Buying raw land is a lucrative investment for a seasoned real estate developer. It is flexible, cheaper than improved land, and appreciates over time.
A bit of creativity is all it takes to turn the area into a premium location. Still, the developer must use strategies that work for that particular location. Here are some tips.
Buy Raw Land in Cash
Land investors pay for land on a cash basis. It gives the buyer a competitive edge during negotiations, saving significant amounts of cash in the long run. Besides, most home equity lenders shy away from financing raw land purchases. There are a few instances when loan financing is an ideal option:
- If the purchase will cripple the investor’s liquidity.
- When the investor wants to save up enough cash for improvements.
Land Flipping – Buy and Sell
Land flipping involves buying land cheaply and listing it as an owner-financed sale for a quick cash return. For example, an investor can get a tract worth $20,000 at a throw-away price of $5,000. Without making any improvements, the investor can put this land up for sale as a financing option of say $300 per month for the next five years. By the 5th year, the investor will have received total payments amounting to $18,000, which is still close to the original value of the land. This strategy works best when the investor wants incredible returns within a short period.
Hedging - Buy and Hold
In instances where there is stiff competition, the investor may decide to buy and hold the property until conditions improve. Also, in the event of a recession, the land investment provides ideal hedging against inflation.
Land for Cultivation
The land is an excellent asset for agribusiness. Instead of hedging, the investor can buy the farm, cultivate it, and then sell it after the harvest. It is a win-win scenario for property buyers with expertise in farming.
Land entitlement strategy involves buying then zoning the raw land for a specific purpose like residential, commercial, or farming. Investors should study the current property trends before settling for the zoning option.
Land takes time to sell. But, with the right strategies and market understanding, an investor can turn an undervalued raw estate to a premium commercial unit. Here, timing is vital.
Refinancing of a rental property is the most honorable thing for a person to engage in at this time. He or she can seek to refinance a rental property as an investment since it increases the cash flow and lowers the payments. The concerned party will thus establish low rates, and a constant flow of income is guaranteed.
Advantages of Refinancing Property
Lower Interest Rates
The interest rate that one is likely to face in the real estate business is high. The high rates charged can be attributed to the risk present in the real estate business. Lenders will charge highly to mitigate the risk of defaulting that can be present in the business. Refinancing seeks to lower the rates incurred when investing in real estate.
Change of Mortgage Term
Refinancing provides one with an opportunity to renegotiate the mortgage terms. Thus, enabling one to secure an agreement that will allow for lesser interests accruing and shorter payment durations. As an investor, it is easier to enter into an agreement that pays a fixed amount monthly other than the one whose rates change every month.
Refinancing allows a person to own the property when the mortgage balance is zero. Lender will be lien to the property until the mortgage is paid back. The lien will be entitled to seize property following failure to make the payments borrowed on the stipulated time.
The Right Time to Refinance
The right time to seek refinancing is when the interest rates are low, and the value of properties is high. During this time, the refinancing party is at liberty to borrow larger amounts at lower interest rates.
Obstacles to Refinancing
- Low credit score and unclear sources of finances.
- How to Avoid Issues and Delays with Refinancing
- Prepare and organize necessary documents to avoid issues and delays.
- Places to Seek Refinancing
Refinancing entities include; banks, credit unions, private lenders, hard money lenders, among many other sources.
Refinancing is the best option for lowering the rates changed in the real estate business. Other advantages of engaging in refinancing entail changing the mortgage terms to one’s convenience and increasing the cash out equity options. The best time to seek refinancing is when the interest rate is low, and the property value is high. To avoid delays in refinancing, the preparation of necessary documents is key.
Real estate investing certainly carries a hefty price tag. It takes a considerable amount of up-front cash to buy a property, make the necessary improvements, and get everything ready for your property to start making money for you. If you don’t have all the cash you need on hand, don’t give up hope! There are multiple ways that you can get your hands on the money that you need to get your real estate investment up and running.
Government-Backed Investor Loans
Certain loan types, such as FHA or VA loans, which are backed by the federal government, often require smaller down payments ranging anywhere from 0% to 3.5% down. While that percentage may go up depending on your credit score, as long as you’re above a 580 on your credit score, you should be able to obtain the loan for a minimal down payment. However, these loans are only available to owner-occupants of the home. To be able to get a federally backed loan, you have to commit to living in the property for at least twelve months before you begin using it as an investment. Depending on what type of renovation your subject property needs, you may be able to start working on the property while you live in it.
Home Equity Line of Credit
Often referred to as a HELOC, a home equity line of credit is a solid choice if you don’t have access to six months worth of cash or liquid assets needed to back an investment property. To get a HELOC you basically let your home stand as collateral for the loan, which means you are at risk of losing the property if you can’t make the payments. To secure the investment in some capacity, you can consider only taking out a loan for the portion of the money you need, which will minimize your risk.
Private Money Financing
Instead of financing through an institution, a private money financing option puts you in touch with a private person who has access to the funds that you need. Depending on your relationship with the lender, they may be willing to finance all or a portion of the money you need to secure your investment property. The interest rate and repayment requirements will vary from private lender to private lender, so you’ll want to be well informed before you come to any agreements.
When it comes to real estate, a foreclosure may seem like a good deal. However, those amateur investors or home flippers might not realize what it takes to make a foreclosed home into an investment that pays off. Furthermore, even homebuyers should make sure to be aware of what a foreclosure requires to make a good home.
Purchasing a foreclosed home is similar to buying a used car from an auction. Consumers can save a lot of money if they have the time to search out these deals. A little bit of luck doesn’t hurt.
However, the people who do the best with these types of sales are those who are familiar with the product and make the call whether the lower price is a deal. Just because a foreclosed home is worth less than the property assessment doesn’t mean the estimate is correct. The professionals know this, but new investors may not.
This experience and knowledge help buyers make wiser decisions and mitigate risk. Instead of just looking at the price differential, they consider factors such as location. Is the home in a neighborhood where it’s likely to sell? Does it have unique features that help it stand apart from other properties? What work will be necessary to sell the foreclosure at a profit? Even if homeowners have no plans to sell soon, they need to consider the future resale value of their purchase.
Furthermore, investors must have a strategy that includes property acquisition as well as holding it until it sells. If an investor doesn’t consider the overall real estate market, which includes job and population growth, this property could be on their hands for quite some time. Investors may even lose money due to property taxes and maintenance costs.
Finally, the smartest investors know that foreclosures may not be the way to get the most bang for their buck. Some investors spend time listings of future auctions and content owners or lenders before the auction occurs. While this might not lead to a better price, it can ensure that an investor can close by eliminating the competition and eliminate the need to have cash for an auction. That lengthy closing process can also interfere with a homeowner’s plan to move.