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Protecting the people and the things that are important to you is an indispensable part of your overall financial planning. One way to lock in financial protection for those who you are about is through life insurance.

The funds from life insurance are received income tax free by beneficiaries, and the funds can be used for mostly any need that the individual(s) sees fit, such as the payoff of massive debts (including a mortgage balance), the payment of everyday living expenses, and/or to ensure that a child or a grandchild will have the money they need for their future college education.

Before committing to purchase life insurance, it is vital to make sure you are going with the right type and amount of protection. It is also essential to review the insurance company that you are planning to purchase the coverage through so that you can ensure that it is secure and steady from a financial standpoint and that it has a good, positive name for paying out its policy holders’ claims. One of the insurance companies that meets these criteria is Esurance – an Allstate company.

The History of Esurance Life Insurance

Esurance was initially founded in 1999 – and it is one of the very first companies to offer insurance policies to consumers via the Internet, rather than requiring in person meetings or phone calls with an insurance agent.

Over time, the company has been acquired more than once – first by Folksamerica Holding Company (a subsidiary of While Mountains Insurance Group) in 2000, and then again in 2011 by Allstate.

Esurance is owned by Allstate Insurance Company – which is the oldest publicly held personal lines insurance carrier in the United States. Allstate has more than 80 years of experience in working with policy holders to protect assets, wealth, and other things of importance. Allstate is a Fortune 100 company, and it holds assets that exceed $130 billion. (Allstate is headquartered in Northbrook, Illinois).

While Esurance is part of a large company, this entity of Allstate can offer more of a small company feel – which includes more personalized customer service. Esurance also offers reliable insurance products that are combined with smart, cutting edge tools that can help its policy holders with managing their insurance whenever, wherever, and how ever they wish. The company’s primary headquarters is in San Francisco, California.

Esurance Life Insurance Review

Today, Esurance has more than 3,000 associates across the United States, with 17 offices around the country. The company offers its products in 43 of the 50 U.S. states – and to date, the company has more than 5.2 million vehicles insured.

The company participates in a vast amount of consumer advertising, as well as in the sponsorship of sporting and other events. For example, its tagline is “Insurance for the Modern World,” with its primary target being families and professionals who are in the 25 to 49 age group. Just some of the sports teams and events where Esurance can be found as a sponsor include the U.S. Open tennis tournament, as well as with the San Francisco Giants, and the Golden State Warriors. In the spring of 2015, Esurance also announced a multi-year sponsorship with Major League Baseball, where Esurance will be the exclusive auto insurance partner for the MLB.

Esurance prides itself on its customer service – which includes the timely payment of its policy holder claims. The company offers 24 / seven claims service from dedicated reps, and in most cases, it takes ten days or less to settle vehicle damage claims.

Over the years, the company has earned numerous awards and accolades, including:

  • PR Daily’s Video Awards in 2015
  • Bay Area’s Healthiest Employers in 2015
  • 2015 InformationWeek Elite 100
  • NJBIZ Best Places to Work in New Jersey (in 2015)
  • J.D. Power award for Highest Customer Satisfaction Among Auto Insurers in California

Insurer Ratings and Better Business Bureau Grade

Due to the company’s financial strength and its ability to pay out claims, Esurance has earned high ratings from the insurer rating agencies. This includes the receipt of an A+ from A.M. Best Company.

Allstate, the parent company of Esurance, is rated as an AA- from Standard & Poor’s (which is the fourth highest rating out of a total of 22 categories), as an A+ by A.M. Best Company (which is the second largest out of 16 total categories) and as an Aa3 from Moody’s Investor Services (which is the fourth highest rating out of a total of 21 possible types).

Also, while Esurance is not an accredited business through the Better Business Bureau (BBB), the BBB has provided Esurance with a grade of A+ – which is on an overall grade scale of A+ to F. In the previous three years, Esurance has wrapped up a total of 362 customer complaints – of which 33 were closed out within the last 12 months.

Of the over-all 362 customer complaints, 197 had to do with problems with the company’s products/services. 69 were related to billing/collection issues, 61 regarding advertising/sales issues, 26 were about delivery issues, and regarded guarantee/warranty issues.

Likewise, Allstate has been given the grade of A- from the Better Business Bureau, and this company has closed out a total of 1,519 customer complaints within the past three years (with 138 being closed out within the previous 12 months).

Of these 1,519 complaints, 900 had to do with problems with the company’s products and/or services, 320 were related to billing and/or collection issues, 144 were related to delivery issues, 137 had to do with advertising and/or sales issues, and 18 were referred to guarantee / warranty issues.

Life Insurance Coverage Offered Through Esurance

While Esurance is primarily known for offering auto and other types of vehicle insurance coverage, including some of the best insurance for young drivers, the company also provides the ability for consumers to purchase life insurance. Esurance offers quotes on term life insurance coverage – which provides death benefit only protection, with no cash value or savings build up. Because term life insurance is the purest, a basic form of life insurance coverage can often be quite affordable – especially if the insured is young and in relatively good health at the time of policy application.

With term insurance, as its name suggests, coverage can be purchased for a set time – or term – which can typically be anywhere between one and 30 years (depending on the plan). In most cases, the amount of the term life insurance coverage – as well as the sum of the premium that is due – will remain level during the allotted time frame.

In some cases, a term life insurance policy that is purchased via Esurance can be converted over to a permanent form of life insurance coverage. This can allow the insured to obtain life insurance for the remainder of his or her lifetime (provided that the premiums are paid). It can also provide the ability to build up cash value in the cash component of the insurance policy.

With permanent life insurance, the cash value can grow and compound over time on a tax deferred basis. This means that there is no tax due on the increase in the contract until the money is withdrawn. Funds that are in a permanent life insurance policy’s cash value can be either borrowed or removed by the policy holder for any purpose, such as supplementing retirement income, paying off debt (typically higher interest debt such as credit card balances), purchasing a new vehicle, paying for a child or grandchild’s college education, or for going on a long-awaited vacation.

While the funds that are borrowed from a permanent life insurance policy do not typically have to be repaid, if they are not, the shortfall – plus interest – will be charged against the amount of the death benefit that is ultimately paid out to the policy’s beneficiary. (If the policy is canceled before the insured’s death, then the amount of the un-repaid cash value can be considered as a taxable distribution, and then taxed accordingly by the IRS).

Esurance offers its life insurance quotes directly online, which can be very convenient for consumers. The company provides these quotes via Efinancial. The life insurance coverage is not underwritten directly by Esurance, but rather by other insurance carriers in the market place, such as:

  • Prudential
  • AIG
  • Transamerica
  • Fidelity Life
  • Protective
  • Legal & General of America / Banner William Penn
  • North American Company

Because the life insurance that is offered through Esurance is done so by various insurance carriers, the products, rates, and the time that is required to purchase a policy (such as underwriting procedures) can vary from one company to another.

To obtain renters insurance quote, or any quote for that matter, a consumer must provide the following information via the Esurance website:

  • Name
  • Date of Birth
  • Gender
  • Height
  • Weight
  • Zip Code
  • Primary Phone Number
  • Email Address
  • The answer to whether they have been treated for any significant medical conditions (and if yes, provide additional details)
  • The answer to whether they have used tobacco products within the past 12 months (and if yes, provide further details)

If a consumer finds a policy that they are interested in pursuing, then it is possible to apply directly for this policy on the Esurance website.

Other Products and Services Available

In addition to life insurance coverage, Esurance offers an extensive list of other products and services, including the following:

  • Health Insurance
  • Pet Insurance
  • Cell Phone Insurance
  • Home Owners Insurance
  • Renters Insurance
  • Condo Insurance
  • Flood Insurance
  • Umbrella Insurance
  • Car Insurance
  • Motorcycle Insurance
  • Boat Insurance
  • PWC (Power Water Craft) Insurance
  • RV (Recreational Vehicle) Insurance
  • Travel Trailer Insurance
  • Snowmobile Insurance
  • Classic Vehicle Insurance
  • Commercial Auto Insurance
  • Scooter Insurance
  • Segway Insurance
  • Golf Cart Insurance

How to Get the Best Life Insurance Premium Rates on Coverage with Esurance

If you are seeking the best life insurance premium rates on coverage through Esurance – or any other provider of life insurance – then it may be to your advantage to work with an independent life insurance agency or brokerage. That way, you can compare, side-by-side, life insurance policies and prices, and from there you can determine which one may be the best for you.

When you are ready to see which life insurance plan(s) you may qualify for – as well as the premium rates – we can help. We are an independent life insurance brokerage, and we work with many of the top life insurance carriers in the industry today. We can offer you this information swiftly, simply, and expediently – all directly from your home computer. We also have experts available who can answer any of the additional questions or concerns regarding life insurance that you may have. If you are ready to proceed, then all you should do is just simply fill out our quote form.

We know that the purchase of life insurance may seem a bit overwhelming. There are many variables that you need to consider. However, this process can be made so much easier when you are working with an ally on your side. So, contact us today – we’re here to help.

Source: goodfinancialcents.com

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Last Updated on August 22, 2019 by Mark Ferguson

You can make a lot of money as a real estate agent but it takes some time to become on. You must take classes, pass a test, and hang your license with a broker. Having a real estate license can also help your real estate investing if you do a lot of deals. Real Estate Express is a real estate school that provides online classes in many states. Multiple agents in my office have taken online classes from Real Estate Express and have some great feedback on the program. I also took my real estate classes online back in 2001, but I did not use Real Estate Express. I used Vaned to get my license and that was so long ago, I barely remember anything about the classes except they were very boring!

Visit Real Estate Express

There are many other online companies that offer real estate licenses. You will find that many of those companies have very bad reviews and people tend to have bad experiences with them. Why is that? Because taking a real estate class online is one of the most boring things you can ever do. It is hours and hours of staring at a computer screen trying to comprehend information that you will most likely never need after you pass the test.

Many people think the courses are bad because of the material, but that is what the companies have to teach. They don’t decide what to teach, the real estate commissions for each state do that. You have your choice of taking classes online or in person in most states. I think you might learn more by taking classes in person, but the classes can be taken much faster online. 

Why should you take real estate classes online?

Potential agents need to ask themselves if an online environment is right for them when getting their real estate license. If you are an investor who only wants to use your license on your own deals, online is a great choice. If you want to make a career out of being a real estate agent, and you have a lot of free time, you may want to think about getting your license in an actual classroom. Being in a classroom is a better learning environment because you have an actual teacher, guest speakers, and can network with other people in the business. The downside is that it takes a lot of hours to get your license in a classroom. 

In Colorado, you need 168 hours of education before you can take the test to get your license. The amount of hours you need does not change whether you take the class online or in person, but some people can work faster online than others. You may be able to get through the material much faster online than you can in person. You are also able to work on the classes whenever you want when you take the online version. I have to take continuing education to keep my license every year. I prefer to take my classes online because I can get them done a little faster.  

Some people also learn better with different teaching techniques. Reading is a great way for some to learn, while others need an instructor. The online classes have videos and different types of teaching, but there is still a lot of reading. There is a lot of reading when you take in-person classes as well, but the instructor can help supplement that more than an online course. 

Is it hard to learn on a computer?

Before I get into the pros and cons of Real Estate Express, I want to talk about online classes in general. If you decide to take online classes, be prepared to be in front of a computer a lot! Most states have much fewer hours required than Colorado, but wherever you get your license it takes a lot of hours staring at a computer.

When you take classes online it can be very hard to motivate yourself and you have to set your own schedule. I know it was tough for me to go through the real estate material and I had been around real estate most of my life (my dad was an agent). The real estate classes are not meant to teach agents how to sell houses and make money, they are meant to teach you the laws and regulations. The laws and regulations are very important, but also very boring.

If you are taking real estate license classes to learn how to sell houses or how to invest in real estate, look somewhere else. You will need a supplemental training program to learn the ins and outs of investing or selling real estate.

I have seen a lot of complaints about Real Estate Express and most of those stem from the material. Real Estate Express does not choose the material they teach, the state licensing board does. It is important to remember the classes are meant to help you stay out of jail, not teach you how to sell houses. 

What are the real estate licensing requirements in all 50 states?

What real estate school did my agents choose?

When I got my license in 2001 there were very few choices for real estate schools. I choose Vaned.com because it was one of the few choices I had and somewhat affordable. It was a decent course and they are still around today. There are many more online schools now and prices have dropped as competition has increased.

The primary reason my agents choose Real Estate Express was they were the most affordable choice and they have a very high success rate for agents passing the test. My agents also had schedules or jobs that did not allow them to take their classes in a classroom environment. I think that most people find it is tough to take 168 hours of classes in a classroom when you have a job or a family. If you have to work around that schedule it can take forever to get through the classes. 

Reviews from my agents

From Justin:

“I earned my real estate license while at a full-time job, so knew I needed to do it online. I shopped all of the top options and did demos of each. The delivery was fairly similar across the board, so I chose Real Estate Express due to its better price point.

Doing hours and hours of online education is never easy, but I got through the material fairly quickly.

Out of everything, the biggest value was the test prep portion. Once your educational hours are complete, you still need to take state and national licensing exams at testing centers. Real Estate Express had modules specifically to prepare me for these. I really enjoyed these modules and most importantly…I passed the test on my first try. Many people I know had to take the exams 2 or 3 times before passing.

Based on all of this, I have recommended Real Estate Express to several people.”

From David

“I was able to get through the material rapidly while working a full-time job. I needed the flexibility online courses offer. Real Estate Express was inexpensive and has all the features I wanted.

As I shopped options, I saw that Real Estate Express had chat and phone support for people to reach. The money-back guarantee was good to see too.

During exam prep, when I went through the test questions the system gave immediate feedback on the question. This is called a coaching module. It lets you know why you got a question right or wrong as you test, which has helped my learning tremendously.”

From Michael

“I quit my job in order to get my real estate license as quickly as possible. After looking at various options, it seemed I could get through fastest by using an online option. Real Estate Express had what I needed and it was recommended to me by two people.

I did have some technical issues with my computer, so I had to use their support several times. They responded quickly and resolved my issues. It was good to have nice human support throughout the process.

I also had questions with the licensing process, which they helped me with as well.”

Real Estate Express advantages

When I got my license many years ago, I did not pass the test on my first try. Most of this was my fault because I thought I knew everything about real estate and did not need to study very much. The real estate test is not easy to pass. I passed the next try after studying more and taking my time prepping for the test. I had to take the test again on very short notice a few years later to become a broker for my sister’s company for a short period of time. I passed the test with three days of studying on my first try thanks to a test prep course. 

Test Preparation

One of the toughest parts of passing the real estate licensing tests is understanding the questions. The real estate licensing boards tend to use double and triple negatives to trip you up. The wording is very confusing and it is easy to fail even if you know the material well. I think the test prep is one of the most important features of any school because you need to get used to how the questions are asked on the test.

I have heard people complain about the poor wording of quizzes and questions in the real estate classes. It is true that they are worded poorly, but that is to prepare you for the state test. Here are some other advantages that I have seen from Real Estate Express:

Live support 

I have heard from numerous people about the life support Real Estate Express offers and how helpful it can be. They are very quick to respond to questions online or on the phone.

A+ BBB rating

They have a great rating with the BBB and respond to any complaints with logic ad solutions.

Affordable

Real Estate Express is Cheaper than most other real estate schools. They are the largest online real estate school in the country and that allows them to be able to charge less than the other schools. Their low prices are also why they have become the largest real estate school in the country. 

Courses in most states

Real Estate Express offers courses in 27 states. They are continually adding more states as they are approved to offer courses for real estate licenses. Some states require in-person classes while others do not. 

Real Estate Express disadvantages

There are some cons to Real Estate Express, but they will come with almost any online school.

The online structure is boring

When you take classes online it is really boring going through the material and hard to motivate yourself.

Fewer networking opportunities

When you take classes in person you meet the instructor, other classmates, and guest speakers. You miss that with online classes.

Less support with online classes

Even though most schools offer some type of support, you don’t have a live teacher you can ask questions to immediately.

No time table to complete the course

When you take classes in person you know exactly when the classes are and when they will be completed. When you take classes online it is all up to you to complete the work. There is no schedule and you must be self-motivated. 

Conclusion

If you are thinking of getting your license I recommend Real Estate Express if you go the online route. you can make a lot of money as a real estate agent, but remember the real estate classes will not teach you how to make money. The classes teach you the laws and regulations of being a real estate agent. If you want to learn to make money as an agent I would suggest choosing a broker who offers training and support for new agents.

Build a Rental Property Empire

Categories Real Estate Agent

Source: investfourmore.com

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Last Updated on March 29, 2023 by Mark Ferguson

Rental properties are great way to invest your money, but qualifying for a loan on an investment property is not always easy. Loans for financing investment properties are much more difficult to get than a loan on an owner-occupied home, and it will cost you more money as well.

Many banks consider investor loans riskier than owner-occupied loans. The down payments are higher, the credit scores needed are higher, and the income requirements are greater for investor loans. This article will go over the different loans available on investment properties and how to qualify for them.

What is considered an investment property?

An investment property could be a rental property, a house flip, or a piece of vacant land. Banks are very specific regarding what they consider investment properties, and they base their loans on these classifications. Most banks lend on owner-occupied houses and investor-owned houses. Almost every bank has different loan options depending on what type of property you own.

Each bank can have a different definition, but for the most part, an owner-occupied home is a house that someone lives in for more than 6 months of the year. It is not a house that someone buys and stays in for a week on vacation. It is not a house that someone buys, leaving one room vacant in case they decide to crash there one night. One or more people on the Deed must live in the home more than half the time for at least one year (sometimes more). All other houses are considered investment properties, and the banks have much different loan programs for them than for owner occupants.

If you buy a house as an owner occupant with the intention of using it as an investment, it could be considered loan fraud. If you pretend to be an owner-occupant on a HUD home, it could even be a felony with potential prison time!

Owner-occupant loans

Owner occupants can typically qualify for FHA, VA, Conventional, USDA, or other loan options that have low down payments. The down payment for FHA can be as low as 3.5%. VA has a $0 down payment as does USDA. Conventional loans also have down payments as low as 3 percent for some buyers and 5 percent for most buyers. It is fairly easy for most buyers to qualify for an owner-occupied home if they have decent credit (over 620), make decent money, and have reasonable debts.

If you want to get into investment properties cheaper, one option is to buy as an owner occupant, live in the property 1 year (in most cases), and then rent the property out. You can also do this with a house flip, and if you live there for two years, the profit becomes tax-free in most cases!

Rental-property loans are much different. An investment loan requires at least 20 percent down in almost all cases, requires higher credit scores and better debt-to-income ratios, and there are limits to how many loans you can get with big banks. Most big banks will only let an investor have 4 loans in their name. Some smaller banks will allow an investor to have 10 loans in their name, but all the requirements get even stricter.

There are other options for investors that we will get into in this article, so do not lose hope if you don’t have the down payment, or have too many mortgages.

Why is it harder for an investor to get a loan?

Banks consider real estate investing riskier than normal home ownership. Banks figure that, if things go bad, someone will work harder to keep the house they live in than they will an investment property. The government also encourages homeownership with programs like FHA, USDA, VA, and local down payment assistance programs. Because the government helps with or runs these programs, the banks are more willing to offer low down payments to owner occupants.

How to qualify for loans for financing investment properties

When qualifying for a home mortgage, most banks look at multiple factors. One of the biggest issues investors run into is that they have to qualify for two houses if they have a loan on their personal residence. It is very important for people not to buy the most expensive house they can because of this. You must have a low debt-to-income ratio to qualify for a new loan, whether as an owner occupant or as an investor. If you max out your qualification on your personal home, it will be very difficult to qualify for a loan on an investment property.

Here is what banks look at on investor loans:

Debt-to-income ratios

You debt-to-income ratio is how much money you make each month compared to what your debt payments are each month. The percentages a bank will be okay with depends on the loan. Debt-to-income ratio does not take into account how much the balances are on your mortgages, only what the monthly payments are. Lower debt payments make it easier to qualify for a loan, and that is one reason I prefer a 30-year loan to a 15-year loan (30-year loans have lower monthly payments).

Time at a job

Most banks want to see a borrower at the same job for two years before they will give them a loan. If a borrower switches jobs but stays in the same field, banks will usually still lend, but you have to be careful when switching jobs. The bank will want to verify income to make sure you are working full time and actually have the job you say you have.

Credit score

Some loan programs allow credit scores under 600, but the lower your score, the more fees and costs you will pay. Almost all low-credit-score loan programs are for owner occupants. Investors usually need a credit score over 680 and sometimes over 720 if they are trying to get multiple mortgages in their names. You will get the best rates and terms the higher your credit score is.

Tax returns

Banks will verify your income with tax returns. If you claim very little income, it can be hard to get a loan. Many people who are self employed or who own businesses have a hard time qualifying for loans because they write off so many expenses. If you have little income, your debt-to-income ratio may be too high for you to qualify for a loan. One option is to claim fewer expenses and show a higher income on your taxes.

Foreclosures/short sales/bankruptcies

Banks do not like to lend to people who defaulted on past debts. If you had a foreclosure, it does not mean you can never get a loan again, but it makes it much tougher. Many banks will want to see a solid credit history up to 7 years after a foreclosure before they will lend to a buyer again. Other banks have shorter time frames. Short sales and bankruptcies also affect your ability to get a loan but usually have a shorter time frame than foreclosures.

What are the costs for an investment loan?

It is important to know that, when you get a loan on investment property, you need more than just the down payment. You need money for closing costs, loan costs, and reserves.

Closing costs

The closing costs on a loan consist of the origination fee, appraisal, recording fees, doc fees, and closing company fees. These costs can be up to or more than 3 percent of the loan amount. It is possible to ask the seller to pay these closing costs for you when buying a house, but it makes your offer weaker than one that is not asking the seller to pay closing costs.

Reserves

Lenders do not want an investor spending every penny they have on a house. They want to see some money left over to handle carrying costs or other issues that may come up. You need to have reserves left over after paying the closing costs and the down payment. Most banks require an investor to have at least 6 months of reserves. Reserves usually include the cost of any mortgages you have, including the property you are buying.

Interest rate

Interest rates on investor loans can also be higher than on owner-occupied loans. If the going rate on an owner-occupied 30-year loan is 5%, an investor may pay 5.5% or 6% depending on the bank. They may even pay higher rates if they have shaky credit or other issues.

What are the alternatives to bank loans?

Up to this point, we have talked about how investors can get a loan from a bank. You must be in a good financial position to get a loan from a bank. Some people do not have that luxury. So what are their options if they want to invest in real estate? There are many ways to get financing other than from big banks:

Local banks/portfolio lenders

Big banks have very strict lending guidelines because almost all of them sell their loans to other investors. Those investors set the guidelines that the banks must adhere to. Some local banks do not sell their loans and can be much more flexible when lending to investors. They are often called portfolio loans or portfolio lenders. I have gotten almost all of the loans on my rental properties from local banks.

Some local banks will also lend on house flips. They have much lower rates than hard-money lenders but require more down payment. Usually, a bank will finance 75% of the purchase price on a flip, and some banks will also finance the repairs.

Hard money

Hard-money lenders specialize in financing house flips, but they can finance rentals as well. A hard-money lender will have much higher rates than banks and will charge more fees, but most investors will have a much easier time qualifying with them than a bank. Hard-money loans have short terms (usually one year) and cannot be used on owner-occupant properties.

Hard-money loans are typically used for house flips, but you also may be able to use a hard-money loan to buy a rental and then refinance it into a long-term bank loan. I have seen hard-money rates as low as 8% recently, which is much lower than they used to be. A hard-money lender will often lend up to 90% of the purchase price and 100% of the repairs. Some hard-money lenders will finance the entire deal, but they are much more expensive, with rates above 12%.

Private money

Many hard-money lenders call themselves private-money lenders, but I think of private-money lenders as individuals. They are people you know: a family member, friend, co-worker, or another investor. I use a lot of private money on my house flips and on my rentals. Private money is easy for me because I literally send a text message or email, and the lender lets me know that day if they have money or not. Getting private money is all about relationships. I get most of my private funds from other investors.

The rates and terms for private money can vary greatly! I have some loans at 6% and others at 12%. The rate I pay depends on the lender, the deal, the time I need the money, and other factors. I am able to borrow 100% of the purchase price with most of my hard-money lenders, and one lends me 100% of the purchase price and 100% of the repairs upfront!

National rental property lenders

In the last few years, national lenders who specialize in lending to real estate investors have popped up. They are not banks but rather funds or companies that specialize in investor loans only. They have higher rates than most banks but do not worry as much about debt-to-income ratios or credit scores. They are more concerned about the property being a good rental and making money.

I have seen rates on rental properties as low as 5% with some of the bigger lenders. I have even seen 30 year fixed rate loans being offered. I am in the process of refinancing one of my properties to a 30 year fixed rate loan with one of these lenders. They will usually lend from 70% to 80% of the purchase price or value.

I have a list of hard money and rental property lenders here.

What is the best type of loan for an investor?

There are pros and cons to each loan. There is no best option because everyone has different goals, levels of experience, cash available, and different types of deals. I use different loans on my properties as well. I use bank money, hard money, and private money depending on the situation. The video below goes over the exact costs of these loans on my house flips:

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This article goes into the details of financing house flips as well.

Rental property owners will usually want a different type of financing since they hold the property for longer than a flip.

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This article goes into the details on getting loans for rental properties.

What is the first thing to do?

If you want to be a real estate investor but do not know where to start, I have a simple answer for you:

Talk to a lender or bank.

Even if you think there is no way they will give you a loan, go talk to them. They can tell you if you can get a loan, how much you qualify for, and what the loan will cost you. The meeting is free, and there is no reason not to do it. If the lender says you cannot get a loan, they should be able to tell you exactly why and help you fix any problems. They do all of this for free as well. Even if you want to wholesale, use hard money, use private money, or aren’t ready to invest for years, talk to a bank!

How to lower your debt-to-income ratio

One of the most common problems people have when qualifying for an investment property is a high debt-to-income (DTI) ratio. Most lenders will want to see a DTI  ratio of 45 percent or lower. If your DTI ratio is higher than this, it will be very hard to qualify for a loan. I have investors emailing me all the time and asking how to get around high DTI ratios. Even my portfolio lender, who is very lenient with lending requirements, will not lend to people with high DTI ratios. However, some of the national rental property lenders and hard-money lenders mentioned prior do not care about DTI ratios.

DTI ratio is calculated by taking your monthly debt payments and dividing them by your gross income before taxes. If you have $2,000 of monthly debt and $5,000 of gross income, you would have a DTI ratio of 40 percent ($2,000/$5,000 = 40 percent). That is a very simple equation, but it is not always simple coming up with the monthly debt and income, especially if you own rental properties.

You must count the property mortgage payment against your DTI ratio. Even though your DTI ratio may be 35 percent right now, a new mortgage payment may push that number to 45 percent, and you may not qualify for the mortgage. The DTI ratio will generally be the deciding factor on how large of a loan you can qualify for. The most payments you can qualify for on a new mortgage would be the payment that pushes you to the maximum DTI ratio a lender will allow. If a lender will allow a 40 percent DTI ratio and a $1,000 house payment pushes you to 40 percent, that would be the highest payment you could qualify for.

It is your monthly income and monthly debt payments that the banks pay attention to, not total balances. If you have a $2,000 credit card balance, it may not seem that it would affect your ability to qualify for a loan. But if your payments are $200 a month, that would have a huge impact on how high of a mortgage you can get. A $200 dollar a month difference in mortgage payments can reduce the amount you qualify for by as much as $40,000!

What expenses and income are included in DTI ratios?

If you are applying for a loan, everyone who will be on the loan will have to include these figures in debt:

  • Minimum credit card payments
  • Auto loans
  • Student loans
  • Consumer loans
  • Other financial obligations including child support and alimony
  • Your current housing payments do not count if you are going to sell the house before you buy the new house. If you are keeping the house, you will have to count the payments as debt.
  • Your estimated future housing expense, which includes principal, interest, taxes, insurance, and any HOA fees.

To calculate your income, you use:

  • Your gross monthly salary before taxes, plus overtime and bonuses. Include any alimony or child support received that you choose to have considered for repayment of the loan.
  • Any additional income like rental property profits. This is tricky because some lenders will not count any rental income until it shows up on your taxes. Other lenders will count 75 percent of your rental income if you are an experienced investor or have the house leased.

Usually, it is a little tricky calculating the DTI ratio because different banks calculate things differently. It is best to let the lender you are using calculate the DTI for you. If the bank comes up with a DTI that seems very high, double-check how they calculated it to see if they are doing something strange or put a wrong number in somewhere. Some banks will count depreciation of investment properties against you, even though that depreciation is not a monthly expense.

Why do different banks use different debt-to-income ratios?

Different banks use different DTI ratios, and different loan programs use different DTI ratios. VA and FHA typically limit borrowers to a 52 percent DTI ratios but in some circumstances may increase that percentage slightly. Fannie Mae allows up to a 45 percent DTI ratio on some loans, but you must have great credit. With credit scores under 700, you typically would have to have your DTI ratio under 36 percent.

As you can see, this can all get very confusing trying to figure out yourself. Here is a link to the Fannie Mae lending matrix which is even more confusing. The best thing to do is to talk to a lender, and if your DTI ratio is high, work on lowering it.

How can you lower your debt-to-income ratio?

The easiest way to lower your DTI ratio is to make more money. The more gross income you make, the higher your DTI ratio will be, but that is not the only thing lenders look at. It is not easy to simply start making more money, but many investors and self-employed individuals or business owners claim very little income on their taxes. Claiming little income is great if you don’t want to pay much in taxes. If you want to qualify for a loan, claiming little income can make it nearly impossible to buy a house. You may think you are making $10,000 a month, but if your taxes show you making $2,000 a month, your DTI ratio could be much higher than you think. Claiming more income on your taxes will mean you have to pay the IRS more, but it may be worth it if it allows you to get a loan.

Reducing debt is another way to improve your debt-to-income ratio. DTI ratios take into consideration all monthly debts that show up on your credit report. Usually, the shortest debts hurt you the most because they have the highest payments. Even though you think you are doing the smart thing by getting a 15-year loan instead of a 30-year loan on your primary house, it actually will hurt your DTI ratios. A three-year loan on a car will make your DTI ratio higher than a six-year loan. I am not saying you should always get the longest term possible on debt, but the lower your minimum payments are, the lower your DTI ratio will be. You can always make extra payments if you want to pay off your loans quicker.

What else affects the DTI ratio?

  • Minimum credit card payments: credit cards typically have very high interest and very high monthly payments. If you can pay off credit cards, it will greatly improve your DTI ratio, but you must pay off the entire balance.
  • Auto loans: car loans can destroy a DTI ratio! A $600 car payment is equivalent to a $120,000 mortgage and will reduce your ability to qualify for a mortgage by $600 a month.
  • Student loans: student loans may have low interest and low payments, but they still hurt DTI ratios. I think it is usually better to pay off other debt first depending on what the rates are.
  • Consumer loans: do you have a loan for a TV, furniture, home equity line of credit, or any other monthly payments that show up on your credit? Even a home equity line of credit that you are not using can count against your DTI ratio.

If you don’t have the money to pay off your debt, you may be able to consolidate it with a larger loan against your home that would have a lower interest rate and monthly payment.

Refinancing investment properties

A fantastic strategy to make your money go further when investing in real estate is to refinance properties. A refinance is when you get a new loan on a property that you already own. A cash-out refinance is when you get a new loan a property you already own, and the new loan pays off all other debts plus gives you back money. If you owe $80,000 on a house but refinance the property with a $100,000 loan, you would get $20,000 in cash back minus any closing costs for the new loan.

The BRRRR strategy is a great way to buy rentals with less money because you get most, if not all, of your investment back after the refinance. It stands for:

  • Buy: you have to get an awesome deal (can use financing or cash).
  • Repair: most houses that are awesome deals need some work.
  • Rent: with most income properties the banks want a home rented out before they lend on it.
  • Refinance: get a new loan that pays off any old loans, pays off the repairs, and any down payments.

Conclusion

Financing is one of the most important aspects of investing in real estate. You can make more money with loans than by paying cash. You can also multiply your money quickly using refinances, and there are many options for investors, even when you have bad credit or low income. It can be confusing figuring out what the best option is, but talking to a bank or lender is the first step.

Build a Rental Property Empire

Categories Money

Source: investfourmore.com

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Last Updated on March 29, 2023 by Mark Ferguson

Driving for dollars is a term that real estate investors use to describe a technique for finding great deals on houses. You drive around until you find a house that looks vacant or distressed and then attempt to buy that home from the owners. Driving around looking for houses is simple, but the process of buying the home can be very complicated. It is not easy to find the owners of a vacant house. If the house is bank-owned it is virtually impossible to buy it and many owners do not want to be bothered.

How does driving for dollars work?

There are a few ways to drive for dollars and I use a couple of techniques myself. The first is to target a specific neighborhood where you want to buy houses. I have targeted neighborhoods where I own rentals and that typically have great rent to value ratios. I do not like to buy the cheapest houses for my rentals, but the more expensive houses are, the less cash flow they usually have. My rentals tend to be valued just below the median sales price in my area.

I have also targeted neighborhoods for fix and flips. I drove down every street in a neighborhood where prices had risen significantly, but there were many older homes. I looked for homes that appeared vacant and not well maintained. Houses that are not maintained indicate the owner does not care about the house, is short on money, or has given up. One of the best ways to make money flipping is to add value by repairing a house.

I also keep my eyes open wherever I drive. I drive a lot as a real estate agent and real estate investor. I am always looking at houses, and while I am driving to those houses, I look for vacant houses or homes that need work. I also look out for FSBOs (For Sale by Owner) homes. Since I am a real estate agent, I can approach For Sale by Owner sellers and offer to list their home or buy it if the price is right.

Below you can see a video of me driving for dollars
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What do you do once you find a house that needs work?

Once I find a house that is a possible deal, I write down the address and research it more when I get back to the office. I look in public records to see who the owners are and if they are investors or owner-occupants. My strategy varies based on who the owners are.

Owner-occupants

If the people who own the house are living in it, I usually send them a letter saying I am buying homes in the area and would love to buy their house. To be honest, I could do much more than this, but I do not have time. If I were super serious about buying a house, I would walk up to the door and try to talk to the owners in person.

Investor owner

If the occupants are tenants, it will not do any good to talk to them. I want to talk to the owner, and if they are an investor, I have to find out where they live. Public records may give an address, but it may not be current. I send a letter to the owners again, but if I really want a house, I do my best to find their phone number and call them.

This company created an awesome app that helps you find and contact the owners of distressed houses.

What do you do when you find a vacant house?

When houses are vacant, there is a little more work involved in finding the owners. In some cases, it is not even worth pursuing the owners, unless you want to waste hours of time and become extremely frustrated!

If the house is vacant, I try to find an address through public records if the owner is still a person or a corporation. Finding owners of vacant houses is not easy to do. Many times, the only address available is the address for the vacant home. There are a couple of ways to find people when you do not have an address. You can search for them on Google and you might find some information on them. You can search for them on social media sites such as:

If you cannot find them on social media, you can try an online people search service or even hire a private investigator. I have been successful in finding many people using these techniques. When the foreclosure process was different in Colorado, we could redeem houses from the Public Trustee using Quit Claim Deeds from the owners of a house. We would find the owners, pay them for the Deed, and then redeem as the owners of the property after the foreclosure. The great thing about doing this was it usually wiped out all the liens and second mortgages once the home foreclosed. However, Colorado changed the laws a few years ago and this is no longer an option. The owner has to redeem the house prior to the foreclosure now.

What do you do if the house is bank-owned?

Many people ask how to contact a bank who owns a home that is not listed so they can buy it. The bad news is that in today’s market it is virtually impossible to buy a bank-owned home before it is listed. All the major banks have very strict procedures for selling houses, which includes using a real estate agent to list the homes on the MLS. The banks have to get the most money for the houses they can for their shareholders and investors. Many times, mortgage insurance is involved and the mortgage insurance company has to sign off on any sales as well. If a house sells without being listed on MLS, it is more likely to sell for much less than it is worth.

If you see a vacant bank-owned home, especially one owned by a big bank, you are wasting your time trying to buy it before it is listed. You can try to contact the bank, but here is how the process goes.

  • You call the bank and ask whom to talk to about foreclosures.
  • The bank tells you to call their corporate office and ask them who to talk to because they do not know.
  • The corporate office will send you to about 10 different extensions and no one has a clue what department to send you to.
  • After a few hours of calling people, you might make it to the right department. It might be the foreclosure department, the REO department, or something else. All banks have different names and do not encourage calls to these departments.
  • Once you are finally able to talk to someone who knows what you are asking, that person will tell you that you have to wait until the house is listed.

The only way it is possible to buy a home from a bank before it is listed is with a local bank. In some rare cases, local banks may sell properties to investors before they are listed.

What if the owner of the home owes more than it is worth?

You may find a homeowner who wants to sell but they owe too much to make the sale worth it. It is possible to do a short sale, but you must be very careful! Short sale fraud is the most investigated crime by the FBI right now and you do not want to be investigated by the FBI. I actually tried to get an interview with the FBI regarding short sale fraud last year but was unable to get one set up. The tough part about short sale fraud is there are no clear guidelines. Here are some things to avoid if possible, which make it tough to buy off-market properties as short sales. Short sale fraud is anything that defrauds the bank of money through deceitful tactics.

  • Almost all banks require short sales to be listed on MLS in order for them to get the best offer. If a home is not listed in the MLS and the bank is told that it is, that could be short sale fraud. If the home is listed in MLS, then immediately listed as under contract and other buyers are not allowed to make offers, that could be short sale fraud as well.
  • Most banks will not allow related parties or friends to sell a short sale to each other. If you buy a short sale from your brother or friend without disclosing to the bank, it could be short sale fraud.
  • Anything that goes against what the bank specifically says must happen in writing could be considered short sale fraud if the bank is not notified.

I see short sales sold all the time that could be considered fraud that the sellers and buyers most likely get away with. However, you should be very careful when doing a short sale deal that is not listed on the MLS. I buy short sales all the time, but I do not buy short sales where I find the buyer myself. The short sales I buy are always listed on MLS with another real estate agent.

Conclusion

Driving for dollars can be a great way to find deals, but it can take a lot of time and effort before you actually find a deal. I used to spend much more time going after sellers of houses that were not listed, but in the end, the time it took versus the results discouraged me. To be successful at finding off-market deals you have to dedicate a lot of time and know that for every 50 houses you find, one might be willing to sell at a price that makes sense.

Build a Rental Property Empire

Categories Real Estate

Source: investfourmore.com

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Editor’s note: Lending Club no longer offers peer-to-peer lending on it’s platform.

LendingRobot is a service that fully automates peer-to-peer (P2P) lending platform investments. The service is available for individual investors, and is both cost-effective and easy to use. LendingRobot attempts to bring superior returns at low risk by combining cloud technologies with machine learning algorithms. The platform is an SEC Registered Investment Advisor, able to provide investment guidance.

The platform concept started in 2013, when Emmanuell Marot and Gilad Golan began developing a script to automate their own investments on Lending Club. Eventually, they also added support for Prosper Marketplace. The platform was publicly launched in April 2014, then added Funding Circle to the mix in 2015.

What has developed from this evolution is a platform that assists individual investors in acquiring and managing their loan investors on three of the prime P2P lending platforms on the web. In effect, LendingRobot is a robo-advisor for peer-to-peer lending investing. The service has continued to grow steadily.

How LendingRobot Works

Investors begin by linking their Lending Club, Prosper or Funding Circle accounts to a single LendingRobot account. You simply add your API credentials to LendingRobot. In this way, LendingRobot enables you to automate investing on all three platforms, if that’s what you choose to do. The platform can even create an account with each of those three P2P lenders if you don’t already have an account established with them.

You can choose the type of investment strategy that you want to use, conservative or aggressive. The platform even has a “slider” that lets you adjust the risk level in your portfolio. You can also use the “advanced mode” feature to specify multiple rules for your investments on both the primary and secondary markets. You can even use LendingRobot if you want to invest on your own, and use the service to help you manage your portfolio of notes.

LendingRobot scans new loans as they appear, and will automatically invest your idle cash. It also has the capacity to sell your notes, if that’s what you choose to do. You will receive a daily summary report that will keep you informed of the activity in your account.

LendingRobot has a wide range of benefits available for P2P investors.

Create custom investment parameters. LendingRobot enables you to create investment rules, based on their proprietary research, that will enable you to pinpoint the types of loans that you want to invest in. You can choose certain credit score ranges, loan terms, debt-to-income ratios – the choices are nearly endless.

LendingRobot secondary market. One of the fundamental limitations that P2P investment has had up until now is the lack of liquidity. That is, once you purchase loans or notes, you have to hold them for the duration of the term. There is often no secondary market for the loans and notes that you purchase on most platforms.

But LendingRobot uses unique secondary market automation that puts thousands of notes for sale, and reprices them on an ongoing basis until the target price is reached. This will be an advantage to you as an investor, both with selling loans and notes that you no longer want to hold, but also in buying existing loans and notes under more advantageous circumstances.

LendingRobot accomplishes this by adding any notes that you want to sell with Lending Club’s secondary market partner, Folio Investing. LendingRobot will gradually lower the price point on the notes for sale over a term of five days, until all notes are sold. This will enable you to liquidate an entire portfolio of notes in a matter of days.

You will also have the option to purchase notes on the secondary market through Folio, giving you an opportunity to purchase them at a discount, and for a greater profit when they finally pay off. This will become an increasingly important feature as P2P investing matures.

Investing speed. LendingRobot needs only seconds between the time a new loan comes on the market, and the service is able to invest in it. Since competition for the best notes in the P2P space is becoming increasingly intense, that kind of speed will give you the advantage of being able to get to the most desirable investments in the least amount of time. As more money pours into P2P lending investments, this will be an increasingly critical advantage for the individual investor.

Automatic reinvesting. Another limitation with P2P investment is that as notes pay off, your investment position declines. Staying fully invested is a huge task when you try to do it manually. But LendingRobot offers continuous reinvesting of loan proceeds. That will maximize the money in your portfolio that will be invested and earning interest on a continuous basis. This is another critical advantage for individual investors when it comes to P2P investing.

Transparency. LendingRobot enables you to see expected returns, cash flow forecasts, and the risk profile of a given portfolio. That will give you an opportunity to measure expected performance from various portfolio mixes. And that will help you to create the best portfolio for your investment needs.

LendingRobot is getting better. LendingRobot represents a new concept in the automation of P2P investing – which itself is only a few years old. The point is, while LendingRobot’s machine-learning algorithms are the result of years of research data science and optimization, the system is continuing to learn and grow. You can be part of that growth.

Lots of free information. The site provides a wealth of information covering an overview of the P2P lending industry, including statistics in regard to Lending Club, Prosper and Funding Circle. This enables you to see comparisons between the three platforms side-by-side, to help you decide where best to invest your money.

For example, the comparison chart indicates that you can invest with Lending Club or Prosper if you are not an accredited investor, but you can’t with Funding Circle. That’s the kind of information that you need readily available in one place.

They also provide you with performance charts, that show how each platform’s returns compare with both the marketplace average, and with US bonds. There’s even a list of the latest loans available with both Lending Club and Prosper.

LendingRobot Pricing and Fees

The first $5,000 of your account value is free. After that, there is a fee of 0.45% of the account balance over $5,000. That applies only to amounts invested by LendingRobot; it does not apply to loans purchased prior to starting your LendingRobot account.

There are no setup fees or termination fees.

Is LendingRobot Right For You?

P2P investing is simple in concept, but it can become complicated in the execution. Since you need to spread your investment capital across so many notes in order to achieve a reliable level of diversification, you virtually must automate the process. LendingRobot handles that for you, and has the advantage in that it can be used across three of the most popular P2P platforms on the web.

We generally think of investing in fixed rate assets as being the low maintenance part of an investment portfolio – and that’s exactly what it should be. LendingRobot let’s P2P investing be low maintenance.

There are a couple of caveats I would like to point out. The first is the potential that automation could cause you to underestimate the risk involved in P2P investing. You are, after all, investing in unsecured loans for people with varying degrees of credit, as well as a wide range of employment and income situations. That is an inherently risky investment, and automation should never cause you to underestimate that risk.

The second is the secondary marketing feature available through Folio Investing. Don’t get me wrong, it’s a great feature to have. But at the same time, you don’t want to over-rely on it either. The service is currently available only on Lending Club, not Prosper or Funding Circle, though that may change in the not-too-distant future.

Even on Lending Club there may be some limitations to secondary market transactions. Lending Club makes the following statement in that regard: “Note Trading Platform was designed to provide investors with the chance to realize some liquidity in transactions with other Lending Club members”. It’s also important to understand that notes are more likely to sell at a discount than at a premium, so it may prove to be primarily a market where you can unload unwanted notes, but do so at a loss.

It’s equally important to realize that notes cannot be sold on the secondary market if they are in default or charge-off status.

That said, the secondary market can be a major advantage to you as a buyer, for all the same reasons that is not necessarily a failsafe for you as a seller. It represents a real opportunity to buy notes for below – maybe substantially below – par value. And that will add a gain on payoff of the note to the interest you’re collecting on it. That’s a double win!

If you are an active investor on Lending Club, Prosper or Funding Circle, you need to give LendingRobot a serious look. It offers a real opportunity to take this growing and profitable asset class and set it on automatic pilot. It offers a serious chance to increase your rate of return on investment, while reducing the risk of default.

Source: goodfinancialcents.com

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What Is the Real Return of an Investment? – SmartAsset

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When measuring investment performance, it’s helpful to understand its real return. The real return on investment is what you earn after returns are adjusted for inflation and taxes. Nominal returns, on the other hand, don’t account for those deductions. Understanding the real return on investment matters, as it can tell you more accurately how much purchasing power it’s likely to yield.

You can talk to a financial advisor about how to create a strategic investment plan.

How Is Real Return Calculated?

Finding an investment’s real rate of return involves a fairly simple formula. Here’s an example:

Real return = (1+ Nominal rate) / (1 + Inflation rate) – 1

To find the real rate of return on investment, you need to know the nominal rate and the inflation rate. The nominal rate is the stated interest rate or return that you can expect to earn on an investment. The inflation rate measures changes to the prices of consumer goods and services over time.

As a general rule of thumb, nominal rates are always higher than real return rates. That makes sense since the nominal rate doesn’t account for inflation or taxes. The nominal rate and the real rate of return may align more closely when inflation is close to or at zero, or the economy is experiencing a period of deflation, both of which are rarities.

Real Return Example

It’s easy to gauge the effects of real return, even if you’re not doing a step-by-step calculation. For example, let’s say that you deposit $20,000 into a CD. The bank is offering a 5% APY, which represents the nominal rate you could earn on your money. Over a 12-month period, you’d earn $1,000 in interest.

But what if the inflation rate is 2.5%? That cuts the purchasing power of the $1,000 in interest you earned in half. So now, that money is technically worth $500, which represents your real return.

That just accounts for the impact of inflation on your CD earnings. CD interest is considered taxable income by the internal revenue service (IRS), along with interest earned on other types of savings accounts. Once you factor in what you might owe in taxes on the interest, that can shrink your real return even further.

Are There Any Flaws With Real Return?

Calculating the real rate of return requires you to factor in taxes and inflation. That’s a good thing, as again, it can give you a more realistic picture of how much spending power a particular investment is generating.

There is, however, one thing that real return doesn’t account for. This formula doesn’t incorporate the fees you might pay to own an investment, and that can include:

Managing investment fees is important as those additional costs can detract from the total returns that you get to keep. Choosing tax-efficient investments, such as low-cost index funds or exchange-traded funds (ETFs) with a low asset turnover ratio, can help to minimize your fee expenses.

It’s also important to keep in mind that every investor’s tax situation is different and that inflation is not static. Even small changes to the tax code or slight increases in prices for consumer goods and services can have a significant impact on real return calculations.

How to Maximize Real Return

Getting the most return possible for your money is challenging, as certain factors may be outside of your control. While there are things you can do to pay less in fees for your investments, there’s not a whole lot that you can do directly to control inflation or changes to the tax code.

What you can manage is how you deal with the impact of both on your investments. With regard to inflation, that can mean choosing investments that tend to offer a higher rate of return overall. Stocks, for instance, can outperform certificates of deposit (CD) rates or money market funds. However, investing in stocks does carry more risk.

You can also choose investments that move with inflation or are otherwise inflation-proof. Real estate is a great example. Property tends to appreciate in value over time and when inflation goes up, rental prices can increase in tandem. If you’re renting a property out, then you can ride with the tide so to speak when it comes to how much you charge.

Minimizing the Effects of Taxation

In terms of taxation, there are a few strategies you can use to minimize the effects. Some of the best ways to save on taxes as an investor include:

  • Choosing longer-term investments, which are subject to the more favorable long-term capital gains tax rate.
  • Contributing to tax-advantaged accounts, such as 401(k) or individual retirement accounts (IRAs).
  • Allocating less tax-efficient assets, such as traditional mutual funds, to an IRA or 401(k).
  • Harvesting tax losses to offset capital gains.
  • Claiming all eligible deductions in order to shift into a lower tax bracket.

Bottom Line

Understanding real return is important when deciding how to invest money. The more purchasing power you have, the further your dollars can go. If you’re just looking at nominal returns, you can end up with a skewed sense of how much your investment might be worth. For example, say that you’re eyeing an investment that has delivered a 15% rate of return to investors over the last 10 years.

That sounds good but it doesn’t tell you how inflationary changes or updates to the tax code may have affected the earnings investors actually got to keep over that same period. It’s possible that once inflation rates and taxes are factored in, the net return is negative or zero. That’s something you’d like to know before you invest. Talking to a financial advisor can help you come up with a plan for managing taxes on investments so that you can get the best real return possible for your money.

Investing Tips

  • If you need help calculating the real return on investment, consider talking to a financial advisor. A financial advisor can walk you through the numbers when deciding what to include in your portfolio. And finding one doesn’t have to be difficult. SmartAsset’s financial advisor matching tool makes it easy to connect with three vetted financial advisors who serve your area. It takes just a few minutes to get your personalized advisor recommendations online. Get started now.
  • Many investors confuse an investment’s returns with its yield. You never have to make that mistake again, though. Learn the difference between these two key concepts, along with how a combination of strong yields and steady returns can help you meet your financial goals.

Photo credit: ©iStock.com/tdub303, ©iStock.com/Orientfootage, ©iStock.com/oatawa

Rebecca Lake, CEPF®
Rebecca Lake is a retirement, investing and estate planning expert who has been writing about personal finance for a decade. Her expertise in the finance niche also extends to home buying, credit cards, banking and small business. She’s worked directly with several major financial and insurance brands, including Citibank, Discover and AIG and her writing has appeared online at U.S. News and World Report, CreditCards.com and Investopedia. Rebecca is a graduate of the University of South Carolina and she also attended Charleston Southern University as a graduate student. Originally from central Virginia, she now lives on the North Carolina coast along with her two children.

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Save more, spend smarter, and make your money go further

MintLife investing columnist Matthew Amster-Burton has been answering questions from the Mint.com Facebook page and Twitter.

Angela writes: I’m getting married – and soon! What are the top investment-related things my fiancé and I should be thinking about?

Congratulations, Angela!

My favorite investing topics are how stocks and bonds work, how to pick the best funds in your 401(k), and putting it all together into a plausible financial plan.

Unfortunately, the most important investing topic for newlyweds isn’t any of those things — it’s debt. (I know, I kind of want to punch me, too.)

Debt is the opposite of investing. When you invest, you’re turning your money over to someone else in hopes they’ll do something smart with it and give you more money back later. When you take on debt, someone else is investing in you. (Try saying that in a horror movie voice.)

That doesn’t mean all debt is bad, though. It’s just that mixing debt and investing — with a couple of exceptions I’ll get to in a minute — is usually a bad move and most newlyweds bring at least some debt to the marriage.

Let’s say you or your fiancé has a student loan charging 6.8% interest, which is the going rate for an unsubsidized Federal Stafford loan. Paying down this loan is the equivalent of earning almost 6.8% on a risk-free investment (I say “almost” because the interest in tax-deductible, so the effective rate is a little lower).

What is the most you can actually earn on a risk-free investment? About 2.25% on a 5-year CD.

The same goes for credit card debt (duh) and car loans. It doesn’t make any sense to start investing in stocks and bonds when you can get a guaranteed risk-free return by paying off the debt.

Most couples find debt stressful to talk about, partly because it’s easy to see right there in black and white (and red ink). It’s also painfully obvious whose debt is bigger and that’s not a contest anyone wants to win.

You and your fiancé probably already know about each other’s debts, but if not, now’s the time to lay it all out and start talking about how you’re going to conspire to wipe it out.

Oh, and build an emergency fund, too. Sigh.

Exceptions to the rule

Now that the unpleasantness is out of the way, let’s talk about a couple of reasons why you might want to go ahead and start investing — even if you still have some debt around.

Get the 401(k) match. Do your employers offer a 401(k) match? Take it, take it, take it. Even if you have other debt, turning down a 401(k) match is like turning down a raise. Please don’t do that.

Think about your mortgage attitude. If you’re planning to buy a house, some people (like me) argue that you should concentrate on paying down the mortgage and neglect your investment accounts. Others argue just the opposite: mortgage rates have never been lower, you can refinance if they go down further, and you’re likely to earn a higher return on your investments than the interest you pay on your mortgage.

You and your fiancé should have this conversation and if you find yourselves in the “pay it down” camp, consider a 15-year fixed rate mortgage. You’ll get a lower interest rate and force yourself to pay the mortgage down fast.

Advanced moves

Maybe I’m not giving you enough credit. Maybe you’re a couple of go-getters coming to the marriage without any debt; maybe one of you already owns a house and the other is moving in. (No, I can’t believe I just said “go-getters” either.)

In that case, you need to make sure you’re on the same page — investing-wise. This is important for two reasons:

  • Since you presumably expect to live off a shared pool of savings in retirement, it makes little sense for you to manage your investments with two separate philosophies. If one of you likes index funds and the other is a stock-picker, you need to hammer out a compromise.
  • Looking at all of your investments as a single portfolio allows you to simplify your holdings and choose the best funds in each of your accounts. For a great overview of how to do this and why it’s important, see author Mike Piper’s post from the Oblivious Investor blog: It’s All One Portfolio.

Oh, and one last piece of advice: talking about investing on your honeymoon kind of kills the mood. You might want to wait until the night you get back to pull out this column and say, “We need to talk.” That should really win him over.

Matthew Amster-Burton is a personal finance columnist at Mint.com. Find him on Twitter @Mint_Mamster.

Do you have an investing question for Matthew Amster-Burton? Head over to the Mint.com Facebook page and ask away!

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Life insurance is a vital element of most all financial plans. One of the biggest reasons for this is because the proceeds that are received by life insurance policy beneficiaries can be used for any number of financial needs, such as the payoff of debt (including a home mortgage), as well as the payment of everyday living expenses. This could be especially beneficial if the insured were a family’s primary breadwinner.

Before you purchase a life insurance policy, it is essential to ensure that you will be getting the proper type of coverage, as well as the right amount of protection for your specific needs. Knowing that the underlying insurance company is reliable and stable financially is another important piece of the puzzle, as you will want to know that the insurer can pay out it’s allotted claim if or when the time should come. One company that has an excellent reputation for its financial stability, as well as its timely payment of policy holder claims is Liberty Mutual.

The History of Liberty Mutual Insurance Company

Liberty Mutual has been in the business of helping consumers and businesses protect what is important to them for more than 100 years. The company was initially founded in the year 1911 when the Massachusetts Legislature passed a law that required employers to protect their employees with workers’ compensation insurance.

The company was originally known as the Massachusetts Employees’ Insurance Association or MEIA, and it officially began its operations on July 1, 1912. The company began as a mutual insurer, which means it was owned by its policy holders, as versus having to answer to a group of stock holders. The company is still a mutual insurer today.

Throughout the years, the company has grown and expanded – and today it is a top U.S. insurer. Liberty International has grown from a collection of smaller local businesses into a multi-billion, multi-national entity that has operations in Europe, Latin America, and Asia Pacific, in addition to the United States.

Other components of this entity include:

  • Liberty International Underwriters
  • Liberty Specialty Markets
  • Liberty Mutual Surety

In addition to offering products and services that can assist clients with growing and protecting their wealth, Liberty Mutual is also a large sponsor of sporting events, as well as charitable organizations. The company’s primary headquarters is in Boston, Massachusetts.

Liberty Mutual Life Insurance Review

Today, Liberty Mutual is ranked as number 75 on the Fortune 500 list of largest U.S. corporations (based on the company’s 2016 revenue figures). As of year-end 2016, Liberty Mutual Insurance brought in roughly $38.3 billion in revenues for the year.

The company has invested its assets conservatively, to be ready to make timely payments of its policy holders’ claims. More than 87% of Liberty Mutual’s cash and invested assets are placed in Bonds, while another 4.1 percent is invested in cash and other short-term cash equivalents.

The life insurance and annuities that are provided by Liberty Mutual are issued by Liberty Life Assurance Company of Boston, with the company’s headquarters located in Boston, MA, and the service center based in Dover, New Hampshire.

Insurer Ratings and Better Business Bureau (BBB) Grade

Liberty Mutual Insurance is very stable financially – and because of that, it has received high ratings from the insurer rating agencies. These include an A (Excellent) from A.M. Best Company, an A2 (Good) from Moody’s Investor Services, and an A (Strong) from Standard & Poor’s.

Also, Liberty Mutual has been a qualified company of the Better Business Bureau (BBB) since April 26, 1931. The company has been given a grade of A+ by the BBB, which is on a general grade scale of A+ to F.

In the previous three years, Liberty Mutual has completed a total of 1,236 custom complaints, of which 242 of these complaints were closed out within the past 12 months. Of the total 1,236 complaints, 872 regarded problems with the company’s products and services. Another 276 were regarding billing and/or collection issues, 46 had to do with advertising and/or sales problems, and 22 were related to delivery issues. The remaining 20 were about guarantee/warranty issues.

Life Insurance Plan Options Offered By Liberty Mutual Insurance Company

Liberty Mutual insurance has a long list of life insurance policy options from which to choose. These include both term and permanent life insurance coverage. Term life insurance policies provide a death benefit, with no cash value build up. Because of this, a term life insurance policy can be quite affordable – especially if the insured is in good health at the time of the application for coverage.

Term life insurance policies are purchased for a set number of years, such as ten, fifteen, twenty, or even thirty. Typically, these policies will offer guaranteed coverage during the level term period, as well as a level amount of premium that cannot be increased.

With Liberty Mutual, coverage options for term life insurance policies include 10, 15, 20, or 30 years. These plans also have a variety of different optional riders that are available and can be added to help with further “customizing” the coverage.

The term life insurance policies offered through Liberty Mutual include the following:

  • Liberty Series Passport 10
  • Liberty Series Passport 15
  • Liberty Series Passport 20
  • Liberty Series Passport 30

Liberty Mutual also offers permanent life insurance product options. With a permanent life insurance policy, there is both death benefit protection, as well as cash value. The cash that is in the liquid section of the policy can grow on a tax deferred basis, meaning no taxes are due on the gain unless or until the money is withdrawn.

Policy holders can either borrow or withdraw cash from the cash value for any need they see fit, such as the payoff of debts, the supplementing of retirement income, or even to take a nice, long awaited vacation.

Liberty Mutual has both whole life and universal life insurance plans. While life offers level premiums, strong guarantees, and valuable protection that will last for the remainder of the insured’s lifetime. Whole life insurance will also steadily build cash value over time.

Many whole life insurance plans are offered through Liberty Mutual. These include the:

  • Liberty Series Whole Life – This plan provides level premium payments for the entire life of the insured – up to the policy anniversary that follows the insured’s 100th birthday.
  • Liberty Series Life (paid up at age 65) – This plan provides the ability to make level premium payments until the policy anniversary that follows the insured’s 65th birthday.
  • Liberty Series 20-Year Payment Life – With this plan, the policy holder will make level premium payments for 20 years. After that, the policy will be paid up.
  • Liberty Series Extra Value Life – The Liberty Series Extra Value Life plan is a “hybrid” policy that combines both permanent and temporary life insurance coverage. This allows for a premium that is usually lower than that of a whole life insurance policy.
  • Liberty Series Estate Maximizer Next Generation – With this plan, the insured is covered by a whole life insurance policy that is paid for via just one, single lump sum premium payment. This policy provides permanent life insurance protection and a death benefit that is larger than the original premium payment. The payment with this policy will increase in value over time by a factor that is based on the insured’s gender and age. The immediate increase in death benefit makes this life insurance a good match for those who wish to transfer assets in a tax advantaged manner.

There are also several options for universal life insurance that can be purchased through Liberty Mutual. Universal life insurance provides death benefit protection and cash value; however, it is more flexible than whole life. This is because the premium due date can be altered (within certain guidelines). The policy holder may also be able to decide how much of his or her premium goes towards the policy’s cash value component, and how much goes towards the death benefit.

Universal life insurance plans that are offered by Liberty Mutual include the following:

  • Spirit Series Performance Universal Life – This plan provides permanent life insurance protection that builds cash value. Policy holders have the flexibility to adjust their level of coverage, as well as their premium payments, to meet their needs.
  • Spirit Series Universal Life – The Spirit Series Universal Life insurance policy provides an affordable form of permanent life insurance that is not necessarily designed for building long-term cash value. This plan does offer unique lapse protection features, as well as continuous life insurance protection through any circumstance if the insured meets certain requirements.

Other Products and Services Available

In addition to life insurance, Liberty Mutual also offers a broad range of other goods and services. These include the following:

  • Critical Illness insurance
  • Identity Theft insurance
  • Pet insurance
  • Tuition insurance
  • Small Business insurance
  • Home owner’s insurance
  • Apartment insurance

  • Condo insurance
  • Landlord insurance
  • Mobile Home insurance
  • Flood insurance
  • Umbrella insurance
  • Car insurance
  • Motorcycle insurance
  • Boat insurance
  • Watercraft insurance
  • Antique and Classic Car insurance
  • ATV and Off-Road Vehicle insurance
  • RV (Recreational Vehicle) insurance
  • Vehicle Insurance Plans
  • Rental insurance
  • Key Employee Insurance

The company also has a selection of retirement annuities. Because people are living longer today, one of the biggest concerns that retirees have is running out of money during retirement. An annuity can help to alleviate this issue, when the lifetime income option is chosen.

Through Liberty Mutual, there are single premium deferred annuities (SPDAs), and flexible payment deferred annuities (FPDAs). With a single premium deferred annuity, just one single lump sum payment is needed to attain a guaranteed stream of income in retirement. With a flexible payment deferred annuity, deposits may be made over time, prior to converting the annuity over into an income stream. The growth on the money that is inside of the account will grow tax deferred.

How to Get the Best Premium Quotes on Life Insurance Coverage from Liberty Mutual

If you are shopping around for the best premium rates on life insurance coverage from Liberty Mutual – or from any life insurance company – then it is recommended that you partner with an independent insurance agent. In doing so, you will be able to compare policies and premiums in an unbiased manner – and from there, you can determine which option will be best fit for you.

When you are ready to proceed, we can help. We are an independent insurance brokerage and we work with many of the top life insurance carriers in the industry today. We can assist you with getting all the key details that you need for making a well-informed buying decision. To get started, all you need to do is just simply fill out our quote form.

We understand that the acquisition of a life insurance plan can be somewhat overwhelming. There are many different parameters to think about, and you want to be sure that you are moving in the right direction. But this process can be made so much easier when you are working with an ally on your side who can walk you through it from start to finish. So, contact us today – we’re here to help.

Source: goodfinancialcents.com

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Last Updated on February 25, 2022 by Mark Ferguson

When considering either a 15 or 30 year loan for investing, most people choose the 15 year loan. 15-year loans may appear to save money over 30-year loans because they have a lower interest rate, but I would much rather have the flexibility of a 30-year loan. Buying rental properties is a great investment, especially when you are able to use a mortgage to buy the properties and still get great cash flow. Many investors will get a 15-year mortgage because the rates are a little lower and they can pay off the properties quicker. I use a 30-year loan when I buy my rental properties because I get more cash flow and I can make much more money buying more properties than I can be paying off loans.

Why is a short term loan better?

The biggest advantage of a 15-year mortgage is the interest rate is less than a 30-year loan. The difference in rates changes daily and varies with different banks, but a 15-year loan is usually about .5 percent less than a 30 year fixed mortgage. With a lower interest rate, you are paying more towards the principal and less towards interest.

Some people think the biggest advantage of 15-year loans is the shorter length of the loan. I don’t agree because you can pay a 30-year loan off early if you want too. You will have a higher interest rate, but .5 a percent is not a huge rate difference, especially when you consider how much you can make buying more properties.

Are mortgages front-loaded with interest?

A lot of people want to pay off their loans faster because they think the interest is front-loaded on a mortgage. That means you pay more interest at the start of the loan compared to the loan amount than you do at the end of the loan. The truth is you do pay more interest at the beginning of the loan, but not because the interest is front-loaded, but because the loan amount is higher. If you have a 5% interest rate on your mortgage, 5% of your payment is paid to interest. You pay less money to interest as time goes on because the loan amount decreases.

How much do you save with a lower interest rate?

If you get a 15 year, $100,000 loan on a rental property at a 4 percent interest rate, the payments will be $740 a month (check out bank rate mortgage calculator for calculating mortgage payments). Over the 15 years of that loan, you will pay $33,143 in interest. With a 30 year loan at 4.5 percent interest, the total amount paid in interest over the life of the loan will be $82,406.

On the surface, it looks like you are saving almost $50,000 by getting a 15-year loan. However, you are paying interest over 30 years on one loan and over 15 years on the other, which is deceiving. The payment on a 30-year loan is only $507 a month, which is $233 less a month than the 15-year loan. If you were to take that $233 a month and put it back into the 30-year loan each month, the 30-year loan would cost $39,754 in interest and be paid off in less than 17 years. It definitely costs a little more to have a higher interest rate, but over 15 years that is only $550 more each year. As time goes by that money is worth less and less due to inflation.

I go over specific numbers on 15 versus 30-year loans in the video below:

[embedded content]

Why do banks push 15-year mortgages?

You may hear banks and lenders push 15-year loans on the radio and social media all the time! I always wonder if the 15-year loan is so much better for consumers and worse for banks, why are the banks trying to convince people to get 15-year loans? There are a couple of reasons.

  • The banks want people to refinance their loans because they make more money every time someone gets a new loan. You pay 2 to 5% in closing costs on a new loan and the bank or lender gets most of that money.
  • Most banks do not want their money locked up for 30 years. There is a reason they offer a lower interest rate on 15-year loans because they want more people to get 15-year loans. 30 years ago interest rates were more than 10%! Now they are less than 5%. The banks know that the lower the rate is, the shorter-term loan they want. They don’t want their money tied up in long-term loans.

The banks and lenders push 15-year loans because they make more money with short-term loans.

Is a 15 or 30 year loan better?

You will pay less interest on a 15-year loan than a 30-year loan. However, you are paying a higher payment every month on the 15-year loan. If you add up the payment savings with the 30-year loan, you save $2,796 each year and $41,940 over 15 years by getting the 30-year loan.

That extra money can be used for many things that will make you much more money than that $6,000 in interest you save. You can save up the cash flow to buy more rental properties. You can use the money to build an emergency fund. You could also pay extra to the mortgage and if you ever need the extra money later, you can stop putting extra money into the mortgage.

If you have nothing to invest that money into, it might make sense to get the 15-year loan. If you want to keep buying rentals and build your empire, the best bet is to get a longer-term loan and buy as many rentals as you can now.

Something else to consider is that inflation makes money worth less in the future. The graph below shows how much more money a 15-year loan costs you at the beginning of the loan when inflation is considered. It takes until year 24 or longer to start saving money with the 30-year loan.

It takes more than 24 years before you start saving money with a 15-year loan when inflation is considered!

Why does a 15-year loan make it harder to buy more rentals?

Another huge factor when considering whether to use a 15 or 30-year loan, is qualifying for more properties. When banks qualify an investor, they will look at debt to income ratios. A 15-year loan will have a higher payment and increase your monthly debt payments. The higher your loan payments are, the less cash flow you will have, and it will be harder to qualify for new loans. Many banks will only count 75 percent of your rental income when qualifying an investor for a loan. Even if you are cash flowing with a 15-year loan, if you can only count 75 percent of the rental income, you may show a loss each month. If you have many rental properties showing a loss, it will be very hard to qualify for new loans.

A 30-year loan with its lower payments will make it easier to qualify for more properties.

What if you cannot get a 30-year fixed-rate mortgage?

I own 180k sqft rental properties and it is really hard for me to find fixed-rate mortgages. I use a local lender and they do not offer 30-year fixed-rate loans, only ARMs.

When I finance my rental properties, I use 30-year ARMs. An ARM is an adjustable-rate mortgage that has a fixed interest rate for a certain amount of time. The interest rate on an ARM can adjust up or down after the fixed time period is up. My portfolio lender offers 5 and 7-year ARMs with a 30-year amortization. The rate will stay the same for the 5 or 7-year term but can adjust after that term is up. There are limits on how much the rate can adjust each year and a ceiling that it can never go over. The great part about ARMs is they have a lower rate than a 30 year fixed rate loan and even the 15-year fixed-rate loan.

If you get an ARM for your rental properties you will have an even lower payment than a 30 year fixed rate loan and save money in interest costs over a 15-year fixed-rate loan. To me, it is the best of both worlds.

Why is an ARM less risky than you may think?

There are obviously some risks involved with an ARM because the rate can go up after 5 or 7 years. I always have plenty of reserves and cash flow to make sure I can afford the higher payment if the rates adjust. Even if I hold the loan well past the initial fixed-rate term, it takes a few years for the ARM to become more expensive than a fixed-rate mortgage. Chances are rents will increase in the time period as well. If you have enough cash flow and a plan for when rates could increase, you should have no problem with an ARM.

If you don’t have enough cash flow and your payments go up, you could get into trouble with an ARM. Negative cash flow is hard to sustain and it will make it harder to qualify for loans as well.

Many lenders will also only offer ARM loans after you have a certain number of mortgages in your name. I would suggest getting the fixed-rate mortgages when first starting out, and as you advance in your investing career look at the ARM option.

Why is a lower payment more important than a lower interest rate?

ARMs allow a small payment at the beginning of a loan and possibly a higher payment in the future. The nice thing about the lower payment is you have more cash flow and inflation comes into play when you are investing money. If you can pay less money now and more in the future it is a good thing, because inflation will make money worth less in the future. Even though your payment might go up on an ARM; 5 or 7 years later that money will be worth less and your rents could have gone up. If you use the money you save on an ARM to invest in more rental properties or something else with a decent return, you will be way ahead than if you had paid a higher payment with the 15 or 30-year fixed loan.

Why is a 30-year loan safer than a 15-year loan?

Many people have a tough time saving money and the higher your mortgage payment is, the harder it will be to save. Having an emergency fund is very important for financial stability. If you do not have an emergency fund, do not get a 15-year mortgage. Get the 3o-year mortgage, and save up for the emergency fund. Once the emergency fund has enough money (6 months of living expenses) you can pay off your mortgage early if you would like to.

Remember that you see no real benefit to paying off your mortgage early unless you pay off the entire loan, refinance, or sell. Your house payment will stay the same until the loan is paid off in full. If you need to access the equity you have in your house, you cannot ask the lender to give you back what you have paid early. You will have to sell the house or get a brand new loan (refinance or home equity line of credit).

If you get a 15-year loan and have a medical emergency, lose your job, or cannot work, the bank will not lower the payment for you. You have to keep paying that high mortgage payment every month. If you had a 30-year mortgage and were paying more to it every month, an emergency would not be nearly as devastating, because you could stop paying extra.

Does a 15-year or 30-year loan allow you to buy more rentals?

My goal is to buy as many rentals as I can. Not only do I want each rental to make as much money as possible, I want to buy a lot of them! The 30-year loan allows you to buy more rentals because you are making more money each month. If you take that money and reinvest it into more properties, the results are phenomenal.

My nephew, who is a math whiz, made this amazing graph. Here is how it was created:

  • Each rental has a $120k value and $1,200 a month rent. The house was bought 30 percent below market value. but we spent $10k on repairs and 20% on down payments. We also spent 4% on closing costs to buy.
  • Monthly costs are 1.5% for taxes and insurance, 8% for property management, 5% for vacancies, and 10% for maintenance.

The chart shows what happens when you buy 1 property with a 30-year loan and reinvest all the cash flow into buying more properties vs 1 property bought with a 15-year loan and reinvesting all cash flow into more properties. You buy 119 houses over 30 years with 30-year loans and 32 houses with 15-year loans. You are making $53k a month with 30-year loans vs $11k a month with 15-year loans.

This does not account for inflation! With inflation, the 30 year is even better because rents increase on more properties. You buy 147 houses vs 38. It may be tricky getting a 30-year loan on that many properties, but it shows the value of investing your money early on instead of paying off debt early.

Conclusion

On the surface, a 15-year fixed-rate mortgage may seem like the best way to go. It saves money on interest over the life of the loan and has a shorter term. I believe the 15-year loan is the worst choice because you are tying up your money, making it harder to qualify for loans, and you could be investing that money in something that gives a higher return. If you get a 30-year ARM, the interest rate will actually be lower than the 15-year loan, and you might be able to pay that loan off faster than the 15-year loan.

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Source: investfourmore.com