By David Goncalves
Real estate is an outstanding and rewarding investment. It provides numerous tax benefits, a good source of cash flow, and is a key complement to a rewarding retirement plan. For a successful retirement, you need to plan and strategize early on to achieve your goals. Real estate investing is no different. It begins with a strong, informed blueprint, established before the purchase of your first investment property and should be utilized all the way through to your hundredth.
There will be many challenges and obstacles along the way, but connecting with an experienced and trusted mortgage advisor is the key to overcoming these. An experienced mortgage advisor should be able to identify the stress points before you encounter them, and assist you in creating a personal blueprint that evolves with the lending landscape.
Below are five proven strategies to help jumpstart your venture into real estate investing and guide you in the right direction. Following each of the steps will put you well on your way to financial freedom.
1. Identify Your Real Estate Investor Team
Behind every successful real estate investor is a team of carefully selected key players to help them make deals happen. Key team members can include Realtor®s, lawyers, accountants, mentors, and contractors, but should always include a mortgage advisor. A well-established team will bring much more value to your plan and keep you on the right track.
2. Take A Look At Where You Are Today
Take stock of your current financial situation by:
- Pulling a credit check on yourself (or ask a mortgage advisor to assist).
- Identifying credit shortfalls that need to be corrected.
- Analyzing your down payment sources, access to cash, investments and equity in real estate.
- Analyzing your employment and how it affects your ability to borrow. Don’t quit your day job just yet…
3. Set Goals And Targets
Have you thought about your retirement vision, your end-game, and long-term cash flow targets? You must determine these first, before you can identify how many properties you will need to invest in to achieve that rewarding retirement plan.
4. Implement Your Plan
Work with a mortgage advisor to pre-position (not pre-approve) you for investing in your next property.
Begin by refinancing equity in your primary residence to include a Home Equity Line of Credit (HELOC) with a re-advanceable line of credit. This means the credit limit will increase as the mortgage principal is paid down. (Did you know that there are lines of credit available as low as prime rate? Ask us!). If you currently own an investment or recreational property, there may be an opportunity to refinance those as well.
Focus on buying properties with good cash flow. Once you exceed five properties, you will rely on the portfolio Debt Service Ratio (DSR) cash flow for future borrowing and you need to be properly positioned.
Larger municipalities provide more liquidity, therefore reducing risk for lenders. This will make your property more attractive to a lender when requesting financing.
5. Prepare For The Next Stage In Your Venture
Refinance prior to the fifth purchase. As you approach the purchase of your fifth property, you need to review your portfolio’s equity (including your primary residence), increase your HELOCs, and refinance your investment properties to access additional cash, because these options may not be available once you exceed five properties.
Another preparation step is to review your amortizations. (Did you know that you can get up to 35 years amortization?)
Successful real estate investors keep good financial records. In your mortgage binder you should always have up-to-date leases, net worth statements, income documentation, property taxes, mortgage statements and identification.
There is much to consider when carefully planning your real estate ventures. The key is to plan early on and with the support of your real estate investor team. Doing so keeps you informed along the way, allows you to be in control at all stages, and ultimately jumpstarts the beginning of what can become a very financially rewarding experience.
David Goncalves leads the Vine Group. David and his team work with national lenders to find better financing solutions for investors. David has been in the mortgage industry for 13+ years. During this time, he has funded approximately $1.3 billion in mortgages. He was Rookie of the Year at RBC, and later received Gold and Platinum Club awards. David continues to be a mentor to many Mortgage Sales Professionals. He always refers to the industry not as a sales industry, but rather a ‘people business’.