Financial Considerations That a Real Estate Investor should consider

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Investing in a property requires careful analysis especially when looking for an investment property as the process is completely unique and different. Remember that a sound investment is possible only when a number of factors are considered like type of property, valuation, location, and current market trends etc. However, the one important factor that most people usually miss on is the financial consideration.

Bharti Jogia-Sattar is a renowned financial executive and accountant and also has vast experience in the real estate sector. She says that apart from focusing on the other factors, the buyers should at first focus on the financial aspects. This is because a sound financial consideration will help the buyer in the future.

Mentioned below are some of the financial considerations that an investor should focus on when investing on a real estate:

  • The investors who are not investing in a property in cash will have to finance it in some other ways. The alternate options that are available include via a credit union, bank, or some other mortgage company. The lenders generally ask for a proof of income, good credit score, and a minimum of 10% down payment.
  • Before making a decision of purchasing a real estate it is important for the individual to find out whether he or she has a stable income. This is because without a stable income it will become very difficult repay the home loan interest every month or to pay a down payment. The mortgage insurance would not cover investment properties and this means one needs to offer at least 20 % down to get traditional financing. Without the down payment, one can try to get a second mortgage on the property, but this is definitely a challenge. This indicates that the investor needs to keep a sizeable down payment aside.
  • Many investors when investing in investment properties actually buy them as personal residences and this is perhaps one of the smartest financial decisions as this can benefit in a number of ways. By investing in a property as an owner occupant and staying there for at least 1 year helps the investor to get best financing terms. Another great thing about purchasing a property and living in it for at least a year before renting is that one gets to know the property very well and understands the imperfections. So, the buyer can very well repair the imperfections prior to renting.
  • While the monthly margins and interest rates need to be added one should also understand which features indicate a lucrative rental property. The features that make a property lucrative are low property taxes, safe neighborhood, access to amenities, good schools etc.

These are some of the financial considerations that one should consider before investing in a real estate.

As of now, Bharti Jogia-Sattar is working as an independent accounting and finance consultant in the greater Los Angeles metropolitan area. Previously she has been associated with various industries that also include real estate sector.