If you are planning to invest in real estate, then you need to be prepared. Real estate mistakes can be very costly, and in some cases, can end up in bankruptcy.
Successful real estate investment takes significant planning and preparation as there are many different things you need to have set up to not only settle the deal but to then make the deal profitable for you in the long run.
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Finance
The most important thing in any real estate deal is having the money to close the deal. If you are paying for the real estate in cash then you need to have the amount of money that the property costs available in a bank account to transform to the vendor at the time of purchase.
Most real estate investors do not buy properties in cash because it is not necessarily an efficient use of that capital. Real estate investors use various forms of finance to close their real estate investment deals and then use their own capital for other purposes.
Using finance for real estate investment makes sense because you can leverage the capital you do have, invest in bigger deals, and make more profit.
Banks
The most common type of finance for a piece of property is from a bank. Banks have significant capital reserves available to deploy but they are sometimes more conservative in their lending guidelines so you may not qualify for a loan from a bank. If you don’t qualify for a bank loan, don’t worry, it does not necessarily mean that your real estate deal cannot go ahead. There are many other types of finance you can consider, each with its pros and cons.
Hard Money Loan
A hard money loan is an alternative to bank finance – where the funds come from a private investor instead of a lending institution. Hard money loans are secured by the underlying property that is being invested in so the person lending the funds has always got that property available to them if something goes wrong with the loan.
The positives of a hard money loan are that the application and finance disbursement process is typically a lot quicker than it can be with a bank loan, but there are some downsides. Hard money loans do have some other fees and charges and interest rates that are not as favorable as some bank loans. But many property investors are happy to take on these fees and the higher interest rate because they can make much more money, much quicker via access to the capital.
Check out the DFW – Hard Money Rates to get an idea of the fees and interest you would pay on a hard money loan.
Conveyancer
If you are going to buy an investment property then you will need to have a conveyancer to process all of the legal paperwork regarding the property.
Conveyancers will deal directly with the person you are buying the property from so you don’t have to worry about this part of the process.
Plan
If you buy an investment property without a plan of what you will do with it then you are setting yourself up for failure. As the saying goes “failing to plan, is planning to fail”.
It should be very clear in your mind the exact steps you are going to take and at what time, once the property has settled. If you wait for the settlement to occur, and then start planning and thinking about what you want to do with the real estate investment then you increase the chance that you waste money and potentially lose money on this real estate investment which could have a dire impact on your overall financial situation.
When you have borrowed a significant amount of money for a real estate investment, every single day that goes by is costing you dollars in interest on your property loan. So if you have days and weeks where nothing is happening on your real estate investment then that is costing you money every single day.
Tradies or Tenants
As part of your plan, you should make sure you have tradesmen or tenants lined up and ready to move into your investment property.
If you are planning to renovate or demolish and rebuild the property are buying then it’s very important you have a very clear development schedule.
If you will not be personally overseeing the development then getting a project manager involved can be a good way to ensure progress continues in a timely manner.
if you are not planning to renovate and are instead going to rent or lease out the property you’re purchasing then ensure you are ready to commence that process as soon as possible.
You should have already done your homework regarding what type of arrangement you are going to seek and have an agent in mind who can start to advertise the property for rent or lease as soon as it is available to you.
Final Thoughts
There is a significant capacity to make money with real estate investment but also the capacity to lose a significant amount of money. However, with the right finance and plan, you maximize your chance of real estate investment success.
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