February 12, 2021

Truthfully, every new investor has their own idea of what makes a real estate mogul. However, in general, a realty mogul can be defined as a high net-worth entrepreneur who has accumulated the majority of their wealth through investing in real estate. With that in mind, if you dream of building your own real estate empire someday, keep reading. Below is a step-by-step guide to growing your real estate portfolio into a thriving business that will help you achieve financial freedom.

 Clarify your financial goals and investment strategy

If you’re reading this article, chances are, you do dream about becoming a successful real estate investor. That said, if you’re serious about making it happen, it’s important to realize dreaming is not enough. In this case, you need to start thinking like an entrepreneur, which means that you need to clearly define your goals and the steps that you intend to take to achieve them.  To do this, start by thinking about your goals in a more specific way. For example, rather than just saying you’d like to earn extra income by investing in real estate, think about what being a successful real estate investor looks like to you. What would you eventually like your net worth to be? The more specific you can be here, the better.

Once you’ve taken some time to define your goals, it’s time to turn your attention to your investment strategy. In short, your investment strategy is the specific method you intend to use to achieve those goals. For instance, you could follow a buy and hold strategy where you purchase a rental property and rent it out to a long-term tenant, or you could choose a fix and flip strategy where you purchase a distressed property, fix it up, and resell it for a profit.

Create your real estate investment business plan

After you’ve taken some time to really think about your goals and to zero in on the investment strategy that’s the best fit for you, the next step is to create your real estate business plan. It can be helpful to think about your business plan as the roadmap that you intend to follow on the way to achieving your goals. It will include the specific methods and strategies you intend to use to build your portfolio.

While this may seem like a lot of work to do before you ever even look at an investment property, it’s a crucial step to building your real estate business. Having a business plan will help you be more strategic when it comes to identifying the right investment opportunities, deciding how you’re going to manage your cash flow, and knowing when it’s time to employ your exit strategy. Additionally, if you’re planning on bringing business partners into the mix, having a cohesive business plan will make you look more professional, especially if you don’t have much of a proven track record.

Keep in mind that while it’s important for your business plan to make sense, it doesn’t have to be perfect from the get-go. A real estate business plan is not a static thing. It should grow and change with you as you continue to grow in your role as an entrepreneur. Try not to get so caught up in making it so perfect that you prevent yourself from moving forward.

Buy your first investment property

Once you have a outlined business plan, it will be time to buy your first investment property. However, before you do so, it’s important to take the time to educate yourself on your local real estate market. In this case, you should be sure to familiarize yourself with the going interest rates in your area and the neighborhoods that are most likely to offer investment opportunities that match your particular strategy.

Once you’ve found a few properties that meet your criteria, it’s time to do a property analysis. At its core, a real estate property analysis helps you analyze metrics to figure out whether or not a specific property meets your bottom line and is likely to give you sufficient returns.

Continue to build and diversify your real estate portfolio

No matter what type of investment strategy you followed up until this point, eventually it will be time to continue to grow your portfolio. The nice thing about investing in real estate is that you can often leverage equity in order to help you grow.  If you followed a buy-and-hold strategy, you’ll have the option of using a home equity loan to supply the funds for the down payment on your next investment property. Likewise, if you’ve followed a fix-and-flip strategy, you can use the profits from the sale of your first investment property to buy another.

Once you’ve gotten comfortable growing within your existing real estate niche, it’s time to diversify your portfolio. This could mean a few different things to different investors. For example, if you focused on residential real estate so far in your career, you could move to investing in commercial real estate.  Ultimately, the method you choose to diversify your portfolio is up to you. However, if you do dream of becoming a mogul, it’s crucial that you eventually diversify. At the end of the day, diversification will always help minimize risk, which is one of the keys to building a sustainable real estate empire.

Break into high-end markets

Once you’ve had the chance to accumulate a decent amount of wealth and build a full portfolio, it’s time to break into high-end markets. These markets are often only attainable to those who would be considered accredited investors in regard to the stock market, meaning they already have a high net worth and are more experienced in the real estate business. Here, in exchange for the high up-front cost and tough competition that you’ll likely face when trying to buy properties, these markets often will give you the best returns.

The bottom line

Real estate investing is certainly not easy, let alone if you’re trying to become a real estate mogul. However, with a lot of hard work and due diligence on your part, it can be done. With that in mind, use this as your guide for how to get started building your real estate portfolio and eventual empire. Armed with this knowledge, you should have everything you need to create a roadmap for achieving your dream of financial freedom.

February 5, 2021

Many people believe investing in real estate is the key to obtaining their financial goals. Seasoned investors will be the first to warn, however, that investing in real estate comes with some big risks that need to be weighed before an individual is financially ready to begin investing in real estate. If you’re considering investing in real estate, there’s a lot to know before you make your first purchase. It’s unlike any other type of investment you’ve owned so far, and requires a different approach from how you manage it to how you earn from it.  For anyone who’s wondering if becoming a landlord is the right move for them, below are a few signs that you have reached a point where investing in real estate is the right move for you.

You have savings for retirement

Before anyone starts working towards investing in real estate, they should already be saving for retirement and have enough cash left over. Make sure to consider your retirement needs by allocating the appropriate contributions to a 401(k) plan and/or Roth IRA.  You may also want to consider having a brokerage account before taking on the additional risk of a real estate portfolio.  Anyone considering investing in real estate should build up these areas before becoming a landlord if they plan on being successful.

You have free time to manage your investment

Time is of the essence in real estate investing and you may need a lot more of it than expected to tend to all that a real estate portfolio will require. Ideally, real estate investing is best pursued once you’ve freed up your work schedule or are nearing retirement to allow you the proper time necessary. It can sometimes feel like another full-time job so you should have the extra time to manage the property.  Most of the time you will need to focus on more than just managing the properties and will also need to deal with areas like marketing and legal requirements in the area.  Real estate investing also requires a lot of customer service if you’re planning on renting a property out for additional income. All that management takes time and energy you’ll need to have before investing.

You have cash for a down payment

The process of buying an investment property is a lot like buying a home, but in some ways, it’s more difficult. There’s typically a little bit more upfront capital requirements for investing in real estate. Lenders see rental properties as a higher risk, and charge more for them in interest and require larger down payments. At minimum, you’ll likely need a full 20% down payment to be able to start investing in real estate.  If you have the cash on hand to start investing in real estate, it’s likely a sign that you’re financially ready to start if your other goals are met. However, keep in mind that you’ll also need other cash to keep and maintain that building. It is wise to set aside money for unexpected repairs and still being responsible to pay the mortgage if the property sits unoccupied for a period of time.

Like any investment, profit from real estate isn’t a given. Anyone who’s considering investing in real estate should do so with that understanding that real estate isn’t necessarily a better investment than stocks, or vice versa. There are many variables at play and success in real estate can come down to simply the location or any number of other things that may or may not be within your control.  While the same can be said for the stock market, it’s worth noting that real estate is unique in some of its risks. Hopefully the above areas will help guide you to make an informed decision on whether or not you are ready to invest in real estate.

December 28, 2020

Whether you’re a first-time homebuyer or a long-time investor, it’s important to be strategic about how you spend your hard-earned money.  You have many different investment routes to choose from, which can sometimes be overwhelming and leave you with more questions than answers. What’s a better investment, multi-unit properties or single-family homes? Should you fix and flip or fix and hold? When should you live in a property first before renting it out?  Below we will discuss ways to reliably maximize the value of an investment property.

Purchase a multi-unit property and live in one

If you are just getting started in real estate investment, purchasing a multifamily property and living in one of the units can be a great idea.  Multifamily dwellings with up to four units are considered residential, not commercial, for financing purposes. This means you can purchase a multi-unit property with a residential loan and rent out the remaining units. You will be able to generate income as soon as you move in, helping you offset the cost of your mortgage and building a passive income stream.

This is a fantastic strategy for first-time homebuyers. If you want to begin building your real estate investment portfolio, but you don’t have much capital, start small. Instead of buying a single-family home in a suburban neighborhood, buy a duplex, triplex or quadplex in an urban market and generate ongoing income.

Purchase and renovate a multi-unit property you don’t live in. 

Consider expanding your real estate portfolio with a multifamily property that needs some renovation. Take a long-term, fix-and-hold approach, refurbishing one unit at a time and renting out the rest. You’ll be able to leverage your rental income to pay for construction expenses, spreading them out over several years instead of in one lump sum.  That said, renovating a multi-unit property is a big undertaking. Ask these questions before you commit to a project:

• Do you have any previous remodeling experience? Do you have a team of professionals you trust to help you with the work? Go in with eyes wide open about how much time and money each unit will require.
• What are the changes you need to make to the units? Are they standard cosmetic jobs, like replacing flooring, cabinets and appliances? Or do you have to make building-wide upgrades that will be more expensive and extensive? Steer clear of properties that have major structural problems that will prevent you from renting out units while doing construction.
• How much do you expect your property to appreciate after you renovate? Will your rental rates increase significantly? Do your homework, researching the rents of similar properties in the area.

Purchase a Duplex

Another smart way to maximize your real estate investment is to buy a duplex. You can choose to live in one unit and rent out the other, or rent out both for double the income. Ideally, if you choose to live in one of the units the rental income you make off of the other unit should either pay for or earn close to the total amount for the mortgage on the entire property.  Best of all, these types of properties will often appreciate at a higher rate than a typical single-family home.

No matter what your experience level is in real estate, you can take action to enhance the value of your properties. Whether you decide to purchase a multi-unit, single home or duplex property, renovate or live onsite, the above information can help guide you to a wise and informed decision that is right for your particular situation.  Hopefully the above strategies will help you to make the most of all of your investment opportunities.

December 1, 2020

There’s more to real estate investing than simply buying an investment property and calling it a day. Traditionally, there are four different types of real estate investors. As with any type of investing, each one has its own benefits and disadvantages. Below we will discuss all four types of investing, as well as the pros and cons for each investment type.

What is a real estate investor?

A real estate investor is any investor who purposefully adds a real estate asset to their portfolio. Truthfully, real estate investors come in many different shapes and sizes. While many people think of someone who buys and holds a rental property as the classic example of a real estate investor, that is just one type. It’s possible for real estate Investors to also put their money into a real estate investment trust (REIT), to follow a fix and flip investment strategy, or to be wholesalers.  Now that you know a little bit more about what a real estate investor is, the next step is to take a closer look at the different types of real estate investors.

REIT investor

Investing in a real estate investment trust (REIT) is the most passive form of real estate investing available. With this method, you’ll invest similarly to the way you’d invest in the stock market. Here, you’ll buy shares of a real estate investment company and receive dividends when the company pays out its profits. A publicly traded REIT will even have its shares listed and traded on major stock exchanges. However, a non-traded REIT may still be listed with the SEC, but it’s not publicly traded or it may be a private company.

The major benefit of investing in REITs is that, like stocks, anyone can do it. You don’t have to be an accredited investor or even have that much real estate experience. In this case, it’s as easy as buying and selling shares.  That said, the downside of investing in REITs is that you have very little control over what they invest in or how they’re managed. With that in mind, it’s important to do your research before investing in any particular REIT. Also, dividends from REITs are taxed as ordinary income, as opposed to a lower rate.

Buy-and-hold investor

Buy-and-hold investing is the classic example of real estate investing, where you buy up an investment property and rent it out for consistent monthly income. On the whole, this is a relatively active form of real estate investing. You do have to do the groundwork of marketing for a tenant, vetting all the potential applicants, and being on call to handle maintenance issues. It’s also meant to be a long-term strategy since investors tend to buy an investment property and keep it in their portfolio for multiple years.

The big benefit of following a buy-and-hold investment strategy is that you have the opportunity to achieve relatively stable returns. In this case, landlords can usually count on the same amount of rental income coming in every month. The major downside of this investment strategy is that it can be a lot of work for smaller returns than you might find with another method.

Fix-and-flip investor

In fix and flip investing, the investor will do their best to find a real estate deal that’s undervalued for the market. Then, they’ll fix it up and market it for resale at a much higher price. Once the buyer is found, the investor gets to keep the difference between the initial investment and the final sale price as profit.

The main benefit of this type of real estate investing is that, if you find the right investment opportunity, it has the potential for high returns. Also, it’s a short-term investment strategy, meaning you could see a return on your investment in just a few months.

That said, this is also a very active investment strategy. In this case, it’s up to you or your real estate agent to find the right real estate deal. Then, you have to figure out how to fix up the property. Here, you can often achieve better returns if you can do the work yourself. However, if you aren’t handy, you’ll have to plan to pay for labor costs in your budget. Finally, there’s also the risk that you could over improve the property and lose money on the deal when it’s time to sell.

Wholesaling

Real estate wholesalers will act as a middleman between a property owner and an end buyer. Here, the investment strategy is to find an underpriced real estate deal, quickly sell it for a higher price to an interested buyer without rehabbing it first, and keep the difference between the price you paid for the property and the price you sold it for as a profit.

In truth, this is a relatively passive investment strategy, and you have the potential to make a sizable profit. Typically, wholesalers will buy and sell a property the very same day in order to cut down on carrying costs. However, in order to make this work, you often need to have an established network of real estate contacts who can help you find interested buyers and distressed sellers.

Real estate investing can be a great way to diversify your portfolio. However, if you’re just getting started in this arena, it can be confusing to differentiate between the different types of real estate investors. In light of that, use this as your guide to your options. Armed with this knowledge, you should have a better idea of what type of real estate investing is right for you.

November 13, 2020

When many people think about investing in real estate, they often assume they should buy a single-family home. More and more investors, however, are looking towards multifamily commercial real estate like apartment complexes instead as an alternative to invest in new and lucrative real estate properties.  Below we will discuss a few key reasons why you should consider investing in multifamily commercial real estate.

Let us begin with discussing what is multifamily commercial real estate or MFCR. Essentially, multifamily commercial real estate (MFCR) is used to describe residential properties with more than five units.  Often, this term refers to apartment buildings but there are also quite a few different property types within MFCR such as mid- and high-rise apartment complexes and garden apartments.  Included in these types of properties are residential housing units such as assisted living facilities and student housing.  Regardless of what type of multifamily commercial property you decide upon, you’ll have the following asset classes to choose from as an investor.

Class A properties: which are essentially luxury buildings offering high end amenities like fitness centers and pools. These properties bring in the highest rents but require a larger investment.

Class B properties: still offer a good quality value and are in desired locations but they may have less amenities than class A properties.

Class C properties: tend to be more outdated but are the most affordable rent-wise for tenants on a tight budget.

Now that we have discussed the different types of multifamily commercial real estate and how they are classified, lets look at the benefits of investing in these types of properties.

The Benefits of Investing in Multifamily Properties

One of the best benefits of investing in multifamily units is that they are often easier to secure financing for than single family homes if you are intending to utilize them as a rental properties. This is because multifamily homes often come with less risk to the lender.  Since there is more than one tenant in a multifamily building, there will be less impact on the bottom line if something goes wrong, a tenant is unable to pay or the property is unable to be occupied for a period of time.  Additionally, since multifamily housing typically comes with shorter leases, there is more opportunity to adjust the rental rate to current market demands and for inflation.

How to Invest in Multifamily Housing

If you are interested in investing in multifamily housing it is critical to understand your financing options so you can get the best deal possible for your situation. There are several different financing options you should look into before moving forward, but in general there are three main ways to finance these properties we will discuss below.

Government backed multifamily mortgage loans: are typically the best fit for investors who intend to live in one unit and rent out the other units. These loans are typically easier to qualify for than conventional financing and have lower credit requirements.

Portfolio Loans: are worth looking into if you do not qualify for federally backed loans because financial institutions set the requirements to qualify.  Financial institutions also set the interest rates on a case by case basis and keep these loans on the books instead of selling them on the secondary market.

Short term multifamily financing: typically come in the form of a bridge or hard money loan.  These loans are often a good fit for fix and flip investors wanting to rehab a property.

Once you have researched and have an idea of the best type of financing for your situation, you should see what options are available in the particular area you are interested in and work with a real estate agent to zero in on the best possible multifamily property available.

Since multifamily buildings allow you to manage multiple tenants at once, they can be a great way for investors to diversify their portfolios and increase their cash flow. As with any investment, it’s important to understand the market and know what you are getting into ahead of time. Hopefully this article can be a useful guide in deciding if purchasing multifamily commercial real estate is right for you.

November 6, 2020

If you are considering building a new home from the ground up, you will likely need to obtain a construction loan to complete the project.  Construction loans are short-term loans that can be used to finance land, materials, labor and all of the other expenses associated with building a new property.  It is important to understand that construction loans come in different varieties.  Some construction loans have to be paid off once the home is built, and some can be converted into a mortgage that can be paid off over time.  The right type of construction loan you choose will depend on your budget, your timeline and how you plan to use the property once it is built.  Below we will discuss some of the key points you should know before moving forward and securing a home construction loan.

What Are The Different Types Of Construction Loans?

There are three main types of construction loans you should be aware of before starting a new construction project.

An owner-builder loan is for homeowners who also want to act as the general contractor for their own construction project.  These loans can be less expensive and offer lower rates than the other two options, but lenders often see them as a high risk, so they may be harder to obtain and you generally have to be a professional contractor to secure these types of loans.

A Construction Only Loan is a short-term adjustable rate loan used only to complete the building of your home.  Once the home is built, this loan either needs to be paid off in full or refinanced into a mortgage loan for permanent financing.

A Construction To Permanent Loan finances the construction costs as well as the finished home.  It converts from an initial adjustable rate construction loan to a fixed rate, permanent mortgage loan once the work is completed.

As with any mortgage, you’ll want to explore all your financing options, and compare offers from a few different lenders.  The right type of construction loan for you will depend on your finances, your timeline, and who can offer you the best interest rate for you situation.

October 28, 2020

Venturing into real estate investment is an exciting opportunity which can generate significant profit for investors when executed correctly. As with all investments, however, there are certain financial risks that can be costly if you do not know what you are getting into ahead of time. Successful real estate investment requires a strong knowledge base, research, and careful consideration before diving into it. Below are some tips expert investors recommend when investing for the first time in real estate.

Do Your Homework

One of the best tips long time investors can offer is to do your homework ahead of time and “know what you don’t know”.  Understanding that all geographical markets are unique and taking the time to learn the specifics of the area you wish to invest in ahead of time can avoid many headaches down the road. It is important to be thorough during the underwriting process and to make sure you are able to acquire a property on the best possible terms. Experts recommend that you go over all legal documents with a fine-tooth comb and have someone you can trust to carefully draft any agreed upon terms. Unless you are already an experienced real estate professional, having a strong mentor relationship in place to discuss your investment and business plan can make the difference between whether or not your first-time investment is successful or not.

Choose A Location You Understand Well

When investors are first starting out, experts recommend investing in an area you know well and preferably one that is within an hour’s drive of your home. Attractive investments on paper can often turn into nightmares when they fall outside of the scope of your general understanding of where the property is located.  By investing close to home, you can more easily get to know an area and be responsive on short notice when your immediate attention is required on site.  Having the ability to physically step foot into a property and walk the surrounding neighborhood can offer many valuable insights that may get missed if you attempt to invest in a property that is in a location you know little about or is not within a reasonable distance from your primary residence.

Go Beyond Your Feelings

There are many different metrics that often get overlooked by first time investors when they are starting out in real estate. Understanding and analyzing data to drive your decision making is much more effective than simply acting on impulse based on how you feel about a specific investment property. Job growth, population growth over the last five years, median household income and crime rates are just a few often overlooked indicators of whether or not a property will make for a sound investment.  Taking a step back and objectively looking at all of the data available in the real estate market you wish to start investing in is not only a wise approach that will help set your mind at ease on making the right decision but can also help you to find investment properties you might have otherwise overlooked when you are first getting started with investing in a property.

Don’t Over Commit Financially

Experts stress the importance of understanding your financial limitations and avoiding scenarios where you over commit even if an opportunity sounds lucrative.  It is important to have alternative means of income when investing and to not place all of your eggs in one basket financially, especially when you are first starting out.  While abandoning your day job and becoming a full-time real estate investor may sound appealing, it comes with its own pitfalls. Understanding your individual financial and comfort levels and what investment criteria’s and exit strategies are right for your situation ahead of committing to any investment can make all the difference in your success, especially in real estate. Long time investors recommend you always have sufficient cash reserves post-closing to cover unforeseen vacancies and expenses. Furthermore, they recommend you consider options such as purchasing multi-unit properties vs. single family properties to help avoid incidents like having a tenant who suddenly stops paying rent or a down turn in the market.  Having a clear understanding of your financial standing ahead of time will make any issues that arise down the road much less painful for all parties involved.

Regardless of your background, experts agree that before investing in your first property, it is important to do your homework, choose a smart location, analyze all of the available data at your disposal, and perhaps most importantly, to not over commit financially and strain your ability to make future investment moves when they come along.  Understanding the above expert tips regarding first time property investment will hopefully help guide you in the right direction before you sign on the dotted line and secure your first investment property.

October 16, 2020

Most real estate investors spend a lot of time looking for creative ways to increase the income they receive on their rental properties.  While there are some obvious ways to increase the value of a property, like adding an extra room or upgrading the kitchen and bathrooms, there are also many ways to maximize your income on a rental investment without breaking the bank.  Below are just a couple of ways clever real estate investors can help ensure they are getting the most out of their rental property investments.

Allow Tenants to Have Pets

While many landlords have valid concerns and worry that allowing pets could damage their investment property, pet owners are becoming more and more frequent in this day and age. Pet owners are often limited in finding nice properties that allow pets and therefore will often settle for less desirable locations in order to live somewhere that will accommodate their fur babies.

Understanding this demand can easily add additional revenue to your monthly rental income if you are wise and know how to protect your asset accordingly.  Charging a nonrefundable pet deposit that will cover any deep cleaning and potential damages that a pet could cause is one smart way to create a win/win scenario for both you as a landlord as well as your prospective tenant.  Currently, a nonrefundable pet deposit of around $250 seems to be an industry standard in most real estate markets.  Additionally, many landlords will add on “pet rent” of around $25 to $50 per pet per month in order to offset any additional costs they may incur while increasing their overall rental income annually.

Consider Short Term Rentals

Considering lease terms shorter than 1 year can give you additional pricing power and a competitive edge over your competition.  Being flexible with tenants and offering them 6-month leases can easily add up to 10% additional monthly rental income compared to a 12-month annual lease.  Another often overlooked option is allowing for month to month leasing. Many renters who are in transition between housing or traveling for business are willing to pay top dollar for properties that do not tie them down to a long-term rental agreement.  Understanding the needs of your prospective tenants can help you secure the most out of your rental properties and set your place apart especially in a competitive market.

Supply Furniture

It is often the case, especially with short term rental agreements, that renters are looking for a place ready to go and set up with all of the furniture they need to move in and start living right away.  Whether a prospective tenant is needing to rent a place because they are traveling for business or they are a family in the process of building a new home, supplying furniture to your rental property is a need that many landlords overlook.  For those seeking furnished properties, the added convenience of a true turn key property adds a value that many are willing to pay top dollar for. Understanding the market you are in and being willing to offer a property furnished can set your property apart from the competition and secure you with happy renters for years to come.

Additional Amenities

There are plenty of creative ways you might be able to increase your property’s income potential if you are willing to think outside of the box.  For example, adding a doorbell or alarm system to a property in an urban setting can add additional security protection to your tenants and may significantly increase the amount a renter is willing to spend. Understanding exactly what your target audience is looking for and effectively delivering a desired amenity that other properties do not offer might leave you surprised as to how much additional rental income your property can bring in.

Understanding the growing demands of prospective tenants can be the difference of whether or not you are able to consistently rent out your investment property, especially in a competitive market. Allowing pets, agreeing to short term rentals, furnishing your rental property and adding additional security measures are only a few ways to set your property apart from the competition.  Regardless of what route you take to add additional value, researching the market you are in and being willing to step outside of the box will add the most potential income to your rental investment and leave your tenants happier and willing to spread the word to future prospects down the line.

October 8, 2020

Many real estate investors are turning to ground up construction as an option to diversify their portfolios and maximize profits on their rental and fix and flip projects.  While ground up construction loans are often a necessity, they come with their own unique requirements which investors need to know how to navigate in order to achieve a profitable outcome.  Below are a few of the most important areas to focus on before investing in a ground-up construction project.

Ground-up construction loans differ from owner occupied loans

It is important to understand that ground-up construction loans are short term loans used to cover the costs of construction only as opposed to a long term 30-year mortgage like an FHA loan for owner occupied properties. If you decide to hold the property as a rental, you may need to refinance the loan into a permanent mortgage in order to extend the loan terms to a more manageable time frame. Additionally, the amount you are allowed to borrow on a ground up construction loan may vary widely depending on what financial institution you obtain funding from so it is important to do your research and make sure you are getting the best deal possible before signing any agreement.

Understanding Construction Draws

Before borrowing money, make sure you fully understand what documents you’ll need to provide in order to receive each draw of funds during the construction process.  Different agreements may have specific fees you are required to pay at each draw and understanding the structure of the loan clearly will help guarantee your success in having enough cash on hand to keep your project running while the draw process occurs. Make sure to inquire about “commitment funding” as this will allow you to avoid interest payments on construction loans until you need to utilize them.

Expect the Unexpected

It is crucial to understand what will happen if any number of worst-case scenarios drag out your project time line. Weather delays, contractor issues, and market changes are just some of the ways your project timeline can be extended unexpectedly. Often, hard money lenders will hide payment requirements in the fine print of the agreements.  From prepayment to loan extension penalties, these hidden requirements can make the difference on whether or not your construction project turns into a win or loss for your investment portfolio.

Ground-up construction can be a valuable option for real estate investment as long as you understand what obligations will come with any funding you obtain. A successful construction project can provide an investor with a bigger payout down the line than a typical commercial or residential investment and can also offer instant equity depending on the deal. Once completed, new construction projects can be just the opportunity an investor needs to expand their portfolio and level up on their competition. Having a clear understanding of the obstacles you will likely face before undertaking a ground-up construction project will help maximize your return on investment and limit the amount of stress created during the construction of any new investment.

September 18, 2020

Investing in a second home can be a great way to build equity and is a wise financial strategy to consider as part of a longer-term retirement plan. Even better, if the property is in a desired vacation destination, you can utilize the property when you want and rent it out the rest of the year with ease. Unfortunately, most individuals require a second mortgage in order to purchase a second home and these terms often require larger down payments and additional underwriting requirements.  Here are a few important ideas to keep in mind before purchasing a second home.

Many Additional Costs

Individuals purchasing a second home can often assume the cost is similar to the experience of purchasing their primary residence. While some expenses are the same, there are many additional costs to investing in a second home. Some of these additional costs include furnishing the home in order to be able to rent it out, maintaining all of the wear and tear that can be caused by having multiple tenants occupy the home when you are not utilizing it, and added insurance rates required when renting out the property.  Combine these additional costs with monthly utilities and taxes and the expenses can add up quickly. It is important to have a crystal-clear picture on what your total monthly expenses will be before purchasing a second home.

Tougher Underwriting

Most individuals have a budget they need to maintain in order to uphold all of their financial obligations. Since purchasing a second home likely means you already have a mortgage you are responsible for paying, you can expect the underwriting requirements to be tougher on a second home. Lenders must guarantee you will be able to repay any money they lend. Credit score requirements are higher when purchasing a second home and almost all second homes will require a higher down payment. The more debt you have will also impact the underwriting terms of a second home. Investors should be prepared to have their debt-to-income ratio scrutinized much more closely when applying for a second mortgage.

Financing Options

On a positive note, you may have more options in financing your second home if you have a large amount of equity built up from your primary residence. Whether you utilize a home equity loan as collateral to obtain a line of credit or simply refinance your first home and pull out some of the equity to use for the down payment on your second property, you may be able to use the asset of your first home to fund the purchase of a second home.

Understanding all of the ways that purchasing a second home is unique from buying a first home can make the difference between whether or not you are successful in acquiring a new property. While second homes do have added expenses and tougher underwriting, there are also often more options when coming up with ways to finance this new investment opportunity. As with any big decision, doing your homework ahead of time and having a clear picture of what responsibilities will be required is the key in obtaining a successful outcome.