Nine Things to Discuss with Your Lending Advisor

Often, we get calls from new clients who are in the mist of negotiating an offer on a property and are looking to arrange attractive financing in order to waive the financing condition.

While financing for that particular transaction can be arranged, it is always much more effective to finance the transaction at hand within the context of the rest of your portfolio. In an earlier blog, we discussed the importance of clarifying your investment goals with your lending advisor and keeping him or her apprised of the changes in your investment career. This way, your lending advisor can arrange financing that is in line with your plan and provide advice on how to structure overall financing.

Here are the top 9 things you need to discuss with your lending advisor:

1. Your investment goals: Are you are looking for cash flow, equity upside or both?

2. The investment time horizon over which you would like to achieve your investment goals;

3. The number of doors that will help you achieve your cash flow, equity goal or both;

4. Your investment style, which refers to the strategies you will use and specialize in to invest in real estate. Are you considering fixer-uppers, rent to own, buy and hold and/or new construction? Selecting a strategy goes hand in hand with your risk appetite. Some strategies are riskier than others;

5. The target property types that you plan to focus on. Single-family homes, condos, commercial and/or multi residential? Consider how each of these properties is impacted by economic cycles and the local economy of the city you are investing;

6. The markets you plan to focus on;

7. Your risk appetite, which is about understanding your sensitivity, as well as that of your portfolio to interest rate changes;

8. Your financial situation, which is about assessing your income, down payment options, credit score, assets and liabilities;

9. The investment structure, which is about the form under which you plan to setup your Investment, including investing personally, with joint-venture partners, using a corporation, limited partnerships ,bare trustee corporations or syndications

Without taking into consideration the above factors when financing your deals (especially if you plan to buy more than one property), you run the following risks:

• Hitting a wall when it comes to qualifying for financing. This could happen when your overall income (including the cash flow from your existing portfolio) doesn’t cover your overall debt or when your financing has been arranged through a lender that happens to have a limit on how much they are willing to lend by individual or within a certain region

• Solving a short-term financing need while unintentionally creating a longer-term financing problem. An example is an investor with an existing healthy real estate portfolio, looking to finance his next purchase through re-financing or his current portfolio. While this addresses the shortfall in down payment cash, it can weaken the overall cash flow position from the existing portfolio; potentially weaken the investor’s ability to qualify for financing down the road.

 

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