Get the Right Financing!
Securing the right financing is key to real estate investment success. What do we mean by the right financing? It’s financing that is not only competitive in terms of costs and repayment (interest) rates. It also means that it is the right financing for your particular circumstance.
At the end of the day, the color of one lender’s money is the same as the color of any other lender’s money. The difference lies with the lender themselves. Finding the right financing is all about finding the right lender.
5 Tips to Remember:
- Finance with a lender active in your community. The lender knows the local real estate market dynamics. They understand the micro economic factors that drives local demand. Your lender is familiar with the attractiveness of certain locations, as well as the existing and prospective development pressures.
- Finance with a lender with whom you can build a relationship. Are you comfortable with your lending officer? Does he or she “get” you? Do you feel that they are a ‘partner’, or do you feel like they are an obstacle in your journey? A positive working relationship is key.
- Ensure they are experienced with your asset type. They need to know and understand the particulars of your asset class. What drives demand, and what forces affect asset performance.
- Make sure they offer flexible terms and conditions. They offer terms suitable to your particular needs. Length of term, amortization period, fixed vs. float, covenant requirements, and funding timing and conditions are but a few. Consider also the ability to lock-in your rate prior to advance, and the manner in which you can prepay some or all of your loan, if at all.
- Finance with a lender offering competitive rates. Though not your only consideration, interest rates need to be competitive. Various lenders will price their money over some benchmark, whether it be residential rates, government bond yields, or internal cost of funds. Know and understand how the rate is established, and ensure that it is competitive with the marketplace. A knowledgeable mortgage broker can be of considerable assistance.