Property acquisitions are a great form of consistent revenue generation. However, not everyone has the capital on hand to purchase properties without assistance.
Many investors in the early stages of building their portfolio will have to borrow money to complete their purchase. Rushing into a borrowing agreement, though, can spell disaster for your portfolio.
Here are seven mistakes to be aware of before borrowing money for a purchase.
1. Focusing only on the interest rate
Interest rates may scare a lot of first-time borrowers, but they shouldn’t be the sole focus. Once properties are rented out, the revenue stream can be used to pay loans down quickly, limiting how much you will pay in interest.
2. Not having sufficient liquidity
Don’t take a loan out based solely on assets that are already in use. Properties you purchase often won’t immediately generate revenue, meaning you will need to have sufficient liquid assets at your disposal to help with early loan payments.
3. Not having personal financial statements prepared or complete
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 property type
Not all properties are the same. Office and retail properties are managed differently than residential or multifamily properties. Research which property type you want to acquire before making your purchase.
5. Picking the wrong lender
Another area to research is what lender to use. Make sure to choose one with a good reputation and compare their terms with other lenders to find the best opportunity.
6. Accepting your first offer
Don’t just accept the first offer that comes to you. Take time to evaluate all possible options to find the best offer for you.
7. Allowing too little time for closing
Closing can take weeks for lenders to go through all the paperwork and inspections of the property. Make sure to allow for adequate time for a closing so that the purchase window doesn’t pass you by.
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 firm’s efforts in the acquisition and disposition of multifamily assets in California, Nevada, Kentucky, Texas, South Carolina and Utah.
