4 things to consider when evaluating investment property

Choose the right property and you’ll reap the rewards; the wrong one will end up costing you dearly. Even the most experienced real estate investors occasionally find themselves on the losing end of a deal. Don’t let that keep you from investing, though. You can minimize the potential for losses if you remember these four things to look for when evaluating a property.

#1 Location

Perhaps the most important aspect of real estate investing is the location of the property. Properties that are in prime locations offer investors options such as resale, or rental. However, those in poorly performing areas are limited and resale or rental may be difficult. Don’t rely upon the listing sheet, information you find online, or your previous experience in the area. The only way to truly know what the area is like is to drive through during the day, at night and on weekends. Take note of activity that may deter future buyers or renters.

#2 Condition

A property that is in horrible condition, in a good market may well be worth the investment. Likewise, one in excellent shape in a poor market may not be. Don’t be turned off by cosmetic issues that are easily fixed. Fresh paint, updated carpet, and flooring are relatively inexpensive. What really matters are the big things like the roof, foundation, windows and mechanical components. Your budget will be dramatically affected by the big ticket items, so talk to your contractor and get hard numbers before you take the deal.

#3 Price

The listing price is, of course, an important part of the equation. You don’t want to invest more than the property is worth, especially if you need to do a large amount of rehab. Look at other comparable properties, same number of bedrooms, square footage, etc., and determine the amount you’re willing to invest. Although it may seem counter-intuitive, sometimes your offer will be more than the listing price. The determining factor will be what the potential future value of the property is.

#4 After Repair Value

Evaluating the RV value of a property will help you determine whether the deal is one you want to take, or if it’s time to move on. The combined total of the asking price, plus rehab costs will bring you to your total expenses. However, this isn’t necessarily the value of the home.

Once completed, it’s possible your investment will be worth far more. Determine the percentage of profit, or dollar amount, you want to make and evaluate whether your investment will fulfill your needs. If not, you will be wise to move on to the next deal.

When it comes to investing in Florida properties, always look at the location, condition, sales price and after rehab value. When all of these things are in line, you’ll be on your way to a profitable deal.

 

Why would a borrower use hard money?

The quick answer is...well, quick! Say a borrower has applied for a conventional commercial bank mortgage, but the time-of-the-essence closing date is rapidly approaching. The bank is still completing its due diligence, with no assurance of funding, yet the borrower must close on schedule to avoid losing a hefty contract deposit.  The borrower therefore chooses to finance with a hard money lender. Then, after this “bridge loan” closes, the borrower can invest the time necessary to shop for and acquire, permanent commercial financing.

Also, vacant land or badly distressed properties do not fit today's highly regulated bank lending criteria. A local hard money lender will be more familiar and comfortable with the development risk of such a loan. She may be willing to get more deeply involved than most banks, evaluating the "soft data", like, a borrower’s track record or viability of the Borrower’sbusiness plan. A bank would rather finance the deal AFTER the Borrower has executed his business plan, rented the property, and created positive cash flow. 

Last, and certainly not least, a short term loan, up to a year or more, is much less expensive than bringing in equity partners. When you break it down, a 12% annual interest rate is ONLY 1% per month. Try finding an investor partner for less than 50% of your hard earned profits!

When should I borrow against equity?

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The short answer is, anytime you can invest money at a higher return than it costs!

But that should only apply to a business you are familiar with and experienced at. If you are a real estate re-developer (nicer term than rehabber), or investor, you probably have no business in the stock market. Without Wall Street style resources, that’s just gambling.

Instead, leverage your existing properties to fund the down payment on new acquisitions... key words ”down payment”. You can leverage new purchases with a NuBANQ loan for 70% or more of the purchase price, and buy 3 times more property!

Scarcity of good deals in your area? Broaden your horizons. Florida is a big state and easy to travel, so watch for the next post on areas of Florida where properties are still in recession.

Resources for hard money lending in South Florida

Resources for hard money lending in South Florida

Here at NuBANQ we want to make sure you are fully aware of all the details that go into hard money loans in South Florida. While we've been one of the premier South Florida private equity lenders for over 20 years, we are committed to promoting education in the area with our new blog, dedicated to discussions about hard money lending, real estate property investment, and mortgage types for investors, both about the tri-county area and beyond.

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