The economy and the housing market are picking back up, and as a result so is activity from real estate investors. These professionals are finding a wealth of affordable properties on the market, including foreclosed houses. Given this increase in action, now may be the perfect time for a prospective investor to try his or her hand at the market.
Even with great conditions, it will take some planning before any budding real estate investor can start making a profit. Unfortunately, it can sometimes be challenging to find affordable homes and invest wisely, and a small mistake can throw off the entire enterprise. That is why sound preparations and industry know-how can be extremely helpful.
That being said, there are a number of tips and tricks out there to finance an investment property. Here are a few that can help a novice professional get started:
Improve a credit score
Like with any buyer of real estate, an investor must have great credit ahead of time. A poor score here can prevent a home from being purchased, and there is no reason why this has to come as a surprise to anyone.
This is why investors should learn their credit scores ahead of time, according to Bankrate.com. The number will have a significant impact on the loan's term, and that can make the difference between a profitable investment property and a money pit.
"Below [a score of] 740, it can start to cost you additional money for the same interest rate," Todd Huettner, Denver-based mortgage broker and president of Huettner Capital, told the news source. "Below 740, you will have to pay a fee to have the interest rate stay the same. That can range from one-quarter of a point to two points to keep the same rate."
Overall, a better credit score will make investing in real estate easier. If possible, it may be best to spruce up the number ahead of time by other means, to ensure that the loans are as good as they could be. Otherwise, it can make the goal of turning a profit a more complicated task.
In addition to financing, a real estate investor will need access to the best possible information. Thanks to CRS Data, this is easier than ever. Instead of making a trip to the local courthouse, countless mortgage records, warranty deeds and much more are available online.
Determine the investment strategy
When it comes time to finance an investment property, the strategy really does make a difference. For instance, renting out the house can affect loans and taxes in a unique way compared to selling it within two months.
Therefore, all investors should decide what they want to do with the home, according to Credit.com. Second homes can lead to better financing options in some cases, but other factors will come into play, such as location and the investor's intentions. The house may be designed for a flip, a long-term rental or it could be kept until the market improves, and then sold. However, investors should never fudge the facts about their goals with the property. If it isn't going to be lived in by the owner for any amount of time, the financing applications shouldn't say that it will. In some cases, people have been scammed, and that can lead to unwanted legal complications.
Once the strategy is determined, it can be time to get a team together, Credit.com noted. Having a group of professionals working together can make the process easier. For example, investors will want to network with an accountant, a real estate attorney and a mortgage professional. All of these experts can provide unique services that will make a first-time investor's life a whole lot easier.