the best uses of hard money loan programs like Indicate Capital, is for
investing in fix and flip real estate properties. But remember, lots goes into the process of
buying, rehabbing a home, and flipping it back onto the market. A fix and
flip project focuses on rapidly expanding the value of a property through very
targeted remodeling. You have to figure
out the budget to complete the home, who will do the work, how you will secure
the home, and what your backup plan is if it falls through. It is possible to make a great deal of money with
fix and flip investments in Colorado but there are precautions to take into
account. By setting an accurate budget
for your remodeling projects and completing as quickly as possible, it is
possible to add significant value to the structure. The longer the project takes, the lower the
profit will be. Below are tips Indicate
Capital suggest fix and flip investors take into consideration in order to get
the most out of your real estate investment.
ARV – After
Repair Value, helps determine if a property is a worthwhile investment. ARV represents the total home value after all
renovations are done. The difference between your “as-is” property
and the ARV is your potential revenue. To measure ARV, look at homes similar in
age, size, square footage, room count and location, ideally within a mile of
the target property.
Plan for Potential Risk
There are always risks associated with a real estate investment and not all flips are going to work out perfectly. You may find a perfect home, have the budget planned out for the renovations, but what about the hidden problems that aren’t apparent till after you begin demolition? By planning ahead and having a reserve fund for each flip, you can give yourself a safety cushion to fall back onto in the event a fix and flip becomes a flop.
Real estate flipping expenses can grow unexpectedly if you are not careful. To estimate repair costs, get bids from multiple contractors. If you are planning to perform some renovations yourself, invest time while shopping for your materials. Indicate Capital suggests adding 10 percent on top of your best budget estimates to account for the unexpected. Also, don’t forget about closing and holding expenses. Closing costs can be quite challenging to estimate in advance. It is not unusual to spend 2 percent to 5 percent of a house’s value for closing. Costs can be reduced by negotiating concessions or managed through favorable financing. To budget accurately, get several estimates for total closing costs. Don’t forget optional but desirable extras such as a home inspection.
with Reputable People or Consider a Partnership
It is important to find good people to work with on your real estate projects. Find someone who understands the industry, is experienced, and can be trusted to complete the task they are assigned. Partnering with another investor substantially reduces your risk. Although this will inevitably reduce profit, it can be worthwhile. In most markets where fix and flip is taking place like Denver, there is a thriving community of real estate investors. Working together can mean success for all instead of costly competition. In the end, if you are working with someone be sure to work together as a team for the same end goal.
If you have questions or want to talk before purchasing a fix and flip, let us know. Contact Indicate Capital.
We frequently get asked the question about where the demand for loans comes from and if there are really enough people flipping homes to keep Indicate Capital & COST Fund’s portfolio lent out. The article published in The Real Deal in early April puts a little more color around the demand that home flippers have created. According to this article, house flips accounted for 10.6% of all home sales in the US in the 4th quarter of 2018. The number of flips have not been this high since before the great recession when they hit 11.3% in 2006.
While the correlation of the high number of current flips
compared to just before the great recession may be unnerving, the median profit
for flips in 2018 is more than twice what it was 12 years ago. This means the market is more stable,
flippers and lenders are not taking as much risk, and there are still many
opportunities to make money on rehabbing a house to add value.
One other thing that was interesting from this article is
that more than 40% of all flippers today are corporate sellers. This tends to mean more flippers have
experience in the market and have the ability to take a loss on one property
while making profits on others. We have
certainly seen this in our portfolio as the majority of our borrowers are doing
more than one flip at a time. And our
biggest borrowers tend to be like traditional home builders, but instead of
having a single subdivision to develop, they are building houses in different
areas at the same time.
We believe that the housing market, especially in
Colorado, is still in good shape for the long run. We know that appreciation in the market is
probably slowing down and we are ready for that. But we also believe that flipping houses is
going to be an important sector within the overall housing market. While there are plenty of houses within the
urban market that are still prime for flips, we also believe we are going to
see more and more flips in the suburbs once the neighborhoods built in the 70’s
and 80’s start to turn over.
As always, we are still very diligent in our underwriting
for each loan we issue and we do not assume the market is going to be this good
forever. We are going to continue to
underwrite each house we lend on in a manner that protects investor principal
and will help the portfolio succeed no matter if the market is good or
Many people consider developing a real estate portfolio as a full or part-time source of income. Real estate in Colorado has attracted investors from all over the country. Real estate investment options are waiting all over this great state.
No matter which city you choose to focus on, there are some key considerations to keep in mind. When you follow these five points, you’ll find it that much easier to achieve your Colorado real estate income goals.
Cash Flow Needs to be Aligned With Your Expenses
Upfront and ongoing expenses will be a major factor for you each time you add a new element to your real estate investment strategy. It may take time (weeks or even months) to nurture a property to the point where it efficiently adds to your bottom line. So, make sure your current cash flow meets the new requirements.
Very Important to Have Positive Cashflow
Speculation is normal in real estate investing. Leveraging debt is an efficient way to take advantage of solid opportunities. That said, a positive cash flow is a crucial element of overall fiscal security. If you are looking at using a hard money loan, make sure you find favorable rates from a private money lender. But before finalizing your loan make sure to read the fine print. For example, are there pre-payment penalties, hidden fees, credit checks, etc..
Manage Personally or With a Management Group
Managing a real estate investment portfolio can quickly develop into full-time work. The skills and interests necessary to steer a portfolio long-term are different from those needed to select a property initially or to renovate it. A management group can help you with the process.
Diversify Your Portfolio
One way to weather changes in the market is to have a diverse portfolio. In Colorado, a portfolio that incorporates both commercial and residential properties is especially useful for most real estate investors. Diversification mitigates risk, which means lows aren’t quite so low and highs can still be very high.
Have a Cushion When Looking for Your Next Property
When you decide to buy an investment property in Colorado, there are many steps you can take to protect your interests: Reviewing boundary lines, inspections, thorough underwriting, etc. Still, the unexpected can happen so be sure you have sufficient funds ready to help in the event a new investment property has any surprises.
Successful real estate investments start with the right funding package. Indicate Capital has helped investors to begin and/or grow their Colorado real estate portfolios with a wide range of loan options. We make the process simple so you can move forward on your goals quickly. Indicate Capital is a reliable name that works with real estate investors of all types.
To get started today, all you need to do is fill out our simple hard money loan application.
If you are looking to buy a real estate investment property in Colorado you may be looking to close on a deal quickly, and you don’t need a 30-year loan for an easy 3-6-month flip & flip. By choosing to work with a private money lender you are given a bit more flexibility to work with. But, just like any other loan process, it is still possible to make mistakes.
Here are a few tips on borrowing from a Private Money Lender in Colorado:
Be prepared for a down payment
The details of every private money loan will depend on the investor buy typically the lending terms will fall within these terms; 1-3 year notes, up to 75% LTC, 0%-3% origination fees and interest only (monthly) payments.
Keep things realistic
Having large goals are great to shoot for, but having realistic goals is even better. We want to see you achieve goals and not just claim you can do everything and more. When discussing with your lender be specific about what your goals are. Have the figures and information prepared to be reviewed thoroughly.
Keep your word
This may go in line with the keeping things realistic, but if you state that you’ll have a portion of your work completed before you request a draw you will be expected to have that amount completed. If you fail to perform you could hurt your integrity, and the relationship with the lender could also be hurt as well.
Find an experienced local lender
We know most investors like to support their local community buy shopping locally or donating to local charities. You can do the same with your private money lender in Colorado and you’ll also get the experience of someone who is invested in seeing the community you are working in thrive.
Patience is Key
Yes, private money lenders are going to move faster than a traditional lender, but by being overly pushy and checking in too frequently or too aggressively you may be distracting the lender from getting the loan completed. Typically, the lender should be the one following up with you letting you know where your loan is at in the process. So, take a breath, and trust that we know how time sensitive the deal is.
One last tip to keep in mind: private money lending in Colorado has different rules. No matter where the lending is coming from there are regulations and rules associated with it, and if you’re working with a private money lender in Colorado, they may also have other rules to follow so make sure you know them.
For more information on private money lending in Colorado or if you are interested in buying an investment property in Colorado, contact Indicate Capital.
If done the right way, investing in commercial properties can yield significant benefits. Working with reputable commercial hard money lenders in Colorado, like Indicate Capital can help you secure the funds you need.
Types of Commercial Investment Properties
Types of commercial properties include apartment complexes, office buildings, warehouses, retail spaces, or industrial buildings. Some properties may include several types of uses. Investing in properties like these can potentially result in a high return.
Any landlord knows that investing in property is far more complicated than just sitting back and collecting the rent. Although, most times, commercial tenants tend to be easier to work with than residential ones. For starters, the law allows far greater flexibility in drafting a commercial lease than a residential one. You have latitude in choosing the type of lease and essential terms such as lease termination, security deposits, notice periods, and any other matters of importance. Further, working with a business generally creates a more professional relationship. Businesses generally have at least the same level of investment as you do in keeping the property in excellent condition and building good relationships with neighbors.
As a commercial property owner, you may be able to use a lease that shifts most of the property’s expenses to the tenant, known as a triple-net lease. This can save you both money and hassle, as the tenant takes care of maintenance and other issues.
While specific rental income depends on numerous factors such as the location, property type, and the specific business that rents from you, returns on commercial investment properties typically exceed those on residential rentals by a substantial percentage.
Healthier Accuracy in Property Pricing
A potential investor can usually assess the value of a commercial property based on specific, objective facts. These consist of the income the current landlord receives from the property, which is an easily verifiable fact. In contrast, residential properties are often valued based on an assortment of different perceptions, which can be hard to unravel.
The value of any investment asset can rise or fall due to factors out of the investor’s control. While this can be true of commercial properties as well, you can also take action to minimize risks and to increase value. Raising the rent, improving the buildings, and obtaining the necessary permissions to add or change a property use are some common ways landlords can add value to commercial real estate.
If you need help getting commercial real estate financing for your investment, Indicate Capital commercial property loans can provide what you need. Reach out to us online and let us know how we can help.
There has been a lot of talk, discussion and speculation on the current status and direction the real estate market is taking right now. We saw things slow down quite a bit during the month of November 2018. In December, things picked up a bit, and during January 2019 we have seen quite a bit of loan opportunities. As Denver’s premier lending company, our team at Indicate Capital works very hard to stay alert and aware of the market. At this point we believe one thing is certain – there is a not a lot of clarity as to how 2019 will look, and, most likely, it will be a flatter year than previous years.
The Denver area has had nearly seven years of very rapid growth and expansion. There are many factors driving the growth Denver has experienced for so long. We have seen a very strong population expansion, which has driven much of the demand for housing. Seven Years ago, on a national level, Denver homes were relatively affordable – and even cheap in some cases. Today, the picture looks much different than it did coming out of the Great Recession. Denver has become a top-tier market, meaning it is attracting jobs, large companies, and therefore more investment from institutions. This has driven the development of new apartments throughout the urban core and much of the housing development in the surrounding area. The main issue facing the Denver metro market is affordability. Wage growth has not kept pace with the cost of housing. All of this coupled with the political landscape both federally and at the state level ranging from the federal government shutdown, the Fed raising interest rates, and other trade issues have all caused for increased uncertainty in the market in general.
We expect to see the Denver real estate market moving towards a more “normalized” market. We do not plan to see the same value appreciation that we have experienced over the last few years. Construction costs continue to be so high that new development projects are very difficult to make “pencil”. This holds true in both the commercial and residential space. Both asset categories have seen a very strong market over the past seven years, and rental rates have grown dramatically across the board. We expect this growth to slow over the next year.
Indicate Capital expects there to be very strong demand for private bridge loans as banks continue to become and more tentative in their lending. Additionally, banks have been primarily lending on real estate during this boom period, and their balance sheets are “full” in that asset category per their regulator guidelines. At Indicate Capital, we also look at alternative uses or sources of cash flow from the investment real estate assets we lend on. This could include different tenant types in the commercial spaces, and rental income on projects intended for resale.
Overall, the market will eventually move into some sort of normalized pace and there may be a bit of a slower sales cycle for the homes and projects Indicate Capital lends on. We do not have a “doomsday” outlook on the Denver real estate market.