What Newbies Need To Know About Investment Property Financing
Basics for Financing for an Investment PropertyYou have big dreams of owning real estate and retiring young. You simply don’t have the funds to go out and buy the properties in cash (most of us don’t either). This leads you down the path of financing with your local bank. Maybe you already own your own home and have been through the process of getting approved and signing the mortgage. This should be easy then right? Wrong, investment property loans are not like your traditional home loan.Lenders are more strict with underwriting an investment property than that of a personal home mortgage. You might be wondering, but why? It’s simple when you own investment property and a personal residence and then you lose your job or things start going south financially you’re going to pay your personal mortgage before anything else in a worst case scenario. You’re not going to want to default on your mortgage, because that’s where you live!Interest RateThe interest rate is going to be higher than that of your home mortgage, it just is. Add 1-3 percentage points more than the owner occupied loan rate. That means that if a lender charges 4.00% interest for homeowner loans, you’ll likely pay 5-7% interest for investment loans. That’s just how it works folks. The loans are more risky, so the banks want more for them.Credit ScoreAs with any type of loan your credit matters. It shows the bank a history of your previous credit experiences and basically says why you should get a loan or why you shouldn’t get a loan. Working to make sure your credit is top notch is something you need to do far before you get into the real estate game.With investment property your credit score does not have as big as impact as it does with home mortgages. You will still have options if your credit isn’t perfect. If you score is below 740 you should expect to pay more in interest rate, lender fees, and lower LTV’s. This doesn’t mean you shouldn’t invest with a lower than 740 credit score, it just is stating what you need to expect.Lower LTV20% learn it, love it, live it. That’s the number the bank will want from you as a down payment for your investment property purchase. There are of course exceptions to the 20% down, however that’s what most banks are requiring.20% is a lot of money, right? Yeah I know, but the good news is you will not have to pay mortgage insurance! Nobody likes mortgage insurance. The bad news is, that’s the only good news. Also the 20% down is best case, if you have piss poor credit expect the bank to expect more or not even look at your deal at all. As a final note, plan on needing at least three months’ payments as a liquid cash reserve. Cash reserve is important, yes you may finally have saved that 20%, but if you don’t have more than the 20% in working capital for when the furnace goes out in the first month then the bank will again question giving you a loan.House Hacking to Get StartedThe idea behind house hacking is simply to decrease or minimize your own expenses and use the spread (money you are saving) to invest into acquiring properties to rent out. Living in a nice house with an indoor swimming pool and movie room is great and all, but that house isn’t making you monthly cash flow, it’s costing you monthly cash flow.The basic idea behind this “house hacking” mentality is to simply rent out part of your home to another person, or co-exist with another person as a roommate in your own home. Also it can mean selling your primary residence now and buying a multifamily property and living in one of the units while renting out the rest. Basically when it is all said and done you are renting what you already live in, to decrease your monthly expense to save capital for your dreams of real estate glory!If you have yet to buy your first home, or if you want to sell your home now to get into real estate a multi unit property might be the right fit for you. By buying a multifamily home you can live in one of the units and have your tenants pay all of your expenses this is generally more appealing to most people than having someone live in their home.For example, if you buy a 4 unit, live in one unit, and rent each of the other units out for $$600 a month, that would mean you’re making $1800/month in rents. If your loan, escrow (taxes + insurance) utilities, and other expenses come to just $1600 – you could get paid $200/month just to live in the home. Even better when it comes time to move out into your future home, you can rent that 4th unit out for even more income. Sounds like a great idea right?Key Takeaway:Investment properties have higher interest ratesLenders are slightly more lenient on credit scoreYou’re going to need 20% for down payment (exceptions do happen)Try house hacking to get started into real estate–America’s Favorite,The Small Time Investor
How Can CPM Advertising Help Your Business?
Cost Per Thousand, or CPM, advertising is a type of online advertising that bases charges on how many thousands of times an advertisement is shown on a Web site. The “M” in “CPM” stands for “mille,” the Latin word for “thousand.” Cost Per Thousand advertising is the most widely used online advertising costing method, and Google’s AdWords is the most popular choice for CPM advertising.The main advantage of using CPM advertising is that you are able to choose the Web sites that will display your advertisements. You can target a specific demographic group by selecting certain Web sites and also determine how much exposure you want your product or service to have. This helps eliminate advertising charges for Internet users who are not genuinely interested in your product or service. Besides selecting great Web sites for your advertisements, you can also choose specific Web sites that you do not want to use to display your advertisements. All this results in a more focused advertising campaign and can lead to increased sales for your business.You begin your CPM advertising by placing a maximum CPM bid. This is how you indicate the maximum amount you are willing to pay for every thousand advertisement displays, or impressions. Your maximum CPM bid covers times your advertisement is shown, whether or not the user clicks on the ad or not. Remember that Cost Per Thousand advertising is very popular, and the bids for using this advertising method will be competitive.Cost Per Thousand advertising is a placement-targeted advertising tool, which means you are in charge of determining where your advertisement will be placed. To use Google AdWords for CPM advertising, your selected Web sites must be part of the Google Content Network. Google AdWords will supply you with a Placement Tool to help you find Web sites that will promote your business effectively.By using the Google Placement Tool, you can choose your advertising Web sites by entering the site’s specific website address. The Placement Tool can give you a list of Web sites to choose from if you enter a description of the advertisement topic. You can also browse through the Placement Tool’s diverse list of categories and subcategories to find appropriate Web sites to place your advertisement.Another option is to choose the specific demographic group your advertisement targets. The Placement Tool will provide you a list of sites that are visited frequently by people in that demographic group. Requesting Web sites by description, category, or demographic group will result in a list of up to 100 Web sites to choose from. Using Google AdWords’ Placement Tool is a simple way to direct your advertisements to your intended audience.Google’s Cost Per Thousand advertisements can be either text-based or image-based. If you choose to have an image-based advertisement, the image can be animated. Text-based advertisements will expand or contract to fit the Web page location size. AdWords will also keep a daily log of your advertisement’s impressions, allowing you to keep track of how often your advertisement is displayed on a Web site.
Common Mistakes to Avoid When Entering Into a Franchise Financing Loan
Many Canadian would be entrepreneurs and business owners find that financing a franchise is often as challenging (if not more so) than the process and work and due diligence in selecting the right business to purchase.Lets share some hands on, ‘real world’ advice and tips on franchise finance in Canada. Fantasy might often work for you, but NOT in business financing!Business financing is a challenge on any level, major corporations wrestle with it everyday, and you are wrestling with it as you contemplate your new business venture. Naturally all our comments and advice relate to both a new franchise or your purchase of an existing business that is being sold by a franchisee.A lot of franchises would do well to understand how the franchise industry is regulated in Canada and what types of disclosure and protection are in place for both you, and, to be fair, the franchisor. Those rights and obligations you have are under something called the ‘Arthur Wishart Act’ if you are in Ontario – other provinces have similar legislation. We strongly recommend that you look at the Act, and quite frankly your lawyer might be the best one to do this.Clients always ask us what rate they might be expected to pay on a franchise finance loan in Canada. We are very clear on that, and the answer is ‘ it depends ‘! Would a rate in the 5-6% range sound good to you. We certainly think it does given you are a small business and in many cases viewed as a ‘start up ‘, notwithstanding your franchisors depth and reputation. That interest rate is available to you through a loan technically known as the BIL loan, also called the CSBF loan. Lay people call it the government Small Business Loan, and it is categorically the way in which a majority of the franchises in Canada are financed. Speak to trusted, credible an experienced advisor in this area of franchise finance who can successfully complete this financing for you.Is a BIL franchise loan the only way to finance a franchise? Definitely not, other alternatives include a cash term loan, equipment financing for any hard assets in the business, and the final piece of the puzzle, which is your own owner equity or cash investment into the business. All business is financed by borrowing (debt) plus the owner equity contribution.Can you get a franchise finance loan without any personal guarantees – the quick tip and answer is ‘ no ‘, we don’t think so, but we also point out to clients the aforementioned BIL loan requires only a 25% personal guarantee.Clients always ask if a franchise can be financed with no down payment – here’s our quick tip on that – No, absolutely not. Whether you are financing a pizza franchise or building a car mfg plant any lender in North America will look to some owner financial involvement in the project. The balance act becomes how much, as there are pros and cons of putting down too much or too little equity.Can you purchase a franchise without some thought around a business plan – we don’t think so, and info act the best tip we can give you is to do a business plan, and if you aren’t preparing it personally at least stay involved in the input and the process. It will steer you towards a common sense level of financial success in your business.Prospective franchisees are always asking if an appraisal is required. Generally it is, but the biggest tip we can give you in this area is that the modest cost of an appraisal can actually be the largest financial benefit to your franchise financing, as it has the ability to increase lender confidence and lower your estimated personal financial commitment to the business.Franchise finance has many small twists and turns along your process – investigate financing options thoroughly and our tips should help you to minimize personal risk and maximize the financing of your business.