Financing:

A mortgage allows you to increase current cash flow and future ROI.

• A good mortgage allows you to lower your costs initially and during the holding period.
• Borrow money as cheaply as possible and extend the payback period as far into the future as possible.
• To obtain the best mortgage, deal with a reputable mortgage broker and shop around on your own.
• Use the EVS to compare the bottom-line cost, factoring in front-end costs plus those during the holding period.
• Avoid lock-in features that prevent you from paying off the mortgage faster.
• Make your property easier to sell by incorporating an assumption clause that allows a prospective buyer to assume your mortgage.
• Never accept a recourse mortgage. This would allow the lender to attach your personal assets.
• When a mortgage offer is made, be sure that the lender’s commitment won’t be withdrawn unreasonably.
• Evaluate the mortgage in terms of your goals with the real estate, your holding period, and the returns you hope to achieve.
• Never accept a mortgage that matures before your anticipated holding period is up.
• Before accepting a variable-rate mortgage, evaluate the index used, the rate at which the interest rate may rise, and the maximum interest rate.
• Beware of mortgages that may saddle you with negative amortization.
• If given a choice, it is usually more advantageous to opt for a fixed-rate mortgage.
• Be aware of changing interest rates. Take advantage of opportunities to refinance if this action allows you to save money.
• If you’re confronted with the prospect of balloon payments, make sure you can handle them when they’re due.
• Read the fine print about prepayment penalties. Avoid yield maintenance prepayment penalties.
• Keep profits for yourself. Avoid mortgages that allow the lender to benefit from your property’s appreciation.
• If you can’t obtain a mortgage that’s right for your needs, don’t buy the real estate.

Leverage:

• Leverage permits you to control more assets with less money. You make use of other people’s funds.
• Leverage paves the way for greater returns or greater losses.
• Strive to balance your personal comfort level with the real estate investment, the size of the debt, and its cost to you.
• Evaluate current income and expenses so you can make valid projections of future yield.
• Keep options open to increase or decrease leverage as your situation changes.

Summary

Is completing a comprehensive due diligence examination a lot of work? You bet it is! Than why do it? Because income property is an illiquid investment, is capital intensive, can’t be relocated and is subject to considerable legislation and regulation. Is good due diligence worth it? You bet it is! It will increase the probabilities for a higher rate of return while minimizing the risk. Use EVS and contact NGRE with any questions along the way.

Pages: 1 2 3