Hard Money Loans: Tips for New Real Estate Investor
Are you a New Real Estate Investor? If you are, there are a few things you should know. When investing in real estate, there are two basic ways to make a profit. The first is to acquire a property, fix it up, then resell it for a higher price. The second way is to generate passive income by buying a home then renting out the property. Both of these ways can generate a profit but successful and savvy investors generally do both. If you are flipping and renting at the same time, you financial situation is likely to be more stable.
Know the market
It is important to know as much as you can bout the market where the property is located. Even if the property is great, if it is in a bad market, it won’t be a smart investment. You can know the market better by looking at comps in the area.
You’re going to want to carefully analyze and research the demographic trends of population growth, income, and employment in the area and this will show you which property types are in demand. Learn your market. You don’t want to invest in a property in an area with declining demographic trends.
Mindy Jensen, community manager at BiggerPockets.com, said, “Learning your market is an essential part of your education. And by ‘market,’ I mean the market you’re looking to invest in. It doesn’t have to be local.”
Consider the location
It is important to understand the location of the property and if it is close to any good schools, grocery stores, public transportation, parks, etc. You are looking for an inexpensive home in a good location so you can fix it up and sell it for a profit.
Know the numbers
Real estate is a numbers game. You need real operating numbers in order to make an educated decision on whether or not the property will yield a profit. Your profit is dependent on net income. If you don’t correctly calculate in the debt service and other expenses, you may not make a profit at all.
Consider hard money loans
It is important for a New Real Estate Investor to know about hard money loans. Not every investor has a perfect credit score which is why many consider hard money loans. While traditional lenders focus exclusively on credit scores when it comes to loans, hard money lenders focus on the market value of the property. They’re not concerned with your personal credit. Instead, they are focused on the real estate deal in question. This is how hard money lenders protect themselves in the event of default. Knowing the value of the property helps them limit the amount they loan to the borrower so that they can recoup their investment by taking back the property. This is how hard money lenders are able to provide financing to investors who would not be approved for a loan from a traditional lender.