July 2023

Credit-Challenged Small Businesses Have A New Source Of Capital

With pandemic government stimulus money and grant opportunities winding down, what’s a woman-owned business to do? Know your financing options!

A new option increases the likelihood of young businesses or businesses whose owners have low or no credit scores getting financing. The Equitable Access Fund relies on proven underwriting practices—paired with technical assistance—that have worked for Small Business Administration (SBA) loan programs and Community Development Financial Institutions (CDFIs) but are now applied to small business credit cards.

By subsidizing the additional costs and risks with philanthropic capital, mission-driven lenders—such as The Equitable Access Fund and its financing-provider partners—can meet the needs of underserved women entrepreneurs, especially women of color, with small business credit cards.

Leveraging Philanthropic Capital To Provide Credit To Women Entrepreneurs

Hello Alice, in partnership with the Global Entrepreneurship Network (GEN)—the fund manager—launched a $70 million fund backed by Wells Fargo to improve access to credit and capital for underserved entrepreneurs, including women. Other partners include the Kauffman Foundation and Mastercard.

“If you look at just the BIPOC small business owner community, there’s $40 billion in unmet demand for financing, based on how much they apply for and don’t receive, [according to the Small Business Credit Survey conducted by the Federal Reserve Banks],” said Matt Brewster, Capital Access Strategy for Hello Alice. “The unmet financing demand is three to four times higher for BIPOC-owned small businesses than white-owned small businesses.” The number for women-owned businesses is not available.

The Equitable Access Fund is designed to serve women-owned businesses and other high-potential small businesses facing barriers to adequate financing. Underwriting standards are more flexible and consider the entrepreneurs’ short- and long-term plans, their track record of meeting stated commitments and objectives, and their completion of learning modules on the Hello Alice platform. The fund will support access to the Hello Alice Small Business Mastercard and select loan products from Hello Alice Financing Marketplace partners. First National Bank of Omaha (FNBO) is Hello Alice’s credit card issuer.

The fund uniquely uses philanthropic capital to unlock access to capital for small businesses. It accomplishes this by providing “credit enhancements” to partners providing financing offering the small business credit card.

Credit enhancement includes loan guarantees, loan loss reserves, and cash collateral deposits to financing partners. These give financing institutions some loss protection on their deals and enable them to increase their risk tolerance reasonably. Increased risk tolerance helps unlock credit access for underserved, high-potential, credit-challenged or early-stage small business owners.

“A general rule of thumb is that you can get at least 10x leverage from a guarantee, unlocking credit access greater than the guarantee amount or from borrowers subsequently accessing other capital that they wouldn’t have been able to otherwise,” said Brewster.

“[Through] research that the Wells Fargo Foundation collaborated on with the Nasdaq Entrepreneurial Center (NEC), we learned that undercapitalization happens because women-owned businesses tend to get valuated at 30% less than similarly situated male-owned businesses,” said Jenny Flores, head of Small Business Growth Philanthropy at Wells Fargo. “This means that women-owned businesses will receive less financing. This [disparity] is compounded for women of color because it increases the wealth gap and suppresses their ability to scale.”

How It Works

Hello Alice’s data finds only 25% of small business owners have applied for a business credit card, and 85% of those applications were denied due to low or no credit score. Yet, 90% of business owners without business credit believe getting a business card would be beneficial.

Based on what Wells Fargo has learned from its “Open for Business Fund”—a $420 million effort focused on serving diverse small businesses across the U.S.—and insights from Hello Alice’s customers, Wells Fargo calibrated exactly where the interventions can be made to increase the success ratio for high-potential entrepreneurs. These insights and Hello Alice’s technology enables this solution to scale.

Through financing-provider partners, such as FNBO, Stearns Bank, and CDFIs, such as ACCION, Opportunity Fund, and Certified Development Company (CDC), women entrepreneurs can apply for a small business credit card and are more likely to be approved because The Equitable Access Fund enables financing-provider partners to have more flexible underwriting criteria and entrepreneurs do not have to put up the security.

It’s not just about the credit amount through the card. It’s about the additional credit, such as loans, that women-owned businesses can access once they have a track record of repayment. “We think the $70 million fund will unlock at least a billion in credit over the next five years,” said Brewster. It’s an innovative approach that Hello Alice hopes others will replicate.

As part of the program, entrepreneurs receive credit-building education and technical assistance through an assessment tool called the Business Health Score. The score gives an overview of a business’s financial health. It allows women entrepreneurs to make informed decisions about improving their financial performance. Financing partners use the score as an additional criterion in judging an applicant’s creditworthiness.

“To effectively meet the needs of women-owned businesses, particularly women of color (WOC), our financing models need to flex to ensure we meet entrepreneurs where they are,” said Flores. “In addition, when we pair capital with relevant education and mentorship, the success rate of women-owned businesses increases exponentially.” Hello Alice provides digital educational content and tools. Hello Alice Small Business Mastercard holders also get free 1-on-1 access to business coaches with expertise in strategy, finance, and sales and marketing.

How A Struggling Industry Benefits

“My greatest concern right now is women in the care economy,” said Elizabeth Gore, president and cofounder at Hello Alice. Women with small child- or elder-care companies had difficulty surviving the pandemic. Demand for their services declined sharply. If they reopened after lockdowns, they had to implement costly new safety protocols. Demand has returned, and there is a significant unmet need for services for affordable, high-quality care.

As small businesses, they were less likely to have cash reserves and more vulnerable to permanent closures. Rebuilding or starting new firms requires capital. Through The Equitable Access Fund’s financing partners, small child- or elder-care companies are more likely to get credit.

How are you building your credit score?

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How Much Does a Tiny House Cost?

The tiny homes market is predicted to grow by a staggering $3.57 billion between 2022 and 2026, according to a Global Tiny Homes Market report. While trends like the off-grid and tiny house movement may have caused some to dismiss tiny houses, their popularity among investors is increasing for many reasons.

Tiny houses are more accessible to investors with limited capital because they offer a lower upfront investment than traditional houses. Also, the surge in demand for unique, affordable, and sustainable living spaces that use less energy and create less waste has given rise to a niche market for tiny houses as attractive rental options. 

Their potential as accessory dwelling units (ADUs) allows investors to generate additional income streams through long-term or short-term/vacation rentals. You need to know several factors about the costs and potential returns of owning a tiny home as an investment property.

What Is a Tiny House?

A tiny house is a small, compact dwelling ranging in average size from 100 to 400 square feet. Tiny homes are designed to maximize functionality and efficiency in less space while providing a cozy and comfortable living environment.

The average price of a tiny house is around $300 per square foot, while a traditional home is about $150 per square foot. But whether you build or buy, a tiny home’s overall cost is lower than a full-sized home, depending on the add-ons you choose to include. Investors are increasingly drawn to tiny houses as ADUs, which can serve as rental properties and guest houses.

Tiny Home Costs: Building vs. Buying

Two main options for tiny house costs are constructing a custom build or purchasing a pre-built unit. Let’s compare the pros and cons of each to help you decide which is a good investment for you.

Constructing a custom build tiny house

Building a tiny home from scratch gives you more control to design a custom living space that meets your specific needs for lower costs than a pre-built one. However, building a tiny house requires careful planning and a significant time commitment. The cost of building materials, labor, and permits can add up, typically ranging from $20,000 to $150,000, depending on the size, quality, and location.

If you don’t want to start from scratch, you can buy a tiny house shell with an unfinished interior for around $17,000 to $37,000. For a separate cost, you can add plumbing and electrical power. There are also tiny home kits that cost under $10,000, with blueprints, a trailer to build it on, and a required supply list. 

If you have construction experience, this may be an ideal solution. Shipping containers are another viable option. They cost around $10,000 to $35,000 on average, with larger homes costing up to $175,000.

Purchasing a pre-built or pre-owned tiny home

Buying a pre-built tiny home offers the convenience of not dealing with the building process and quicker availability for booking rentals. Prices for pre-built tiny homes can vary greatly, starting from around $30,000 and going up to $150,000 or more for high-end models. 

You can buy a pre-built tiny house from builders like the Tumbleweed Tiny House Company, which offers a wide range of certified green styles with flexible payment plans and 3D virtual tours. While it may seem more expensive upfront, buying a pre-built tiny house can save you time, effort, and potential construction nightmares that can cost extra money during the building process.

You can also buy a pre-owned tiny house for around $30,000. Although you save money upfront, you sacrifice the ability to customize the space to your needs without additional expenses. You can find tiny homes for sale in your region by searching online for local and national listings on sites like tinyhomebuilders.com.

Tiny house construction costs
Building from scratch (materials, labor, permits, etc.)$20,000 to $150,000
Tiny house shell with an unfinished interior$17,000 to $37,000 (plus electrical and plumbing)
Tiny house kits (blueprints, trailer to build it on, and supply list)Less than $10,000
Shipping containers$10,000 to $35,000 (on average)
Pre-built or pre-owned tiny house costs
Pre-built tiny house$30,000 to $150,000 (depending on features)
Pre-owned tiny houseStarting at $30,000

Other factors impacting tiny house costs

Many other factors may affect the overall cost of your tiny house. These include:

  • The size of the space
  • The add-ons that are included
  • The building materials used
  • Building permit fees in your region
  • Utility access
  • Built on wheels or a foundation

Remember that owners of tiny houses built on wheels don’t pay property taxes. Although you’ll avoid the tax for the house cost, you’ll have to pay for a place to place it because of zoning laws. You cannot park it on a friend’s or family member’s property for free.

Real estate taxes may apply if you buy land to put it on, and you’ll need to consider the down payment and interest rate for any financing you get, such as a land loan. Because of a lack of collateral, these loans may be difficult to get without excellent credit and a solid building plan to show the lender. Most investors pay cash for tiny homes or get a personal loan because these small homes don’t qualify for a traditional mortgage like a conventional home.

Income Potential for Tiny Home Investors

The primary advantage of owning a tiny house as an investment property is the ability to generate multiple revenue streams. Research the best business model for determining if a tiny house is a good investment based on your target market and region.

For example, you can build a tiny house on your own property to offer renters or purchase a property to park many tiny houses on as long-term or short-term/vacation rentals. A vacation property investor can list their home on Airbnb to attract those looking to pay for a unique lifestyle experience. 

Many investors even purchase and develop land to rent space to tiny homeowners. Although, if you are a beginner tiny home investor, you may want to start with a single home and park it on your property to learn the ropes and prepare for making a larger investment in the future.

You can manage the tiny abode yourself or get a property management company to assist you. With the right strategy, you can create a steady stream of passive income from most tiny houses. Some investors even fix and flip tiny homes for a profit like traditional homes. The opportunities with most tiny homes are limitless because they’re mobile and smaller than a full-size home.

Calculating key metrics like net operating income (NOI), cash-on-cash returns, and return on investment (ROI) can help you evaluate the specific financial viability of your tiny house investment. 

Increasing the Value of Your Tiny House

You can maximize your tiny house investment’s rental income and resale value in many ways. First, optimize the layout and design to maximize the limited small spaces available. Clever storage solutions for people’s stuff, multifunctional furniture, and efficient use of loft space can enhance the comfort and appeal of tiny home living.

Incorporating sustainable features like solar panels, energy-efficient appliances, and water-saving fixtures can attract environmentally-conscious tenants and reduce utility costs. Create inviting outdoor areas with seating, landscaping, and amenities to increase the overall desirability of your tiny house. But be aware that tiny homes can depreciate in value if they’re over-customized. 

You can effectively market your tiny house by highlighting the unique selling points, such as proximity to local attractions, eco-friendly features, or a serene setting. Use online platforms, social media, and professional photography to showcase your property’s charm to gain the interest of potential tenants.

Challenges of Owning a Tiny House as an Investor

While tiny houses can be lucrative investment opportunities, some challenges exist.

  • Zoning laws and legal restrictions can vary from one location to another. It’s crucial to research and make sure that your tiny house complies with local regulations. You’ll also need to get any necessary permits or approvals. Some areas have specific zoning requirements for tiny houses, such as being classified as ADUs or being located in designated communities.
  • Financing options for tiny houses can be another hurdle. Traditional lenders may be less inclined to provide conventional mortgage loans for tiny house investments due to their unconventional nature and potential depreciation. However, you can explore alternative financing options like personal loans, contractor or building financing, RV loans, or home equity loans to fund your tiny home project.
  • Maintenance and management can also pose challenges for tiny house investors. With limited space, regular upkeep and repairs become even more important. Whether through self-management or hiring a property manager, it’s important to factor in ongoing maintenance costs and ensure you have a plan for managing the property efficiently, like with a traditional home. Remember that tiny homes aren’t guaranteed to appreciate as much in value as a traditional house. 
  • Consider the limitations of the tenant pool or target market. While tiny houses can appeal to certain demographics, such as young professionals or minimalistic individuals, they may not suit every type of renter. Understanding your target market and catering to their needs and preferences is key to maximizing occupancy rates and rental income. 

Is a Tiny House a Good Investment?

Investing in a tiny house can be profitable, but understanding the costs and potential returns is critical for making informed decisions. Whether you build or buy a tiny house, carefully evaluate the expenses and weigh them against the potential income streams.

As the tiny homes market grows, staying informed and adapting to changing trends and regulations, such as zoning restrictions, financing options, maintenance requirements, and target market limitations, is essential. By optimizing the layout, incorporating sustainable features, and effectively marketing your property, you can increase the value and rental income of your tiny house investment. 

However, it’s also important to know the tiny house cost challenges. So, if you’re considering a tiny house as an investment, take the time to evaluate your investment goals, assess the costs and potential returns, and determine if a tiny house aligns with your real estate investment strategy. With careful planning and smart decision-making, a tiny home can be a profitable addition to your investment portfolio.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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3 Succession Planning Mistakes Your Company Can’t Afford To Make

Succession planning can be one of the most important ways to protect the longevity of your business. Unfortunately, far too many leaders overlook its importance. The result is never good—and can end up as a publicity nightmare.

Take the recent case of what happened at Disney. For 15 years, Bob Iger led Disney as the powerhouse brand’s CEO. When he was ready to step aside in 2020, Bob Chapek took his place. The only issue? Iger apparently wasn’t really ready to step aside at all. Instead, he installed himself as the executive chairman directing the company’s creative endeavors and chairman of the board. Within two short years, Chapek was ousted, and Iger returned.

Though there were numerous reasons for Chapek’s departure, a lack of proper succession planning probably tops the list. Reportedly, Iger had great mentorship. He was supported and groomed for his eventual promotion to CEO. In contrast, Chapek never received that kind of trust-building mentoring from Iger or many of his C-suite peers. Is it any wonder that his tenure soured quickly and led to major headlines that now serve as cautionary tales for other businesses?

If even the House of Mouse can be brought down by poorly handled succession planning, it’s possible for any company to stumble when trying to replace one leader with another. To avoid becoming better known for your succession plan mishaps than your operational wins, you’ll want to know the most common mistakes to avoid. Below are three big stumbling blocks and how to bypass them:

1. Waiting until you need a leader to plan.

We often talk about the truism of “death and taxes” being the only things you can count on. But you can count on the fact that your leaders will churn one day. Whether this is because they resign, retire, or sadly pass away, they won’t be at the helm forever.

The last thing you want is to have to make a knee-jerk decision on how to replace a CEO, CFO, or other leader. That’s why you need a well-considered succession plan. The plan will serve as a map that you can follow. You’ll be glad you have this framework laid out in advance because succession isn’t as simple as just posting a job listing and interviewing candidates. The process can cause ripple effects, such as waning stock (if you’re a publicly traded company) or fearful or skeptical employees who tender their resignations.

According to research from Gallup, around one in two people have quit their jobs due to conflicts with leadership. Therefore, be sure your succession plan includes how and when you’ll communicate decisions to workers. You have to walk a fine line between confidentiality and transparency so your high-performing team members are less inclined to say goodbye and leave your new leader with a sinking ship.

2. Neglecting the importance of cultural alignment.

Every business has a culture. This means that the CEO who might be perfect for one company might be absolutely wrong for another. It’s not a reflection on that person but an illustration of how important cultural alignment is to your succession planning. You never want to make someone in charge if that person is doomed to feel and appear out of place from day one.

Sarah Woods, head of office of BTS Boston, an advisory firm that partners with executives and their teams to shape how leaders engage and align the organization to drive results, stresses the importance of evaluating possible replacement leaders according to how they’ll be received culturally. She cautions against assuming anything in this area of succession planning. “While you may feel you ‘know it when you see it,’ that approach is a high-risk gamble for guiding all the stakeholders to find the right culture fit,” writes Woods. “Clarifying and documenting your unique leadership culture—the best and worst of—and what it looks like in action are important parts of the selection process.”

Admittedly, searching for someone who will slip into place effortlessly from a cultural perspective will take time. Meanwhile, you might have to make do with interim leadership, such as keeping on an ongoing leader, allowing your board to make decisions temporarily, or enabling a team of C-suite executives to steer for a while. Your patience will pay off in the long run because you won’t find yourself with someone whose views and objectives run in stark contrast to everyone else’s in your company.

3. Forgetting to fold inclusivity into your succession plans.

If your company is like 83% of others, you have some kind of DEI initiative in place. That’s terrific and can help your business remain competitive in an atmosphere where both employees and consumers are eager to work with inclusive organizations. However, you shouldn’t overlook DEI when creating your succession plans. Otherwise, you may wind up reverting to biased ways of naming a successor.

Traditionally, many succession attempts include placing only the “heir apparent” into the open role. As you might suspect, that individual is often part of a rather insulated, homogenous network. The person might not even be as qualified as other applicants. Nevertheless, they earned the promotion because of old-fashioned (and frequently biased) “rules.”

To make your succession plans inclusive, you need to go beyond the “there’s only one obvious person to fill this leadership position” mentality. For instance, seek applications from people both inside and outside your organization. And take time to update what your incoming leader actually needs to possess in terms of skill sets, experience, and education. Your old executive job descriptions probably haven’t been given facelifts in years. Now’s the time to freshen them up. Then, you can start rethinking your interviewing and onboarding procedures so you don’t miss the opportunity to be inclusive and line up your hiring with your DEI goals.

Succession planning isn’t an exact science and takes some work to get right. Nonetheless, it’s essential if you want your business to avoid problems when leadership changes occur.

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How to Calculate Your Mortgage Payment (an Easy Mortgage Formula)

You can leverage your real estate investments by borrowing money to afford a higher purchase price. Knowing how to calculate a mortgage payment is important to make significant business decisions when adding to your real estate portfolio.

Typical Costs Included in Your Mortgage Payment

Your mortgage payment involves many costs, not just the amount you borrow to invest in a home. Some variables you may control, but others are fixed monthly expenses you must include in your mortgage payment, such as monthly interest, taxes, and insurance.


The mortgage principal is the loan amount you borrow to buy a home. To determine the loan’s principal, first determine the size of the down payment you’ll make on the property.

For example, if you’re considering a property that costs $300,000 and has a $100,000 down payment, your loan principal would be $200,000, as that’s how much you need from the bank to complete the transaction.


Interest is the fee you pay to borrow the money. You pay an annual interest rate but make monthly payments with a monthly interest rate (the annual rate divided by 12). The interest rate on investment properties is usually slightly higher than the rate lenders give borrowers purchasing a primary residence because there is a higher risk of default on investment properties.

Your initial mortgage payments will be more interest than principal, but as you pay the principal balance down, the interest paid in each payment decreases. You can evaluate interest savings by shopping around for the best loan program.


Property taxes are a significant part of your mortgage payment, as they are required to own a home. Since you are the property owner, you are responsible for paying the property taxes. You may set up an escrow account and include one-twelfth of the annual tax bill in your mortgage payment or pay the property taxes yourself, but you should still consider them a part of your mortgage payment to keep up with the property tax bill.

Mortgage insurance

Conventional loan lenders must charge private mortgage insurance (PMI) when borrowers put down less than 20% on a property. This insurance protects lenders if a borrower doesn’t make the required payments and is an added layer of reassurance when lending to an investor with a loan amount that exceeds 80% of the property value. To avoid mortgage insurance, you must put down at least 20% on the property, which most investment loan programs require.

Homeowners insurance

All lenders require property owners to carry homeowners insurance to protect against any losses on the home. Most lenders require 100% of the replacement cost in coverage to ensure enough financial protection to rebuild the house should there be a total loss, such as a fire.

HOA (homeowners association) fees

You’ll be responsible for the fees if the property is in a homeowners association. Most lenders don’t include the HOA fees in the mortgage payment, but it’s a part of your monthly expenses and should be included so you know your total monthly costs and can determine if a property makes financial sense.

What Is Amortization, and How Does It Impact Your Payment?

Mortgage amortization refers to how you repay the mortgage loan. Mortgage loans have a fixed monthly payment and defined end date. Although the payment amount is fixed, the amount you pay toward the mortgage principal and interest changes monthly, even if the monthly rate doesn’t change.

For example, if you borrow $200,000 over 30 years at 6%, your monthly mortgage payments would be $1,199.10. In the first month, you’d pay $199.10 toward principal and $1,000 in interest. By the 12th month, you’d pay $210.33 in principal and $988.77 in interest.

By the last payment, you’d pay $1,193.44 in principal and just $5.97 in interest. As you can see, paying interest is a part of the mortgage formula, but the amount you pay decreases over time.

How to Calculate Your Monthly Mortgage Payment

Knowing how to calculate your mortgage payment is important, but if you prefer that the calculations are done for you, there is an easy mortgage calculator.

An easy formula

To calculate your monthly mortgage payments, you’ll need the following information:

  • (M) Monthly payment amount
  • (P) Principal amount or the loan balance
  • (I) Annual interest rate divided by 12 months
  • (N) Number of payments

The mortgage formula is calculated as follows:

M = P [ I(1 + I)^N ] / [ (1 + I)^N ? 1]

As you can see, using a mortgage calculator provides the easiest way to calculate your monthly payments, especially as you look at different financing options when buying an investment property. The key is finding financing you can afford that makes sense in your operational costs.

What Are the Different Types of Mortgages?

As a property investor, you have several options when choosing the loan type. Government-issued mortgages usually aren’t an option except in rare circumstances, but the remaining loan types can help.

Conventional mortgage loan

A conventional mortgage loan isn’t government-backed. They are available as conforming and nonconforming loans.

Conforming loans follow the FHFA guidelines, including loan size, credit score, and debt-to-income ratios. The current conforming loan limits are $726,200 and $1,089,300 in high-cost areas.

Nonconforming loans don’t follow the FHFA guidelines and provide more customized options for investors with unique credit profiles or buying expensive properties.

Jumbo loan

Jumbo loans are a subset of the nonconforming loan category. These loan amounts are higher than the conforming loan limit and are more common in high-cost areas.

Fixed-rate mortgage

A fixed-rate mortgage is the easiest to use when learning how to calculate a mortgage payment. With a fixed interest rate, your monthly payments never change. The only exception is if you have an escrow account and your property taxes or homeowners insurance bills increase or decrease. Most fixed-rate mortgages are available in 15- to 30-year terms.

Adjustable-rate mortgage

An adjustable-rate mortgage is a little harder to perform a mortgage calculation on because the interest rate changes. This is when mortgage calculators are most useful because you can calculate best- and worst-case scenarios when deciding if an ARM mortgage fits your budget.

Government-insured mortgages

Government-insured mortgages are for primary residences only and include FHA, VA, and USDA loans. The only way a property investor could use government-insured mortgage programs is by house hacking, or buying a multiunit property, living in one unit as their primary residence, and renting out the remaining units.

Government-insured mortgages often have lower interest rates, but some loans, like FHA, charge mortgage insurance for the life of the loan balance.

Reverse mortgages

A reverse mortgage is for homeowners in their retirement years who want to use their home equity but not leave the home. A reverse mortgage doesn’t require a monthly mortgage payment but accrues interest that becomes due when the borrower no longer lives in the home.

15-year mortgages vs. 30-year mortgages

As you calculate your monthly mortgage payment, you can choose a 15- or 30-year mortgage. The longer 30-year term has lower monthly payments, but you’ll pay more interest over the loan term. A 15-year term has a higher monthly payment, but you pay the loan off faster, paying less in interest.

Mortgage Interest Rates

Mortgage interest rates have been a hot topic since the pandemic. During the shutdown, interest rates were lower than anyone had seen in decades, but they have since increased, which to some seem high, but they are back at their typical level.

When deciding if you should invest in a property, the mortgage interest rate is important in the mortgage formula. It’s not the only factor you should consider, but it is a cost of investing and can reduce your profits, so it’s a good idea to shop around and get the lowest interest rate you can.

What Is a Debt-to-Income Ratio?

When lenders determine if you’re approved for a mortgage loan, they assess your credit score, income, and debt-to-income ratio.

The DTI measures your gross monthly income to your monthly debt payments. The ideal DTI is 36%, but many lenders allow property investors to go higher, especially if you are a seasoned investor.

How does a debt-to-income ratio affect affordability?

However, your DTI affects your affordability. If the industry struggles, the more money you have committed to monthly obligations, the harder it becomes to afford your payments. For example, if you max out your affordability and suddenly have an increased vacancy rate, you might struggle to make ends meet. Keeping your DTI at a manageable level is ideal.

How a Larger Down Payment Affects Your Payment

When investing in a property, you will likely make a down payment. The more money you put down, the easier it is to get approved for financing, and it lowers your monthly payment. In addition, some lenders may offer a lower interest rate if you have more equity in the property.

Tips for Managing Your Mortgage Payments Throughout the Life of Your Loan

After using a mortgage formula or calculator to determine your mortgage payment and getting approved, it’s important to know how to manage your mortgage payments, especially if you own multiple properties. Here are some tips:

  • Set a budget: Make sure your monthly mortgage payment fits into your budget and that you account for the area’s average vacancy rates, so you have a better idea of how much income you’ll receive.
  • Keep an emergency fund: As a landlord, you’re responsible for all repairs and regular maintenance on the property. Having the money handy will avoid issues affording your monthly payment.
  • Make extra payments: If you have the money, consider making extra payments to shorten your loan term and save money on interest costs.

Mortgage Payment FAQs

Knowing how to calculate a mortgage payment is important. Here are a couple of common questions investors have about mortgages.

Why does your mortgage periodically go up?

If you have a fixed monthly payment, you might wonder why it changed. You have a fixed interest rate, so your mortgage principal payment or interest rate didn’t change, but your property tax or homeowners insurance bill might have increased. Your mortgage company will conduct an escrow analysis annually to determine if your mortgage payment is enough to cover your annual costs, or if it must change.

How do lenders decide what you can borrow?

Lenders look at many factors when deciding how much house you can purchase. They examine your credit score, history, income, employment, and assets. They calculate your debt-to-income ratio and compare your intended down payment to the minimum down payments required for each loan program. Lenders must ensure you can afford the payments beyond a reasonable doubt.

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Quickly find and compare investor-friendly lenders who specialize in your unique investing strategy. It’s fast, free, and easier than ever!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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U.S. Federal Reserve isn’t trying to get ahead of itself anymore: KPMG


Diane Swonk, chief economist at KPMG, says there’s unlikely to be another “mic drop” moment — like U.S. Federal Reserve Chair Jerome Powell’s 8-minute speech last year — at the next Jackson Hole meeting.


Thu, Jul 27 202312:07 AM EDT

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How To Compete On An International Scale

Businesses looking to expand and dominate an industry need to compete on an international scale. But competing on this level, with businesses all around the world, is harder than ever.

There are many factors to consider. What are the biggest challenges of international competition you need to account for? And how do you account for them? Here’s what you need to know.

Travel Costs and Logistics

First, you need to recognize that travel costs are higher than ever, and coordinating travel to different countries for research, new partnerships, or other organizational goals can be challenging. It’s especially difficult when you’re trying to retain your previous professional responsibilities while expanding your business in new territory.

Fortunately, there are some positive developments when it comes to travel costs and logistics. New programs, like the UK ETA, are designed to make it easier to get the travel authorization you need to travel to different countries. The UK ETA won’t be launching in full until 2024, but the U.S. visa waiver program on which it’s based is already streamlining travel between developed countries.

You can also mitigate this challenge by traveling strategically. Instead of hopping on a plane every time there’s a problem to solve, you can rely heavily on remote collaboration if you have the right tools in place.

Cultural Barriers

Cultural barriers can stand in your way on multiple fronts—and in ways far more detrimental than having your kind hand gesture interpreted as a rude one.

If you’re not familiar with another culture, you’re going to have problems expanding your business into it. You won’t understand the local audience, so you won’t be able to relate to them. Your organizational culture also may not translate well into this new environment. You may have a harder time recruiting employees or getting them to conform to your standards in the new location.

The correct way to approach this challenge is with a two-pronged strategy. First, you need to educate yourself and truly immerse yourself in another culture so you can gain a better understanding of it. Second, you need to remain flexible and adaptable; business owners are much better off adapting to another culture, rather than attempting to change the culture or ignore the cultural differences entirely.

Demographic Research and Marketing

Bringing your business to a new area means marketing your business to new people. And that means digging deep into demographic research.

You can mostly use the same tactics across many different locations. Surveys, focus groups, and experimental designs can tell you everything you need to know about how members of a given community will respond to your marketing ideas. However, coming up with those ideas is particularly challenging if you’re not immersed and experienced in the culture you’re targeting.

Here, your best strategy is recruiting locals for better marketing brainstorming and fine tuning. In other words, find someone who “speaks the language,” both literally and figuratively.

Extra Taxes, Fees, Tariffs, and General Costs

Expanding your business internationally is both expensive and complicated, thanks to things like taxes, fees, tariffs, and increased logistical costs. If you don’t have a plan for how to manage these additional expenses, you probably aren’t ready for international expansion.

There are lots of things you can do to simplify and streamline things here. Consider establishing strategic partnerships or joint ventures with local companies in the target country as an example. By collaborating with an established local partner, you can leverage their existing infrastructure, distribution channels, and knowledge of the local market. Of course, entering into a joint venture requires careful consideration and due diligence, so do your research first.

Unfortunately, there’s not much you can do to avoid taxes, tariffs, and laws in other countries. But you can hire a good lawyer and a good financial adviser to help you navigate this terrain effectively.

Human Resources and Organizational Identity

The bigger a business grows, the harder it is to maintain a consistent organizational culture. If your business grows to international levels, maintaining that culture is going to be even harder, since you’ll have people from multiple backgrounds working at different branches.

There are a few different strategies that can work here. If you want to keep your culture ironclad and consistent, you can spend more time and effort on recruiting and team building. If you’re more flexible, you can allow your organizational culture to be strategically compartmentalized; team members of remote locations can be given autonomy to make some decisions for themselves.

General Strategies for Success

These additional, general strategies can also help you become successful in this especially challenging era:

Choose the Right Countries

One of your most important strategic objectives is going to be choosing the right country. After all, different countries are going to present different challenges. Choosing a country with cultural similarities and no language barrier can instantly make international expansion easier. And of course, some countries are more business friendly than others.

Start Small

Don’t try to expand your company into a dozen new countries right away. Start with one, and pace yourself to avoid overspending.

Encourage Autonomy and Segmented Independence

For most businesses, the best path to stable, international expansion is encouraging autonomy and segmented independence. In other words, treat separate locations as separate, hire people you trust, and let your people make their own decisions whenever possible.

Be Ready to Adapt

Expansion probably isn’t going to be a perfectly smooth process. You’ll need to be ready to adapt your plans at a moment’s notice.

Somehow, expanding a business internationally is both easier and harder than it’s ever been before. Collaborating with people across an ocean is trivially easy, but connecting with them culturally and remaining financially stable is much harder. Still, with enough forethought, research, and proactive effort, you can scale up your business with minimal friction.

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How the Industry Turned Upside Down and Protecting Your Short-Term Rentals Got Harder

This article is presented by Proper Insurance. Read our editorial guidelines for more information.

The internet altered the world, and for the most part, it was a good thing. Most products and services got better, but not insurance—it got lost.

Before the internet, the insurance sector centered around an agent-driven business model in which insurance companies manufactured products and insurance agents sold them to consumers: home, vehicle, life, and business insurance.

Insurance carriers learned that with the internet, they could sell straight to the consumer through the click of a button—eliminating the local agent’s need for a sales commission. Because of this shift, most insurance agents nowadays lack the knowledge and in-depth understanding of the coverage they provide in the complex 100-page contracts they sell. This results in the slow, agonizing demise of the professional insurance salesperson. 

Although there are still thousands of traditional insurance agents in the United States, and many carriers still use the original concept, the modern-day insurance product for the consumer is generally poor. This is because the insurance industry shifted from a coverage-focused market to a price-based model.

That’s why standard insurance advertisements all say the same thing: “Switch and save.” No one has seen an advertisement from this industry that says, “Upgrade for better coverage.”

You should never build your insurance plan on price, especially for a short-term rental investment property (which will be the main subject of this article, but the principles apply to most properties), because you are compromising your coverage on a property that is highly at risk of something going wrong.

By reading and subscribing to BiggerPockets, we all understand that self-education best serves the modern investor. So, let’s begin the journey of self-education on insurance for short-term rentals. After all, it’s your investment and, along with that, your responsibility to protect it.

Immediately Verify Your Short-Term Rental Insurance

Start by knowing what kind of policy you currently have for your short-term rental property. There are only three insurance contract options to choose from when insuring a short-term rental investment property: 

  • Homeowners insurance (HO) contract
  • Dwelling/Landlord (DP) contract
  • Commercial (CP/CL) contract

The next thing you have to know when verifying your insurance is to outline what needs to be covered or what needs to be protected. Options include:

  • The structure and contents inside of it.
    • This is the physical asset and everything you, or your guests, can touch and feel. This includes the building structure, walls, furniture, electronics, etc.
  • The revenue or income the asset generates. 
    • A short-term rental typically generates a much higher revenue stream for the modern investor than a long-term rental.
  • The liability the asset brings with it.
    • This includes the increased risk of bodily injury claims, like slips and falls, due to the high-traffic nature of short-term rental properties.

Homeowners Policy with a Home-Sharing Host Activities Endorsement (HO)

Here’s a common scenario: You seek insurance for your investment property that you want to list on Airbnb or Vrbo. The agent provides you with a homeowners policy (HO) with an endorsement for Airbnb, also known legally as the Home-Sharing Host Amendatory Activities Endorsement.

Now imagine that, years later, a fire occurs at the rental property. However, the insurance carrier denies the claim because you weren’t residing there at the time of the fire, a requirement in homeowners insurance policies under the definition of “residence premises,” aka the place you live and get your mail.

Legal cases, like American Risk Insurance Company, Inc. v. Veronika Serpikova, highlight similar disputes. Serpikova’s claim was rejected, as her homeowners policy only covered her primary residence. Despite winning initially in the trial court, the appeals court overturned the decision. She received no claims payment because the insurance contract she signed was clear. This case emphasizes the importance of understanding your insurance coverage’s limitations. 

Plainly stated: If you own an investment property, one you do not live at, and you have it insured under a homeowners policy, you have no insurance coverage. The insurance agent sold you the wrong policy, and you purchased it. It’s the insured’s responsibility to read and understand the contract. 

Why was I offered a homeowners policy if it does not cover my investment property?

It is simply a lack of training agents from large domestic insurance companies that are too big to fail. Large domestic insurance companies do not care about you, and insurance agents need more training. Need proof? Check out the Trustpilot review scores of State Farm or Allstate.

What is the intent of the Home-Sharing Host Activities Amendatory Endorsement?

A Home-Sharing Host Activities Amendatory Endorsement is meant for a primary home (where you live and receive your mail) while being a host or occasionally short-term renting. 

Hundreds of thousands of primary homeowners rent a guest house, a bedroom, or even a tiny home in their backyard on Airbnb or Vrbo. A homeowners policy with a home-sharing rider or endorsement is perfectly acceptable and the intent of the form. 

However, if this is the policy you have and the scenario in which you are using it, be aware that it’s very inexpensive and therefore provides minimal coverage. In that case, a commercial hybrid policy would be more suitable for someone regularly renting a primary residence as a short-term rental.

Dwelling/Landlord Insurance Contract

Short-term rentals have high turnover, with each guest or rental group being entirely different. You willingly hand over the keys to your property and all its belongings to a different group of strangers each week rather than having one tenant for 12 months.

Structure and contents

Dwelling/landlord insurance provides no coverage if a group decides to let loose and party all week in your short-term rental and never has. The damage is considered intentional or malicious because you entrusted your property to this group of tenants/guests.

Where most insurance agents get confused and can often mislead an investor is the term “vandalism.” 

Most comprehensive dwelling/landlord insurance contracts cover vandalism, such as a passerby throwing rocks at your windows or spray-painting your siding. This differs from the tenants that you’ve invited inside your home by giving them the keys.

The average insurance agent sees that “vandalism” is named on the declarations page as coverage but fails to finish reading the length of the contract (as seen below), which clearly states they do not insure any loss by intentional acts of any tenant.

Sample Dwelling/Landlord Policy (11003 03/06)
Sample Dwelling/Landlord Policy (11003 03/06)

Revenue or income the asset generates

Dwelling/landlord insurance contracts provide “loss of rents,” calculated on “fair rental value,” typically capped at 12 months.

This is problematic for short-term rentals, as rental income is typically much higher than a long-term or even mid-term property. At the time of the loss, the carrier will aggregate all surrounding rental properties and determine what’s average or fair based on your property characteristics, such as square footage and bedrooms.

With a short-term rental, the coverage you want is “lost business income,” with actual loss sustained valuation and no time limit. This means you get reimbursed for what you actually earn, not what your surrounding neighbors average.

For example, in the event of a total loss, such as a fire, it will typically be 18 to 24 months before your investment property will be fully operational after a rebuild, so more than 12 months of protection is needed. Having no time limit is critical.

Liability of a short-term rental

Short-term rentals are attractive to investors primarily for the nightly rental rates. But with a higher volume of guests comes much higher liability.

You are competing with lodging giants like Hilton and Marriott for travel lodging dollars, which means you are held to the same standard of care, which includes a legal obligation to deliver safe premises to your guests. This all falls under common law and, more specifically, hospitality law.

Dwelling/landlord insurance contracts carry “premise liability,” which was never intended to cover the scope of a short-term rental business.

If a guest were to get injured off the premises and claim the short-term rental owner liable, there is no protection with a dwelling/landlord’s premise liability. An easy example of amenities off-premises is if your property offers guests bicycles, canoes, kayaks, etc.

Commercial Contract (CP/CL)

A short-term rental owner should not only carry a Commercial Property (CP) contract but also a Commercial Liability (CL) contract as well, which extends off the premises and provides bodily injury protection for the business operation. 

The key in looking at Commercial Liability is reviewing exclusions, as most insurance carriers limit coverage. 

Common liability exclusions to look out for and avoid when running a short-term rental business, if possible, are as follows: 

  • Animal/pet or vicious dog breeds
  • Communicable disease
  • Liquor liability
  • Invasion of privacy
  • Punitive damages
  • Amenities off-premises
  • Assault and battery
  • Nesting or infestation
  • Personal and advertising injury

Next Steps in Your Short-Term Rental Insurance Journey

Verify your insurance by calling an insurance agent you trust and asking the tough contract questions based on the scenarios outlined here. Remember that while an insurance agent can help you understand the contract to their best knowledge of the policy, it is ultimately your responsibility as the property owner to understand the contract you signed.

If you find that you are carrying a dwelling/landlord contract and are comfortable with the limitations of premises liability, here are some tips for filling the gap on guest-caused damage:

  1. Screening, screening, and more screening. There is a plethora of short-term rental screening companies that have emerged over the past decade, but property investors are in the business of getting more bookings, not overly screening guests, and denying bookings. The reality is you never know which group will cause significant damage.
  2. Find a short-term rental damage protection company that provides coverage for both accidental damage and intentional damage. Make sure to read the fine print here, as many providers have the same exclusion as a dwelling/landlord policy and only provide accidental damage coverage.
  3. Charge a significant security deposit, such as $5,000, and take the renter to civil court if damage exceeds it. This is how it’s been handled with long-term rentals for over 100 years.
  4. Make sure 100% of your bookings are processed through Airbnb, which provides AirCover for Hosts on every booking. But this takes away the option to book directly, which gets away from Airbnb’s high fees. It’s also unclear how responsive Airbnb is to tenant-/guest-caused damage—it seems like a bit of a roll of the dice.
  5. Purchase a commercial insurance policy that provides a specific endorsement for no limit on damage caused by a tenant or guest. This is the single foolproof solution, but research shows there is only one provider of this in the U.S., and the policy comes at a premium.

In Summary

  • Find an insurance agent you can trust, and ask the tough insurance contract questions.
  • Home-sharing insurance endorsements or riders only apply to primary homes, not short-term rental investment properties.
  • Dwelling/landlord insurance contracts suffice for short-term rental properties, but their low cost comes with big coverage gaps.
  • Upgrade your insurance to a commercial insurance policy that provides coverage specific to a short-term rental investment property.

This article is presented by Proper Insurance

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Know you’re covered. Upgrade your homeowners or landlord policy to Proper Insurance for unmatched protection.

Proper Insurance is the nation’s leading short-term vacation rental insurance provider, with the most comprehensive policy on the market. We protect homes in all 50 states with unmatched coverage for your property, income, and business liability, customized to include guest-caused theft/damage, liquor liability, amenity liability (bikes, kayaks, hot tub, etc.), bed bugs, squatters, and more.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.

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China’s housing ministry announces new details for real estate support

A residential complex constructed by Evergrande in Huai’an, Jiangsu, China, on July 20, 2023.

Future Publishing | Future Publishing | Getty Images

BEIJING — China’s housing ministry has announced plans to make it easier for people to buy property.

The news, out late Thursday, indicates how different levels of government are starting to act just days after Beijing signaled a shift away from its crackdown on real estate speculation.

The planned measures include easing purchase restrictions for people wanting to buy a second house, and reducing down payment ratios for first-time homebuyers, according to an article on the Ministry of Housing and Urban-Rural Development’s website.

In an effort to reduce speculation in its massive property market, China has made it much harder for people to buy a second house.

Mortgage rates for the second purchase can be a full percentage point higher than for the first, while the second-home down payment ratio can skyrocket to 70% or 80% in large cities, according to Natixis.

China's recent Politburo meeting had a more constructive outcome

The housing ministry article referred to comments from its minister Ni Hong at a recent meeting with eight state-owned and non-state-owned companies in construction and real estate.

Since it was a meeting at the central government ministry level, it did not discuss policies for individual cities, said Bruce Pang, chief economist and head of research for Greater China at JLL.

But he expects Beijing will encourage local governments to announce real estate policy changes that fit their specific situation. Pang also pointed out that including construction companies at the meeting emphasized their role in promoting investment and stabilizing growth.

Waiting on details

We continue to expect the property sector rally to continue and advise investors to focus on beta names within the property sector.

The readout of Monday’s Politburo meeting also removed the phrase “houses are for living in, not speculation,” which has been a mantra for Beijing’s tight stance and efforts to rein in developers’ high reliance on debt for growth.

“It seems to us that [the housing ministry] is quick in response this time and also gets bolder on relaxing property policies,” Jizhou Dong, China property research analyst at Nomura, said in a note Friday.

Given such speed, Dong expects markets are anticipating specific policy implementation in cities such as Shanghai or Guangzhou.

Read more about China from CNBC Pro

Hong Kong-traded Chinese property stocks such as Longfor, Country Garden and Greentown China traded higher Friday, on pace to close out the week with gains after plunging on Monday over debt worries.

“We continue to expect the property sector rally to continue and advise investors to focus on beta names within the property sector,” Nomura’s Dong said.

Those stocks include U.S.-listed Ke Holdings, as well as Hong Kong-listed Longfor and China Overseas Land and Investment, the report said, noting Nomura has a “buy” rating on all three.

“We still advise investors to stay away from weaker privately-owned developers.”

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