Budgeting for Your First Investment Property
Investing in real estate is no easy task. You must take many factors into consideration before placing an offer to purchase. Many investors cannot afford to purchase an investment property for cash, which is why they turn to direct lenders and banks to leverage the cash they have on hand to budget for the hard and soft costs of the project prior to closing. Below, we have compiled a list of budgeting strategies to consider before taking out a loan.
- Plan out your spending and investments prior to making any purchases in the real estate market.
- When deciding on which property to purchase, be sure that it is REALISTIC to your budget. Don’t overspend with the mentality that you can take out loans because you may not always make back the money you put in to real estate, as finances do not always work out as planned.
- Be aware of the status of the housing market. Figure out what the rates are and how easy it will be for you to bargain the price with the realtor and homeowners.
- Find the fixer-upper. It’ll save you thousands of dollars if you buy a home that needs some work opposed to a house in tip-top shape. That being said, be sure that the house isn’t completely run down or else you’ll be spending more money on damages than you planned.
- Don’t rush into buying a property if you can’t afford it. Put away money each month towards an “investment property” fund (think of a piggy bank), and reach out to lenders or banks to see what your options are for loans. They can help you figure out how much you’ll need to borrow, save, and will help you see how realistic it will be for you to buy a property worth “X” amount of dollars. Lenders and banks can also help you brainstorm effective ways to pay back your loans as well.
- Think about both the long and short-run. You will have to cut back on spending in the present to save for the future. On top of that, it is important to understand how much you’ll need to pay off in the future, so saving now can help reduce that burden.
- Expect the unexpected. You never know what could happen to the value of your home or to the housing market in general, so make sure you have enough saved for yourself to stay afloat in case of a crisis.
- Understand that with the purchase of this home, you are investing, so you will make money back. It’s a good idea to consider putting some of your money into marketing the property to appeal to future buyers. Finding someone to rent or buy your home is your main goal, so don’t overlook it!
- Pay attention to your credit score when budgeting! When you put more money into savings, you may be tempted to spend more on your credit card. If you receive a loan from Dalin, you must have a minimum 650 mid-score credit for loans that are intended for resale, and a minimum 700 mid-score credit for loans that are intended for hold and rent. To read more about Dalin’s loan guidelines, click here.
- Lastly and possibly the most important, HAVE A GOOD EXIT STRATEGY. Banks and private lenders alike need to know you have thought about the “way out” of their loan.
These simple strategies can get you on your way to achieving your dream in real estate investments. We hope that we can help you make that dream become a reality.