Why You Should Get Sufficient Financing Before you Begin your Real Estate Project

    by Aditi Bansal

Updated on Monday, May 22, 2017

Most real estate investors usually lack funds to complete their projects, mostly when they are 80% to 90% done. This is not only heartbreaking, but it also takes up so much time and resources. Therefore, getting sufficient funding for your real estate rehab project not only quickens the completion of the project, but also protects you from the hassle of looking for more lenders.

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The real estate industry has not been kind to everyone. Most people who believe that they can start a real estate rehab project without enough funds to complete it have ended up with financial challenges making it difficult to finish the construction. Insufficient financing has led to a dramatic increase of stalled real estate investment projects in the country. The stalled buildings are at varying stages of completion with most of them stopping at 80%.

Embarking on a real estate rehab project with no money of your own is not hard since you can easily get financing from various lenders. However, starting a project without enough funding can pose a major problem for you since getting additional income may be close to impossible. Below are some of the things that you should have in mind before you start a real estate project:

Start Out With More Resources Than You Need

You may require more funding if you begin your real estate rehab project with insufficient money. This means that you will have to get another lender to fund your project in case you have acquired a loan from lending institutions. Remember that it is always easy to obtain a first lien, or mortgage from any lender, but to get a second one might be impossible. Therefore, you should focus on getting more funding than you need, but always use it wisely.

Obtain Title Insurance Before the Construction Begins

Title insurance protects you and the lenders from any loss or damage of the property due to legal defects in the title to the property. Most insurance companies do not provide insurance policies to any lender seeking coverage halfway through the construction project. The subcontractors have a tendency to place all types of liens, including the mechanic liens on the property that they work on. The insurer, in this case, cannot insure the previously unrecorded liens placed before the lender makes the loan. Insurance companies will avoid instances that would complicate their coverage options, especially in cases where a lender makes a claim for the liens that existed even before they had placed the loan.

Sufficient Financing Protects you From Negative Stigma

There is always a negative association with a real estate project that has run out of money. The stigma may vary from an exaggerated talk on a project that runs out of money to the lenders asking for repayment. Negative stigma pushes away any interested lenders leaving you with more problems to handle.

This page has a focus on Real estate investors, Insufficient financing was shared by Aditi Bansal.

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