5 Financing Keys to Building Your Real Estate Portfolio!
As a real estate investor , having a comprehensive, well-defined plan is essential to achieving success in any endeavor, especially in real estate investing. A solid plan can help you stay focused, make informed decisions, and adapt to changing market conditions. It can also help you measure your progress and determine if you’re on track to achieving your real estate investing goals.
As you build your real estate portfolio it’s important to work with a team of professionals to help you navigate the complexities of real estate financing. The team at Catalyst Funding wants to help you succeed in real estate investing.
Here are our 5 most important financing pointers to help you accomplish your goals in real estate!
Get pre-approved BEFORE starting to look for deals.
Quality deals move fast. As a real estate investor, you will almost always miss out on the deal if you cannot immediately send a contract along with proof of cash funds or a pre-approval from a reputable hard money lender.
In order to accurately calculate the return on any investment, you must understand the cost of funds. The lender will be able to provide the interest rate, points and fees for the short-term financing for flips and the short and long-term financing for the loan to hold cash-flowing properties.
Choose your lender based on the value they provide, not just price. Like most things in life, you definitely get what you pay for, especially in real estate investing.
A few important questions to ask are:
- Is the lender also a real estate investor? Can they provide advice on investing?
- Can they offer all products with one credit pull? Or will you have to work with many lenders?
- What is their reputation? Especially online.
Remember: Real estate investing will be where you put a large portion or all of your nest egg. Work with professionals with a proven track record.
Develop a long-term plan to take advantage of the best products to fit your needs.
Do you have a large nest egg or do you need to build your nest egg through investing? Flips can be used for cash flow or to build more capital for buy and hold investing.
Develop your priority list for long-term investments. Determine: Are ease of process or best terms more important?
Craft the product roadmap for your portfolio. A common roadmap many real estate investors pursue is to max their Conventional loans per borrower (10 each with a qualifying FICO score). Refinance these properties into blanket loans to get better pricing than usual non-conventional loans. Rinse and repeat.
Protect your credit. Don’t buy things that can impact your credit or DTI (for conventional loans). Limit inquiries (try to work with a lender that can use one credit pull). Be cautious with lenders that pull soft pulls or don’t require appraisals. Can they correctly identify your ability to execute exit strategies? Are they giving you a fair value and identifying issues, such as zoning problems? (Only appraisers are responsible for this and it is not easy to tell. Savvy investors mess it up.)
Build your team.
Building out a quality group of third-party partners is essential. Finding real estate investor friendly contractors, specialists (roofing, HVAC, Plumbing, etc.), lender, wholesalers/agents, title company, insurance, attorney, CPA/Tax preparer are essential. Make sure they are investor friendly and have expertise that adds value to you as an investor. Industry events are a great way to do this.
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Develop a plan for finding deals.
There are many paths.
Join a quality mentorship program. Many do a great job of presenting deals.
Develop relationships with agents/wholesalers.
Do your own marketing. This is the most up front investment, but can produce the best deals.
Bottom line: You must be the buyer people want to work with. You must be easy to work with, on time, reliable, confirmation not evaluation on site, close on time and don’t burn the relationship.
Have a plan to avoid the four biggest mistakes investors make!
Mistake #1: Building an incorrect after repairs value.
- Must use accurate comparables. Things like bed and bath count (3/2), foundation type, busy streets, being next to undesirable properties, on/off the water, etc., these really matter.
- Bracketing comparables.
- Not assuming your property will sell for more than the highest comp in the area.
Mistake #2: Inaccurate or inadequate Rehab plan.
- Cannot over or under rehab the property.
- Mechanical problems must be fixed.
- Must rehab to what the comps require.
- Must have great job sequencing. The sequencing process in real estate rehab consists of several stages. Start with the major and work your way in.
Mistake #3: Must have great contractors that are closely monitored.
- The contract must be comprehensive and have rewards and penalties for timeliness.
- Cannot pay on a weekly basis. Must pay for work completed.
- Ensure proper sequencing.
- Contractor should be responsible for materials.
Mistake #4: Taking too long.
- Holding costs are expensive and can wreck your returns.
- Must visit the properties to ensure quality and timeliness.
- Always be focused on running different categories simultaneously, such as rehabbing while working on your refinance or listing strategy.
Real Estate Investing 101: What are Bracketing Comparables?
Bracketing comparables is a method used in real estate appraisal to determine the value of a property. It involves finding properties that are similar to the subject property in terms of size, location, features, and condition, and then selecting one that is inferior to the subject property and one that is superior. The inferior property is typically one that is smaller, has fewer amenities, or is in a less desirable location than the subject property. The superior property, on the other hand, is typically one that is larger, has more amenities, or is in a more desirable location than the subject property. By selecting properties that bracket the subject property in terms of value, the appraiser can get a better understanding of the subject property’s value. This is because the inferior property sets the lower limit of the subject property’s value, while the superior property sets the upper limit.
These 5 keys will help you build a great real estate portfolio.
By following these financing keys, you can build your real estate investment portfolio and achieve your investment goals. The team of experienced professionals at Catalyst Funding is here to help you succeed in real estate investing.
Contact one of our trusted advisors today to discuss your real estate investment goals.