use blanket loans in many ways to invest in real estate. Landlords can take out a blanket mortgage to buy a portfolio of turnkey rental properties, as outlined above. Flippers could do likewise, to buy several fixer-uppers to renovate and flip, all with one loan. As they sell off properties, they typically repay a proportion of their loan.

Real estate developers use blanket loans to buy large swaths of land that they plan to subdivide into many units. As they build and sell off those units, they can either repay portions of the loan or put the money toward adding more properties to the portfolio.

Businesses with multiple locations and commercial properties can also use blanket loans. That could mean refinancing multiple existing loans into one blanket loan, or using a blanket loan to buy several new locations in one sweep.

When You Should Use a Blanket Mortgage

As touched on above, you can either use a blanket loan at the time of purchase or you can refinance to consolidate multiple mortgages into one loan.

It makes sense to use a blanket loan at the time of purchase if you plan to buy multiple properties simultaneously. You may also be able to negotiate staggered funding if you buy multiple properties in rapid succession but not quite simultaneously.

Another possibility with blanket mortgages includes buying only one new property, but securing the loan against other properties you own for additional collateral. Real estate investors sometimes do this in lieu of making a down payment on the new property.

For example, say you own a property worth $100,000, but you only owe $50,000 on it. You want to buy another property for $100,000, and the lender demands a $20,000 down payment.

Rather than cough up the $20,000 in cash, you offer your existing property as additional collateral for the new mortgage loan. The lender agrees to fund the full $100,000 for you to buy your new property, but puts liens on both properties. They now hold the first (and only) lien against your new property, and they have a second lien against your old property.

Advantages of Blanket Loans

Blanket mortgages come with several upsides for real estate investors.

To begin with, they can save on lender fees and settlement costs by holding one combined closing rather than having to pay separately for several. Lenders charge flat fees in addition to points, and those flat fees add up quickly. Title companies also charge many flat fees for each closing. With blanket loans, borrowers can pay those flat fees once, rather than at each settlement.

Aside from saving money, combining financing for several properties into one loan can also keep your finances and cash flow simpler. Rather than keeping track of 20 mortgage payments and loans, you need only track one or two.

When buying new properties, blanket mortgages can potentially reduce or eliminate your down payment if you use equity from an existing property for a cross-collateralized loan. Consider it one more way to pull equity out of your properties — and one that doesn’t require a totally separate settlement with its attendant costs.

Larger loans often mean more negotiating room for you as the borrower as well. Lenders don’t need to charge as many points on a $1 million loan to make it worth their while, compared to five $200,000 loans. Similarly, borrowers can often negotiate lower interest rates as well.

Downsides of Blanket Loans

Blanket mortgages come with their share of risks and disadvantages.

To begin with, it can be hard to find lenders that offer these loans. Up to this point in your real estate investing career, you may have established relationships with two or three lenders — none of whom might offer blanket loans. That forces you to go out and build new relationships with lenders who do.

Expect more intensive scrutiny by the lender for these larger, more complex loans. Rather than using a garden variety underwriter, bank managers might underwrite these larger loans themselves. Lenders might ask more probing questions and require more extensive documentation and paperwork from you. They may require higher credit scores than their typical loan products.

Blanket loans often come with shorter loan terms than traditional mortgage loans. Rather than the 25- or 30-year loan terms you’re used to, lenders often limit blanket loans to 10 to 15 years. That could come in the form of a balloon payment, or the loan could be entirely amortized over those 10 to 15 years. In the case of short-term amortization, that means higher monthly payments.

Finally, blanket loans pool your risk for many properties into a single loan. If you default on that loan, you could lose all the properties secured by it to foreclosure, not just one. In contrast, if you hold separate loans for each property, in a crisis you could isolate your losses to one property as long as you can afford to make your other monthly payments.

Where You Can Borrow Blanket Loans

Conventional mortgage lenders don’t typically allow blanket loans. Commercial lenders, portfolio lenders — who keep loans on their own books rather than selling them — and hard money lenders often do allow them.

Make no mistake, these lenders usually charge more than your personal home mortgage lender. But they also allow far more flexibility, and as a real estate investor, that flexibility is often necessary.

Call up your local community banks to ask whether they offer blanket loans for real estate investors. You can also reach out to portfolio lenders such as Lending Home and Rental Home Financing to inquire about them. For commercial loans, make sure you choose a commercial lender, because even many portfolio lenders only handle residential (single-family and 2-4 unit multifamily) properties.

Word to the wise: start building these connections now, before you actually have a time-sensitive deal on the line. Real estate investors need to be able to move fast and close deals quickly, else they risk losing the deal entirely.

Final Word

The average mom-and-pop property owner with a couple units on the side of their full-time job will probably never need to take out large blanket loans. But for real estate developers and full-time real estate investors, blanket loans can help them scale their investment portfolios faster and cheaper.

Start expanding your network of lenders now, before you have a hot deal at risk of falling through. Think in terms of building a financing toolkit of many different options for buying your next investment property — or portfolio of properties.

Source: moneycrashers.com

Austin Tops List of Hottest Commercial Property Markets

Austin, Texas, is No. 1 in the hearts of commercial real estate investors. So reports CultureMap Austin.

Based on a new survey by CBRE, Austin is seen as the U.S. metro area with the best investment outlook for this year.

No. 2 is Dallas-Fort Worth, followed at No. 3 by last year’s top-spot holder, Los Angeles. Austin was No. 3 in 2020.

Read the full article from CultureMap Austin.

Source: themortgageleader.com

The Pros and Cons of Renting Out Your Mother-in-Law Apartment

Also known as secondary units, these spaces can be handy when family visits or moves in. But if you’re not housing relatives, you can still put the unit to work.

Whether you’re buying your first home, looking to build one, or trying to make use of some free space, mother-in-law apartments (also known as accessory dwelling units or secondary units) are a great investment — even if you’re not planning to have relatives move in.

By renting out a section of your home, you can help ease the strain of a mortgage, or grow your savings. While these units can be difficult to find while house hunting, their advantages make them worth the extra effort — and if that doesn’t work, you can always build your own.

What is a secondary unit?

Similar to duplexes, secondary units offer an entirely separated living space that is part of a single building. They typically have their own entrance, bedrooms, kitchen, and living space. However, while duplex units are typically mirrors of each other, secondary units are a smaller part of a primary property.

In some cases, homes are built with a secondary unit in mind, and the design reflects an obviously segmented property. Other times, homeowners add a secondary unit to take advantage of underused space.

If the home has multiple bathrooms and kitchens, a retrofit can be as simple as blocking off a staircase. Otherwise, you’ll need to add basic amenities in order to rent to tenants.

While this construction may seem expensive, it can pay for itself in as little as a year or two. And as long as it doesn’t add to the square footage of the home, this type of addition may not even increase the property taxes (though your income taxes will increase).

Tally the benefits

Immediately and long term, the biggest advantages to owning a property with a secondary unit are financial. A tenant can be a huge help for first-time home buyers saddled with a steep mortgage payment. If the mortgage isn’t necessarily a concern, that rent money can help with bills or savings contributions.

Looking ahead, some homeowners will put their tenant’s rent money toward a down payment on their next home, which opens up the possibility of moving out and renting both units.

For parents whose children have recently left the nest, adding a secondary unit to rent out can help them save for retirement or provide income in twilight years. Taking recent trends into account, having this type of unit available can also be great in case adult children need to move back in, but don’t want to sleep in their old bedroom.

Beyond the initial return on investment, secondary units have long-term advantages. Along with savvy home buyers, real estate investors and property management companies are always on the lookout for these types of properties, driving up demand and price. And as any house hunter in the last decade can tell you, they go fast once they hit the market. This means that anyone planning to build their own house should definitely consider the possibility of adding a secondary unit, which may help boost the resale value and interest in the property.

The downside

Once you begin renting a secondary unit, you are no longer just a homeowner — you are a landlord. For first time homeowners, this may be a bit too much to handle; the unexpected costs and problems that creep up on new homeowners are magnified when managing two units. Repairs that you may normally leave for another day become immediate when they’re in your tenant’s unit.

You’re also responsible for finding a good tenant who will not only pay the rent on time, but will take care of your home. Tenants are sometimes harder on properties than property owners, which can be jarring for inexperienced landlords. Keep in mind that any damage your tenants do is damage done to your home.

So while houses with secondary units may seem like a cash machine, that machine requires a lot of time and maintenance to keep running. Make sure you have the time and energy to be on-call for repairs, emergencies, bill collection, complaints and more.

Finally, make sure you’ve done all your research before you start bricking up that basement staircase. State and local regulations vary, and while you’re probably okay to buy a home with an existing secondary unit, building your own may come with additional fees and paperwork.

Despite these potential issues, property management provides valuable experience that will benefit any homeowner. For many, the benefits of owning a property with a secondary unit far outweigh the disadvantages. Paying down a mortgage, building a nest egg, or increasing a home’s value are all great reasons to look into properties with secondary units.

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Source: zillow.com

What Can Real Estate Investor Association Clubs Teach You?

Last Updated on May 22, 2020 by Mark Ferguson

Real estate investor association clubs can be a great way to find amazing deals. The clubs offer numerous educational opportunities and networking opportunities as well. The groups can be free, or some have a membership fee. Like anything in life, you get what you put into it. If you are willing to go to meetups, talk to other investors, and ask for help, you will get much more out of it than if you sit in a corner and don’t say a word. I have been to a few clubs and even spoken at a few as well. REIA clubs are not magic and will not make you an investor, but they can be a useful tool. Some clubs can even get you discounts at stores like Home Depot.

What are real estate investor association clubs?

REIA clubs are for real estate investors to mingle and share ideas. Many REIA clubs have monthly meetings with guest speakers who are experts in their field. The meetings usually consist of a speaker, time to network, and food or drinks. I have spoken at a couple of REIA club meetings to discuss HUD homes and how investors can get a great deal on them. There will be lenders, real estate agents, and many other investors at REIA club meetings.

Some clubs have online sites, newsletters, and even coaching programs. Each club is different and runs a little differently than the next one.

What does an REI club cost?

Many clubs are free and open to anyone who wants to join or attend a meeting. Other clubs have monthly or yearly fees to join. Some clubs are very expensive, or their main focus is to sell very expensive coaching programs. Most of the clubs I have spoken at have been free and open to anyone.

We belong to one club that has a $200 a year membership fee. I don’t think I have been to any of there meetings in years, but because we are a member, we get a 2% discount on everything at Home Depot. It is well worth being a member for that perk, and while I have heard that Home Depot may be getting rid of this program, it is still active in my area.

What can you learn at a real estate club?

Many people go to REAI clubs to learn or they want to here people speak about certain topics. There are a number of things you can learn at the meetings, but as with anything, the quality of what you learn depends on the speakers and the people who run the club.

I have seen some clubs make some pretty outrageous claims and offer some less than stellar advice because they are trying to sell their own coaching programs. They are going for the shock and awe marketing technique to get attention without caring about the bad advice they are putting out there. Other clubs are very honest and offer a lot of great advice.

You can learn about a number of different subjects in a meeting or club:

  • Wholesaling
  • Rental properties
  • Flipping
  • Note buying
  • Real estate agents
  • Auctions
  • Foreclosures
  • Finding deals
  • Financing
  • Much more

I would advise to learn from more than one source and not get too excited about the outrageous claims that might come from some clubs, especially if they are trying to sell a very expensive coaching program.

Who can you network with at the meetings?

One of the big advantages of the REAI meetups is networking with people who may be able to help your business. I have met some cool people at the meetings, but again, be wary and don’t get too excited.

Wholesalers

There are many wholesalers at real estate investor clubs who could be very valuable to any investor. A wholesaler finds properties to buy but usually does not want to fix and flip the house or rent it out themselves. They want to flip the property quickly, and in some cases, without even buying the house. Wholesalers prefer to sell or assign their deals to investors, and many times, the houses are sold well below market value.

One of the main reasons I attended meetings was to meet wholesalers and to start building relationships. A key ingredient to any investor’s successful strategy is finding properties at below market value. I never met any wholesalers at an REAI meetup that sold me a deal. I met a lot of wholesalers, but I think most of them were very new. I have bought houses from many wholesalers, but I met them through many other means.

There will be many wholesalers at meetups but realize they may be very new and just learning the business. A lot of them have high expectations. which is great, but don’t expect a ton of deals to start flowing your way from every wholesaler you meet. I would estimate 1 out of 10 people who call themselves a wholesaler will ever do a deal.

Lenders

There are usually a few hard-money lenders at the meetings, or they may even sponsor or put on the meeting. Hard-money lenders specialize in financing house flips, but the loans can work for rental properties as well in some cases. I have used hard money a few times but prefer private or bank money.

You will usually see local hard-money lenders at the meetups. I have learned to be very cautious of the local lenders. I have had deals fall apart because a local hard-money lender turned out not to have any money to lend! The local lenders can also be much more expensive than the bigger, national hard-money lenders.

Investors

Many people think other real estate investors are their competition and to be wary of them. That is true, but they can also help your business. Many successful investors are willing to share their experiences to help others, and they may be able to help your business as well. They may be a buyer for your wholesale deals, or they may have too many deals themselves and look to sell some occasionally.

I would meet all the local investors you can and make friends with as many as you can. You do not have to give away all your secrets, but having those connections can be a huge help.

Real estate agents

There may be investor-friendly real estate agents at the meetups as well. Some agents at these meetings are great and others not so much. It does not hurt to network and consider using them if you need a real estate agent. I would take your search seriously and not just work with the first agent you find.

How do you find real estate meetups?

It can be tough to find meetups, especially if you are in a small area. There are not any local consistent meetups by me. I have to travel about an hour to find one. I found those meetups through networking. Other investors I knew told me about them. You can also find meetups through sites like Bigger Pockets, local Facebook investing groups, Meetup.com, or online searches.

Conclusion

REIA meetups and clubs can be a great resource for networking and learning. However, I would not rely on them solely to provide you with everyone and everything you need to know. I would also curb your enthusiasm if you are expecting to meet 20 people who will constantly bring you deals from the clubs. Most meetings are full of new investors looking to learn.

Source: investfourmore.com

What Are the Traits of Successful Real Estate Investors?

Last Updated on May 22, 2020 by Mark Ferguson

traits of successful real estate investorsA lot of people want to be successful real estate investors, but not everyone is able to accomplish this feat. What is it that makes someone successful at real estate? Are they smarter? Do they work harder? Were they just lucky? I think there are many traits that make someone more likely to be a successful real estate investor, and I will talk about them in this article. I have many of these traits as well, and I have been flipping houses, buying rentals, and selling as an agent for almost 20 years!

Why is it difficult to be a real estate investor?

Real estate can provide some incredible opportunities, but it is not easy. Houses, apartments, commercial properties, and even land can be really expensive. Most people don’t have the cash to go out and buy a house. They need to borrow money, which can be a relatively simple process if you want to buy a house to live in, but it is not as easy if you want to buy an investment property.

When buying a house to live in, you may only need 3% down or even less with a VA or USDA loan. When you buy an investment property, you probably need 20% down. It can take $20k, $40k,, or more to buy one investment property. Most people just don’t have that money.

There is also the question of what type of investor you will be. You can flip houses, buy rentals, wholesale real estate, be an agent, or even invest in notes. There are different strategies and amounts of money needed for each type of investment. If you flip houses, you might be able to put less money down using a hard-money loan. If you wholesale, you can be successful without as much money, but you will need to put in a lot of effort and time.

What are the traits of a successful real estate investor?

I have been a real estate investor since 2002 and have met many other investors through my blog, YouTube channel, and other social media. Most successful investors tend to have these traits. These are not set in stone, and people who don’t have these traits can be successful in real estate, but in my experience, it helps to have these traits.

Good at math

Real estate is all about the numbers. If you are buying rental properties, you need to know how much a house makes each month based on the actual and possible expenses. You need to be able to estimate repair costs and how much cash you will need.

If you flip houses, you need to know all the costs involved—not just the repairs. The other costs like financing, carrying, and selling costs can be more than the repair costs. It is not as easy as they make it seem on TV!

If you want to be a wholesaler, you need to know what price will work for a flipper or landlord. You need to be able to calculate the costs and formulas that work.

You don’t have to take calculus, but you need to be able to do simple math well.

Willing to learn

We already talked about how much there is to know about real estate. You aren’t born knowing these things—you must learn them. Most people think they don’t have time to read or learn, so they don’t. They make excuses for why they don’t have time, and nothing changes in their lives.

Those who are successful make the time to read! They make time to look at houses and write out strategies!

Willing to take risks

I have bought a lot of properties in my career, including many I probably shouldn’t have bought. While I have had some house flips that did not turn out exactly how I hoped they would, I have had many more great deals that more than made up for the bad ones.

To be a real estate investor, you must be willing to take some risks. Successful investors spend a lot of money buying properties and fixing them up. Sometimes you lose that money, and sometimes you make money. You cannot let the risk of losing money scare you away.

We are still buying during the pandemic! You can see the video below that shows I may be willing to take on more risk than the average person.

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Willing to spend time

People often want to become investors because they want freedom and more time. It takes time to be a successful investor. It is not something that is easy or happens overnight. Owning rentals can be mostly passive once you buy the property and have a good property manager, but you need to take the time to find the best properties and managers.

If you are investing out of state, it makes sense to visit where you want to invest. If you are flipping houses, it takes time to find contractors, lenders and deals, and you need to be overseeing everything constantly. You have to be willing to put time into the business if you want to be successful.

Persistence

Becoming a great real estate does not happen right away. It can take months or even years to buy a property. If you give up easily, real estate is probably not the best business for you. I did not buy my first rental until 2 years after I decided I wanted to invest in rentals. I was in the real estate business at the time!

You also may fail or lose money in the beginning. You have to chalk those up as learning experiences and be willing to keep trying. Some of the best investors I know lost money on their first deals, but they did not give up.

Savers

You almost always need money to be a real estate investor. There are ways to invest with little money and maybe no money, but it is a lot easier if you have money to start with. Most successful real estate investors save money before and after they become investors. Once you become successful, you need to keep putting money back into the investment to grow.

Entrepreneurs

You don’t have to have the entrepreneur mindset to be a successful investor, but it helps! Even being a real estate agent means you are running your own business. I personally have to be an entrepreneur. I cannot work for anyone else. Real estate is perfect for me.

If you need someone to tell you when to work and how to do everything, it could be rough trying to be an investor. You need to be decisive and willing to act fast without confirmation from a boss that you are doing the right thing.

What if you don’t have these traits?

Don’t give up if you don’t have all of these traits. There have been many successful investors who still made it even though they lacked math skills or the entrepreneurial spirit. They may have had a tougher time or may have had to work harder, but they still did it. If you can recognize your weaknesses, that can help you figure out where you need help. You could work on being stronger in those areas or find someone to help you or work with you that is strong in those areas.

I have written 8 books that go into more detail on how to actually invest in real estate and the exact steps to take. You can find them all on Amazon.

Conclusion

Real estate is an amazing business, and it can provide some amazing investments. It is not easy, and it does not happen overnight. I see these traits in many successful investors but I also see people who never graduated high school have real estate empires as well.

Source: investfourmore.com

Fixed vs. Adjustable Mortgage Rates

When you apply for a home loan, you’ll be given the option of either a fixed or a variable rate mortgage loan. Both of these loan options have some upsides and some potential negatives, but ultimately, the one that works best for you will depend on a number of different factors.

Fixed-rate mortgages offer borrowers the stability of the same interest rate and monthly payment over the life of the loan. That’s a huge plus for home buyers who want predictability in their payments. Variable-rate mortgages, on the other hand, have interest rates that fluctuate from time to time. These loans come with more uncertainty, as rates could increase in the future — but they also come with perks like lower starting interest rates.

When deciding the right type of mortgage rate for you, it’s important to consider how long you plan to stay in the home, your risk tolerance and whether you have wiggle room in your budget for an increased mortgage payment down the road. There’s more to that formula, though. Here’s what you should know about these types of mortgage loans.

In this article

What are fixed mortgage rates?

A fixed mortgage rate is a rate that remains the same for the entire life of the loan. Fixed-rate mortgages are the most common type of home loan. When borrowers apply for this type of loan, the interest rate they’re given will be determined by factors such as their income, credit scores and the current market rates.

The rate on a fixed mortgage loan never changes over the life of the loan. That means that fixed-rate mortgages come with consistent monthly payments since there are no rate fluctuations. The amount you pay per month in the first year of the mortgage is the same as the monthly payment you pay in the 25th year.

The only difference is how much of the monthly payment goes toward interest vs. principal. As you pay down your principal, your loan accrues less interest, which means less of your payment goes toward the interest portion of your loan. As a result, more of your monthly payment goes toward principal each year of your loan.

The 30-year fixed-rate mortgage is the most popular type of home loan. This type of fixed-rate loan gives buyers a 30-year period to pay off their loans. Fixed-rate mortgages can also come with 10-year, 15-year and, less commonly, 20-year terms.

[ Read: What Are the Different Types of Mortgages? ]

What are variable mortgage rates?

A variable mortgage rate is a rate that changes periodically throughout the life of the loan. An adjustable-rate mortgage (ARM) loan starts with a period of fixed interest that could last anywhere from one to 10 years. During this period, the mortgage rate is guaranteed not to change.

Adjustable-rate mortgages appear as two numbers. For example, you might have a 5/1 mortgage. This indicates that your loan has a fixed-rate period of five years and that your rate can change no more than one time per year after that.

Once the fixed-rate period passes, which is five years in this case, the mortgage rate can change periodically (often every year) based on a specific benchmark, such as LIBOR or the rate on a Treasury bill. As the market rate increases, variable-rate mortgage borrowers will see their mortgage rates increase, and vice versa. There’s always a chance your rate will go down if rates drop.

As the variable rate on a loan increases or decreases, so does the monthly payment. The good news is that these loans come with rate and payment caps. Your interest rate and monthly payment are guaranteed not to exceed a certain amount as determined at the time you take out the mortgage.

[ Read: Refinance Your Fixed-Rate to ARM Mortgage ]

Comparing the two types of mortgage rates

Fixed and variable rates are the two rate options you’ll have to choose from when you buy a home. Both are very different and come with their own set of perks.

Advantages of a fixed rate

Fixed mortgage rates provide predictability to the borrower. Because the interest rate and the monthly payment amount never change, homeowners know exactly how much they’ll pay each month over the life of the loan. You won’t have to worry about your monthly payment increasing substantially and becoming unaffordable.

Fixed-rate mortgages also allow borrowers to lock in low rates during the loan process. Imagine that you bought a house during a year like 2020, when interest rates were historically low. A fixed-rate mortgage ensures that you get to keep the low rate for the entire loan term, no matter what happens to the market rate.

Advantages of a variable rate

While variable rates don’t come with the stability that a fixed mortgage rate does, they still have their own set of advantages. First, adjustable-rate mortgages tend to have lower starting interest rates. These loans come with a fixed-rate period at the start of the loan, which is when you’re likely to see the low rate. The interest rates available for this period are often lower than the rate you’d be able to get on a fixed-rate mortgage under the same market conditions.

Variable-rate mortgages also allow borrowers to take advantage of low market rates later in the life of their loan. If you lock in a fixed interest rate when rates are high, you can’t take advantage of rate decreases unless you refinance your loan. With a variable rate, you’ll see your mortgage rate drop if the market rate goes down.

[ Read: How to Get the Best Mortgage Rates ]

Should you get an ARM or a fixed-rate mortgage?

Choosing between a fixed-rate and adjustable-rate mortgage can be challenging. Borrowers often want the stability that comes with fixed mortgage rates, but also want the lower rate available to ARM borrowers. Unfortunately, you can’t have both.

One of the first things to consider is how long you plan to stay in the home. If you’re planning to buy a home to stay in for a few years, an ARM might give you the best of both worlds. You’ll lock in the lower starting rate that comes with an ARM, but you can sell the home and pay off the mortgage before your fixed-rate period ends.

An ARM may also be a good option if you have lots of wiggle room in your budget. With this type of loan, you run the risk of your interest rate increasing later on, and, in turn, your monthly payment also increases. If you have plenty of room in the budget for a larger mortgage payment and are willing to roll the dice on the interest rate fluctuations, then you might decide an ARM is right for you.

ARMs can also be a good option for certain real estate investors. If you plan to buy an investment property to flip in the next couple of years, an ARM might help you to save money.

Ultimately, a fixed-rate mortgage is the option that most people choose. This type of loan gives borrowers the flexibility to stay in their homes as long as they want without the fear of a rate or payment increase that would make their home unaffordable. Even though these loans start with slightly higher interest rates, you could still pay lower interest over the entire life of the loan. Unlike an ARM, there’s no chance of your interest rate increasing in the future.

Compare top mortgage lenders

Source: thesimpledollar.com

How to Find a Mentor for Real Estate Investing

How to find a mentorMany people feel they need a mentor to succeed as a real estate investor. The truth is a mentor can be a massive help, but I don’t think it is absolutely necessary to be successful. Many people have become successful real estate investors without a direct mentor. Finding a great mentor can be time-consuming and expensive as many will charge tens of thousands of dollars! If you can find a mentor to help you that is great, but don’t give up or spend all of your time looking for the mentor instead of learning about real estate.

I have been a successful real estate investor and agent. I have flipped almost 200 houses (199 as of right now, own 175,000 square feet of rentals properties and I own a real estate brokerage. I have also written 9 books, have a successful YouTube channel and Instagram page (100k subscribers). A lot of people want me to be their mentor. While I love helping people I simply cannot mentor everyone who asks because I have an active business and a family. I have set up some programs to help people who want mentorship and they don’t cost tens of thousands of dollars!

What is a mentor and why do you need one?

Some think a mentor should be a guide who helps when needed, while others want a mentor to do all the work for them. There are also those, who think a mentor will tell them exactly what to do at all times, and when they don’t get that, they give up. I found that most people I tried to help, wanted someone else to do the heavy lifting, and when they found out much work they would have to do, they gave up. When looking for a great mentor, you cannot be focussed on what that mentor can do for you, but what you can do for the mentor. Successful people are usually busy, and their time is very valuable. If you can provide value to a mentor, they may be willing to help you out, but don’t expect someone to help you for free, just because you are “highly motivated”.

A mentor is defined as: “an experienced and trusted adviser”. There are a couple of very important points to take from this definition.

Who should be a mentor?

To be a mentor you need to have experience in the field the mentee wants to learn about. The level of experience needed can vary, based on what the mentee wants to learn and how involved the mentor is. A successful mentor may only know one thing really well, but all they teach is that one thing. Other mentors, may know ten different techniques, and teach all ten based on what the mentee needs help with. As someone looking for a mentor, you need to make sure the mentor you are looking for has experience in what you need help with. The more specific, the better. If you simply want to be “successful in real estate”, that will make it very hard for anyone to help you.

But if you know you want to be a wholesaler, or a house flipper, or a real estate agent that will help you find a mentor in that area of expertise. I think it is vitally important to find a mentor who is actively doing what you want to do and did not quit 10 years ago or never was an investor at all. The world is full of fakes, so make sure the person you are trusting actually did what you want to do.

What is an advisor?

The second part of the definition of a mentor mentions an adviser. An adviser is someone who gives advice and helps people. In my mind, an adviser does not teach someone how to do everything. They offer advice in certain situations when it is needed. If someone is looking to learn an entire trade from scratch, they would want to be part of an apprenticeship. An apprentice is:

“A person who works for another in order to learn a trade.”

Don’t think a mentor hoping they will personally teach you everything you need to know to be successful. I have people who want to shadow me or work for me for free so that I teach them to be exactly like me. The problem is they cannot even tell me what skills they have and they have no idea what they like to do. They want to be rich and that is all. If you are not willing to put the work in to find out what you want, it will be tough to ever find a mentor.

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Do the rich need mentors?

Many of the wealthiest people in the world, spend thousands and thousands of dollars on coaches and mentors. The wealthiest people also are at a point where they need very specialized training and have to pay a lot of money to work with the best trainers in the world. I am not against paying for an expensive mentor if you have the financial means to do it.

Unfortunately, the real estate investing world is full of people trying to convince novices to spend $30,000 on real estate training. They have no qualms with asking people to borrow the money, refinance their homes, or even get credit cards to pay for it. These programs draw in people who don’t know what they want except they want to be rich.

The rich use mentors to help them become the best in the world at certain tasks to careers that they already know a lot about. You do not need a $30,000 coaching program if you are just starting out and trying to find your way in life. If you are just starting out you may not be ready for a mentor but someone to help educate you.

How do you decide if you need a mentor?

If you want to invest in real estate or even be a real estate agent, a mentor or education can help you succeed much faster. There are many choices for a potential mentor and it is not easy to decide who to use. If you are a real estate agent, you should be able to find a good mentor. When you choose a broker to work with, make sure you pick one who offers the most training and can act as a mentor. Too many agents choose the broker based on how many fees they charge, instead of the training offered. If you cannot find an awesome broker to work with, there are many training programs for real estate agents to help them succeed.

When you get into real estate investing, it gets much more confusing. There are programs, mentors, and systems for flipping, rentals, wholesaling, notes, tax liens, and more. Before you choose a mentor, you need to figure out what area of real estate investing you want to be in. Learn as much as you can about the different ways to invest.

My blog has a ton of articles on real estate investing and real estate agents. if you want to dig deep I have written 9 books as well on a variety of subjects. Books are a great way to learn what you want to do before you seek out a mentor.

Many people do not like to read so you can also check out my Youtube channel that has a ton of information as well.

https://www.youtube.com/channel/UCOTPdegeURsMXpwWgnAx_Ow/

Can I help you decide how to be better in real estate?

Along with my books and other resources, I have an Insider program that allows people to ask me direct questions every week. It also has a monthly newsletter, podcast, advanced calculators, and a contest that allows people to win prizes for completing real estate-related activities that will help them succeed.

If you talk to a lender, visit a potential deal, or get pre-qualified or attend an REIA meeting, you earn points. The winners of the contest get access to my advanced coaching programs, autographed books, and other prizes.

I wish I could answer every email or direct message I receive, but it is simply impossible based on how many people ask for my help. The Insider program is one way to get that help directly from me and we are offering one month free for a limited time.

Learn more about the InvestFourMore Insider

How do you find a real estate mentor?

Once you know what field you want to be in, how do you actually find someone with experience in that field? If you are reading this article, you have already found one source of information, blogs, and websites. You have to be very careful who you listen too. There are many great websites with a lot of really good information, and there are many websites that are simply sales funnels to real estate training programs. There are also many people on forums who pretend to be experts, who have no idea what they are doing. When you see advertisements for free books or free courses, you can be assured they are going to try to sell you a course at some point. Not all courses are bad or a waste of money, but find out as much as you can about the teacher of that course, and make sure they are the person you want to learn from.

I would be careful when the mentor or course makes huge promises, and won’t give you any information until you buy. If you hear an advertisement on the radio for a free seminar, you can be sure they will be trying to sell you a $30,000 course at that seminar or very soon after it.

There is also the option of finding a local mentor, which is usually the best route. However, local mentors may not want to teach you, because they would be creating competition for themselves. A local mentor may be willing to have coffee or go to lunch once in a while, but most don’t have the time to teach someone everything they know.

There are many people willing to be mentors to new investors, but they will want to be paid in return. The courses you see online or advertised on the radio, may not even include training from the person who is promoting it.

If you need or want a mentor, they are out there but make sure you pick the right person if you choose to pay for training. There are ways to find a mentor without paying for it, but that is not easy either. it usually involves working or being an intern for someone, but you better know how you can help that investor and not depend on them to tell you how to live your life.

Do you need to pay for a real estate mentor?

If you want a mentor, but don’t want to take the time to research different investing techniques or provide value to the mentor, you can pay for it. There is no shortage of real estate investing programs and they will all gladly take your money. You also might be able to find a mentor to help you for free, but it won’t be easy.

I have people email me all the time asking what they can do for me, to get my help for free. I cannot answer that question.

  • I have no idea what your skills are or what you are good at
  • I have no time to find a job for someone to do
  • I have no idea who you are and if you are reliable
  • Being “super motivated” is not a skill

Almost everyone who wants my help is super motivated, that means nothing to me. Almost everyone thinks they are super motivated and most people are at some point in their life. The problem is, they may only be super motivated for about 5 minutes. If you want someone to help you for free, you have to be able to offer them a service in return, not just be motivated.

You must remember that successful investors are usually very busy, they have many connections and a lot people who want their help. If you go to an investor and tell them you need a mentor, are super motivated and will be willing to work, you won’t get very far. Super successful investors hear that story all the time, have no time to come up with a job, and then train someone to do that job.

You need to offer the mentor value. What kind of service can you offer someone? That depends on what skills you have. Are you good at computers, marketing, sales, writing, or something else that you could help that investor with? Once you identify what skills you have, figure out what job you could do to make the investors life easier. Finally, figure out what a good trade is for the time you will be spending, versus the time the investor or mentor will be spending helping you. Remember, the mentor who want to learn from is much more valuable than you are, and the tradeoff will not always be even.

I have offered to give my programs away for free to people who offered me a service that was specific and helpful to me, without much thinking needed on my part. Sometimes it has worked out and other times it has not. Many times the person keeps their side of the bargain for a week or two and then quits, never to be heard from again .

You can use this technique with local or long-distance mentors. Remember to do as much research on your end as you possibly can before reaching out to someone.

One of the most frustrating things for me, is getting an email from someone who wants a mentor. They have no idea how they want to make money in real estate, they have no idea where to start, they have not done any research, they just know they want to do something in real estate. They want me to hold their hand and tell them exactly what to do, every step of the way. On top of all that, they want me to call them to discuss it.

Here is one more tip for finding a mentor, contact them the way they want to be contacted. If someone asks to be emailed, email them. If someone asks to be called, call them.

What if you want me to be your mentor?

I have many coaching programs for investors or agents. I created cheaper programs and books for people who are just getting started and I have programs with coaching calls and email as well. You can find everything in my store here:

InvestFourMore Shop

My most advanced coaching is The Complete Blueprint for Successful Real Estate Investing, which comes with monthly calls and unlimited email coaching from me as well as a lot of guides and videos. It is focussed on rentals and flips as I am not a wholesaler and I do not teach wholesaling. If you are interested in the Blueprint shoot us an email and we can let you know if there are any current specials.

Source: investfourmore.com

Mortgage vs. Cash: Which Is the Better Option When Buying a Home?

Last updated on November 21st, 2020

It’s been about eight months since my last mortgage match-up, so let’s give it a whirl again.

Today, the focus will be on taking out a mortgage versus simply using cash when purchasing a home.

Of course, it’s not that simple for the majority of the population to throw a few hundred thousand dollars (or more) down on a property. So for many, this won’t even be an option.

But it’s worth visiting regardless to see how even the very rich often opt for a home loan when they’ve got plenty of cash to spare.

Buying a Home with Cash Has Its Benefits

cash vs mortgage

  • Cash buyers are more attractive to home sellers
  • The home buying process can be a lot faster without a mortgage
  • Don’t need to abide by any mortgage lender’s rules
  • No property restrictions or inspections to worry about
  • Don’t have to pay interest to the bank for several decades

First let’s talk about buying a home with cash. This is almost certainly the favored approach of real estate investors and perhaps the mega-rich, though billionaires like Mark Zuckerberg still take out mortgages.

And investing gurus like Warren Buffett think the low mortgage rates are a great deal…

But for a large swath of the population, this either/or question doesn’t even get any consideration because most of us can’t afford to buy a home (or even a small condo) with cash.

Still, there are some advantages to buying a home with cash as opposed to taking out a mortgage.

The most obvious is that you don’t pay any interest when you buy with cash. That’s right, no mortgage, no interest payments.

Additionally, you don’t have to make any payments to principal either, seeing that you own your home free and clear right off the bat.

However, that doesn’t mean you won’t have recurring costs. You’ll still need to pay homeowner’s insurance (unless you’re really brave), along with property taxes and possibly HOA dues depending upon where the property is located.

The insurance thing becomes optional when you own your property outright. Not so if you have a mortgage because you don’t really own your home. Your lender does, until that loan is actually paid off in full.

Another plus to paying with cash is the negotiating power you gain when making an offer. If you’re going up against some other would-be buyers that need to finance the purchase, you’ll have the upper hand in pretty much every situation.

Sure, you could get outbid by another buyer willing to offer more for the home, but your cash offer should be king if all else is equal. And it may still be king even if you offer less than the competition.

Once your offer gets accepted, you won’t have to worry about dealing with a bank or mortgage lender. That means it doesn’t matter if your credit score is in bad shape, or if you don’t have the necessary income to qualify for a mortgage. Or if you’re a foreign national who might otherwise have difficulty getting a loan.

There is still a process to purchasing the home, but you can cut out the middleman, otherwise known as the lender. And that means you won’t have to pay lender fees, including a costly loan origination fee, or lender’s title insurance, underwriting fees, and so on.

But you might not want to skimp on the appraisal, even though it’s not a requirement. It’ll buy you some time to determine if the house is in good shape and worth what you agreed to pay.

That lack of a mortgage also means you’ll be able to move in sooner, or rent out the property sooner. Speaking of renting it out, you won’t have to worry about occupancy issues, or a higher mortgage rate because it’s an investment property.

Taking Out a Mortgage, Even If You Don’t Have To

  • A lot of very rich people take out mortgage loans
  • Not because they have to, but because they know home loans are cheap
  • Instead of tying up all their money in a single property
  • They put their hard-earned cash to work in other investments that can yield better returns

On the other hand, there’s the traditional approach to buying a home, with the help of a mortgage.

This is kind of the default option more out of necessity than preference. As I alluded to earlier, most of us can’t afford to buy real estate with cash. We need a mortgage to get the deal done.

In fact, many Americans need a sizable mortgage to get the job done, with practically zero-down FHA loans a popular choice for a large number of prospective home buyers.

So like it or not, a mortgage is often just a fact of life.

The number one downside to a mortgage is all that interest. On a $200,000 loan set at 4.5%, the total amount of interest due over 30 years is close to $165,000. Y

eah, you pay nearly double what you agreed to pay for the home. Sounds pretty rough, doesn’t it?

But like I said, this is the price of not having a substantial amount of money to put down. Along with that, you also have to pay a bunch of lender fees, which can certainly add up.

If you put down a very small amount, you’ll also be subject to paying mortgage insurance premiums, possibly for life if you go with an FHA loan and never refinance.

Oh, and you don’t just get a mortgage. You need to qualify for a mortgage, and not everyone qualifies for countless reasons. Having the lender pry into your personal and financial life may also be extremely annoying and frustrating, but if you need hundreds of thousands of dollars, they’ve earned that right.

The good news is that you write off that mortgage interest as long as you itemize deductions and they exceed the standard deduction.  So some of that interest can result in a lower tax bill each April, which lessens the blow pretty significantly.

Additionally, mortgage rates are dirt cheap compared to just about every other type of loan out there. Yes, you pay a lot of interest, but it’s only because the loan amounts are so large.

That means there’s a decent chance you can invest the money that would be locked up in your home (if you paid cash) at a better return elsewhere.

Having a mortgage on your home also means you’ve got more liquidity and less at risk, assuming something goes wrong.

Imagine something devastating happens to your home that isn’t covered by insurance. Would you rather have 20% invested, or 100%?

Also consider the recent housing bust – a lot of homeowners were able to walk away from their homes relatively unscathed because they didn’t have much invested.

Those who purchased all-cash could cut their losses, but they couldn’t walk away without losing a lot of money. There’s also that old saying about putting all your eggs in one basket.

If you don’t have money in other places, it certainly shouldn’t all be tied up in your home.

[Mortgage affordability calculator]

Can You Get the Best of Both Worlds?

  • Most home buyers put down a small amount of cash and take out a mortgage
  • The sweet spot might be a 20% down payment
  • This allows you to avoid costly mortgage insurance and obtain a low mortgage rate
  • You can invest your excess funds elsewhere or prepay the mortgage if that’s your goal

Absolutely. Most people buy homes with cash and a mortgage, not just either or. In other words, when you put 20% down on a house, you’re paying a decent chunk of cash and financing the rest.

As a result, you avoid the requirement for mortgage insurance, you get a lower rate of interest, and you have an equity investment.

Putting down 20% or more should also put you in a pretty good position when it comes to a bidding war, though an all-cash buyer willing to make a good offer will always have the upper hand.

Additionally, you can always pay your mortgage off earlier than planned seeing that most mortgages don’t have prepayment penalties anymore.

Sure, you will subject yourself to the closing costs associated with a mortgage, along with the qualifying process, but you don’t have to pay off your mortgage over 30 years.

If you decide your money isn’t earning as much as you’d like, you can move more of it towards the mortgage balance.

Got plans to retire in 10 or 15 years? Start prepaying the mortgage faster so you’ll be free and clear by the time you’re on a fixed income.  Or go with a 15-year fixed mortgage instead.

Remember, it doesn’t have to be an either/or discussion. You can make adjustments based on your financial standing as time goes on. With cash, you can also pull equity via a cash out refinance. So both options provide flexibility.

Advantages to Buying a Home with Cash

  • No need to qualify for a mortgage
  • No need to shop for a mortgage
  • No mortgage payments (good if you lose your job or are close to retirement)
  • No interest due
  • No lender fees
  • Homeowner’s insurance isn’t required
  • You don’t need to pay for an appraisal
  • More negotiating power when making an offer
  • Lower purchase price possible
  • Faster closing process
  • Could be a better return for your money than a low-yielding CD or bond
  • Set it and forget it investing (don’t have to manage your investments)
  • Can tap home equity if and when needed
  • Can always sell or take out a mortgage
  • Less hassle overall (one less thing to manage)
  • Sense of security because it’s your home!

Disadvantages to Buying a Home with Cash

  • Most of us don’t have the money required to buy a home with cash
  • Mortgage rates are a cheap source of financing
  • Real estate is an illiquid asset (not easy or free to sell)
  • The property could lose substantial value
  • You could lose a lot of money if your home is destroyed and not covered by insurance
  • You miss out on the mortgage interest deduction
  • Your return on investment might be poor relative to other options
  • Poor diversification if a lot of your money is in one single property
  • House rich and cash poor if savings get depleted

Advantages to Buying a Home with a Mortgage

  • Mortgage rates are very low
  • Mortgage interest is tax deductible
  • Inflation should make future monthly payments “cheaper”
  • You only need to bring in a small down payment
  • More cash on hand for anything else
  • Getting a mortgage isn’t really that difficult
  • A mortgage can actually improve your credit score
  • You can prepay your mortgage whenever you want in most cases
  • You can invest your money elsewhere for a better return
  • Your money is more liquid
  • Forced savings each month
  • Less risk if something happens to your home or if values drop

Disadvantages to Buying a Home with a Mortgage

  • Tons of mortgage interest must be paid
  • 30 years of monthly payments (maybe less, but still a long time!)
  • You need to shop for a mortgage
  • You need to get approved for a mortgage
  • You could get declined
  • More (lender) costs associated with a mortgage
  • Closing process more work and more time
  • You may buy more house than you should (get in over your head)
  • Harder to sell the property if little or no equity
  • You can lose your home if you fall behind on payments
  • You don’t actually own your home

Source: thetruthaboutmortgage.com