December 7, 2021

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Land Investment – What You Need to Know

If you’ve ever thought about investing in real estate, you’ve probably considered residential, commercial multifamily, offices, hotels, or even industrial properties. But what about land with no property built on it? Although land is becoming more and more scarce, there are still multiple options when it comes to investing in land property. In this article, we’ll look at what types of land properties exist, explain why they present quality investments, examine financing options, and talk about where you can start looking to purchase land. Let’s dive in! Land Types There are 3 types of land property we can look at to understand how they operate and their investment potential. Parking Lots In developed and developing cities and towns, space and property values are ever-increasing. In these areas, parking lots prove to be a profitable investment. Many investors are interested in them over traditional forms of real estate. Parking lots generate revenue flow through their use. In premium locations (downtown sectors and highly populated areas), parking lot owners charge for their use. These properties can exist in a few different forms, from surface-level parking lots to multilevel garages. While unassuming at first glance, parking lot properties have a low cost of entry, and they present a great ROI for minimal work. Vacant Land Vacant land is simply an empty space with no real future intentions placed upon it. These plots of land are very difficult to find in urban and developed areas, but they are often more readily available in less developed, rural locations. This type of property is a blank slate for whatever the investor chooses. It could be rented out and maintained for open space, outdoor events, it could be used to harvest natural resources, or even used for farming. Despite being the type of land property with the lowest immediate cash flow generation, vacant land accrues value immensely. Keep it well-maintained, and it will prove to be a great investment over time. You must ask yourself one big question before you plan to purchase vacant land properties: why is the land vacant? Is the previous owner simply selling the land and moving on to another investment? Or is the land difficult to manage? Is there no market for open land where you are planning to purchase it? Your answer will reveal any red flags about the property and ultimately let you decide if that specific plot of vacant land is a good investment. Land for Construction Land properties for construction are open plots of land that plan to be utilized for property and real estate development (residential or commercial). Like other land property investments, investors should look toward rural areas for available land to purchase. However, good deals on land used for development in cities can present a profitable investment. Additionally, land for construction presents a wide range of use cases, and it’s often cheaper than buying already-established property. Compared to all land property, land for construction also presents the highest potential gains for investors. A good marketing strategy will let you, as an investor, attract customers who want to build on the property. Deals can easily amount to millions of dollars, depending on the size of the land and the ease of development. Keep in mind, however, that the barrier to entry for these properties tends to be the highest of all land properties. Preparing land for construction also takes work like grading, zoning, These processes cost money. Why Invest in Land Property Land properties are fantastic investment opportunities, given a proper understanding of market demand in a given area. On a macro level, a stronger economy means land will accrue more value. Here are some reasons you should consider investing in land properties: Low maintenance and appreciation Unlike commercial or residential properties, land property requires very little maintenance. The most you’re required to do as a landlord is make sure the property is clean and suitable for its purpose. With proper maintenance and an economy that supports demand, land properties have the potential to greatly appreciate over many years, sometimes more so than other types of property. This is even more true when considering property meant for construction. Big buyers looking to expand a business or build real estate will often pay premiums to be able to utilize the land, which gives you significant revenue flow. Scarcity of available properties Available property is becoming harder and harder to come by. As time goes on—and as development projects use land in both urban and rural areas—land will become more expensive. That means investing now is a good move! Easy entry for property investment Out of all types of property, land property is often one of the most accessible for beginning investors. Land properties usually cost a fraction of residential or commercial properties, unless the land is located in a highly-populated area where demand drives prices. This inexpensive quality makes land property attractive, especially for those with limited financing options or capital. Financing Options for Land Properties It’s perfectly fine if you lack the necessary capital and still wish to invest in land properties—many financing options exist to help you! Here are some financing options that you can consider when purchasing your land property. Conventional Bank Loans When issuing conventional bank loans, banks check eligibility with your credit score and history. Having a portfolio of your owned properties helps to secure this type of loan; however, it isn’t necessary and these conventional loans are typically available to most investors. With these loans, you’ll find amortization periods between 10-30 years. Banks will cover a very large amount of the cost of the property, sometimes 100%, depending on your credit score and the price of the property. You still need to be aware of the amount of money you need to contribute for a down payment to acquire a conventional loan. This can be anywhere from 20-50% of the property’s value. Every bank will be different and there may be some ability to negotiate. Loanbase helps you compare lenders

Hard Money Loans: What You Need To Know

Hard Money Loans: What You Need To Know

Hard money loans are a type of private financing often referred to as short-term bridge loans or asset-based lending and used to address short-term needs like the purchase of real estate and renovation costs. Hard money loans are also used as bridge financing until fixed-rate, long-term financing is available. What Is a Hard Money Loan? A hard money loan is a nontraditional source of financing, typically offered by an individual or small business lender. Available loan amounts vary widely based on the particular lender and the project being financed. However, this typically translates into more flexible loan amounts than those available through traditional financial institutions. Borrower eligibility requirements are often less rigorous than for banks. This can make hard money loans a good option for business owners who need to get real estate under contract quickly, without the formalities required by traditional lenders. There are some tradeoffs, though—interest rates may be higher and there is still the risk of default and foreclosure that comes with traditional mortgages. How Does a Hard Money Loan Work? Unlike standard mortgages, hard money loans are offered by individuals and lending companies—not traditional banks and financial institutions. This means that real estate investors, developers, and other prospective borrowers don’t have to meet the strict borrowing requirements often associated with the mortgage process. With a traditional mortgage, the lender evaluates the loan application based primarily on the creditworthiness of the borrower. Hard money lenders, however, base lending decisions primarily on the value of the property being financed. This results in a much less rigorous—and less time-consuming—application process that is appealing to many real estate professionals. However, this streamlined application process often translates into more risk to the lender. To offset these risks, hard money lenders often charge higher interest rates than may be available for traditional mortgages and other forms of financing. Borrowers may also encounter additional fees, though this varies by lender. What Are Hard Money Loans Used For? Hard money loans are most commonly used to purchase or rehabilitate real estate. However, they can also be used as a form of bridge financing or to buy and hold properties. These are some common uses for hard money loans: Fix and flip properties. Hard money loans are an excellent source of funding for flipping projects, especially those expected to take less than six months. Lenders also face less risk when financing the acquisition and renovation of fixer-uppers because it’s more likely a project will be completed and resold if there is ample money for improvements.   Investment properties. Hard money loans can be used to finance traditional investment properties, including single-family and multifamily rentals—and in some cases short-term vacation rentals, though this is less common.   Commercial real estate. These loans are also a popular option for the purchase of commercial real estate. As with other purchases, using hard money loans in place of a conventional mortgage or business loan speeds up the lending process and enables buyers to lock down the perfect commercial property quickly, without waiting for the traditional approval process.   Real estate development. Real estate developers who need cash to get their projects off the ground—or stay on schedule—may also benefit from hard money loans. Cost overruns are hardly rare in the development business, and this type of financing can help fill short-term funding gaps to help developers finish projects.   Residential properties at risk of foreclosure. Property owners facing short-term cash shortages—such as those that can occur in the middle of a renovation—can use hard money loans to cover their holding costs until they sort out their shortfall.   In contrast to conventional financing, a real estate investor can use a hard money loan to purchase a property more quickly than funding is typically available through traditional banks and lenders. The borrower can then refinance with a conventional loan after 12 to 36 months. Hard Money Loan Rates Interest Rate 10% to 18% Origination Fee >1% to 5% of the total loan amount Underwriting Fee $500 to $5,000 Appraisal Fee $300 to $1,500+ Down Payment 20% to 30% for residential properties 30% to 40% for commercial properties Conventional financing for residential properties typically requires a downpayment of 20% of the purchase price to avoid mortgage insurance. Commercial properties generally necessitate a 25% down payment. However, some lenders allow for HELOCs or mezzanine financing that can take the loan-to-value (LTV) ratio up to between 85% and 90%. Pros and Cons of Hard Money Loans Pros Loan approvals and closings are faster than with traditional loans Financing is more accessible to less creditworthy borrowers Can help fund fix and flip projects that don’t qualify for conventional financing There may not be underwriting fees, prepayment penalties, or other costs commonly associated with traditional lenders Can make it possible to get off-market properties under contract quickly, without waiting for the traditional mortgage approval and underwriting process Cons Interest rates may be higher than for traditional lenders Maximum LTV ratios may be lower than with conventional financing Points are paid upfront There’s a risk of default and subsequent foreclosure, though this is also true of conventional financing Can be difficult to layer hard money loans on top of conventional financing if a property is already used as collateral for another loan Alternatives to Hard Money Loans Hard money loans can be an alluring financing option for many real estate investors and developers. However, this type of financing isn’t always the best fit—especially for creditworthy borrowers, those who don’t require fast funding times, and people purchasing owner-occupied real estate. If you think a more traditional loan is better suited to your needs, consider these alternatives to hard money loans: SBA 504 Loans Backed by the U.S. Small Business Administration (SBA), SBA 504 loans are available to small business owners who need to finance major fixed assets like the purchase of land, the purchase or construction of buildings and new facilities, and investment in long-term machinery and equipment. Funds may also be used to modernize or

Fix and Flip Loans

Fix and Flip Loans: What They Are and How They Work

Fix and flips loans are different types of loans used to repair or renovate and resell homes. Flipping can be a very profitable business, but it usually requires investors to move quickly in order to close on properties when they find a good deal. Investors must also have the financial resources to complete rehab projects quickly to minimize holding costs. What Is a Fix and Flip Loan? Fix and flip loans aren’t one specific loan product, but rather a small subset of loan products that are particularly beneficial for financing repairs and renovations of homes prior to resale. For that reason, fix and flip loans come in several shapes and sizes—ranging from lines of credit to federally-guaranteed rehab loans. Some of these financing options are term loans, while others are revolving. All fix and flip loans, however, are secured—typically by the property being rehabbed. Many lenders also require additional collateral that is separate from the underlying property. In addition to being secured, these loans are almost always personally guaranteed by the borrower. How Does a Fix and Flip Loan Work? Investors use fix and flip loans to acquire a property they intend to renovate and resell for a profit. The purchaser may pay cash for the property, or finance it like a traditional home purchase, though fix and flips are usually non-owner-occupied. Then, the investor accesses financing—which are often secured by other assets, such as their personal residence—to cover the cost of renovating and holding the property until it’s sold for a profit. Fix and flip projects are often viewed by lenders as riskier than traditional homes and mortgages because they are non-owner-occupied and purchased for a business purpose. Further, these properties often have a lower value as collateral, and the lender knows the value of the collateral will decline temporarily as renovations begin. Origination fees for these loans generally range from 1.5% to 5% of the total loan amount but may be higher depending on the scope of the project. Interest rates range from 7% to 12% or more depending on the borrower’s credit score and other factors. Types of Fix and Flip Loans Several forms of financing can be used as a fix and flip loan—each with its own characteristics and advantages. These are some of the most common types of fix and flip loans: Hard Money Loans Hard money loans are a type of nontraditional financing that is secured by valuable collateral, like real estate. For that reason, these loans are more accessible to borrowers with poor credit. Hard money loans also can be used for the rehabilitation of properties that are already mortgaged, which makes them perfect for fix and flip real estate investors who need cash for renovations. Key Takeaway: One of the biggest advantages of hard money loans is that borrowers can often access the cash faster than with more traditional loans—sometimes in a matter of days. However, this type of financing can be expensive, with interest rates much higher than those available with more conventional financing. Conventional Loans Conventional loans are financial products obtained through a bank or credit union. These loans require a full underwriting process, and it can take around 30 days to receive funds. This traditional form of financing also requires extensive collateral, which includes but may not be limited to the property being renovated. That said, interest rates are generally lower than for other types of fix and flip loans and may range from just 3% to 7%. Conventional loans may also be more difficult to qualify for but can be ideal for creditworthy borrowers and real estate investors with established banking relationships. Construction Loans Construction loans begin like a line of credit, with money drawn gradually as it’s spent on the project. Interest-only accrues on the portion of the loan the borrower accesses. At the end of the draw period—usually between one and two years—the construction loan is converted to long-term, fixed-rate financing. Interest rates range from 4% to 6% during the draw period and 3% to 7% thereafter. This type of financing is favored by developers because interest is prorated during the draw period and allows for flexible loan conversion when multiple projects are underway simultaneously. 203(k) Loans A 203(k) loan is a type of residential rehab loan that’s federally guaranteed by the Federal Housing Administration (FHA). FHA 203(k) loan funds can be used to pay for materials and labor associated with the purchase and rehabilitation of fixer-uppers. Loans can also be used to refinance properties as a way to fund renovation costs. Keep in mind, however, that 203(k) loans are reserved for the rehabilitation of owner-occupied, primary residences. So, the program isn’t a good option for real estate investors who exclusively purchase properties they don’t plan to inhabit HELOCs Home equity lines of credit, or HELOCs, are a type of secondary mortgage that lets real estate flippers borrow against a property they already own. To qualify for a HELOC, the borrower must have substantial equity in the property being leveraged—usually at least 15% to 20%. Borrowers can typically access up to 90% of their total equity in the home, so available financing amounts vary. That said, HELOCs are revolving, meaning active flippers can access the funds on an as-needed basis, make monthly payments, and access the money again for the next project. Even if you can’t finance a full fix and flip with a HELOC, it’s probably your best bet for fixing and flipping a house with no money down. Still, underwriting on a HELOC can be time-consuming. Not only is the application process more rigorous than for other types of financing, obtaining a HELOC usually requires an appraisal of the property you’re borrowing against. What’s the Difference Between a Bridge Loan and a Fix and Flip Loan? Bridge loans and fix and flip loans are both short-term financing options for real estate investors. However, there are key distinctions between the two loan types. For example, bridge loans are typically used to finance the purchase

Hotel Investment Properties – A Complete Guide

Hotel properties are properties that are used for temporary occupancy. They include hotels, motels, inns, and related transient accommodation housing. As a landlord, hotel properties present unique property management opportunities and requirements based on the type of hotel (luxury, full service, and limited service). In this article, we’ll explore the different types of hotel properties, why they present quality investment opportunities, financing options, FAQs, and more. Let’s dive in. Types of Hotel Properties Let’s first look at 3 different types of hotel properties and how they operate. Luxury What makes a hotel property “luxury?” Essentially, a luxury hotel property hosts high-quality amenities and guest services. These hotels are typically rated 4.5-5 stars. From the decor of the lobby to the quality of the bedsheets, luxury hotel properties are well-maintained and give their guests the “best of the best.” Think of these hotels as “full service +” hotels (we’ll define full-service hotels later on). More often than not, these hotels are located in resorts or the most populated areas of major cities. They are typically the most expensive type of hotel for guests. The grand experience associated with luxury hotels increases the amount that customers are willing to pay to enjoy their services. The revenue potential for luxury hotels is the largest of all the hotel types; however, these types of hotels are also the most difficult and expensive to manage and maintain. Full Service Full-service hotels offer various different services to their guests, including restaurants, spas, gyms, room service, and entertainment areas. They’re found close to airports, casinos, or busy areas of cities or towns. Full-service hotel rooms are spacious and possess high-quality comfort accessories for their guests. Full-service guests enjoy high-speed wifi, access to pay-per-view or movie channels on the available television, and room service options with their stay. Physically, full-service hotels are quite large. Not only do they house guests, but they also house various services which require space, such as restaurants and fitness facilities. Regarding revenue, like all hotels, full-service hotels generate large amounts of money for their stakeholders. Full-service hotels also make a significant amount of their revenue stream through the extra services and facilities they provide—often through their restaurants and bars. These strengths can also be a huge weakness, however. Remember that these facilities also require staff, maintenance, and inventory management. Without a well-communicating management team, and an eye for cost-benefit analysis, these facilities can eat into profit margins. However, if these challenges are managed, full-service hotels can be an extremely strong investment option! Limited Service Limited-service hotels are often regarded as a budget-friendly option for those looking for overnight accommodation. The primary source of revenue for limited-service hotels is guests booking rooms, as these hotels do not provide many of the services that full-service hotels do, such as restaurants or bars. These properties are smaller than the other two types of hotels, and they do not require the immense staff numbers that full service or luxury hotels require to operate. The smaller form factor makes them easier to manage. Landlords will find that there aren’t many immense expenses associated with limited service hotel properties. Despite being the “cheap hotel option” for guests, limited-service hotels still provide internet access, televisions. They may even include a small kitchen or food prep area in their guest rooms. Cheap does not mean poor quality. Guests will be impressed with modern decor, up-to-date appliances, and high-speed internet for a moderately low price. Nowadays, limited-service hotels often have gyms, pools, public cooking areas, and more for guests to enjoy. These properties are often found on the outskirts of busy cities or in smaller cities or towns. Why Invest in Hotels Hotel properties are an amazing choice for property investors. Unlike any other type of commercial property, hotels can adjust the prices of their services, as they see fit. Prices change overnight to match the demand of the market. This increased amount of control allows investors and landlords to stay competitive with other hotel properties. It also allows for-profit, unhindered by many leasing or renting regulations that affect other commercial and residential properties. Here are some more reasons to invest in hotel property: Depreciation Tax on Hotel Property While real estate value appreciates in relation to the cost of owning land and property, the property itself will depreciate over time due to wear and tear. US tax laws let property owners reduce the amount of taxable income by providing a depreciation schedule on the property—essentially, this is an outline explaining the costs of your property depreciating over a set time period. Hotels can maximize the benefits of these laws by creating depreciation schedules for their real, personal, and intangible property. These forms of the property include building and FF&E, physical assets, and goodwill—the intangible property associated with customer loyalty and staff relations. Depreciation schedules can be applied to all of these assets. The various tax regulations that cut taxable income can be utilized most efficiently with hotel properties. Multiple avenues to increase the value of a property Overseeing and managing hotel properties involves constant changes. By proactively tackling avenues that hold value in the hotel property, the value of your hotel will not only be maintained, but it will also increase over time! The four primary hotel value avenues are capitalization, renovation, operations, and contract positioning. Capitalization refers to how you use the money you invest in your property in order to increase revenue. Carefully allocate portions of your investment into parts of your business you think will earn you money. For example, if your hotel’s restaurant is always busy, that means it might be a good idea to invest in the cooking staff, appliances, and restaurant space. Your property’s appearance also matters when it comes to gaining business and maintaining a successful business. Renovations are based on current trends in interior design, so understand these trends and put money towards them. A stylish property that enamors guests will increase your revenue stream! One revenue stream that costs little to

Industrial Real Estate – A Complete Guide

Industrial real estates are properties that contribute to developing, manufacturing, storing, and moving physical products. Rather than provide a direct service to clients or tenants, industrial real estate properties support the economy by assisting in the creation of goods and facilitating their transport to consumers. As a financial investment, industrial property’s high demand and longevity can prevent a worthwhile opportunity for investors. Because there will always be a need to manufacture, store, and distribute physical goods, there will always be a need for some sort of industrial property. In this article, we’ll look at various types of industrial properties, explain their investment upside, explore different financing options, describe locations of industry, and much more! Let’s dive in. Types of Industrial Real Estate There are four main types of industrial property. Each of them has its role in the production of goods and in transporting those goods to consumers. Warehouse A “warehouse” is a general term to describe properties involved in the storage and distribution of goods. Storage and distribution industrial properties are not necessarily “warehouses,” and we’ll discuss the differences later in this article. Warehouse properties are quite large, usually with high clearing ceilings and sizable square footage to store goods and prep them for shipping. Most come equipped with multiple loading docks that allow trucks to easily load and unload goods. Depending on the size of the property, many warehouses have multiple loading and unloading docks. Although some warehouse properties have space dedicated to offices, this isn’t their main focus or value proposition. After the pandemic decimated many retail storefronts, property investors now look at warehouses as “the next big thing” for property investment. Notably, e-commerce companies thrive off of warehouse space. General warehouse property can be seen as a jack of all trades in the industrial property family, serving to both distribute and store goods. Regardless of whether or not a company has a retail location to sell goods, orders can still be fulfilled online, and warehouses are where goods are kept (at least temporarily), and shipped to distribution centers. Storage Industrial storage properties are used, as their name implies, for the storage of goods. Compare that to warehouses. Some warehouses are used to store goods, but this isn’t their primary purpose. Industrial storage properties, on the other hand, are utilized entirety to store and maintain goods. Oftentimes this means storage facilities come with certain characteristics that enable goods to be preserved in a certain state. For example, in a food production supply chain, while products may be sent to warehouses temporarily, they’re also stored in cold storage buildings. This allows them to maintain their quality for extended periods due to the precise condition controls the property possesses. Storage properties, just like warehouses, can be a reliable investment for property investors. They serve a purpose that will never become obsolete. If your property also possesses qualities that certain tenants are looking for (like climate control technology suitable for food storage), you’ll be able to draft profitable lease agreements that reinforce your revenue stream. Manufacturing Goods and products are created within industrial manufacturing properties. These properties can vary greatly in their scale. Some manufacturing properties are only a few thousand square feet and don’t require any heavy-duty or intricate machinery. On the other hand, large-scale, heavy manufacturing properties can be 10-100 thousand square feet, equipped with assembly lines, advanced automated machinery, and a floor plan that allows tenants’ to use the space in ways they see fit. Manufacturing properties sometimes have their research and development department on site. Sometimes there’s also space on the property to test new goods. As an investor, manufacturing properties come with low risks and high potential rewards. Additionally, there’s very little upkeep to be concerned about. Instead, you only need to ensure that the physical property meets proper regulations and safety standards. Tenants usually sign triple-net leases—long-term leases that delegate maintenance of the property to the tenant. As an investor, you also don’t need to worry about or provide any of the machinery that the tenant needs to manufacture goods. Tenants are responsible for sourcing and expensing that machinery. Distribution Distribution industrial properties are the last place products are kept before they get shipped out to customers or sent to retail facilities. While these properties may have warehouse components, their primary purpose is to distribute goods. This means they’re designed to easily collect necessary logistics data and organize shipping information. These properties also have more space dedicated to office management than other industrial properties. Typically these offices handle logistics and inventory tracking. Out of all types of industrial real estate, location matters the most for distribution properties. Investors should focus on properties located in the center of states (or even the country), as well as properties near airports, major highways, and sometimes even shipping docks. Why Invest in Industrial Property Now that we’ve covered the types of industrial properties that exist, we’ll explain some reasons you might consider investing in industrial properties. Security and demand leads to profit Industrial properties typically represent a secure investment option due to their purpose. Their value comes from contributing to the production and selling of goods and services. Because of this, they’re often one of the safest property investments you can make! Since these properties will always be in demand, investors often find that their return on investment for industrial properties is higher than their ROI on commercial or residential properties. On average, the value of industrial properties increases by 7-10% annually! Favorable lease agreements Industrial property leases present favorable lease lengths and conditions for investors. Across all industrial properties, leases average around 15-20 years. Long leases, along with high annual investment returns, almost always lead to quality financial outcomes for property owners. Many industrial properties are leased under triple net leases. Under these leases, the tenant is responsible for the set operation and maintenance costs, decided by the landlord. Having your tenants cover the costs of their utilities and property management means that you get to