Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Phases Of The Real Estate Industry

Written by Paul Esajian

The world of real estate investing, in general, is filled with specialized phases that can make getting started very intimidating. While you don’t need to be an expert in every area, you should know some of the basic steps to take, as to avoid any complications. Instead of trying to read every investing book, try gaining a working knowledge of the different stages of investing in real estate. If you take them on one at a time and pick up just a few things here and there, soon enough the business won’t seem nearly as daunting. The following highlights some of the main phases of the real estate industry:

1.) Buying

Buying a home deals with two very important, and different, areas: making the offer and getting a mortgage. They both work independently of each other, but if one lags behind, the deal won’t get anywhere. When working with your realtor, one of the first things they will discuss is the commission. This is simply the amount you will pay them at the closing to find you a property, submit your offer and follow up with any items that come along during the process. Once you make an offer, they will ask you for an earnest money deposit (EMD) that will be held by the broker when and if your offer is accepted. They will also ask you for a prequalification letter from a lender.

2.) Financing

Stage two may as well be referred to as stage 1A, in that you will probably need to get preapproved before you meet a realtor. The preapproval process is simply the act of a lender or broker reviewing your credit, income and assets to verify what you are approved for. You will hear terms like credit score, debt-to-income ratio, private mortgage insurance and loan to value. Your debt-to-income ratio is simply consists of adding all the minimum payments on any debt and dividing that number into your gross monthly income. If you have a copy of your credit report and a mortgage calculator app, you can easily get this number. The private mortgage insurance (PMI) is the monthly fee that your lender charges if you put down less than 20% on your mortgage. This is a sort of built insurance against foreclosure and default. Finally, your loan to value is the loan amount against the value or sales price of your property. The more you put down, the lower that number will be. If you put down less than 20% or higher than 80%, you will be subject to private mortgage insurance.

3.) Closing

Once you get to near the closing day, you will encounter another set of terms and phrases. Most of the closing information will be on what is called the HUD-1 settlement statement, otherwise known as the HUD. By law, you will get this before you show up at the closing so you will have some time to review it. On this document you will see exactly where all of your money is going. You will see the exact mortgage closing costs, attorney fees, pre-paid property tax amounts and any credits from the seller. Take the time to go through this line by line (it’s only one page and double sided). If you have any questions, run them by your attorney. You will notice any earnest money deposit you placed with your realtor as well as where every dollar in the transaction is headed. It is good practice to review your HUD, even after you close to help you get better at estimating closing costs.

4.) Rehab

If you decide to rehab or flip your property, there will be another set of terms, phrases and lingo to disseminate. If you are handy, most of these should be somewhat familiar. If not, the first thing you should do is walk around the property with a notebook and write down everything you aren’t totally comfortable with. Between the oil tank, fuse boxes, furnaces, room dimensions and window types, there are a lot of items that make up a property – each of whcih has dedicated terminology. From there, conduct your own research. You can do some of the legwork yourself or ask as many questions as you like to whoever is working with you. What you want to accomplish is to get an idea of what some items costs, what they do and what they are called. This part of the process takes many deals to start to feel comfortable with.

Not knowing these phases is not an excuse for procrastinating. Like most everything else, you can learn a lot more by doing than by waiting on the sidelines. If you have some down time, crack open an investing book or go to one of the various websites and read about your craft. The more you know, the more confident you will be. There is plenty of information at every stage of the real estate business. If you concentrate on one area at a time, you will be an expert soon enough.