Minimizing Risk and Maximizing Return on Investment is how you build long term wealth in commercial real estate.
Christina Olin with direct lender, On Q Financial Inc, provides a look into risk and what you can do to minimize your risk when investing in real estate. They specialize in personal residences and small multifamily investment properties.
Find a property with fewer competitors. To do this, search the property on your own. If you find a four plex, find out who the owner is and contact them directly. If you are the only potential buyer, you are not in a bidding war.
Get your finances in order. When you approach a lender with a story that makes sense and is backed up by your financials, they are able to get comfortable and are more willing to provide financing.
Talk to multiple lenders. When a lender knows they have competition, they are more willing to provide their best rate to avoid losing a good loan. Lenders have different requirements and different loan fees. Shop, compare and save.
Getting a Loan
Technology has changed getting a loan. The process starts with an online application, and you are updated throughout the process. Get educated before you apply for a loan. Depending on your employment picture will determine what lending products you qualify for.
If you are a first time buyer, the lender will look closely at your credit profile. If you have purchased a bunch of things when you are attempting to purchase a property, you can end up negatively affecting your ability to qualify for a loan.
Each week I ask my guest, “What is the Biggest Risk Real Estate Investors face?”
BIGGEST RISK: I think when we’re talking about residential investment properties, there are a lot of them. I personally feel, because I fall in subject to it myself, the biggest risk for an investor, someone purchasing a home, a first time home buyer is getting emotional about the purchase. And a lot of us just get emotional, it’s an emotional experience. It’s your, you know, your first time home buyers, your first investment property.
But to dive in a little deeper, what I mean about it is, is we’re in a market right now where there’s almost always more than one offer on that property, right? Um, that inherently creates more emotion than if you’re just, you know, when you’re in a bidding environment, it becomes more emotional. You, you sometimes would. And so how does that, and people say, well, how does emotion affect risk?
Well, emotion could affect risk books. It’s our inherent nature to be competitive, right? So you can get into a bidding situation on a two, five, four Plex. You find a perfect white picket fence house as your first home, you have to have that house and your budget’s 300,000 and the next thing you know, you’ve built yourself up to 350,000 while you can certainly probably still qualify for that.
Is that going to fit in well with the rest of your lifestyle? Are you somebody that eats out five times a week? You have to cut that part out. The emotional aspect of it. You find it investor property that’s, that’s redone and you’re the seventh bid on it. So you, Oh, I got this, you know, all these, all these experienced investors are bidding on it. This has gotta be my first investment property. And next thing you know, you’re bid number eight, you’re outbidding guys who have a whole lot or women who have a whole lot more investor knowledge than you have because you’ve gotten caught up in that horse race, rat race and it’s all done through emotions.
So the one thing that I learned, and I’ve learned it the hard way, even on my personal residence I live in now, that I’ve got a bidding war I got into a bidding war on, um, is that there will always be another property and you have to remind yourself. And when you’re buying a home with a partner, you’re buying a home, uh, with your wife, girlfriend, boyfriend, husband, whatever it may be. Um, now you’ve got twice the emotion. So kind of to answer that question, emotion is always going to be your BIGGEST RISK.
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