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A Real Estate Investing Guide
TABLE OF CONTENTS
When you think about buying real estate, the first thing that probably comes to mind is your home. But physical property can play a part in a portfolio too, especially as a hedge against the stock market. However, while real estate has become a popular investment vehicle over the last 50 years, buying and owning brick and mortar is a lot more complicated than investing in equities and bonds. In this article,financing4prosperity we'll examine the leading options for individual investors, listed in approximate order of how direct a real estate investment they are, and reasons to invest.financing4prosperity
Basic Rental Properties
Ideally, the landlord charges enough rent to cover all of the aforementioned costs. A landlord may also charge more in order to produce a monthly profit, but the most common strategy is to be patient and only charge enough rent to cover expenses until the mortgage has been paid, at which time the majority of the rent becomes profit. Furthermore, the property may also have appreciated in value over the course of the mortgage, leaving the landlord with a more valuable asset. According to the U.S. Census Bureau, real estate in this country has consistently increased in value from 1940 to 2006. While there was a dip during the subprime mortgage meltdown of 2008 to 2010, it has now rebounded and has been increasing overall.
An investor must know the market in which he is searching for property or hire an expert to help. For investors seeking an income stream from rental properties, the most important aspects to consider are property location and market rental rates. As for location, many successful rentals are located in close proximity to major schools. For example, financing4prosperity.if you buy a property near a state university, students are likely to want to rent it year after year. There are also many other features of a profitable rental property, and some take time to learn.
There are, of course, blemishes on the face of what seems like an ideal investment. You can end up with a bad tenant who damages the property or, worse still, ends up having no tenant at all.financing4prosperity. This leaves you with negative monthly cash flow, meaning that you might have to scramble to cover your mortgage payments. There is also the matter of finding the right property. You will want to pick an area where vacancy rates are low and choose a place that people will want to rent.
Once you've found an ideal property in an area where people want to rent, use a mortgage calculator to determine the total cost of the property with interest. It's also worth researching different mortgage types in order to secure a favorable interest rate for your rental.
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Sunday, March 1, 2020
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What Are Private Business Loans?
When your business needs money, the best thing to do is to explore all of the viable options for small business loans.financing4prosperity. While more traditional forms of funding might be the first to come to mind, private business loans should also be on your list of options.
Though private business loans can come in many different forms, they all have one thing in common—they come from a non-bank entity. The fact that private business loans come from a private entity is what makes them private business loans rather than your average, everyday business loans.financing4prosperity
From this one commonality, though, private business loans diverge into many different values, costs, and structure.
In this guide, we’ll go over the details of private business loans, including what they are, where you can get them, and the different types.financing4prosperity
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Types of Private Business Loans
Now that we’ve gone over who you can work with for a private business loan, let’s take a look at what you’ll be able to work with.financing4prosperity
As we said, private business loans come in many shapes and sizes, so you should become familiar with all of your available options to make sure you’re choosing the best possible option for you and your business.financing4prosperity
Here are the main types of private business loans available on the market.
SBA Loans
When it comes to private business loans, SBA loans are a bit of a gray area.
Though they are often funded by a private lender, SBA loans are always partially guaranteed by a government entity, the U.S.financing4prosperity Small Business Administration (SBA).
Because of this partial guarantee, SBA loans come with long terms, low APRs, and high loan amounts. As such, they’re the cream of the crop as far as your private business loan options.
Keep in mind that, because they have such ideal terms, SBA loans will always be some of the most difficult to qualify for.financing4prosperity. Most business owners that qualify for SBA loans have good personal credit, high annual revenue, and a long business history under their belt.financing4prosperity
Medium-Term Loans
Next up: medium-term loans. These private business loans are often referred to as term loans and they’re another affordable private business loan option for small business owners.
They mirror traditional term loans that banks offer to businesses, but they’re often far easier to qualify for with a private lender.
These loans are likely what you picture when you picture a business loan—a lump sum paid back over time, plus interest, with monthly payments.
After SBA loans, term loans are the most affordable but hardest to qualify for out of your private business loan options.
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Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of realty property as part of a real estate investment strategy is generally considered to be a sub-specialty of real estate investing called real estate development. Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent. If these factors are not well understood and managed by the investor, real estate becomes a risky investment.financing4prosperity
Sources and acquisition of investment property[edit]
Real estate markets in most countries are not as organized or efficient as markets for other, more liquid investment instruments. Individual properties are unique to themselves and not directly interchangeable, which presents a major challenge to an investor seeking to evaluate prices and investment opportunities. For this reason, locating properties in which to invest can involve substantial work and competition among investors to purchase individual properties may be highly variable depending on knowledge of availability. Information asymmetries are commonplace in real estate markets. This increases transactional risk, but also provides many opportunities for investors to obtain properties at bargain prices. Real estate entrepreneurs typically use a variety of appraisal techniques to determine the value of properties prior to purchase.financing4prosperity
Typical sources of investment properties include:
Once an investment property has been located, and preliminary due diligence (investigation and verification of the condition and status of the property) completed, financing4prosperity.the investor will have to negotiate a sale price and sale terms with the seller, then execute a contract for sale. Most investors employ real estate agents and real estate attorneys to assist with the acquisition process, as it can be quite complex and improperly executed transactions can be very costly. During the acquisition of a property, an investor will typically make a formal offer to buy including payment of "earnest money" to the seller at the start of negotiation to reserve the investor's rights to complete the transaction if price and terms can be satisfactorily negotiated. This earnest money may or may not be refundable, and is considered to be a signal of the seriousness of the investor's intent to purchase. The terms of the offer will also usually include a number of contingencies which allow the investor time to complete due diligence, inspect the property and obtain financing among other requirements prior to final purchase. Within the contingency period, the investor usually has the right to rescind the offer with no penalty and obtain a refund of earnest money deposits. Once contingencies have expired, rescinding the offer will usually require forfeiture of the earnest money deposits and may involve other penalties as well.
Real estate assets are typically very expensive in comparison to other widely available investment instruments (such as stocks or bonds). Only rarely will real estate investors pay the entire amount of the purchase price of a property in cash. Usually, a large portion of the purchase price will be financed using some sort of financial instrument or debt, such as a mortgage loan collateralized by the property itself. The amount of the purchase price financed by debt is referred to as leverage. The amount financed by the investor's own capital, through cash or other asset transfers, is referred to as equity.financing4prosperity. The ratio of leverage to total appraised value (often referred to as "LTV", or loan to value for a conventional mortgage) is one mathematical measure of the risk an investor is taking by using leverage to finance the purchase of a property. Investors usually seek to decrease their equity requirements and increase their leverage, so that their return on investment (ROI) is maximized. Lenders and other financial institutions usually have minimum equity requirements for real estate investments they are being asked to finance, typically on the order of 20% of appraised value. Investors seeking low equity requirements may explore alternate financing arrangements as part of the purchase of a property (for instance, seller financing, seller subordination, private equity sources, etc.)financing4prosperity
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Merchant cash advance
A merchant cash advance (MCA) was originally structured as a lump sum payment to a business in exchange for an agreed-upon percentage of future credit card and/or debit card sales.[1] The term is now commonly used to describe a variety of small business financing options characterized by short payment terms (generally under 24 months) and small regular payments (typically paid each business day) as opposed to the larger monthly payments and longer payment terms associated with traditional bank loans. The term "merchant cash advance" may be used to describe purchases of future credit card sales receivables or short-term business loans.[citation needed]
Concept[edit]
Merchant cash advance companies provide funds to businesses in exchange for a percentage of the businesses' daily credit card income, directly from the processor that clears and settles the credit card payment. A company's remittances are drawn from customers' debit and credit-card purchases on a daily basis until the obligation has been met. Most providers form partnerships with payment processors and then take a fixed or variable percentage of a merchant's future credit card sales.[2]
These merchant cash advances are not loans — rather, they are a sale of a portion of future credit and/or debit card sales. Therefore, merchant cash advance companies claim that they are not bound by state usury laws that limit lenders from charging high-interest rates.[3] This technicality allows them to operate in a largely unregulated market and charge much higher interest rates than banks.[4] On June 10, 2016, a New York Supreme Court judge presiding over a published merchant cash advance case ruled that "if the transaction is not a loan, there can be no usury,"financing4prosperity adding also that asking the court to convert an agreement to sell future receivables into a loan agreement "would require unwarranted speculation." [5]
This structure may have some advantages over the structure of a conventional loan. Payments to the merchant cash advance company fluctuate directly with the merchant's sales volumes,financing4prosperity giving the merchant greater flexibility with which to manage their cash flow, particularly during a slow season. Advances are processed quicker than a typical loan, giving borrowers quicker access to capital. Also, because MCA providers typically give more weight to the underlying performance of a business than the owner’s personal credit scores, merchant cash advances offer an alternative to businesses who may not qualify for a conventional loan. An example transaction is as follows:financing4prosperity A business sells $25,000 of a portion of its future credit card sales for an immediate $20,000 lump sum payment from a finance company. The finance company then collects its portion (generally 15-35%) from every credit card and/or debit card sale until the entire $25,000 is collected.[6]
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re you a small-business owner, looking for the capital needed to promote business growth? If so, you may be considering your business funding options and the difference between them. There are several traditional and non-traditional or alternative lending methods available. Deciding what business lending option is right for your business can make all the difference. So, before you act, you may want to consider your options.
Traditional Business Loans
A traditional business loan or a commercial loan is a debt-based funding agreement between a business entity and a financial institution such as a bank or credit union. It is typically used to fund capital expenditures or operational expenses that your business may not be able to afford.financing4prosperity
How a Business Loan Works
Business loans are granted in a variety of industries to help with short-term funding needs that can facilitate the operating process of a business. The funds are typically used for operational costs and the purchasing of equipment, but may also be used to meet more basic needs, like payroll or purchasing supplies or inventory.financing4prosperity
Securing a Business Loan
Like any other traditional loan from a bank or credit union, the creditworthiness of an applicant is a key factor, as well as the collateral a business owner has to secure the loan. In most instances, the business that is applying for a loan will be required to present documentation in the form of balance sheets and other similar documents. This will help to provide proof that the business in question has a favorable and consistent cash flow to allow repayment of the loan according to the terms set forth. The business in question is you.financing4prosperity
Business Loan Approval
If you met the stringent requirements for approval, you will be expected to pay an interest rate that falls within the federal guidelines at the time the loan is issued. Traditional lenders, providing commercial loans often require monthly financial statements throughout the life of the loan. You may even be required to insure any larger items purchased with the funds you receive.financing4prosperity
Business Loan Denial
The problem with this type of loan, for many business owners, are the upfront costs that are incurred, as well as the credit history that is required for approval. Without the collateral and good/excellent credit score that is expected, business owners, like you, are getting denied funding. Because of this, smaller businesses, are relying on other alternative lending products, such as merchant cash advances.financing4prosperity
Merchant Cash Advances
In the past, a merchant cash advance was typically used in businesses that primarily relied on revenue from credit and debit card sales. But, merchant cash advances have evolved. They are now available to other businesses as well. Whether or not your business relies heavily on credit card or debit card sales, does not matter! You still have access to the funds a merchant cash advance can offer. You can also get an upfront sum of cash in exchange for a percentage of your future sales.financing4prosperity
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