Same Goes For Naming Your LLC

Category: Finance, Real Estate.

As a mortgage broker that works exclusively with real estate investors, I have encountered just about every crazy and botched financing scenario that you can imagine.

Don t make these mistakes! Over the course of the years, I have kept a list of the crazy things that investors do( it s quite long) and today I ll share the top 10 with you. Quitting the Day Job Too Soon. I see it happen all the time. Repeat after me: Equity does not pay the bills. An investor gets a few rentals and decides to quit the day job to pursue investing full time.

Don t quit the job until you have 12 months living expenses saved up and/ or monthly cash flow equal to what you were making at your day job. Big mistake. Being Broke and. Underestimating Holding Costs. GreedyMy mentor used to say, You can t be broke AND greedy. " In REI investor world it means that if you have no money to put into a deal you better be prepared to pay high rates or give up some equity to a partner. If you re a flipper, in most areas today, your properties are taking a lot longer to move.

Not Properly Setting Up Your Entity. Factor in ALL of your holding costs to the budget- loan payments, etc, utilities- so you don t lose all your profit. If you list your occupation as real estate investor on a mortgage loan application, you are in for a tough road ahead with the underwriter. Same goes for naming your LLC. You may as well say you are a drug dealer. Try not to reference anything having to do with flipping or foreclosure help or anything like that. Paying Cash for a Property.

Stick to an easy name to deal with like Acme, LLC. Paying cash for a property is fine as long as you don t need the money back anytime soon. Buying a Rental That Won t Cash Flow. If you do, then you re trying to get an unseasoned cash out refinance and if you re lucky enough to find a lender to do the loan, you will pay through the nose for it. WHY would you do that? This is the main reason why investors go broke.

Remember, equity does not pay the bills. Deeding The Property to an LLC Before It Is In Permanent Financing. When you go to refinance it, the lender will either require you to deed it out of your LLC before closing or they will deny the loan outright. Let s say you buy a property with private money and take title in your LLC. Risk mitigators are telling lenders that the loans that have the highest rate of default are usually in names of LLC s so many lenders won t touch them if they ve EVER been titled in your LLC. Using Hard Money That Doesn t Include Repairs. Just take title in your name, get your financing set and THEN put it into your LLC for asset protection, etc.

This is just dumb. Listing for Sale While In Short Term Financing. Just use a 100% conventional loan at half the rate and 1/ 4 the fees and have the seller pay closing costs since you re funding the repairs out of pocket anyway. I have guys come to me all the time to try to refinance their short term hard money loan because the flip has not sold. Why? Um. no.

Well, you have a vacant, rental property that, unseasoned has been listed on the MLS within the last 6 months. You should not own a property and have no money in the bank or available credit on a line of credit. Even if we can get a lender to do the refinance you will have a prepay penalty that will make you cry. 1Not Having Adequate Cash Reserves. Something will come up and then you will be forced to make a bad decision.