Mortgage & Commercial Lending News.

So you found this blog and you are reading it. Congratulations! Chances are you are considering acquiring a property through a private or “Hard Money” loan, or maybe you are just beginning to learn what is needed to become a real estate investor and are thus leisurely "surfing the net" to see what information is readily available on the topic. It might have also crossed your mind at some point that you want to know why it is that other people invest in real estate. Potential clients often ask us whether investing in real estate still makes sense for individuals. So, we spent a few hours jotting down a few ideas that could become helpful pointers to our readers.

Suppose you have been thinking hard about starting to invest in real estate. In that case, you might have wondered whether to focus on a strategy of eventually owning multiple single homes for rent or whether to focus on one of eventually owning a few multi-family properties or apartment complexes. There really is not a clear-cut answer, nor could we recommend one over the other. What we can do is write down some points to be considered, which could eventually lead you to make the right decision for you.

The vast majority of Americans tend to consider banks to be the “go-to place” to obtain financing. If a businessman needs a multipurpose line of credit for their day-to-day operations, or a working capital loan, or a loan to acquire a specialized piece of equipment, or maybe a young entrepreneur is looking to start a new business, they will most likely talk to a bank about obtaining a business purpose loan. The same goes for a young adult or a head of household looking for an auto loan, or a loan for purchasing a new appliance to replace a broken one, or just looking for the benefit of having a credit card: they will usually talk to the bank in which they have their savings or checking account.

Have you ever heard the expression “Asset rich, cash poor” or alternatively “House rich, cash poor”? It is used to refer to persons who are not “poor” in the strictest sense of the word because they own valuable assets (such as a nice house with a swimming pool, two brand new cars, big screen TVs, expensive furniture, among other things) but who can be, at some moment in time, in a situation where the cash they have available is not enough to cover their cash flow requirements. In the lingo of realtors, bankers, and private mortgage lenders, someone who is “House rich, cash poor” is abbreviated by using the term “House Poor.”

As private mortgage lenders, at AMI Lenders, we focus on helping our clients capture opportunities in the real estate market, whether it be through a mortgage for a house or through a commercial mortgage, assisting our clients invest in commercial real estate. Since we have been writing primarily about single-unit properties, we will devote this entry in our blog to discussing what we perceive as the forces and trends in commercial real estate as we enter the second semester of 2022.

Many of our clients tell us during their mortgage application process that they spent significant time being uncertain about ─sometimes even agonizing over what would be the right decision: owning or renting. Since we are in the business of helping our clients own a house at AMI Lenders, we thought it might be helpful to put down in black and white what we know to be relevant factors to ponder while navigating this rent vs. own decision process.

After you have gone through all the trouble of finding, purchasing, and rehabbing a property, the last step is to try to sell it fast and for a profit. Most people think, incorrectly, that very little planning goes into selling a property. Here are some recommendations to help you sell your fixed and flipped property:

It is not the same to evaluate financing unimproved versus improved properties, short term vs long term loans or the level of risk 

the borrower represents.

To put it simply, financing real estate projects varies significantly from one borrower to another, AND from one type of property to another.  

To make sure we are on the same page: in Hard Money Lender's terminology, an unimproved property means the property does not have a structure on it: for example,

• a vacant lot or vacant acreage is an unimproved property. An improved property means the property has a structure on it (regardless of its condition).
• In the residential arena, an improved property can be a single-family dwelling, a duplex, or an apartment complex.
• If it's a commercial property, an example would be an office building, a shopping center, a warehouse, or a data center.
  

In one of our weekly updates, we recently wrote to our clients that home prices might be growing faster than rents in most places across the country. But, financially speaking, homeownership still beats renting, as shown by a new study from ATTOM Data Solutions, a real estate data firm. In about 6 out of 10 localities across the U.S., it is cheaper to own a home than rent, so it is still a good idea to own rather than rent, even more so in creeping inflation environments like we have been experiencing. Still, it is usually easier to sign a lease contract than to get a mortgage.

Fears of rising inflation in the US have been garnering attention all over the news and in many other countries. The Economist (a magazine published in the UK) included in its November 13, 2021, edition an article entitled “A three-decade high in inflation sows concerns about America’s recovery”. The Australian (a newspaper printed in Australia) included an article with the headline “US inflation spike to record levels means mortgage rates in Australia are almost certain to rise.” Forbes published during September 2021 an article about inflation and mortgages^[1] and how it might be a good time to buy a house to protect yourself against rising inflation. And we could continue citing interesting inflation-related articles.

Better than just letting you navigate in the news, let us try to give you our point of view on what you as a borrower of real-estate related loans, be it a mortgage for your new home or a bridge loan for a fix and flip, should know about inflation and loans.