For the month of September, I will be teaching you all a little bit about real estate. Some of my audience will be really familiar with this topic, and some of my audience will not. Today, I wanted to give you some things about real estate that you may not have known, whether you’re a beginner or not.
There is so much to learn in the area of investing, and it’s impossible to know everything when you start. I hope this information helps you get further along in your journey!
5 Things About Real Estate You May Not Have Known
1. Creative Financing
Most people will think that they have to purchase their rental properties the same way they purchased their first home: saving up for a down payment and getting a loan. While that isn’t a bad strategy, there are other ways to acquire properties. I like to have at least two bankers in each area I’m buying real estate because they will typically have different resources and offer you different loan products.
Instead of saving up for a down payment, you can use home equity and refinance other properties, you can use a retirement account or liquid assets as well. You can use partners to raise down payments in real estate, or you can use lines of credit from local banks, which tends to be my favorite way.
The point is that there are many different ways to get loans and purchase properties. Research them all and become knowledgeable.
2. Where the Best Cash Flow Spreads Are
Many people, when investing in real estate, will bypass low-to-moderate neighborhoods because they think they will make the most money renting out luxury houses. There’s nothing wrong with that, in fact, I rent out mostly high-end properties now. The best cash flow spreads are in the low-to-moderate neighborhoods, though.
Don’t just assume you know everything. As I’ve said, real estate is a learning process. Don’t be afraid to reach out to those that are more experienced than you and ask for tips.
3. Cycles Matter
Real estate is just like anything else in the marketplace in the sense that buying cycles matter. When supply is high, in other words, there are more houses on the market, the prices are flat and they could be dipping soon. That’s the time to get properties if you want to buy and hold. The longer you wait, the faster you have to pull the trigger.
When demand begins to absorb supply, you should rethink your purchases. If you are buying and flipping, this is when you would purchase properties because you want to flip before a lot of new construction begins. You can still buy good properties in heated markets, but you have to really understand what you are getting into.
4. The Difference Between Mortgage Bankers & Brokers
There are a few key players you need in your real estate business, including lawyers and real estate agents, but you also need good mortgage bankers and mortgage brokers. Many people don’t know the difference, but these players can help you level up your real estate game.
A mortgage banker usually sells his own products. The pros to this are that they typically can close faster and can give the customer a low-interest rate or lower cost. The cons are that they sometimes can’t get a loan done because the products they’re offering are so limited.
Mortgage brokers typically work in what we call a “broker shop”. They represent many lenders and broker loans. They can often beat a banker because they have so many lenders available, but they typically only work with 2-3 lenders. You need to find a broker who is experienced working with investors.
5. What Underwriters Look For
The final thing you may not know about real estate is what underwriters look for when you apply for a loan. The first thing they evaluate is your credit score. A 720 & up allows you to buy multiple properties and access loan products with greater flexibility. Underwriters also look at your capacity, which is your debt to income ratio. Especially after the housing crisis, they want to make sure you can pay off your mortgage. They also look at the collateral you have available, your character and verification of employment, as well as your age.
All of these factor into what loans will be available to you.
If you enjoyed today’s blog post, I invite you to come to the real estate workshop I am hosting in October! It will give you a chance to dive deeper into the world of real estate, and get 1-on-1 advice from some of the most experienced real estate professionals in Colorado. Click here to learn more about the event, and you can purchase your ticket here when you’re ready!