As a lender, we get tons of questions, but there is one question we get repeatedly.
And no, it is not about our CEO’s favorite “Thirsty Thursday” Happy Hour drink. But, just in case you are curious, we will tell you: Ryan Herting is partial to Manhattans. (And hey, it just so happens that today is “Thirsty Thursday” in our office, so feel free to grab and cocktail and join us!)
So, back to that question.
Whether your real estate investing game plan includes fix and flips, BRRRR investing, multifamily, new construction, or a mix, there is one thing you have in common with every other real estate investor in the world: you want the lowest possible investment loan rate you can get when you borrow any funds for real estate.
That is smart thinking! The big question is: how do you get that lowest rate?
The answer is simple: do anything and everything you can to assure the people who are providing your real estate funding that they will get their money back!
How do you convince your real estate funding loan partners that you are a good risk for their money?
Well, believe it or not, we have more answers (this might be a good time to take a sip of that cocktail)!
#1: Experience
We preach this all the time. If you do not have experience, find someone who does: a mentor, a general contractor, or a partner. In this business, the truth is that lower real estate funding rates (along with the higher leverage that most people want), come with experience.
Why? People who put their money on the line as funding for real estate investors want to know that you have already walked through the fire (and, for those who have finished a project, you know what I mean by the “fire”) before they loan you money. They are betting on you to execute, and your track record is proof that you can do it.
For example, with i Fund Cities, you will likely need a minimum of one completed deal for us to consider real estate funding for your project. Two completed deals will get you a better rate. Five-plus deals will get you preferential rate treatment and ten-plus deals will get you the best rates and leverage.
If you are just starting, and you want low rates and high leverage funds for real estate, the fastest way to get there is to find a partner.
#2: Liquidity
I am going to give this to you as straight as I can. I know there are lots of seller and creative financing techniques but, to really execute a real estate investing game plan, you need to have liquidity. In short, you need to have money in some form or another and you need to be able to use it when you need it.
Liquidity is not just the cash in your pocket. It can also come in the form of a 401(k), IRA, investment, debt-free property, or a limited partner (LP) investor bringing capital into the deal.
Liquidity gives you real estate funding options, like whether to use a bank loan, alternative lender (like i Fund Cities), or hard money. It gives you preferential rates and leverage, no matter who you work with to get funds for real estate investing.
#3: Good Credit Score (680 and Above)
What is a “good” credit score? For example, at i Fund Cities, we look at a rate of 680 and above as ideal, and we ask for a minimum credit score of 640 for long-term loans and 600 for short-term loans.
If you have a poor credit score, it does not mean you will not get a loan. But, if you want to get the best interest rate and leverage available in real estate funding, you will either need a decent credit score, or you need to bring in a guarantor, or borrower, who has good credit.
Look—credit score matters, not just for your first loan, but for your entire real estate investing game plan. Let’s say you are going to do BRRRR investing. You are going to purchase a property, rehab it, rent it, refinance it, and repeat that, again and again. Each time you do that, you are going to reap the rewards of a good credit score.
If you do not have one, find a partner with a good credit score in your network and team up. That will help your lender get comfortable with financing of up to 75%, and even 80%, loan to value (LTV) on the exit.
#4: Find an incredible deal
There is no substitute for finding a great deal that you can add value to in order to boost your after repair value (ARV). I am not talking about putting lipstick on a pig. If you want low-rate real estate funding, create actual value in a project. For example, if you find a three-bedroom, one-bath single family home, then turn it into a three-bedroom, two-bath home.
Do not bring a lender a product that, during Covid, you bought under market for $220,000, and now, because of function in the market, you think is worth $280,000. If you have done zero value-add to the project, a lender may give you a loan for the purchase price, but no lender is going to give you funds based on that higher ARV.
Whether you are looking for fix and flip loans, rental loans, bridge financing, portfolio refinancing, or some other type of real estate funding, we have given you four solid ways to lower your rates and increase your leverage.
We hope that was helpful. Thanks for hanging out with us on Thirsty Thursday!
Cheers Investor Nation! (Clink!)
