Beginner Financing Tips?

Question

Hi, I'm sort of new to Real Estate investing, and one of the major things that I've struggled with (as far as visualizing and weighing the pros and cons) is the financing of Real Estate deals.

First, I'd like to ask if there were any basic requirements for applying for a larger loan.  What age must you be to receive a loan and what are some standard loan rates nowadays?

Second, does anyone have much experience with funding operations with investors?  What would potential investors be looking for out of a deal, and what kind of returns would they be looking to get?

Thanks in advance for the help.

-Nathan

Chris Kuhel · Answer

Hi Nathan,

Glad to see you're interested in doing RE investing! You may be young--you asked about the age requirement for getting loans, but you're starting off on a great track with RE! You have to be of legal age to sign a contract or take out a loan unless your parents would sign with you.

On financing your deals, you have lots of options. The prospective deals you're getting information on will actually dictate what's possible for you on the financing. If you attempt to buy an REO (a bank owned property), as an example, you'll need to provide your own financing. You'll need to get a new loan and make a cash down payment, OR you'll need to borrow money from a hard money lender, OR you can bring in a partner who will qualify for the loan and put up the down payment and split the profit with you when you sell the property. There are tons of these properties on the market now, but you can see your options are limited with this type of purchase.

If you buy something from a seller instead of a 'bank', you have more options with financing. So who's selling the property dictates what options you have.

I don't agree that you should try to assemble a team before finding out what deals are out there for you. If you go to people now and ask if they'd be interested in loaning you money for deals, they'll have a lot of questions: how much money, what's the property, does it need work, how much will they make on the deal, etc. Right now, you wouldn't have any answers.

But if you find the deals first and then approach lenders/investors/partners, you'll be able to answer all their questions. Each lender/investor/partner will usually have their own unique parameters for what they invest in/loan on, what return they want, how much they have available to loan or invest.

Once you have a deal you're excited about, you can approach everyone with your needs and get quick, straight answers for that deal.

Hope you pursue your interest and get started now!

Chris

Jeff Fairchild · Answer

Have you read many books yet on real estate investing?  Most of them talk about how you finance deals and how much the investors want to buy properties for if you are wholesaling to them.

Danielle B. · Answer

The requirements of a lender really depend upon what type of property and the loan amount, as well as if you can prove your income or not and what your credit score is.

A good rule of thumb is, for any property you want to buy you should have at least 6 months worth of payments in reserves.

Scott Hubbard · Answer

Real Estate investing is really about  building a team.  I would recommend you do the following:  First, concentrate on finding an investing style that best fits your objectives and resources.  For instance, if your short capital and long in construction experience, then find a local rehab investors to team up with. Ask them which types pf properties they look for and where.  Then, look for local distressed properties that fits the bill.

Whichever investing style you decide on, become an expert and participate in every aspect of your deals. You learn a lot more about the nuances if you participate in the entire process.

So, evaluate your strenghts and weaknesses.  Where your weak, you can partner with someone who is strong.  I realize this is over simplification, but you'll find that you cannot do this by yourself.  It is super-critical for you to network and build a team of agents, attorneys, investors,  and lenders.