Property acquisitions are a great form of generating consistent income. However, not everyone has the capital on hand to purchase properties on their own.
Many investors who are in the early stages of building their portfolio will need to borrow money to complete their purchase. However, rushing into a loan deal can be devastating to your wallet.
Here are seven mistakes to be aware of before borrowing money for a purchase.
1. Focus only on the interest rate
Interest rates can scare away many new borrowers, but they shouldn’t be the only concern. Once properties are rented out, the revenue stream can be used to pay off loans quickly, limiting the amount you will pay in interest.
2. Not having enough cash
Do not take out a loan based solely on assets that have already been used. The properties you buy often don’t generate income immediately, which means you’ll need to have enough cash on hand to help you pay off your loan early.
3. Failing to prepare or complete personal financial statements
Any lender will ask for your financial statements before considering a loan. Make sure all your financial statements are prepared and ready to present.
4. Not having experience with a similar type of property
Not all properties are the same. Office and retail buildings are managed differently than residential or multi-family buildings. Research the type of property you wish to acquire before making your purchase.
5. Choosing the wrong lender
Another area of research is which lender to use. Be sure to pick one with a good reputation and compare their terms with those of other lenders to find the best deal.
6. Accept your first offer
Don’t just accept the first offer you get. Take the time to evaluate all possible options to find the best deal for you.
7. Giving too little time for closing
Closing can take weeks for lenders to go through all the paperwork and inspections of the property. Be sure to allow plenty of time for a close so that the buying window doesn’t overtake you.
Kevin Romney is the co-founder and managing director of Camino Verde Group, a Las Vegas real estate investment and development firm, and currently leads the company’s efforts in the acquisition and disposition of multifamily assets in California, in Nevada, Kentucky, Texas and South Carolina. and Utah.