October 29, 2021

Generally, there have been some recent gains in the real estate market which are common indicators of a profitable housing market.  That said, there are several signs which can further help real estate investors determine key areas ready for new growth.  It’s more important now more than ever for investors to understand the factors which can help foreshadow the future performance of certain geographical areas.  Prospective buyers should always perform an in depth due diligence before finalizing a purchase regardless of the location.  Below we will look at a few of the top market indicators every investor should know before taking on a new property.

Rates Of Vacancy

Vacancy rates are also known as the percentage of rental properties which remain empty in a given area during a particular time frame.  As property investors, vacancy rates can provide good indication of the overall health of a rental market.  Typically, a vacancy rate of around 3 percent is usually considered a good market. Less than 3 percent vacancies means there are not enough rental homes available in the area. This likely means that monthly rental incomes are likely on the way upwards.  To the contrary, vacancy rates above 3 percent could be a warning sign for new investors that they may have to contend with watching their rental properties sit empty for longer than planned.

Available Inventory

The overall total of available listed properties in a given market indicate the level of demand a location is currently experiencing under the current housing market conditions. In turn, these two things indicate where prices are likely to go.  Available inventory is often expressed in months and takes into consideration the average monthly demand for property. While there is not a perfect number, it’s generally accepted that six months of inventory equals a healthy real estate market.  To the contrary, if there is less than six months housing supply in a particular market, buyers will generally experience upward pricing.  If there is more than six months housing supply in a market, buyers will typically experience a downturn in real estate pricing.

Prior Capital Gains

Simply looking at up to date average prices in a particular area wont necessarily indicate much about the future of a certain market.  It’s important to also look at historical data like the prior capital gains rates in order to help investors more accurately predict where housing markets may be headed.  If an established area has past data available and it shows an average annual growth rate of 3 percent, an investor should not expect it to suddenly perform at over 12%, right? While anything is possible, with no meaningful changes to the data, there’s probably no reasonable not to mention statistical reason for such a large increase in returns to be expected..

Rental Yield

It is critical to have a firm understanding of the average rental yields of a particular location if you are considering purchasing real estate in the area.  Rental yield is a measure that expresses annual rent as a percentage of the property’s purchase price.  So, for example, let’s say a half a million-dollar property rents for 500 dollars a week.  That would mean it would earn 26 thousand dollars annually. So in this example the rental yield of the property is a little over 5 percent.  Rental yields are typically at their lowest when an area is at the top of the property cycle, and yields are often at their highest just prior to an area moving back into its peaking market.

Days-On-The-Market

Days-on-market is another measure of supply and demand. As its name says, this measures how long it takes for a property to sell.  This, combined with inventory level, could be a powerful tool to evaluate the activity in a particular area.  Generally speaking, 2 months on the market is average in a healthy climate.

While there is no one key metric to look to when evaluating the overall health of a particular market, using the above indicators can help investors make a more informed decision when evaluating the overall health of a particular area.

October 22, 2021

The pandemic has hit the rental property industry hard, and some features of a rental property that might have previously been nice upgrades have turned into necessities. Now that the worse of the pandemic is hopefully behind us, real estate investors should shift their objectives from reactive to proactive solutions that will keep unoccupied units down and profits up. One of the best places to focus your attention is on adding green features to your property that will hopefully provide significant cost savings while appealing to younger renters with a newer interest on climate issues.

Adding smart devices to your property is a smart solution to instantly make your rental properties more environmentally friendly. What’s more, there is strong indications that millennials are willing to pay more for rental properties equipped with smart technology.  By upgrading certain systems, real estate investors can make some positive impacts on the environment while attracting more renters. Additionally, they can likely boost their ROI by investing in properties with the following energy and money saving features:

Keyless Resident Locks

Keys are expensive and replacing them can cost a few hundred dollars and result in more time, energy, and physical waste.  They’re also not as secure as most people would like to believe. You may initially give your tenants two keys, but there’s really no way of telling how many copies renters will end up making on their own.  When a new tenant moves in, it’s a good idea to rekey the locks, but that expense is easily avoided with keyless smart locks which allow you to give renters unique codes to gain access. Keyless entry also allows prospective tenants to look at your properties on their own, saving valuable time when you are seeking new tenants.

Smart Thermostats

HVAC units are one of the largest consumers of electricity in a typical home. Smart thermostats have shown themselves to be an effective way to lower the overall electrical pull, providing energy savings upwards of over 30% monthly.  Additionally, adding sensors that shut off the HVAC when a door or window is left open, can further increase the potential energy savings.  Smart thermostats are valuable for your property when it is left unoccupied because they make it easier to manage HVAC costs and humidity levels in vacant properties. They also reduce vacancies by making properties more attractive to potential renters who are interested in lower heating and cooling bills.

Water Leak Sensors

The typical household will leak as much as 10,000 gallons of water each year, amounting to almost 1 trillion gallons wasted nationwide. Water leak detectors, flow valves, and shut-off valves reduce this waste, but they also help protect major property investments. Water damage emergencies can cost tens of thousands of dollars, and they impact thousands of Americans every day. A few inexpensive smart devices are money well-spent when it comes to protecting both your properties and the environment.

Solar Power

The IRS currently offers a 26 percent residential solar tax credit that applies to both the purchase and installation costs of solar power solutions, and some utilities will buy back unused electricity generated by solar power. As consumers prioritize measures designed to protect the environment, solar panels are an attractive proposition.  They’ll likely become even more important as electric vehicles grow in popularity and increase household energy consumption.

It should come as no surprise that waste hurts wallets in addition to the environment but that makes an even stronger case for real estate investors to go green. The categories above highlight smart rental property investments, both because they’ll save money and energy and because they attract a growing group of environmentally conscious renters.

September 24, 2021

Purchasing a property is likely the largest purchase you have or will ever make financially.  Owning your own place feels great, but you may not always be sure if your property is worth the monthly payments.  Given the current housing market, many people are considering whether or not to put their homes on the market. As nice as making a quick buck sounds, you should not base your decision to sell on that alone. There are several factors that should help guide your decision to either stay where you are or put your house up for on the market.  Here are a few tips to help you conclude whether or not you’re property is worth the monthly payments.

Rent Would Be Greater Than The Monthly Expenses

Diving deeper into the numbers can help you more clearly understand if the monthly payments  on a property ultimately make good financial sense. Look at whether or not the rent (after expenses) divided by the current market value is greater than the interest rate on the monthly payments. If the home can bring in more money than the cost of the monthly payments then it may be a worthwhile investment for you.  Anyone can use this formula regardless of whether or not they are actually planning to rent out a property.  Regardless of where you are in the decision making process, these findings can be very insightful on guiding you towards making a more educated decision whenever the time comes.

You Intend To Keep The Property Long Term

Even if your monthly payments are a little higher than you may ideally like, it does not necessarily mean your property is a bad investment.  Over time, with the more payments you make, less money will go to the interest and more goes to paying down principal.  This means the longer you hang onto a property, the more the monthly payments may become worth it in the long run.  One of the best questions you can ask yourself is ‘How long do I plan to keep this property?’ in determining if the monthly payments are worth it.

Property Taxes Aren’t Too Crazy

Regardless of where the property is located or who you are, ultimately, all property owners have to pay property taxes.   Property taxes in some areas are relatively reasonable but in other areas they make up a substantial part of a persons monthly mortgage, which could be a huge red flag.  Property taxes are known as a sunk cost, meaning it is money that cannot ever be recovered.  It’s important to be thorough and closely evaluate how much of your monthly payments are going to property taxes, how much to interest, and finally, how much is going to paying down your mortgage principal.

Great Location

It is not uncommon for many folks to purchase a home with the automatic assumption that the property value will always increase over time. However, this is only the case if the house is in an area people actually want to be in.  Some buy properties in the middle of nowhere hoping the value will increase but fail to consider that many may not wish to live in the middle of nowhere. More remote locations often make it harder to travel for work as well as provide fewer opportunities nearby to socialize.  These are just a couple of the reasons that could cause property values to climb much more slowly than in more densely populated areas.

You Can Afford It

No matter how much you love your home, it’s bound to be stressful if you can barely afford the monthly payments. Being house poor can make it hard to keep up with other essential expenses as well as enjoy even minor indulgences such as dining out or traveling periodically.  Perhaps your income has decreased since you bought the property or your expenses have increased. It could be that your budget is the same, but you’ve simply realized the monthly payment you signed up for are much too high.  No matter what the case, if a large monthly payment is causing a lot of stress in your life, it may not be sustainable long term.  On the other hand,  if the payments are within your monthly budget and not creating any financial strain than it could be worth the equity you will build to hang on to the property.

It’s Not the Most Expensive In The Neighborhood

There’s much more to life besides owning the one house on a street with the highest price tag. It can be tempting to envy the neighbor’s larger, more extravagant house, but the reality is, it’s probably not worth it.  Real estate agents use comparable local properties to gauge a home’s value. A house with a sale price notably higher than everyone else’s on the block was most likely valued too high.  Hopefully you’re not the neighbor with the overpriced house, but if you are, there’s likely a reason everyone else paid less to live in the area.

It may sound a little cheesy but home really is where the heart is. If you can easily afford your monthly payments and are truly happy with your property, then the monthly payments are probably worth it.  Whether the location is convenient to most everything in your life or it provides you peace from an otherwise hectic world, it’s not always so simple to put a price on your overall happiness.  If moving to save money on your mortgage payment would likely decrease your quality of life, it’s probably wise to simply stay put for the time being.

September 17, 2021

Investing in real estate can be quite profitable, but like any investment it requires capital in advance in order to enjoy the benefits it offers. This capital is essential to keep your real estate business moving in the right direction. From purchasing your first duplex to paying for the upgrades on your previous fix-and-flip, without the proper funding, you can not call yourself a real estate investor. Luckily, there are many options for investors to raise the capital they need to fund their real estate projects. Below are three smart ways for raising the funds you need in order to be successful.

Secure Funding With A Private Lender

Know someone who is interested in investing money and wants to receive I higher return than simply having their money sit in a standard bank saving account? Getting a loan from a family member, colleague, or friend is one smart option before going to a bank to fund your latest real estate project. While you will need to pay the loan back with interest and guarantee a certain return on their investment most of the time; you can typically get the funds you need much faster, and with less red tape than going through a financial institution.

Find A Highly Rated Hard Money Lender

There are many hard money lenders nationwide who are happy to fund a loan if the terms are right. It is important that you do your research ahead of time on any hard money lender you go with and select a reputable company to do business with prior to signing on any dotted line. Directories such as hardmoneyhome.com are great resources because consumers are able to leave reviews of their experiences with different lenders, making it much easier for you to research and find the best company to meet your needs. While higher interest rates are usually standard with most hard money loans, there is less red tape and it is easier to qualify for these loans. Hard money loans are best suited for quick projects such as fix and flips or bridge loans to float you in-between real estate projects.

Find A Trusted Partner

Partnering with someone you can trust is a great way to share the responsibilities and workload of investing in real estate. It is important that each partner is clear on the expectations of each deal and any potential profit or loss on an investment prior to moving forward with a partnership. While partnering with someone is not without its own obstacles, it can be a great way to share the risk and reward on investments. Dividing and conquering your responsibilities is also a great way to gain a competitive edge on your competition.

Regardless of which method best fit for your needs when securing funds for real estate investment, few investors have all of the capital needed to fund their investment projects. Researching all financing options and picking which option is best for you is critical to you being successful within the real estate industry. Hopefully, using one or all three of the above options will benefit you in all of your future investment endeavors and help you to grow a diverse and profitable portfolio.

September 10, 2021

There are several different types of real estate investment projects, from rehabilitation to building new, each have their own potential risks as well as financial returns. For example, a rehab project has less risk because the structure already exists; therefore, overall the planning and workload are much less than with building a brand new property, however, the potential financial payoffs may ultimately be less.

There are many components to building new real estate that are unpredictable, which can greatly increase the risk factors. While every new real estate build is different, there are some consistent areas to consider in order to properly evaluate the investment potential when deciding whether or not to build a new real estate project.

Project Location

The physical location of a brand new project plays a significant role in determining the overall risk factors. Building new real estate in areas with higher prices and demand present far fewer risks than building in lower populated rural areas. Building in an area where there are buyers before a project is even finished further reduces the risk. You should look at data that indicates real estate demand, such as high employment levels, large-brand expansion in the area and the rate of adult population growth. While there is no perfect or foolproof formula, all of this data can be reviewed to help assess the overall risk level in a particular location.

Common Weather Patterns

Weather is one of the most important factors to consider when planning and budgeting a brand new construction project. Severe rain, snow and temperatures are just some weather factors that can lead to delays and add to additional costs and headaches.  If the project is located in an area that experiences extreme seasonal changes then you should factor into consideration when the project is suppose to start and how long it’s expected to take to finish. Coordinate this estimated timeline with the local weather and see if there are any potential concerns that you should account for before it’s too late.

Increased Material Costs

When first budgeting for a construction project, it’s important to accept that the cost estimates will often increase. A brand new project can take several months to over a year, depending on the project size, leaving plenty of time to see price increases on building materials.  It would be unwise to not expect increased material-related costs over the course of a build.  It is critical to have enough of a contingency built in to the project budget to absorb these increases with out killing the bottom line.  Thin margin deals can easily end up in the red at the end due simply to an increase in the cost of building materials.

Logistics and Management

Anytime you are dealing with contractors, you need to account for delays. Delays are going to happen; from getting tied up at a previous location and arriving late or simply not showing up at all.  It’s not a matter of if the project will experience contractor problems but whether or not they will be a minor or major problem that leads to a domino effect of delays.  Brand new real estate projects have many moving pieces that all need to work together in order to stay on schedule. A scheduling mistake or a logistical disaster can not only cause delays but possibly result in a complete shutdown of the project while things are being sorted out.

Overall Costs

A brand new real estate project involves every aspect of construction from foundation to final finishes.  This reality provides ample opportunities to change the plans which can ultimately increase the time it takes to finish the project as well as the total costs.  While minor pivots and changes are expected, major changes and multiple occurrences can put the project far behind schedule and over budget, which are the two concerns investors dread above all else.

At the end of the day, when evaluating the risks of building a new real estate project, you should look closely at who you have available to manage the project and perform all of the required work to completion. Someone with lots of experience and a proven track record will greatly reduce the amount of pitfalls that claim so many construction projects. The exact same deal with different contractors can have drastically different outcomes and will ultimately make the difference of whether or not a new building project is a good investment opportunity overall.

September 3, 2021

Rental properties can offer real estate investors both long and short term profit opportunities. In the short term, there is the opportunity to charge rent that will cover the cost of the mortgage, expenses, and taxes while also hopefully producing a steady stream of positive income returns.  Longer term, you will eventually sell the property and earn profits from the equity it has built up overtime. The question is, when is it the best time for you to sell your property to see the best results investment wise?  Unfortunately, there isn’t a clear answer for knowing if and when it is time to sell a rental property. There are however, a number of key indicators to consider that are often personal to each individual investor’s situation.  Below we will look at some of the main reasons it could be time to sell a rental property and move on to other investment strategies.

It’s Not Making A Profit

Like all investments, there’s no guarantee a rental property will bring in a profit for you. For various reasons, some rental properties will never produce a profit, and others will stop earning a return over time. Tracking the money coming in as it compares to expenses over time will help you understand your situation.  If the rental property income is in the red for several consecutive months, it could be time to put the house back on the market. As with all investments, there are ups and downs, and it is completely normal for any property to be vacant from time to time.  That said, if you find yourself with a high rate of tenant turnover, are unable to charge enough rent to yield a decent profit, or can’t simply cover your monthly expenses, it could be time to post the “For Sale” sign and list the property.

It Has Appreciated

It is very important that you follow the local real estate rental markets in your area to know when it’s the best time to list your property for sell. For the best results, you should look to sell a property when the income from the sale in the short term will exceed the long-term rental income you would make otherwise.  To figure out which option is most likely to give you the best results, you should calculate your return on equity by dividing your annual profit in rent by your accrued equity.  If you learn your property is appreciating at a rate faster than your rental profits, it might be time to sell.

There Are Other Investment Opportunities

Even if a rental property is earning a solid return, there are still times when other opportunities may present themselves. Maybe there is a property in an up-and-coming neighborhood, or maybe you come across one that is in higher demand for renters. Whatever the reason, selling your current rental property can free you up to pursue other more lucrative opportunities.

You’ve Had It With Real Estate Investing

It takes considerable time and effort to manage a rental property. On top of maintaining the property, you are also responsible for securing tenants who will pay on time and if they don’t, you are then responsible for evicting them. You are responsible for any related expenses, including taxes and unexpected repairs.  If you are no longer able or driven to keep up with all of the responsibilities as a landlord, it’s time to move on. You should, however, avoid selling your property within one year of purchasing it avoid having to pay a short-term capital gains tax which taxed in a much higher bracket.  Homes which are sold after one year are considered long-term capital gains and are taxed at a much lower rate. The difference in that tax rate could save you thousands of dollars once everything is said and done.

Things Are Too Tight Financially

With all of the ups and downs that come in this life, there may come a time where you find yourself in need of a significant amount of money right now and don’t have time to wait on the potential profits on an investment long term. Obviously, before you sell your home for a quick buck, you’ll want to make sure this is the best decision for you and your financial goals. Depending on the situation, it could make more sense to simply take out a loan to cover these unexpected expenses instead of selling off the entire property.

Ultimately, when it comes to whether or not you should sell a rental property, the choice is up to you. Real estate is typically though of as a buy and hold investment. Historically speaking, your property should appreciate over time.  By monitoring the real estate rental market and your properties overall performance, you will be well set up to receive the best bang for your buck and come out on top whenever you decide the time is right for you to move on to other investment opportunities.

August 27, 2021

Budgeting finances is far from easy and sometimes mistakes are inevitable.  There are certain errors that can be especially costly to your personal finances if you are not careful. Unless there are no other options, you should always avoid borrowing money unless you are getting a very low rate and you are investing the funds towards something that will improve your financial situation long term. If you do feel you must take out a loan, consider exploring more affordable options, like lower interest personal loans versus quicker high-interest options.  Below we will look at a few big money mistakes you definitely want to avoid.

Living Above Your Means

If you are spending more than you bring in each month, you’ll never be able to get ahead financially. It will be nearly impossible for you to save money for emergencies or for your retirement. To the contrary, you’ll end up having to borrow money just to fund your comfort level and will ultimately end up further and further behind financially. To avoid this, it’s wise to make sure you keep overall spending well below what you earn. In an ideal situation, it’s best to keep expenses to no more than 80% of your monthly income and put the rest away in savings.

Not Having A Budget

If you don’t have a budget created that you can stick to the chances are high that you will not spend your money as wise as possible.  In fact, you may allocate too much towards the frivolous since you’re not tracking how much you’re actually spending on extras. This can lead to shortchanging other areas when it comes to accomplishing the goals you want to achieve financially.  Creating and following a budget doesn’t have to be difficult.  There are a lot of different budgeting tools and resources out there and it’s important to find one that works best for you. The most important thing ultimately is to pick an option that works for your needs and then stick to it.  This way you will be spending your money in a way that’s aligned with your overall goals and values.

Taking High Interest Debt

Borrowing money sometimes makes sense financially. For example, taking out a low interest loan to start a business that helps you increase your overall income would be a wise decision.  High-interest debt such as payday loans, however, can be really difficult to pay back and should be avoided at all cost. If you’re taking out this type of loan or carrying a balance on a credit card with a high rate, you are throwing away a lot of your future income to interest. This can make living within your budget almost impossible.  It’s best to avoid taking out debt unless you are getting a very low rate and you are borrowing for something that will improve your financial situation in the long-haul. If you do need to borrow, consider pursuing more affordable options, such as personal loans over high-interest options.

Buying A House You Can’t Afford

In most situations, securing a home mortgage means taking on debt that will take decades to pay back.  If you stretch your budget too thin just to buy a house that’s at the top of your price range, the large monthly payments you are agreeing to could affect your ability to do anything else with your money during the decades when you’re paying back your loan. You could be setting yourself up financially to be at higher risk of foreclosure and/or stressed out all the time just to make end meet each month. A higher-priced home also comes with higher home expenses, including costlier utilities and property taxes, which can seriously impact your financial situation.

The good news is that most of these financial mistakes are avoidable and can be fixed over time if you’ve already made them. For example, refinancing and combining all of your debt into one payment could help you to deal with high interest loans. Another option might be to downsize to a smaller home if your monthly mortgage payment is too much of a burden. The most important thing financially is to realize that doing any of the above common money mistakes could cost you your financial security in the long term and you should do whatever is necessary to avoid them down the road for your financial well being.

August 20, 2021

For those attempting to grow their wealth long term, save for retirement, or achieve a greater level of financial freedom, real estate, whether residential or commercial, offers strong potential to get ahead financially.  Real estate is a great way to diversify your financial portfolio and can offer solid tax benefits, but when it comes to investing in residential versus commercial properties, knowing which strategies are right for your goals can be a real challenge.  If you’re committed to long-term growth with potentially higher returns, the benefits of commercial real estate may be a great fit for you.

Like any investment, real estate comes with its own set of rewards and risks, and commercial real estate differs significantly from residential in its strategies and financing methods.  Understanding the below pros and cons of commercial real estate will hopefully help guide you to decide if it’s a potential good fit for your investment strategy.

What is Commercial Real Estate?

Commercial real estate is a property with five or more units used specifically for business or to generate income. This may include multifamily housing, hotels, offices, retail space, restaurants, industrial warehouses, healthcare facilities, or multi-use spaces.  While in a residential property, it is families or individuals which are the typical tenants; in commercial properties, it is businesses and corporations. It is worth noting that depending on their location, commercial properties may be subject to more complex zoning ordinances than residential units.

Commercial Real Estate Pros

Commercial real estate offers investors a specific set of benefits and opportunities that differ from residential properties. Does that make commercial real estate a better investment? It depends on what you’re looking to achieve, but consider the following advantages to commercial real estate:

Tax Benefits

Commercial real estate is entitled to certain tax breaks that can drastically reduce the tax burden for commercial properties. These tax breaks may include deductions for mortgage interest, depreciation, and non-mortgage-related expenses such as maintenance, renovations, or applicable association fees.  Additionally, you may be able to avoid capital gains tax when you sell your commercial property if you reinvest those profits into another building or asset. It is worth consulting with a tax professional to assist you in navigating the finer points of using an exchange strategy.

Desirable Tenants

Owners of residential properties often invest a considerable amount of time and effort in vetting high quality tenants who can be trusted to care for the property.  Commercial tenants are businesses or corporations who have a vested interest in maintaining a professional public image and are thus more likely to take the care and maintenance of the property seriously to protect their business and their brand overall. The relationship between a business leasing commercial space and the property owner tends to be a more professional type of relationship.

Commercial Real Estate Cons

Professional Services Required

Managing one or more commercial properties each with multiple tenants is similar to running a small business. There’s more to manage, more maintenance, and more public safety concerns. A professional management company is likely needed in order to stay on top of issues and keep things running smoothly.

Zoning

Commercial zoning has multiple categories, and regulations tend to be more complex than residential zoning requirements. A solid understanding of local zoning ordinances is needed in order to remain compliant with local laws.

Bigger Upfront Investment

More upfront capital is required to purchase a commercial property, and with it comes bigger maintenance and upkeep costs. Replacing the roof or the HVAC system of commercial property for example is far more costly than the same repairs on a residential property. Having a capital reserve and contingency fund is a must when you own a commercial property.

Getting Started With Commercial Real Estate

Investors who have done their homework and are ready to try the commercial real estate waters should first make sure they find a knowledgeable real estate agent who is experienced in commercial real estate.  While the upfront cash investment can be out of reach for some investors, there are some more passive options to investing in commercial real estate without purchasing an entire property.  Peer-to-peer real estate allows you to pool your money with other investors and affords the ability to open a portfolio with a much smaller initial investment.  Similarly, “Real Estate Investment Trusts” describe a company that invests in a portfolio of real estate projects and distributes earnings to its shareholders. There are several types of REITs: publicly traded, publicly non-traded, and private, each with its own set of requirements. While REITs are a hands-off way to invest in commercial properties, investors usually have less control over the types of properties they are invested in or when they can access their money.

While the high-risk/high-reward nature of commercial real estate might not be right for all investors, remaining open to considering new property types expands your options and could help you reach your long term financial goals.

August 13, 2021

Before entering into a new relationship with someone, it is not uncommon to ask yourself a series of questions first. Does this person’s values align with mine? Etc. It is no different when making a serious financial commitment like borrowing money from a potential new lender. There are some important questions you should always ask yourself and questions to ask the potential future lender before agreeing to anything in writing.  Below we will discuss several questions you should ask yourself before acquiring a new loan.

How Is Your Credit?

Make sure you have reviewed and understand your credit history as well as your credit score. The better your credit score, the lower the interest rate you will likely qualify for. Interest rate matters. If, for example, you were to borrow $25,000 for 60 months, the difference between how much you could pay with an excellent credit score and how much you might pay with a fair score, could be night and day. While a 100-point difference in credit score may not seem huge, it can be costly. With a fair score, your monthly payment could be hundreds of dollars higher, and you might end up paying thousands more for the loan over five years. Before taking out a loan, try to increase your credit score if you feel it is not where it needs to be. While it will take some time and effort, it is likely to pay off in a big way.

What’s Your Actual Budget?

The fact that you’re approved for a loan doesn’t mean you can actually afford it, particularly if you have lots of financial obligations that don’t show up on your credit report. For example, if you’re paying for your children’s education, monthly memberships, vacations, and several different hobbies, you may have trouble repaying the loan as agreed.  Even if you’ve been approved for a personal loan, take a hard look at your budget, including how much you spend on the things you enjoy each month. That way, you can make sure you can easily afford the monthly payments. In doing so, you may find you need to cut certain expenses in order to make way for a new financial obligation.

Is A Loan The Best Long Term Option?

We often spend money on things which provide great experiences and memories but no financial return. A great meal at a fancy new restaurant may be worth the price in terms of experience, but in terms of finances, you won’t likely see a return on this type of investment.  On the other hand, If you’re considering taking out a loan to remodel your bathroom or to install some new landscaping features, you could recoup your entire investment and then some. Before contacting a loan lender, determine whether or not you will likely see a return on your investment.  Now that you have a better idea of what you’re looking for in a loan, here are some more questions to inquire about with potential lenders:

What’s The Best Interest Rate Offered?

As the above scenario shows, monthly interest payments matter. A difference of 1%-2% can save you a lot of money long term. This is why it’s important to get comparative quotes from several lenders before settling on one.  The great thing about most loan lenders is that they will typically only run a “soft” credit check before letting you know if you qualify for a loan, and if so, what your interest rate will be. A soft check does not impact your credit score. It’s only when you decide to proceed with a loan that the lender runs a “hard” credit check that may ding your credit score a bit. Don’t worry, though. As long as you make regular payments on the loan, your credit score should rebound relatively quickly.

Is A Secured Loan Better?

Say you are interested in making several upgrades to your home to add to its overall value. If you’re trying to get the lowest possible interest rate, it pays to determine how much that rate would be if you opted for a secured loan rather than an unsecured loan. Most personal loans are unsecured, meaning you don’t put anything of value up as collateral.  On the other hand, a secured loan requires you to put up some form of collateral like a home or car in return for a lower interest rate. As long as its value is enough to pay off the loan if you fail to make the required payments, a lender may be interested.  Although a secured loan is likely to save you money, it’s worth remembering that If you don’t make payments as agreed, the lender has the legal right to repossess the collateral, sell it, and recoup their losses.

Are There Extra Charges?

With an excellent credit score there is no reason to pay for extras like an origination fee or an early payoff penalty. If your credit score makes you appealing to potential lenders, make sure to ask about fees. The difference between making a financial decision that works for you and one you may grow to regret is in asking questions before signing your name to a contract. Use the above guide to help make the right decision before you move forward on your next loan.

August 6, 2021

If you’re considering securing a loan, you should always make sure you are getting the best deal possible from whichever lender you finally choose. Obviously, there are no free rides when it comes to borrowing money, but the lower the overall cost of a loan, the quicker it will be to get out of debt.  That said, finding the right loan isn’t always as simple as it seems because there’s a lot to think about when deciding which lender to borrow from. To help insure you choose the right loan for your particular needs, follow the below tips when comparing loan offers.

Get Several Quotes

All kinds of lenders offer loans including online-only lenders, banks, and credit unions.  There can be major differences from one lender to another when it comes to interest rates, repayment guidelines, fees, and how long it takes to close a loan, so it’s important to get multiple quotes when shopping around for a loan.  You should try to get quotes from at least three lenders, but preferably more if you have the time, so you don’t miss out on a better loan offer.  It’s important to compare different kinds of lenders too.  Online banks, for example, often have lower rates and qualifying requirements than traditional banks because they require less overhead to run their business.

Avoid Hard Credit Inquiries

When you are shopping around for financing, some institutions will cause a hard credit inquiry to be placed on your credit report. Too many of these hard inquiries can hurt your credit score and can stay on your credit report for up to three years.  Luckily, many lenders will pre-approve you for a loan and disclose their rates and terms before placing a hard inquiry onto your record. In these instances, the companies will ask you to provide your Social Security number and some other basic information, and then perform a soft inquiry to find out what interest rate you’ll qualify for. You can then decide if you want to move forward with that lender and have them place a hard inquiry on your report.  Lenders that make it easy to comparison shop with soft inquiries allow you to protect your credit score while finding the best deals available on financing.

Compare Apples To Apples

When comparing loan rates from multiple lenders, it is important to make sure the type of terms are similar, not just the scheduled payments.  If, for example, one lender offers lower monthly payments but a longer repayment schedule, you may end up owing more in total for the loan than you would for a loan with higher monthly payments due to the added interest you’ll end up paying.  Always consider whether both lenders are offering fixed-rate loans.  Variable loan rates generally have a lower starting interest rate versus fixed-rate loans. These loans may seem like a sweeter deal because of the lower rate being offered, however, you’ll be increasing your risk with a variable-rate loan because the interest rate could rise during repayment. When rates increase, total loan costs go up in addition to the monthly payments.  That said, sometimes a variable-rate loan can make more sense, especially if you plan to pay the loan off early and can afford higher payments for a short period of time. Always make sure you compare loans with the same type of interest rate structure so you can get the best deal regardless of which type of loan you end up taking out.

Compare Total Costs

You always want to keep borrowing costs as low as possible, so it is common sense to go with whichever loan offers the lowest total overall costs including interest rates and fees.  When comparing rates, it’s critical to compare the APR not just the interest rate. The APR includes any added fees to show you what the total rate is that you will pay per year for borrowing money.  A lender should be able to tell you the total interest you’ll pay over the life of the loan, which is affected by your payment timeline and how often interest compounds.  Clearly understanding the total interest you’ll pay can help you pick the loan that will cost you the least in the end.  This way is a better bet than focusing just on monthly payments or annual interest rate, which can show a misleading picture if one loan has a longer loan repayment term or has more fees versus another.

Read The Fine Print

Always read the fine print for any loan you consider to find out all of the hidden details that could result in added costs.  For example, some lenders charge prepayment penalties meaning that if you decide to pay your loan off early, you could end up paying more for the loan than you might for a comparable loan without a prepayment fee. Some variable-rate lenders may adjust rates more frequently than others, which increases the likelihood of rates rising during the repayment term.  You need a complete understanding of the loans fine print terms to understand all of the risks and potential charges you could incur in order to make a fully informed choice about which lender is actually best for your situation.

Taking the time to compare loan offers is important, as some lenders offer significantly better deals than others. You don’t want to pay more to borrow than you need to, so make sure you follow the tips above when you shop around for your next loan.