Are you interested in investing in real estate? Do you want to become your own property owner and landlord? The real estate industry is a growing business that provides many with a prosperous self employment opportunity. However, just as with any other type of business, there is risk in your investment. There are steps that any real estate investor should follow when completing a deal. The following steps will ensure that you are making a good financial decision and that you are prepared for the work. Go through these questions anytime you are considering purchasing a real estate property for investment purposes.
Are you financially ready?
If you struggle to make your rent or mortgage payments on a regular basis, purchasing another property may not be a good idea. If your source of employment is not steady, you may want to wait until you have secure funding. Your credit will be an important part in achieving the financing for your property. Investment property mortgage lenders look for a secure financial being to loan money to.
Some loans may even require that you have an established business that shows success of profits. 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. Not meeting these factors does not necessarily negate you from the ability of owning an investment property.
Do you have reasonable savings and collateral?
Real estate investments do not always go as planned. You may require additional funding than you were approved for with your investment property mortgage lenders. Your investment property mortgage lenders may not cover some costs, including renovations, inspection costs, or seller fees. Paying for these extra costs out of pocket can quickly deplete your savings accounts, if you do not have sufficient amount of money saved.
You may require collateral to receive private or secured short term loans. Duration or payment period for a private loan is also shorter compared to the traditional loan which can usually go from 1 year up to 20 years while private loans can only be granted with duration of up to 5 years. Some real estate investors may prefer the secured short term loans because of the shorter length of their deals, however, you will need collateral to obtain the loan.
Are you knowledgeable in real estate?
Although you are likely to rely on real estate professionals for many aspects of the business, including listing the property, renovating the property, and leasing out the property, you do not want to go into the business without any real estate knowledge. You will have to select a home that is priced under market value and increase it to obtain a profit. The specific selection of commercial property investing and real estate investment lenders takes skill and some knowledge in the market.
Do you have the time?
Real estate investments often take up a lot of time, especially when you are learning the business. You will need ample time during your first investment deal. You will be responsible for dealing with renovation lending projects and constant communication with investment property mortgage lenders. Once you learn more about commercial real estate investing basics, you will be able to be less hands on in the process.
In 2011, population growth in urban areas began to outpace suburbs in the U.S. for the first time in over 100 years. This increase in housing needs in the urban areas provides for a supple real estate investment industry. Before getting into your first real estate investment deal, go through all of the above questions and then decide if you are truly ready to purchase your first investment property. A successful real estate investment requires cash savings, good credit, sometimes an established business, knowledge in the real estate market, and time to handle all aspects of the deal.