Do you know what the top 5 mistakes that investors should avoid making are? Well, in my opinion they are:
PICKING THE CHEAPEST LENDER – As with many things cheap is not always best. Most private/hard money lenders for example compete on rate and points. However, most of them are not licensed or regulated. As a result there is no one to hold them accountable for any sneaky fees they may charge etc. Further, they are what I call, One Trick Ponies. That is to say, they only make one kind of loan; a hard money loan. The biggest problem with that is they have no obligation to see if you are qualified for a conventional loan. Now, many borrowers will say, “I don’t care, I’m doing a flip and I don’t need a conventional loan.” And, that’s great, if it works out that way. But, I cannot tell you how many borrowers come to me seeking a conventional loan after their flip didn’t work out. They either under estimated the repairs or over-estimated the ARV. Either way, they couldn’t sell it and now need a plan “B.” Capital Concepts is a licensed mortgage banker and we provide almost every loan product available in the mortgage industry. And, we always look at a borrower to see if he/she is pre-qualified for a conventional loan; even if they don’t think they will need it. Also, our loan officers have many years of investing experience themselves and this help us help you achieve your investment goals by exploring all the options available and determining the best path for you.
NOT GETTING PRE-QUALIFIED PRIOR TO MAKING THE OFFER – It’s always best to get pre-qualified before making the offer. Otherwise you are burning up valuable time under contract to get pre-qualified. Moreover, by getting pre-qualified first you have a pre-qual letter in hand to show to the seller which helps in negotiations. And, of course, there are the pitfalls I discussed in the preceding paragraph.
NOT DOING YOUR HOMEWORK PROPERLY – As discussed in paragraph one, really nailing down the repairs costs and the ARV is very important to the success of your investment. And, if you do not know how then do yourself a favor and find competent contractors and Realtors who can assist you. If you do not know anyone, please call me. I will be pleased to refer you to some excellent people.
USING A LLC TO PURCHASE THE PROPERTY – Many investors are under the mistaken belief that you should always form a LLC to purchase an investment property. And, you can if you are positive that you are only going to be flipping the property and you are using a HM loan. However, should you decide to keep the property and refi into a conventional loan; then, it becomes problematic because you cannot fund a conventional loan to an LLC or an Inc. So, what do I do? Well, you have to transfer the deed out of the LLC/Inc. into your personal name; then, you have to let the loan season for 6 months before you can even apply for a conventional loan.
USING CASH TO BUY PROPERTIES – Again, fine if you are flipping. However, if you want to get your cash out quickly after purchase you will have to wait 6 months from closing to use the ARV as your basis for the loan. Any sooner, and you will only be able to use the cost basis of the property.
Of course, there are many other mistakes that investors can make. It pays to team up with the best lender, not the cheapest, because they can help you make the best decisions in your real estate investment business. As a lender, I have over twenty years of experience acquiring and managing everything from single family to multi-family and commercial properties and have acquired over $100 million dollars or real estate in my life time. It is felt that this experience helps me help you achieve your investment goals and objectives. Please feel free to call me whenever I can be of assistance.
Robert L. Cannon is a Sr. Loan Officer at Capital Concepts, Inc.