The real estate investment business can be very profitable. Many people have made thousands, even million, by investing in the real estate market. However, a successful real estate investment requires real estate knowledge, good business skill, and the ability to get renovation lending. Choosing to invest in the real estate market requires planning and many steps that must come before the actual purchase of your first investment property.
Great credit
Most investors will require some type of lender financing or renovation lending to purchase their first property. After the recent real estate crash, lenders are stricter than ever with lending approvals. They require higher credit scores, more in terms of down payment and other collateral and stricter inspections of properties. A person who wants to obtain renovation lending for a real estate investment will need to ensure that their credit is extremely high.
Banks may have further requirements, depending on the type of real estate property the investor intends to purchase. For example, commercial real estate is harder to come by, often costs more, and thus, requires more financing. The renovation financing terms are often higher in interest rates and lenders may require proof of business knowledge. A typical bank loan borrower looking to take out a business loan has to be 2 years in business, have at least $250,000 of annual revenue, have good personal and business credit, and be cash flow positive.
High liquid assets
Real estate investing requires hard cash, as well. Although real estate investment lenders may provide funding for the price of the house and possibly even some for some renovation, renovations can be expensive. Unexpected costs will always come up. The house may not sell as quickly as planned, costing additional in mortgage payments and interest rates. Investment property mortgage lenders often require a certain amount of liquid assets to ensure that their investment is protected, should the house require additional funding.
Knowledge of the market
A good real estate investment is one that is well researched. Too many mistakes are made by not properly searching the community and paying close attention to previously sold houses. Putting too much money into an investment property that needs to be sold for way over market value will result in losses. Either the property will not sell, or the investor will be underwater, owing the difference to their hard money mortgage lenders.
Real estate investors should be aware of current nation market trends, as well as the market trends in the neighborhood they are selling in. For example, in 2011, population growth in urban areas began to outpace the suburbs in the U.S. for the first time in over 100 years. During this time, real estate investments would have been more profitable in the urban areas than in the suburban cities. Working with a real estate professional who is familiar with the area can be extremely valuable to the real estate investor.
Business sense
Having sufficient liquid assets, great credit, and knowledge of the current real estate trends is not enough for a successful transaction. Real estate investing is a business. It requires a smart business plan and goals and objectives. It requires knowledge of contracting and selling. It forces investors to work with potential buyers and to have great people skills. A smart business sense is important to the success of a real estate investment, especially when hard money loans for real estate investors are involved. Be sure that the renovation lending loan is protected by having a smart business professional.
Approximately 59% of homeowners wish they understood the terms and details of their mortgage better. The same goes for commercial and business loans. This is the reason that many investments in the real estate industry fail. The investment should be protected by ensuring that the borrower has great credit, enough liquid cash for emergency costs, and knowledge of both business and the real estate market. The investor should also develop a thorough business plan and lay out any possible business problems. These steps can avoid losing hundreds of thousands of dollars on one poor real estate decision.