What real estate investors should know

Learn what you need to do when investing.

Contact a local Realtor®

The first step an investor must take is to formally declare how you will finance your real estate investment. This will be one of the first questions an experienced real estate broker will ask. While you may be eager to go house hunting, unless you have a pre-qualification letter from a mortgage lender or are able to provide a Verification of Funds (e.g. bank statement), viewing properties will be unlikely.

Bank Financed

Buying an investment property is different than buying an owner-occupant home. Lending guidelines are more strict from requiring 20% down to verifying that you have the satisfactory debt-to-income ratio to qualify for another property.

Cash Transaction

If you plan to pay cash for an investment property, you will be asked to provide proof of funds. If your source of cash will be taking a second mortgage out on your home, you will need to do this prior to house hunting. Many new investors are surprised to find out that even if their home is paid off, that they can only get a percentage of the equity they have in their home which is often not sufficient enough to buy a home in, “cash”.

Investor vs. Owner-Occupant

Bargain properties are often bank-owned or government-owned homes. However, generally an owner-occupant will have the first window of opportunity to purchase the home. Investors will have to wait several days or a few weeks before they can submit an offer. If a home is still available after these periods, then investors can submit an offer.

Low-Ball Offers

Making a low-ball offer is not a recommended strategy because they’re generally ignored or lose to significantly higher offers. Distressed properties are already priced at a bargain, so attempting to go lower will typically have unsuccessful results.

Advice

An experienced real estate broker can provide negotiating advice. While your friend’s, cousin’s, best friend’s uncle said that if you are not embarrassed by your offer, you did not offer low enough, they are most likely not the best source of knowledge. Consult with a real estate broker with years of experience.