Before You Purchase Properties For Investment, Learn the Game

You can’t purchase properties for investment if you don’t understand the landscape. Is my credit strong enough? How do I shop for a lender? What makes a perfect property for investment? These are good questions that many new investors need to consider before getting started in real estate. These questions must be answered before purchasing your first property. This article will answer these questions, and many others to prevent you from make some basic mistakes. We’ll walk through all possible scenarios. All you need is a little information and guidance to help you be successful.

Let’s start with your credit. Your credit rating score is called a FICO score. Lending institutions use this number to decide whether they will extend credit to you. You can check your credit through a bank, mortgage companies or free online sites. If your credit rating is low, you can build it back up by paying minimum payments before they become 30 days late. You may say “well I need to pay them on time”. That is true, but your creditors only report 30, 60, and 90 days of lateness to the credit bureaus. So if you pay bills on the 10th, 15th, or 29th day credit bureaus are not contacted. Did you know each time your credit is pulled your score can potentially drop? Once you find your credit to be satisfactory don’t let several lenders pull your credit. Have one company run your credit, ask for a copy of the credit report, then use that copy to show other lenders. The other lender can tell you if you qualify for the loan before they run one for themselves.

Next, let’s talk about looking for a lender. Remember, not all lenders specialize in investment properties. Some accommodate owner occupants. These loans are for people using the property as their primary residence. Most lenders, because of Fannie Mae guidelines, will only allow you to have 10 mortgages at one time. Thereafter, you will have to find other sources of lending. The best way to find a lender is finding a realtor who sells investment properties. Realtors have lenders who work specifically with investors. I prefer a mortgage brokers over banks. A broker will run your credit report once and “shop” the loan to several banks and lending institutions. A bank will either qualify or deny your loan request one time. If you decide to go to three different banks your credit report will be ran three separate times. The only advantage in using a bank is fewer fees and lower interest rate, but it’s harder to qualify. Save yourself time, start with a broker!

Now that you know your credit score, found a realtor and lender, you’re ready to find that first investment property. The first thing you want to understand is there’s no perfect investment property. However there are properties that will give you a higher rate of return. Never look at a property as a personal residence. If you do you’ll probably pay and spend too much on the repairs.

Before you choose properties for investment, you’ll want to compare the property value with the actual property cost, plus repairs. Determine the loan amount, which will be 70% – 80% of the property value. Then you can determine the monthly payment. Remember, the location of the property will determine the monthly rental charge. If you can rent out the property yielding a positive income of at least $200-$300 a month, and still have 20%-30% equity in the home, that is a good property for investment. In the investment game its numbers that make or break a deal. Some people will say $200 dollars a month is not very much for the hassle. I say $200 multiplied by ten properties is $2000 positive cash flow each month. Always think numbers. These numbers can bring you financial freedom before you know it.

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