From the outside looking in, investing in real estate seems pretty cut and dry. You find a property to purchase, complete necessary renovations, and put it back on the market for sale or rent to earn a nice payday. While real estate investing can be profitable, generating a decent return on your investment doesn’t come easy. As with any business venture, there are challenges and obstacles along the way that could hinder your success. All too often, novice investors jump into the business without having a full understanding of the industry and all that is required to make a profit. They waste thousands of dollars, fall deep into debt, and eventually become discouraged. While experience is often the best teacher, those starting out in the real estate investment business would be wise to learn from the mistakes of others. Below, is a brief look at some of the challenges involved in real estate investing and efficient solutions to overcome them.
Getting Approved for a Loan
In the beginning, most real estate investors don’t have the cash required to purchase a property outright. When you don’t have the funds you need, the next solution would be to apply for a home loan. Getting approved for a mortgage, however, isn’t always easy. This is especially true if you already have an existing mortgage. Mortgage companies want to know that you have the financial means to repay the loan in full. They will review your credit, income, and monthly expenses to determine whether you’re worth the risk, and how much they’re willing to let you borrow. For individuals who have poor credit, a high debt to income ratio, or a limited income source, chances are you won’t get approved. Solution: Before applying for a mortgage, be sure to check and clean up your credit, save for a down payment, and look for properties within a price range you can afford. If getting approved for a mortgage for your real estate investment is a problem, there are other options. You could apply for hard money loans Orange County to fix and flip properties. The eligibility requirements are a lot more lenient than a traditional mortgage provider. You could get as much as 85% of the purchase price and 100% of the construction costs to rehab the property.
Choosing the Right Investment Property
There are lots of residential and commercial properties on the market, but not all of them are worth the investment. It’s not uncommon for novice real estate investors to select a property that’s essentially a money pit. The property may appear to be an easy fix or be priced as a “steal”, so they jump at the opportunity to make a purchase. However, after obtaining the property, they find that it either has a ton of problems that require expensive renovations and repairs or that the property lacks the features necessary to attract the right buyers/tenants (i.e. market value decreases, property located in a bad neighborhood, not enough bedrooms). As a result, they end up having to put more money into rehabbing the property than it is worth or the property sits on the market forever. Solution: When selecting real estate to invest in, it is highly recommended that you work with other investors, a real estate agent, contractors, and home inspectors to ensure that it is a quality property. These professionals are all skilled in the industry and can help you to make an informed decision based on factors like the market and renovation costs.
Finding the Right Buyer/Tenant
To get a return on your investment it is necessary to market your property to potential buyers or tenants. The longer it takes you to find someone to purchase or rent the property, the more money you lose on the investment. Novice investors assume that finding a buyer/tenant is as simple as throwing up a for sale/for rent sign and waiting for interested parties to reach out; however, this method could take weeks or even months to generate results. In the meantime, as the investor, you’re responsible for mortgage payments, insurance, maintenance/repairs, and property taxes. Solution: Unless you have previous experience or education in the real estate industry it is often best to consult a real estate agent to help you find a suitable buyer/tenant. They are well-versed in real estate marketing strategies, they have access to various real estate databases, and they’re also connected to a network of real estate professionals that can help you get your property sold/rented faster. Starting a real estate investment business is a great opportunity for individuals to make both short and long-term cash. That being said, there are risks involved that could reduce the return on your investment. While no one can predict or plan for everything in real estate investing, you can save yourself a lot of time and frustration by learning what the common obstacles are and finding efficient solutions to overcome them.