Tuesday, August 30, 2016

How to Assess Your Finances for a Real Estate Investment

Real estate investing is quite different as compared to investing in other industries and business sectors. Same goes with the case of assessing your finances, which is a very important part when it comes to a property investment. The assessment helps you in figuring out the amount required for purchasing the property, as well as if you need to raise funds from external sources for making an investment.

Assess your funds
Any property in real estate sector requires some amount of money, so you will need to be sure of what your pocket holds. Answer questions such as: Are you in debt? If yes, then how much debt do you incur? What are your savings? How much discretionary income do you tend to save at the end of each month?
If you already hold a nice amount, then you wouldn’t need to worry about financing needs. Also, obtaining a loan becomes quite easy if you have a good credit score and history to show. However, if there is shortage of required funds for investment, then you need to come up with different ways to raise a capital or look for property that does not eat a huge lot of money.

Assess your ability to raise funds
One great thing about real estate investment is that you do not need to hold the purchase price all to yourself. The element of leverage is always there which assists you in affording the property. There are several options through which you can obtain some finance such as applying for a loan from conventional banks, hard and private money lenders, or even from the seller.

However, each external source of finance presents its own requirements to fulfil. Banks check if you have a reliable credit history, your business plan that states the purpose for getting a loan, your FICO credit score to evaluate the riskiness of lending, etc.

If it gets difficult to obtain loan from conventional banks, then you can always use seller financing deals and other little-to-no down payment strategies. Alternatives like private and hard money lenders, close friends, and family can also be approached.

Do you have a secure cushion?One important point from a security point of view is that what cushion you have in case your investment fails. Clearly answer questions such as: Are you putting your every penny in the investment? How much risk-averse or risk-taking are you? Do you have enough money to cover up expenses like mortgage payments, taxes, insurance, till the time your property is occupied? Can you afford to see through the property if you fail to find tenants?

Keep the facts in mind that if you do not have enough funds in reserve, then your credit can be heavily damaged with late mortgage payments, a foreclosure, as well as run the risk of losing the property.

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