6 Things to Consider Before Buying a Rental Property

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  1. Can you find renters? This is huge. You might have found a home for pennies on the dollar. You’re so excited that you scored such a great property. You snatch it up, rehab it and list it for rent. But, the market is saturated with rentals. No one’s looking for what you’re selling. Employment is scarce in your market and the need for housing is limited. So, there you sit with your hard-earned investment burning through cash. Don’t make this mistake. Do your research.
  2. Can you get funding? Are lenders turning you down for your investment property? Before hitting up the next lender possibility, stop and think. Why are lenders not wanting this deal? It might not be as ideal as you think.
  3. Do you need management? Sure, a single-family home in an upscale neighborhood is a breeze to manage. But, if you’re investing in apartments or housing in a bad neighborhood, you’re going to need reliable management. Is this attainable?
  4. Do you know your competition? Not only do you need to know what rentals are currently going for in the area to ensure you can make a profit on your investment, but you also need to know what the future may hold. Make sure a luxury apartment complex isn’t opening up next to yours in the foreseeable future. If it is, make sure the market can support both rentals.
  5. Do you have a plan to get rid of the rental? Sure, you have a great rental with great potential income. But, is this a home that will make money when you sell it down the line? Normally, rentals aren’t held onto forever. Make sure you have an exit strategy in place so you aren’t stuck with a poor investment.
  6. Do you have enough money? Not only do you need to make sure you have enough cash flow for a down payment and possible repairs, but don’t forget to set money aside for maintenance and possible future repairs. The last thing you need is going broke investing in purchasing the property and having no money if the furnace decides to croak.

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Four Reasons Why Requesting 100% Financing Makes Private Lenders Nervous

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While here at CEB Capital we do handle projects that end up being 100% financed, there is a certain measure of trepidation that comes when potential clients request 100% financing out of the gate. Here are the four reasons why needing a fully funded project makes hard or private money lenders nervous:

  1. Inability to close. While getting your entire purchase price paid for is a dream, there are costs upfront (i.e. appraisal) that need to come out of pocket. Stating that you don’t want to put any money towards the deal makes lenders leary that once it’s all said and done you won’t have the funds to get the deal closed. Meaning time wasted for both yourself and us. Also, how will the monthly interest payments be made? We need to know we will get repaid once the ink dries.
  2. Inexperience. While we love working with new investors, requesting 100% funding gives the impression that not much research has been done in the real estate investing field. Investors should always expect to have skin in the game when it comes to investments and should know that most of the time a certain percentage of the deal won’t be covered by financing.
  3. No risk involved. When you’re asking a lender to provide 100% financing, you’re also asking that lender to take 100% of the risk. This makes us believe that you’re not as serious about the project as you need to be. Investors with their own funds invested are more cautious and attentive to the deals than those who don’t. Also, if there is a drop in the market and the borrower has no equity in their project, there is a greater chance the job will be abandoned and so will the loan. 100% financing is the cause of the housing market crash of 2007 for this very reason.
  4. Success for borrower. Studies prove that borrowers who have invested their own money along with private or hard money financing are the most successful in real estate investing. We want our clients to come out ahead to ensure a very long and fruitful relationship for both of us.