Are you wondering what the differences are between residential vs commercial hard money loans? Look no further because we’re here to help you navigate the details! (And if you have any more questions, feel free to reach out to our friendly and helpful team at (425) 272-9881! Hard Money Loans 101 Real estate investors acquire properties, they fix them up and either sell them or rent them out to tenants. This sounds like a great strategy to make money (it is!), but the problem is it can be very capital-intensive, which means it can take a lot of money to run a real estate investing business – and that ties up your money for a while (and what if you need that money?) Worse yet, investors discover that they can only grow so far using their own capital. Even if you don’t mind your money being tied up, you can only do so many deals at once. If you want to grow, you'll need even more money. That’s why many investors are turning to hard money loans as a source of capital to help them. A hard money loan is a special loan for investors to help them acquire properties and renovate them. Commercial vs. Residential Perhaps you’ve been researching hard money loans and are wondering what the difference is between residential vs commercial hard money loans, and which one is right for you. The answer is that it depends on a lot of situations, but here are some general rules of thumb to help you… It partially depends on the end-use of the property. Is the property going to be a place for people to live? Or will you be renting or selling the property for people to work at? In general, if someone is going to be working on the property, what you will need will very likely be classified as a commercial loan. If someone is going to be living there, however, then it could be a residential or commercial loan. If people are living on the property, then it comes down to the size of the structure. A single family home, or perhaps a duplex or triplex, might only need a small amount of repairs so a smaller loan is necessary. This will end up being a residential loan. However, if it’s a large multi-family unit, such as a condo or apartment building, then it will probably be a commercial hard money loan. Other factors that could determine whether you need a residential vs commercial hard money loan include whether it's: a new development or a smaller renovation of an existing property a structure or an set of structures (such as a mobile home park) what the end use will be (such as if you’re renovating a house to be a retirement home for several non-related renters). Summary Which do you need? A residential or a commercial hard money loan? It depends on a lot of factors so be sure to reach out to us and tell us about your [...]
We all pay taxes every year. Sometimes, there can be surprises. But in the case of buying local Seattle, WA, investment properties, you can earn investment property tax deductions for your Seattle properties. For real estate investors, the United States provides the opportunity to earn a living purchasing investment properties. So when you hold those properties as investments, of course the income they generate is taxed. Many new investors often overlook tax deductions that could have an impact on their bottom lines. Today, we’re going to take a look at common tax deductions Seattle, Wa, real estate investors can take advantage of. Income Sources You Can Potentially Deduct Repairs and expenses paid by rental tenants are considered income. This could include an emergency water heater repair that tenant took care of on his own. These repairs can be deducted. In some cases, tenants will trade repairs and upgrades to a rental unit for a reduction of rent. These services can be deducted, so long as they’re claimed as income, and must be charged at fair market value. You cannot work out a deal with your tenant to fix a light switch for three month's rent, then deduct it as “income” on your tax return. Security Deposits A security deposit is not taxable, based on the thought that your intent is to return this deposit at the end of a lease term. However, if a tenant breaks the lease and forfeits his or her deposit, you can claim the security deposit as income, so long as the deposit is used to make repairs. These repairs are deductible expenses. Make sure your accountant or local property manager is handling your security deposit correctly so you’re not paying income tax on security deposits that you’ll be, in turn, paying back when a tenant leaves. Other Common Investment Property Tax Deductions The portion of your mortgage that is directed towards interest is 100% tax-deductible. Your mortgage lender will provide you a form in January stating this total. Travel to and from the property to make improvements, show the property, or collect rent are considered work expenses, and therefore are deductible. Certain deductible expenses that investment property owners take advantage of include taxes, insurance, tax return preparation costs, lawn & garden care, losses resulting from theft or “acts of god” (floods, earthquakes, and other disasters), legal and professional services. Depreciation on the value of the property is deductible. This can be complicated to calculate, and it’s recommended to speak with a local Seattle accountant for more specific information. Your home office, if used to run your real estate investment business, can help generate tax deductions as long as the home office meets the minimum requirements (consult your tax advisor). By taking advantage of all applicable tax deductions, investment property owners can increase their revenue and reduce their tax liability, opening the possibility to purchase additional properties. There may be other ways to decrease your tax liability. Talk to your financial advisor or certified public accountant, as they typically keep abreast of new tax deductions that Seattle investment property [...]
On April 24th, the investment community received great news that the Washington State Governor lifted some of the restrictions on construction in Washington state. Projects funded by hard money loans may resume with some new guidelines in place. We wanted to provide a summary of the recent changes. We highly encourage that each investor read through the regulations in order to make the necessary changes to their job sites. Key Points: Existing construction projects can be resumed with new COVID-19 safety plans only allowing work that can be performed while continuing to abide by social distancing requirements. Prior to recommencing work, all contractors are required to develop and post, at each job site, a comprehensive COVID-19 exposure control, mitigation, and recovery plan. All contractors are required to post, at each job site, a written notice to employees, subcontractors, and government officials the work that will be performed at that job site and a signed commitment to adhere to the requirements. All contractors have a general obligation to keep a safe and healthy job site in accordance with state and federal law. Click to View Full Governor's Order by Jay Inslee. The National Association of Home Builders has put together some process outlines and notices, they have some help tips and practices to help stream line your job site. We encourage investors to review processes and implement them into their current construction process. Click to View the COVID-19 Guidelines from the National Association of Home Builders Please be safe on all your job sites and congratulations on getting to resume your projects!
If you're interested in real estate investing or you've been doing it for a while, you may be familiar with the BRRRR method. This method involves several steps that can give you a rather lucrative return on your investment if you do things right. When it comes to using the BRRRR method and hard money lending, how can you stay on top of your game? Read on to learn more about this real estate investment method and how it can help you get more from your hard money loan. The Basics of the BRRRR Method In recent years, the BRRRR method has become the talk of the real estate investment world thanks to Brandon Turner, of Bigger Pockets, who coined the term. This practice isn't actually new, but the acronym makes it much easier for investors to remember and put the entire process into practice. Let's break down what these letters mean, and then dive in deeper to discover how each step in the process can help you get more money from your investments. First, the letters in the method stand for Buy, Rehab, Rent, Refinance, and Repeat. The main idea is to leave some money in your investment property while you generate a new source of cash flow for future investments simultaneously. You can think of the BRRRR method as a smart strategy to create a passive income using real estate. While this method can be rather effective, there are always some risks involved that you should keep in mind, too. Let's take a closer look at the basics as well as how using a hard money lender to buy and rehab your investment properties can help you get more deals done at a much faster pace. Using hard money lenders can also help you maintain your cash position and improve cash flow. Buying In order to make the BRRRR method work for you, the value of the property that you buy is crucial to your success. To determine the best value possible, the ARV or "after repair value" of your investment property should be higher than or equal to 30 percent of the purchase price and the cost of renovation together. To get a good profit, you should never aim for margins lower than 30 percent since there won't be much room left in your budget for any unexpected costs like possible repairs and other emergencies. You also want to maintain a decent margin in case the property you buy appraises lower than you anticipated. This margin rule is known as the 70% Rule among experienced real estate investors. If you buy investment property according to this rule, the purchase price and rehab costs combined should be equal to or below 70 percent of the total amount of the after repair value, or ARV. One other reason investors using the BRRRR method abide by the 70% Rule is that most conventional lenders won't loan more than 75 percent of the property's total value. However, a hard money lender will often loan up to 80 [...]