Many new real estate investors face several financial challenges, their primary concern being how to pay for a real estate deal. Most experienced real estate investors believe even if you have money to make the deal, you are better off financing real estate deals using someone else’s money. This article will discuss why more and more investors are now hoping to get 100% financing land loans.
When using a 100% financing land loan, you will use debt to make your deal happen. It’s an approach that offers investors several benefits like keeping their assets liquid, increased return on investment, reduced risk, tax deductions, credit score improvements, and accessibility.
How Can You Use Hard Money Loans To 100% Finance Properties?
Most real estate lenders can access 100 percent financing land loans using hard money loans. When a hard money lender reviews your loan application, they will solely focus on the asset, the real estate property. They will issue you a loan if they can secure enough equity in the property. Most of these hard money lenders base their equity on the ARV, or the after-rehab value, and generally lend up to 70% of the total value.
For instance, if a real estate property appraises with a $300,000 ARV, the lender will offer you a $210,000 loan ($300,000 ARV x 70% LTV). If you can purchase, rehab, and flip this property for $210,00 or less, you will qualify for the loan and can finance the entire deal using hard money loans.
Traditionally, hard money lenders won’t get you to the 100 percent financing land loans mark in a real estate deal. It is fairly typical for real estate investors to find funds over their hard money loan. Finding an awesome deal that a hard money loan will cover 100% can be complicated. It means most investors look for other financing techniques to meet their budget in addition to a hard money loan. You, as an investor, can easily bridge the gap between your hard money loan and deal budget using the following:
- A home equity line of credit
- A business line of credit
- Home equity loan
- Credit card loan
All these gap financing techniques enable investors to 100% financing land loans.
Better Return on Your Investment
Using debt to purchase a property can help increase your overall return on investment. As the LTV increases, the cash-on-cash return will also increase. In simpler terms, with an excellent real estate deal, the greater your leverage is, the more significant returns you will get.
Let’s explain this to you using an example. Let’s assume you can purchase a commercial real estate property for $250,000, and it can successfully generate $15,000 in income yearly. If you pay all cash, it will translate into a 6% ROI.
However, if you use a mortgage with a 20% down payment, you invested $50,000 in cash and used a $200,000 loan to purchase the property. Though your loan payments will cut your cash flow, you will also increase your ROI. Assuming you get a 3.5% interest rate and a 30-year loan term, you will have an annual debt of $10,900. With this, your annual cash flow will now be $4,100.
This means you have an 8.2% ROI which is 2.2% higher than an all-cash property purchase. Though these are simplified figures, the takeaway is that using debt to purchase real estate can help increase your ROI.
Leverage Helps Improve Credit Scores.
Another advantage of using a hard money 100% financing land loan is that your credit score doesn’t matter. As long as you don’t have bankruptcies or judgments on your report, your credit score will not affect your overall ability to qualify for a real estate loan.
However, as you expand your business from flipping houses into other real estate investment strategies, you will eventually resort to traditional financing. And lenders who give these loans will require you to meet the minimum credit score. Fortunately, the best way to increase your credit score is by making timely, regular payments on all your outstanding debts.
Therefore, if you start small using 100% financed real estate, the payments you make on your debt will help improve your credit score. As you improve your credit score, you will have access to larger loans with better rates.
If you want to find out more about the many benefits of a 100 percent financing land loans, we suggest you speak with our team from Real Estate Funding Solutions immediately.
Real Estate Funding Solutions Can Help Explain The Process In Detail!
If you have any questions or concerns about 100% financing land loans or want to learn more about the benefits they offer, contact the Real Estate Funding Solutions team for clarity. Our team has years of experience in the industry and can give you the best advice you need to boost your investment portfolio.
Moreover, our experts can provide professional suggestions on which loan would fit your needs the best and help you find ideal loan terms for your next investment real estate purchase. Call us at 855-913-8637 to find out more.