The Three Principles of Short Term Real Estate Investments

By Ian Hardcastle, Relationship Manager

Successful short term real estate investments can be gauged by three underlying principles: realizing potential value, efficient execution, and limiting cost of capital. These three variables are often determined in the earliest stages of the transaction cycle, and will resonate throughout every step of your project. Opening a line of credit enables the investor the quick access to capital necessary to capitalize on the best deals, while promoting efficient transactional funding that does not stretch your resources.

Realizing Value

Adhere to the principle that your profits are made in your purchase price. Know your market before you make an offer. Trust in the comps, and try not to reach for value. If comps are consistently selling in the 150k range, historical market behavior does not support your 220K after repair value in six months based off of assumptions or “unique” circumstances. It’s often better to turn away than to be stretched too thin. When you’re stretched thin, you are focusing your efforts on a losing battle that takes away from other more productive investment activity. Focus on properties with cosmetic needs, not nuts and bolts. Replacing a broken furnace will add little value to your final sales price. Upgrading kitchen fixtures and remodeling bathrooms will help maximize profits. With an open line of real estate credit you have the resources necessary to quickly enact upon value purchases, and put your money to work.

Efficient Execution

It’s important for active investors to establish a regiment and stick to it. Each action taken in the value-add cycle will resonate into the next phase. Efficient execution starts with efficient funding. While typical hard money lenders fund on a transactional basis, establishing an open line of credit will give you access to a cash fund that can be utilized when and where you need it. This will allow you to structure an real estate investment strategy that is proven and will not produce unwanted surprises. Once you’ve funded, be sure that your contractor and vendors are well established and that you have laid out deadlines that must be adhered too. Setting a work schedule prior to close is crucial to finishing on time and keeping your interest payments to a minimum.

Limiting Cost of Capital

Limiting your cost of capital is mostly pre-determined prior to close. Financing can be your greatest asset as you have total control over the lender and terms you choose. Beware of lenders promising extremely high leverage. This often comes with high interest rates, excessive pre-payment penalties, high closing costs and poor turnaround times. It is also important to establish a relationship with a lender and stick with them if you’ve had a positive experience. While hard money lenders will often change rates and terms based off property and market details, a line of credit allows for a consistent rate across market channels and asset types. A transparent relationship between borrower and lender is a must in order to reduce capital costs and maximize profits. Line of credit real estate financing is a truly transparent funding source.

CoreVest is a leading provider of financing solutions to residential real estate investors. We provide attractive long-term debt products for stabilized rental portfolios as well as credit lines for new acquisitions. For more information about how Corevest can help grow your rental and rehab business, please call Ian Hardcastle at 310.340.7078 or submit our contact form.