Property investing can be a lucrative business when done correctly. You can fix and flip a home in an up-and-coming neighborhood. You can purchase a foreclosed home for dirt cheap, rehab it and make a nice profit. You can remodel a home and turn it into a rental property.
No matter what option you choose when investing in property, it has the potential to be profitable and risky all at the same time. That is the nature of the business.
However, knowledge is power, especially in real estate. Not only do you need the right connections to find the right deals, you also need to know the tips and tricks of the trade. Some of these you will learn through experience. Others are investor tips you can learn through research and resources such as this.
Check out these 3 “unexpected” things to expect when property investing to help you avoid a profitable mistake.
3 Unexpected Things to Expect with Property Investing
- An Unforeseen Permit.
Not only could it pose safety and legal problems, but it could potentially derail your profitability. As a property investor, you know time is of the essence in house flipping. The longer the house sits on the market, the more it cuts into your profit.
A benefit of using an experienced general contractor for remodeling work is he or she will likely handle the permitting process for you. Most licensed contractors will fill out the paperwork with the municipality, collect the fees and coordinate the required inspections.
If the contractor is experienced in fix and flip homes, they understand the importance of time management and cost savings. Also, he or she should already have experience in getting building permits so they know how to keep the project on the fast track.
- An Unknown Repair.
Always plan for repairs to cost more and take longer than you initially anticipated. New investors are advised to err on the side of caution and plan for an unknown variable to drive up costs. The key is being prepared.
Do your homework before making an offer. Research, research, and research. Gain knowledge from trusted sources, other investors and contractors who can help guide you in accurately making rehab estimates.
Without question, the majority of failed rehabs are directly correlated to poorly calculated costs and schedules. Inaccurate repair costs can quickly eat away at your profit.
- A Hidden Cost.
Outside of an unexpected repair cost, it is not unusual to come across another unknown expense -- or as some feel, a hidden cost -- especially if you are a new property investor.
One such expense may be a homeowners association fee. This monthly fee needs to be included in your costs, along with how this could impact the resale value. Also, some associations have rules against renting out a unit. Make sure you know all the details and rules of the association before you make an investment decision.
Be aware of all fees and costs within your loan agreement. Read all contracts before signing, and find a lender who understands property investing, such as a hard money lender.
Hard money loans typically require a smaller down payment than a traditional loan as they are designed for quick turnarounds and repair/rehab situations. You could use hard money financing for the purchase and repairs and then flip the property without having to use too much of your own pocket cash.
This likely will not happen with a traditional lender, and you soon may have all your available cash tied up in down payments and closings costs.
Hard money lenders understand the importance of having equity available for investment opportunities that may suddenly arise. When researching lenders and interest rates, don’t forget to look beyond the terms of the loan to consider how a hard money lender could provide you additional opportunities in the future.
At Catalyst Funding, we are an experienced hard money lender that has guided investors through a variety of situations, from fix and flips and foreclosures to properties that have been neglected, water damaged and more. We have witnessed how hard money lending, in the right situation, provides opportunities for many now and into the future.
For more information, call us today at 832.648.3626 or contact Catalyst Funding online to learn more.