3 Questions Entrepreneurs Have Before Investing in Real Estate

by Trius Lending Partners | Dec 8, 2020 | Article, Fundamentals, Sponsored

As real estate investing experts with more than 18 years of success, we have heard just about every question you can possibly think of. While you may think most of these questions come from first-time investors, just as many come from clients on their second or third property. No question is a “silly” question when you are working with a trusted lending partner to guide your investment and real estate decisions.

1. Should I Buy the Property to Flip & Sell or to Rent?

One of the most common dilemmas people face when purchasing an investment property is whether to rehabilitate the property and sell it, or to find tenants and rent it out.

When looking at this scenario, especially in the early stages of the project, we often advise our clients to leave their options open. Why? Depending on the timing of the project and market conditions when the renovation is complete, it may be more beneficial to flip the property and sell it. However, there are times when it makes more sense to hold the property, despite an original intent to flip the property. The rental market continues to remain strong and the benefit may pay off long-term.

A factor to consider when deciding which option works best for you is the overall cost of rehabilitating the property. If you intend to flip and sell, you might select more costly finishes and higher quality materials, knowing that it increases the value of the property. If you plan to hold the property, you would choose rental-quality materials, and you would need to consider the wear and tear of tenants coming and going.

Finally, keep in mind the duration of time it might take to get money back. If you’re selling the property, an average timeframe from your initial purchase to closing when you sell is, on average, roughly eight months. Of course, this is just an estimate—there can be unexpected delays during the rehabilitation stage. If you hold the property, you might not immediately recoup your investment but you can benefit from ongoing revenue once the property is rented.

2. Should I use the Money I Have or Leverage and Borrow Money?

Many clients who come to us have enough money to purchase and rehab the property without taking on a loan. Some of these clients consider self-funding the entire project rather than borrowing. Unfortunately, this scenario can become an expensive and time-intensive lesson. We understand that desire – why borrow when you have enough money sitting in a bank account? However, experiences have shown countless examples of investors using all of their funds on the initial purchase and rehab, leaving little or nothing in reserve for unexpected or unplanned expenses. These investors are now “cash poor” and may run into issues with the property in order to make their money back.

For our clients, we can help remedy the situation, accessing funds to get the project back on track as quickly as possible. However, we believe that in all situations, it is a more sound choice to get a loan up front, allowing you to keep more of your cash in reserves. Unexpected expenses will come up and when they do, you’ll be prepared. Remember: It’s not a bad thing to borrow money if you have a good plan and a solid ROI.

3. What Constitutes A Qualified Borrower?

Oftentimes, people are concerned that they won’t be a qualified borrower. They worry that their credit score isn’t high enough or that because they don’t have a substantial amount of money saved in the bank, they’ll be turned away.

– When considering a borrower, the Trius team looks at credit history, not your credit score. We look for proof of regular, timely payments, proving that the borrower is reliable.

Another factor of high importance is cash flow, and our priority is determining if the buyer can afford to make their monthly payments. Many people think it’s a complicated process but really it just comes down to common sense. There are no secret formulas involved, we simply want to know if a buyer is managing their finances properly.

You may wonder if your employment status can be a factor. While it’s true that it is easier to approve a buyer with a steady income and a W2 in hand, a self-employed borrower is a common occurrence. As long as someone who does not have a traditional job can present documentation that proves their ability to cover monthly payments, approving their loan is easily possible.

Real Estate Investing can be an overwhelming concept, but Trius Lending Partners is passionate about using our expertise to guide our borrowers on their journey to success.

Are you ready to talk about your next step? Here are three convenient options:

Give us a call at (443) 898-4090