First Things First

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Why real estate investors need to understand finance options before making a purchase

 There are several different acquisition strategies utilized by wise investors; all directly linked to how much cash they have on hand or have access to, how much credit they can work with and what available loan products are currently being offered by lenders. You cannot buy right unless you know where to go to find deals and how to financially structure deals so that they close. You absolutely have to have a basic understanding of real estate finance before you do anything in real estate! You can’t convert a home’s equity into cash if you don’t know what type of financing you or your buyers are capable of obtaining!

 You may get stuck in a very bad position with a property if you don’t know what type of financing you can qualify for if you decide to refinance, or what type of financing your borrower qualifies for if you want to sell. It is highly recommended and almost mandatory that you either become a part time loan officer or find a good one to work with and learn from. Investors that double as loan officers control a lot of good deals; who does a pre-foreclosure victim see first to try and fix their situation? A loan officer! That’s why loan officers and finance experts have the upper hand in real estate. They get some of the best deals before anyone because they are on the front lines of distressed real estate owners in financial trouble. Loan officers also have the tools and know-how to get deals to the closing table that other investors would say are impossible to make money on.

This current market is a rehabber’s dream market. A lot of money is being made by rehabbers who can buy low, rehab cheap and sell a very nice finished product below market value; or at prices below what an individual neighborhood bears. The best rehabbers know what types of financing interested buyers of varying credit scores and scenarios are able to obtain. Generally, there are only 4 financing methods: Private money (cash), hard money, credit lines and traditional mortgages. You better know the financing options for you and your potential buyers before you buy. Lenders of today have much more strict lending guidelines on what could be your acquisition or refinance loans. You don’t want to be in a position where you lose an expensive earnest money deposit on a house you want to purchase because you can’t get financed. You need to be certain of your options before you put up a large deposit on a property. You also don’t want to be in a situation where you can’t refinance cash out of a property or drop to a lower interest rate. Once again…know your options first. But don’t just focus on your personal acquisition financing. The acquisition financing of your potential buyers is just as important – their financing is what converts your equity to cash and releases you back into the market for more deals to work.