During a market downturn, some of the other things to avoid in terms of your business strategy are what to do. If today’s world doesn’t teach us this, you need to prepare and consider what’s going to happen in a worst-case situation. dfwinvestorlending.com/ offers excellent info on this.
During a market downturn, make the numbers work
The situation you have to clarify to people with private loans is what the house will rent for, and if a private investor is interested in it, what his interest payments will be every month. Let’s say a private investor lends you $100,000 to make math really simple, and let’s just say 10 percent to make math quick, so, $10,000 a year, $850 per month.
That lender is going to say, “The interest on my loan is going to be $850 per month.” You need to be able to prove that you’re not only going to be able to afford his $850 once you get the property up and renting, but obviously you’re going to be able to afford to pay the taxes and the insurance and all that. You will be able to prove that the rent is maybe $1,100 or $1,200, but even though you had to accept a much lower rent, let’s just say $1,000 on that particular property by way of an example, but that worst-case scenario of $1,000 also covers the interest payments of that private lender. You have to get the person home.
“You’ve got to be able to show, “Hey, I think it might rent for $1,200 with the market right now, but I know it’s a poor market. Maybe I can only rent it for $1,100. Maybe I can only rent it for $1,050. Maybe I can only rent it for $1,000. But I can still make the payment even at that amount, $1,000, and I can still pay the property taxes and the insurance.
Fancy Language Use
Using fancy words is the other thing that we see a lot. Again, real estate investors may not actually be your private lenders. Don’t believe that necessarily. The private investor might just be an entrepreneur. It may be a retired person. I’ve got former nurses as private creditors. The first thing they don’t know is about real estate. It isn’t what they are into. They’re looking for a better return on their money than they get at the bank or the CD or the money market at the moment, so they don’t want to become real estate professionals. They presume that I am an expert in real estate.