Five Nerdy Ways to Increase Your Buying Power

Being a real estate investor can make you feel like a superhero. It's adventurous, even courageous to: hunt for deals, raise capital, build a team, negotiate with sellers, and renovate broken down properties. Being an investor makes you “cool”. You are viewed by your peers as a high-stakes wheeler and dealer in a shiny suit that slick talks sellers and buyers into submission. Everyone knows the iconic investor that throws victory punches into the air while closing deals with one hand on the phone and the other on the steering wheel. They say “cha-ching” when they make money and the clinking of gold coins fills the air as money pours into their bank account jackpot style, with flashing red lights and all. Who doesn’t want to be a real estate investor?

Now, let’s get to the boring part, because that is where you can make some real money. I realized this as I was analyzing a triplex that seemed to be overpriced. Is the property a good or bad deal? At first glance the asking price looks too high. That’s why it’s still on the market... Instead of confronting the price, I decided to look at the other side of the coin; financing. Financing doesn’t sound as sexy as getting a “below market deal” so I took my time finding my imaginary nerd glasses and crunching the financing numbers. I soon realized that I could create a deal with a higher offer price as long as I controlled: the way the deal was funded, the down payment and the interest rate. Are your nerdy senses tingling yet?

The only catch with this method is that you have to be boring, but boring and strategic can make you wealthy! There are things that need to be done several months in advance in order to make a good deal happen. Before you pull the trigger on a deal, don’t forget to load the gun. In real estate, that means putting yourself in the position to qualify for killer financing. For me and my triplex, it means getting pre-approved for the largest possible 30 year FHA loan with 10% down payment at 3.5% maximum interest rate.

At 3.5% interest rate I can make strong offers in my market and still cash flow on investment properties that were overlooked by the competition. The 10% down payment amount reflected an amount that I could show in liquid assets while still having enough to make six months of mortgage payments. Like I said, strategic and boring but I’m looking longterm and taking the path of least resistance. If you’re looking in a growing area and the cash flow allows you to hold the property, then appreciation will pay off in the long run.

I compiled a list of five boring things that I did to prepare for great financing that will allow me to make offers on deals that are overlooked by the competition. Put on your nerdiest pair of glasses, put pens in your pocket protectors, and warm up your copy machine. Here are five boring things that will make you a financing super nerd.

1. 1. Consolidate all your liquid assets - Before you apply for pre-approval, or make offers, lenders and sellers like to see proof of funds. One of the simplest ways to do this is to consolidate all your liquid assets. I had several CDs that were holding my money hostage so when they matured, I closed them and transferred the funds to my savings account. Then I emptied my safe deposit box and added the funds to my account. I also tightened my spending to funnel as much of my income as possible into my savings. These things did not happen overnight. It took three months of waiting just for the CD’s to mature. Plan accordingly.
3. 2. Track your credit score - You can’t improve what you don’t measure. I joined MyFyco.com and started to track my credit score. There are many internet services out there that will track your credit score, but MyFyco.com is more accurate and will give you your mortgage credit score. It will also let you run virtual scenarios to see how your score will be affected. Your mortgage credit score is the number that you want to focus on increasing the most. Get that number pumped up on steroids to qualify for the best rates.
5. 3. Create a relationship with a lender - I’m not saying that lenders are boring but financing isn’t the most glamorous part of the business. Don’t forget the old adage; “fall in love with the numbers”. You don’t have to fall in love with your lender but you should fall in love with the interest rates that they are able to offer. Getting a mortgage broker or lender on your side can help you with a proof of funds, pre-qual letter, pre approval, and finding great rates or financing options. Get one on your team ASAP.
7. 4. Pay off credit card debt - In order to improve my credit score for the FHA loan, I paid off my credit card debts over several months. This sent my credit score skyrocketing by 40 points. For some investors, credit scores might not matter, but lenders will still want to know your debt to income ratio and your net worth so paying off some liabilities will help you to find more capital. Don’t ignore this detail.
9. 5. Gather important paperwork - I left the most boring thing for last. Qualifying for a financing requires a lot of boring paperwork... For the FHA loan, I had to gather the following: social security card, last two paychecks, last two years of income tax returns, the last two years of W-2 forms, the last two months of all bank account statements, and a copy of my driver’s license. All of this had to be submitted with an agreement for my lender to run my credit score for a pre approval. This was as much fun as staring at the palm of my hand but better than slapping my forehead for not being prepared to pull the trigger.

I hope that this short list helps you to increase your purchasing power the boring way. The next time you qualify for great financing, don’t forget to adjust your nerd glasses, pump your fist in the air, and yell out “Cha-ching” as you imagine gold coins pouring into your account.