Not all real estate transactions are created equal. Some investors make money a lot of money while other investors lose money. However, successful investors often develop proven strategies over time using critical data and market intelligence. Investors who lose money on their deals tend to use their same money-losing philosophies while hoping for a different result.
To help avoid the latter, here are some smart property investment tips to help you make and save money during your investing career.
Using Bank Financing to Fund Real Estate Investments
Saving money on real estate transactions is just as important as making money. Understand that when you save money on any investment, you’re also making money. A proven strategy to save money is to use bank financing on your real estate investments whenever possible.
Many of today’s conventional home loan programs let you use financing to purchase investment properties. Some of those programs only require down payments as low as 5%. If you have good credit and a low debt burden, you can save tens of thousands of dollars by using bank financing instead of ponying up a big chunk of cash for an investment property.
Good credit and a low debt-to-income ratio result in a much lower interest rate over the life of your loan, which leads to big savings. Although carrying mortgages on a large real estate investment portfolio may lead to massive debt, it’s never a terrible idea to use bank financing on your first few deals if you can lock in a low rate and favorable terms.
If you’re renting your investment properties, you’re creating passive income, which in many cases pays any monthly mortgage payments you might have on your real estate. Most of the time landlords receive more in rent payments than the amount due on the monthly mortgage payments they owe and any other related expenses. So, you’re using someone else’s money to pay off your existing debt.
Buying Foreclosures as Investments
Since 95% of homebuyers use financing to buy a house, it opens the door to a hidden gem in the real estate investing market buying foreclosures. Nearly one in 200 homeowners in the U.S. will face some type of default or foreclosure proceeding on their homes. Although it’s a troubling statistic, it’s still an opportunity for savvy real estate investors to make significant profits on their investments.
Many times you can buy a foreclosed property at a significantly reduced cost. In some cases, you can buy one for pennies on the dollar. Banks don’t want to keep foreclosed properties on their books, so they often list them for much less than what they’re worth.
If a property doesn’t sell at an auction, banks must keep it on their books and maintain the property until they can sell it, which includes paying taxes. The last thing banks want to do is incur any more losses besides what they lost from the previous owner not paying the mortgage.
Since most properties increase in value over time, you’ll enjoy savings on two fronts: buying a house at a reduced price while enjoying immediate equity. Experienced real estate investors buy foreclosed properties during down housing markets and wait for the market to recover before they list their properties for sale. It’s similar to a buy-and-hold investment strategy, but you’ll eventually list the property for sale when the housing market recovers and home prices start to recover.
Leveraging bank financing is a proven way to save money and profit from buying and selling properties. If you can secure a low-interest rate, make a reduced down payment and pay fewer closing costs than most homebuyers, you’ll find yourself in the unique position of using other people’s money to profit from real estate investing.
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