Beating Broke

What Is Required for a Hard Money Loan?

June 29, 2020 By MelissaB Leave a Comment

When most people buy a house, they take out a loan with a traditional lender. However, individuals who are interested in buying run down houses to fix them up to then sell or rent rarely qualify for traditional mortgages. Instead, they seek hard money loans, which have short terms and give the investor more flexibility than a traditional loan. Before you first enter the home flipping business, it’s important to know what is required for a hard money loan.

What Is Required for a Hard Money Loan?

Of course, each lender will have their own requirements, but in general, there are three criteria that are most important when trying to secure this type of loan. Not surprisingly, many of the requirements circle around cash on hand and experience.

Down Payment

Most banks require a 25 to 30% down payment for residential properties.

In general, a successful hard money loan fit this formula. Consider the estimated after repairs retail value of the property. Let say you expect to sell the property for $250,000 when you’re done fixing it up. Maybe you purchased the property for $100,000. You expect to complete the repairs for $60,000, and you also want to borrow enough to cover closing costs of, say, $15,000. Your total comes to $175,000, or 70% of the expected value of the property. If you use this formula, you will likely qualify for a hard money loan.

Cash Available

What Is Required for a Hard Money Loan? — Photo by Shane on Unsplash

Since hard money loans are inherently risky, the lender will take a close look at your cash reserves. You will need substantial cash reserves to use during the renovation process to pay for things like HOA dues, interest payments on the hard money loan, insurance on the property, and other expenses.

The more cash you have available, the more likely you are to qualify for the loan.

Exit Strategy

The last thing the bank will consider is your exit strategy. Most hard money loans only have terms of six to 18 months, so you must have a plan for what to do when the loan term ends.

For private properties, there are two basic exit strategies:

Sell

The most typical option is to immediately sell the property when you’re done renovating it. You settle the hard money loan, get your profit, and are free to go on to invest in the next property. Some investors go a step further and get a cash out refinance so they then have even more cash on hand to invest in the next property.

Rent

Another option is to renovate the property, then rent it. When you rent it, the property is now making money. You’ll be able to go to a traditional mortgage lender and get a traditional mortgage in place of your hard money loan.

Final Thoughts

If you are considering going into the real estate business, you must first learn what is required for a hard money loan. When you meet the requirements, you’ll be able to secure your first loan. After you have amassed more experience and cash, you will find that hard money loans are easier to obtain, and you’ll be able to grow your business.

What the Pandemic Has Taught Me About Our Spending

June 22, 2020 By MelissaB 1 Comment

The pandemic has changed our American way of life. More people work from home now. Kids go online to complete their schooling. Many of us are wearing masks now. And, our month or two quarantined at home has given us time to reflect on what are life used to be like. . .and whether or not we want to fully go back to that life. I’ve spent some time considering what the pandemic has taught me about our spending.

What the Pandemic Has Taught Me About Our Spending

Sometimes you get complacent in life and just do things the way that you’ve always done them. This pandemic has allowed me to look at our finances with fresh eyes to discover what we did well and what needs improvement.

My Bargain Shopping Was a Boon to the Family

What The Pandemic Has Taught Me About Our Spending — Photo by gemma on Unsplash

I used to drop by the grocery store three or four times a week, scouring the store for clearance mark downs. I bought probably 1/3 to ½ of our weekly food this way. I used to worry that I was spending too much money shopping this way, but now I see how much I was really saving us.

Since the pandemic, I’ve relied on grocery store pick up, which means paying full price for everything. Our grocery bill has shot up by 30%. When the pandemic is over, you can bet I’ll be back to stopping by the store a few times a week to pick up the bargains.

We Drove Around Way Too Much

Before the pandemic, we were a busy family with three kids. We spent our time, like many American families, in the car driving from activity to activity. Gas was a large line item in our budget, especially since our town is very spread out. We easily spent 2 to 2.5 hours in the car a day, dropping off and picking up a child from school, taking another child to therapy, going to horseback riding lessons, gymnastics lessons, religious education lessons. On and on.

Since the pandemic, our gas consumption has dropped to nearly nothing. I’ve bought gas for my vehicle twice in three months; my husband hasn’t had to buy gas at all. We find we’re happier with more time at home. Whenever things are more normal, we don’t plan to be as busy, which means less gas consumption.

Our Emergency Fund Is Not Large Enough

We’ve been working on building our emergency fund from a tiny $1,000 to a six-month emergency fund. When the pandemic hit in mid-March, we had a two-month emergency fund. While that’s certainly better than a $1,000 emergency fund, I really wish it was larger.

We’re lucky that my husband was able to keep his job and work from home, but he did get a pay cut. While we have rearranged the budget to accommodate the pay cut, we won’t be able to grow our emergency fund like we had previously. And, depending on the way this pandemic rides out, we’re both aware that he could lose his job next year. I’d feel much more confident if we had a bigger cushion.

Final Thoughts

These three are what the pandemic has taught me about our spending. I’m quite sure when this pandemic is over, our family won’t go back to the way things were. I think we’ll drive a little less and try to save even more.

How has the pandemic changed the way you look at and spend money?

Is A Costco Membership Worth It When Living Alone?

June 15, 2020 By MelissaB Leave a Comment

I have been a member of Costco for approximately 10 years, and I love it! We typically recoup our membership cost within the first few months of our membership every year. We have a family of five that can easily go through the many bulk items we buy. However, if you’re single, is a Costco membership worth it when living alone? The answer is a resounding yes for most people. However, there is a small percentage who won’t benefit.

Is a Costco Membership Worth It When Living Alone?

A Costco membership isn’t always worth it when you’re single, but for many, there are enough advantages that having a membership is worth the $60 a year. Some of my favorite reasons why include:

Special Diet

If you have a special diet such as food intolerances or allergies or you prefer organic food, Costco is the place for you. Our family has both dairy and gluten intolerances, and I can’t beat the price for almond milk or gluten free pancake mix at Costco.

If you prefer organic food, you’ll definitely want to check out Costco. Over the years, Costco has added more and more organic selections. You can buy a 6 pack of organic Romaine lettuce for less than a 3 pack of the same at a traditional grocery store. Almost all of their organic fresh vegetable and fruit selections are markedly cheaper than a traditional grocery store. In addition, they have large bags of organic frozen fruits and vegetables that are much cheaper than their counterparts at a traditional grocery store.

Alcohol

Is a Costco Membership Worth It When Living Alone? — Photo by Jack Ward on Unsplash

If you love to entertain, Costco is the place for you. I don’t personally drink alcohol, so I don’t have exact prices on this. However, I’ve been told that you can buy wine and hard liquor at Costco at a much lower price than anywhere else. I know each time I go to Costco, I regularly see several customers who have their carts full of alcohol.

My husband does drink beer, and I can buy him a 24-pack of beer at Costco for just a few dollars more than a 12 pack costs at the grocery store. Over a year, the savings really add up!

Electronics

The only place we buy our laptops now is at Costco. Every laptop comes with a 2-year warranty—the first year from the manufacturer, the second year from Costco.

If you have a problem, simply call Costco’s concierge service, and they will assist. I have had issues with my laptops both in the first and second year of owning them. When it was during the first year and my laptop was still under manufacturer’s warranty, Costco acted as a bridge to help facilitate the interaction and repair, making for a seamless process.

During the second year, Costco does the repairs. I almost prefer if something needs to be repaired on my computer during the second year because Costco is so efficient! I always get my computer back quickly, and they do an excellent job keeping me updated on the repair process.

Gift Cards

Costco offers many gift cards at a significant discount.

If you love to dine out, you can get two $50 gift cards or four $25 gift cards to restaurants like Macaroni Grill, California Pizza Kitchen, and Smashburger, just to name a few of the many they offer. These $100 gift cards are available for just $74.99 to $79.99! You are immediately saving 20% or more.

In addition to restaurants, they also have gift cards for weight loss programs, the App store, and more. If you love video games, you’ll find significant discounts for XBOX, PlayStation and others.

These gift cards are great for presents, but they’re also great for you to use for your regular expenditures. If you spend just $300 a year dining out and always use your Costco bought gift cards, you will recoup your $60 membership fee right there!

Travel Benefits

Is a Costco Menbership Worth It When Living Alone? — Photo by Ross Parmly on Unsplash

Do you travel frequently? If so, you may find this yet another way you can quickly recoup the price of your $60 membership. Costco has many special package deals for travel.

While we haven’t yet used Costco for any package deals, we’ve used Costco to book our rental car whenever we travel. By doing this, we easily save at least 10% off the price of booking without our Costco card.

Gas

One of the best perks of being a Costco member is the gas prices. Whenever I’m near Costco, I fill up because gas is routinely 15 to 30 cents cheaper per gallon than anywhere else in town. When you’re filling up your vehicle multiple times per month, that discount can have a real impact.

However, the Costco stations don’t have window cleaner solutions and squeegees. (I wish they did!) Also, because most members know about the bargain gas price, don’t be surprised if you have to wait in line a few minutes before you can pump your gas.

When Having a Costco Membership Isn’t Worthwhile for Singles

As wonderful as Costco is, for some people who are single, a membership just isn’t worthwhile. My mom is one of those people. She doesn’t have a specialty diet, and she doesn’t care about eating organic food. She doesn’t drink alcohol, and she rarely travels. Instead of having a Costco membership, she just asks her friend who does have one to pick her up any items she’d like at Costco.

Another reason why it might not be worthwhile to have a Costco membership is if you’re a bargain shopper who likes to go to a variety of stores to get the lowest prices. While Costco can save many people a significant amount of money on groceries, generally, shopping at multiple stores for the lowest price will save even more.

Final Thoughts

Is a Costco membership worth it when living alone? For most singles, it is worthwhile. If you have a special diet, like to socialize and throw parties, or like to travel, getting a Costco membership will be a smart move. However, if you’re one of the few people who wouldn’t benefit from a membership, simply do what my mom does, and ask a friend with a membership to pick you up a few things.