You’ve decided to get a hard money loan, but now it’s time to choose the right investment project. You might be wondering: what are some of the things you should look for when purchasing an investment property? Here are some tips for picking the right investment project for a hard money loan.
Analyze Comparable Properties
If you are trying to pick the right investment project for your hard money loan, begin by comparing different properties. Look at homes in your area that are similar to ones that you are considering investing into that have sold within the past few months. This should give you a better idea of what to look for currently in the market. Is the property you want to invest in valued correctly? By analyzing comparable properties, you have a better idea of the value to look for and what to expect for your return on investment.
Identify a High Growth Market Area
When looking at potential investment projects, you should be watching out for high growth areas in the market. Think about where people are moving to, these will most likely be areas of high growth. Identify which areas have the most intended growth over the next few years to determine whether it’s worth investing in. The more growth an area has, the higher the chances of your investment being successful. Think about how the neighborhood you are investing into will change in the oncoming years. What kind of businesses are around? Is it an urban area or a more rural area? You should think about the location to better understand your future pool of buyers. Aim for an area that would have plenty of buyers for when you want to sell your investment project.
Familiarize Yourself with the Market
Before choosing the right investment project, familiarize yourself with the market to get a feel for different macro and micro trends. The more you familiarize yourself with the market, the more informed your decision will be when picking the right investment project. Look at the average rent in the area, average income, market trends, and crime rates to determine what kind of market you are entering. You should be able to consistently forecast and stay one step ahead of the real estate market.
Have a Firm Grasp On When the Property will Turn a Profit
Picking the right investment property for a hard money loan means knowing when the property will turn a profit. Hard money loans have higher interest rates than conventional loans, so investors intend to sell the property or pay off the loan as soon as possible. Issues can arise during your investment project, so be prepared to have a grasp on when the property will create profits. Conduct a property assessment to know exactly how long it will take you to profit from a property.
Define Your Hard Money Needs
There are many different types of real estate investors. When investing into a new project, clearly define your goals for your hard money. Are you looking for a fix and flip? Or are you interested in commercial real estate? Define the outcome for your hard money before investing into a project. Having clearly defined goals will help you pick the right investment project.
Build a Business Plan Before Investing
Any good investor has a business plan before putting up their hard-earned cash for a project. You never want to rush into a project and find yourself without a well-constructed plan. Investors with a business plan are better prepared and budgeted for any issues that arise during the process of investing. Having a plan leaves you better prepared to exit an investment project as well.
Have Multiple Exit Strategies
Prior to investing into a project, you should create multiple exit strategies to lessen your risk in the investment. For investors that are fairly new to the field or do not have much capital to work with, creating multiple exit strategies gives you the ability to create more cash flow. If you want to mitigate risk, consider buying properties that can be fixed and flipped or rentals. This way, you have multiple strategies to create cash flow on the investment.
RCN Capital offers short-term and long-term financing options for real estate investors. Whether you are looking to fix & flip properties or hold properties for rental income, RCN has flexible options that are suited to your needs. Connect with us today to discuss your next real estate investment.