Not everyone can be a successful real estate investor. To turn property opportunities into profit, you will need to have the right disposition as well as having the right tools available to you.
Patience. Many real estate investments take time to come to fruition. Between waiting for them to be fixed and waiting for the market to realize your value, you will need a great deal of patience to find the optimal time to sell them and realize your profit.
Vision. The best investment properties frequently require some work to maximize their value. You will need to be able to look at an empty or run-down property and visualize how you will turn it into a turnkey opportunity for a buyer willing to pay top dollar.
Work Ethic. One of the keys to maximizing your investment is to do as much work as you can yourself. The more outside labor you use, the more you will spend and the less you will ultimately make.
Drive to Succeed. Real estate investing is not as easy as you may have been led to believe. A strong desire to succeed will help you to keep looking at and improving properties even if the market is not cooperating with you in the short-term.
A Support Team. Succeeding as a real estate investor requires a lot of support. Most investors work closely with lenders, appraisers, attorneys, contractors and real estate brokers. Having a team of professionals on your side gives you access to the skills and the money that you will need to successfully invest.
Market Knowledge. If you do not know your market, you will not be able to spot which properties represent the best opportunities. You also run the risk of incorrectly estimating the rent you can charge or the price for which you can sell the property.
Creditworthiness. While some lenders can look at your credit creatively, creditworthiness is key if you plan to borrow money as a part of your real estate investment strategy.
Capital to Invest. Most of the best investment opportunities require you to close very carefully, meaning that you will not be able to wait for slow bank financing. With this in mind, you will need enough capital to not only place a sizable down payment, but also to fund carrying and fixing the property.
Most real estate investors start the process by deciding what kind of investors they want to be. One traditional path to investing in real estate is to buy properties, fix them up and resell them. While this can be lucrative, it is also very time-intensive and can be risky. There is another path, though. Instead of being the owner, why not invest in first trust deeds? You can invest in real estate by providing money at generous rates of return to the people that get their hands dirty.
Going the traditional, labor intensive path requires three things:
You can find properties through direct lender connections, direct contacts to owners, or through a real estate broker. Typically, real estate investors look for properties that can be bought at a significant discount, leaving enough room to cover acquisition costs, carrying costs, remodeling costs and disposition costs while leaving enough room for a healthy profit.
Given the difficult lending environment for many investment properties, finding capital can be the challenge. Since many traditional bank lenders are unwilling to lend on vacant properties for rehabilitation, you might have to tap into the private mortgage market. These lenders will make it easy for you to apply and qualify, but they will usually expect you to have a sizable down payment.
Investing in first trust deeds is a completely different experience from being a traditional property investor. Instead of finding a property and fixing it, you wait for real estate investors to find properties that they want to fix and lend them money to help them do it. You will have the opportunity to review the borrower to which you lend money, analyze their ability to repay the loan, and review an appraisal of the property to ensure that there is enough collateral to support your loan. Many real estate investors will also make generous down payments that frequently exceed 30-40 percent of the transaction's value.
In exchange for making these loans, you can expect to collect interest payments that are around 10 percent, and the first trust deed note on the property is in your name. If this path is of interest to you, I highly recommend you align yourself with a trusted private money lender who can help find and put together these viable investment opportunities for you.
In the last half of the 20th century, real estate investing was touted as the foundation of any sound financial plan. For the baby boomer generation, this proved to be true and many went on to build significant nest eggs that allowed for comfortable retirements. Many subsequent investors of the Gen X and Gen Y varieties did not fare so well. The question remains, “When is the right time to invest in real estate?”
The short answer is now and never. Now, if you understand the complexities of the market and never, if you do not. Nevertheless, in the new millennium, real estate still promises excellent returns if an investor can find deals suitable to both his financial situation and risk tolerance.
The ideal situation when investing in real estate is to provide a loan against the discounted value of a real estate asset. In addition, it is preferable to lend to borrowers with extensive real estate management experience and superior financial qualifications. Finding deals that match these standards is difficult at best and almost impossible without the aid of an experienced Private Money Lender.
An experienced broker is essential when dealing in real estate. They provide a range of services from appraising the property, vetting the investor and brokering the deal. With an experienced broker, all the formalities and legalities will be observed including title searches, appraisals and insurance. The broker should have a solid relationship with a Private Money Lender(s), and the investor can rest assured that their interests are predominant in any transaction.
First Trust Deeds offer several advantages to those interested in real estate investing. First, in terms of security, the asset is worth significantly more than the amount loaned; typically, 30-40% more. In addition, the asset is protected all the usual ways including title, and general liability insurance.
Next, the actual note yields far more than a CD or savings account with a very high level of security. Rates of 7- 11% are typical. Also, an experienced Private Money Lender can handle all the particulars in finding, consummating and managing the transaction. Lastly, the investor may only choose to meet with his financial advisor to confirm that the deal meets his/her financial goals. In short, the time for real estate investing is now, especially if you are prepared to invest in First Trust Deeds.
In today's dynamic market, real estate investors don't have to buy properties hoping that, some day, they'll get their money back. One to four unit buildings in California offer the opportunity for significant appreciation in a relatively short period of time. The secret is to buy the property right, and there are two ways to do it.
Unemployment remains high in California, leading to an ongoing supply of distressed homes. Banks remain motivated to sell those homes quickly, getting them off of their books and helping them avoid the risk of taking further losses. At the same time, traditional buyers still find it hard to find mortgages, preventing them from being able to buy homes from banks quickly enough to get their discounted pricing.
This imbalance creates an arbitrage for real estate investors that either have their own equity or have access to quick and flexible debt, like that provided by private mortgage lenders. These investors can buy good properties at a significant discount from the bank, relist them and wait for a market-rate buyer to appear. This strategy can generate returns in the range of 50 to 100 percent on invested equity.
The other opportunity in today's market is for real estate investors to get their hands a bit dirty and rehabilitate damaged or outdated properties. Since it remains a buyer's market, properties that lack curb appeal or that are not even in move-in condition remain very hard to sell. This leads to significant discounts on pricing. When the properties are also bank-owned, the discounts become even deeper.
While real estate investors acquire rehab properties in a similar fashion to the way that they acquire underpriced properties, the process of preparing them for sale is a bit more arduous. The investor needs to build a deal structure that takes into account the fact that they need to hold the property long enough to fix it up. At the same time, they also need to find a way to finance the cost of the additional construction they will do for the rehabilitation. But, at the end of the day, they can expect a healthy return.
With these opportunities available, real estate investors remain extremely active in California. Given that many California markets have historically offered relatively low annual returns, today's pricing is a unique window to grow equity and build wealth.
Systems and habits make good friends, and they help real estate investors make good decisions. There are many ways an investor can quickly assess the potential value of buying a particular property. These 4 calculations are the main ones real estate investors should know and use. To keep it simple, you will:
By using these factors to calculate a property's worth, you make good decisions. Let's break them down.
This is a big one. Take the expected rental income (RI) and divide it by the total cost of buying and renovating the property. So if the annual rent is $24,000, and the cost of purchase plus renovation, is $315,000, then the Gross Yield is 0.076 (24,000 divided by 315,000.) Multiply that by 100, and the gross yield is 7.6%.
The Gross yield must be a high enough figure to make it worth investing the money, putting in the renovation work, and management time and costs, so a quick calculation is:
NOI/Total Cost X 100 = Gross Yield Percentage.
You borrow money to buy and fix the property, so you must service that debt. The net income (gross rent minus direct costs) must be worthwhile. Take the monthly Net Operating Income (NOI) and divide it by the principal and interest (PI) you pay on the loan. You need an answer greater than 1. If your NOI is $17,000 and your PI is 14,600, the ratio is 1.16.
NOI/PI = Debt Service Ratio
This calculation helps to determine the cash flow on a property you are considering. The property has a tenant paying a monthly rent of $1,200 (MR.) You intend putting down a deposit of $30,000, and your closing costs are $5000, then your total cost (TC) is $35,000. Divide 1,200 by 35,000 and you get a Rent/Cost ratio of 0.034, or 3.4%. Anything over 1.5 is good. It does depend on the area, so find out what other similar rental properties are producing and compare your calculation with what you know or what your real estate professional can tell you.
MR/TC = Rent/Cost Ratio
This is a simple and very important calculation. It tells you about the return you will get. It does not take into account any tax benefits or property appreciation in the long term. Take your annual cash flow. Cash flow (CF) is your NOI minus your debt service (cash in minus cash out) divided by your total initial cash investment (TC.) If NOI is $17,000 and PI is $14,600, the CF is $2,400. You put down $35,000, so your Cash on Cash figure is 6.8%.
For residential rental investments, as opposed to commercial, these four calculations are important to your basic decision, and easy to do. When you are ready to talk with us about your loan requirements, please just click here to contact us.
Real estate investment loans are great business opportunities for both borrowers and investors. While borrowers benefit from having access to fast, flexible money, investors get the benefit of putting their money to work on a relatively safe investment at a healthy return. Here are 9 things that both borrowers and investors should know:
One of the secrets to successful real estate investing is to use leverage strategically. Unfortunately, with real estate investment loans still relatively hard to find, this can be challenging. While traditional lenders are willing to lend on large, stabilized properties, many of the best opportunities are smaller residential properties that need rehabilitation. To get good debt for these properties, you will probably need to tap into the private lending market.
The first thing that you need to do is to get your records in order. Private lenders that make real estate investment loans will want to understand who you are, what experience you have, and how you will be repaying their loan. You can prepare for this by starting to compile information on your real estate holdings, historical tax returns and mortgage and banking statements. Since many lenders will require you to put 40 to 50 percent down, it is also a good idea to start to move funds into liquid accounts where you can get to them to make your down payment and close your loan.
Once you have your records and your money in place, it's time to do two things: you need to find a property to buy and you need to find a lender to work with. Because there are so many people interested in making real estate investment loans, it can be hard to find the right ones. While using a loan broker is one option, you can also find a trust-worthy Private Money Lender that can directly connect you to a money source. As an investor, you know how to find a good property, of course.
Once you have found both a property and a lender, you will either have to create your own application package or work with your lender to create it. After the application package gets submitted to the private lender, most real estate investment loans close within just a few weeks, letting you get control of your new asset so that you can start creating value.
Many fortunes have been made and lost in the residential real estate market. The recent downturn has made many traditional lenders very hesitant to lend to all but the very best applicants. Still, one person’s loss is another one’s gain and there are tremendous opportunities available in residential real estate. It is simply a matter of finding investors who are experienced and knowledgeable enough to recognize when a real estate deal is extraordinary.
Most inexperienced real estate investors will approach their family and friends and then traditional financial institutions when borrowing money. While these options are, indeed, excellent options, if one can convince them to invest, more experienced borrowers are also aware that private money lending institutions are far more flexible in their lending practices.
Many times, this option seems to be the easiest route for borrowing money, but the funds often come with unexpected “strings” attached. While family and friends are usually willing to help, they do not always have the necessary amount of money. In addition, if the funds are not sufficient to fund the whole deal, the loan can actually complicate matters with a traditional lender.
The financial lending institutions of the United States are, indeed, a very reliable provider of funds to real estate investors. In fact, the vast majority of American homeowners and real estate investors would not have been able to invest at all if not for banks, savings & loans and credit unions. While these institutions are willing to loan monies for a real estate purchase, they are tightly regulated and the loans and properties must meet stringent requirements for the loan to be approved.
For borrowing money, the most versatile source of real estate investment funds is through the use of private money lenders. These experienced investors have the resources, the expertise and the experience to evaluate the risks and rewards of a real estate transaction. Borrowing money from them comes with a predefined set of terms. In addition, they are able to fund a much broader variety of real estate deals as they are only bound by the law and their own investment instincts.
