Property investing is unlike any other form of investing. It offers both unique opportunities and challenges you don’t find in securities markets or other types of investments. And because of that, there are things you have to consider with property that don’t come into play elsewhere. We see it all the time, especially when helping new investors acquire properties early in their investing careers.
As a hard money firm that specializes in funding property transactions, we believe there are some important things new investors should think about as they build their portfolios. Here they are:
1. Market Price Is Everything
There is an old adage in the real estate market that says you make your money when you buy, not when you sell. The point of the adage is to illustrate just how important market price is when you purchase new properties. Whether you fund with hard money or not, you never want to pay too much for a new property.
How much is too much boils down to market research. New investors should take their time to understand the market where they hope to buy. They should have a good handle on the current market, the historical market, and what experts are predicting for the future.
2. The Expenses That Come with Property
Buy securities and the only expense to incur is your broker’s fee. The same cannot be said for property. When you buy property, there are expenses that come with the package. Some of those expenses are related to the actual purchase; others relate to improvements, management, and so forth. New investors need to come to terms with the idea of property expenses being an integral cost of the investment itself. Expenses should not be viewed as separate.
3. Funding Property Purchases
It goes without saying that new investors should carefully consider how they will fund their properties. Traditional financing is always an option. However, it is not necessarily the best option. We always advise looking at each project based on its own merits.
Among the advantages of utilizing hard money are speed, a streamlined approval process, and fewer document requirements. New investors will learn soon enough that the property market is highly competitive. It is not unusual for a desirable property to have more than one interested buyer. And often times, the buyer capable of arranging financing the quickest wins the day. That is motivation enough to consider a hard money loan.
4. The Long-Term Strategy
Tying all of this together is the investor’s long-term strategy. Right off the bat, property investing is not a way to get rich quickly. In an exceptionally hot market, it may be possible to make a quick profit by purchasing, waiting a few months come and putting a property back on the market. But that’s not the norm. Property investing is generally a long-term proposition.
The question new investors have to ask themselves is how they want to make their money. One investor might choose to purchase commercial office space with strong rental income. The goal is to hold on to those properties indefinitely. Another investor might stick to purchasing industrial buildings, rehabbing them, and then selling them.
An investor’s long-term strategy provides a roadmap for everything else. Without a long-term strategy in place, property investing can become more random than it should be.
As a hard money lender, we are here to help property investors reach their financial goals. We would love the opportunity to discuss how we can help you reach yours. Contact us to learn more about hard money lending through Actium.
