Top 10 Mistakes in Investor Financing
Filed under: Real Estate Investing
Here is an article I found that I want to share with everyone. Susan Lassiter-Lyons, the author, points out 10 very common mistakes beginning Investors make.
From Susan’s article:
As a mortgage broker that works exclusively with real estate investment, I have encountered just about every crazy and botched financing scenario that you can imagine. Over the course of the years, I have kept a list of the crazy things that investors do (it’s quite long) and today I’ll share the top 10 with you. Don’t make these mistakes!
1. Quitting the Day Job Too Soon
Repeat after me: “Equity does not pay the bills.” I see it happen all the time. An investor gets a few rentals and decides to quit the day job to pursue investing full time. Big mistake. Don’t quit the job until you have 12 months of living expenses saved up and/or monthly cash flow equal to what you were making at your day job.
2. Being Broke and Greedy
My mentor used to say, “You can’t be broke AND greedy.” In RE investor world it means that if you have no money to put into a deal you better be prepared to pay high rates or give up some equity to a partner.
3. Underestimating Holding Costs
If you’re a flipper, in most areas today, your properties are taking a lot longer to move. Factor in ALL of your holding costs to the budget - loan payments, utilities, etc - so you don’t lose all your profit.
4. Not Properly Setting Up Your Entity
If you list your occupation as real estate investor on a mortgage loan application, you are in for a tough road ahead with the underwriter. You may as well say you are a drug dealer. Same goes for naming your LLC. Try not to reference anything having to do with flipping or foreclosure help or anything like that. Stick to an easy name to deal with like Acme, LLC.
5. Paying Cash for a Property
Paying cash for a property is fine as long as you don’t need the money back anytime soon. If you do, then you’re trying to get an unseasoned cash out refinance and if you’re lucky enough to find a lender to do the loan, you will pay through the nose for it.
