Why Real Estate Finance is Key to your Success?
Real Estate Finance
Understanding real estate finance is the key to your success. As stated earlier, finance is the life blood of real estate: without finance there is no real estate.
“Empty pockets never held anyone back. Only empty heads and empty hearts can do that.” –Dr. Norman Vincent Peale
Finance is the life blood of real estate. To be successful in real estate, you must understand how to fund your property purchases with the least cost and risk involved. It is important to understand how the power of leverage works: proper leveraging can make your wealth grow exponentially and its improper use can make you bankrupt within a very short period of time.
Property Tax Laws
It is also important to understand property tax laws and how a property investor, you can take advantage of those laws to fund your real estate purchases. The biggest expense in your lifetime is the taxes you pay to the government. If you are smart, you don’t have to pay those taxes. Real estate investment gives you an opportunity to save on those taxes legally and fund your lifestyle from those savings. There are ways and means to structure your real estate investments not only to save on taxes but also to provide protection to your assets.
It is critical for you to understand how to finance investment property if you are to be successful with your real estate investment business. A generation ago, the only viable option for most people was to get a loan from a bank. Today, you can get mortgage finance from myriads of banks, financial institutions, lawyers’ client funds, real estate companies, building societies, insurance companies, credit unions, contributory mortgage companies or even the vendors.
Bank Funding
Contrary to what people might have told you, banks want to loan you money. It is their business to loan money to make money. It is also equally important for an investor to use Other People’s Money to leverage.
Banks and financial institutions that provide real estate finance look at your cash flow, equity position, credit rating and soundness of your real estate or property that you wish to buy.
Banks can be conservative with their money because the bank’s risk is greater than yours as they loan you anywhere from 50–100% on the market value of the property. They don’t even have direct control over the asset once the loan is given; they try to protect themselves with various clauses in the mortgage document. You have to understand these clauses in the loan agreement before you sign it.
You have to be sensitive to banks advice and concerns—they are your partners in business. You have to prepare to meet their lending criteria rather than attempting to fool them by hiding or furnishing wrong information. You will damage your long-term interest if you try and take short cuts. No bank will provide you with real estate finance if your credit rating or the reputation in the market suffers.
You have to organize your personal finances, improve your credit rating, prepare your financial information and that of the property that you wish to buy before approaching the bank for real estate finance. If you do not do your homework, lack confidence and don’t present yourself properly then, no bank or financial institution will give the loan.
Lending Criteria for Real Estate Finance
It is important to understand that the lending criterion of banks change from time to time. They may reject your application for a loan even if your finances are in great shape – this is because the lending criteria for a particular type of property you wish to buy may not match the lending criteria of the bank for that property. In such a situation, it is wiser to approach another bank for a loan. It is better to utilize the services of a competent mortgage broker who is well informed regarding the lending policies of various banks and will guide you to the most suitable lender.
Negotiate Interest Rates
You should shop around for the best interest rates. Believe it or not, interest rates are negotiable! It is a good idea to compare the interest rates of various lenders so you can negotiate with a lender of your choice. At times, interest rates can differ between different branches of the same bank. You can save from tens to hundreds of thousands of dollars during the life time of a loan by simply doing some research and negotiating hard.
Your profits and success will increase when you get a better grasp of various real estate finance strategies such as: revolving credit, vendor finance option, credit cards, private investor funding, using second mortgages, partnerships and joint ventures, refinancing and recycling your deposit.
You have to also understand the various types of mortgages available in the market to make use of them to your advantage. These include fixed and floating rates, interest only loans, capital repayment loans, reverse mortgages, split loans to name a few.
Understanding real estate finance is the key to your success. You have to understand how to get high on OPM. The secret is to find the best and cheapest source of funding of your property with least strings attached.