THE BIG PICTURE
INVESTING STRATEGIES
Moving Up the ‘Risk Curve’ A STRONG LENDER RELATIONSHIP IS AS IMPORTANT AS A LINE OF CREDIT FOR AN INVESTOR EXPANDING HIS OR HER PORTFOLIO.
by Steve Belleville, MBA
R
create overconfidence. Whether it’s an initial purchase or a subsequent investment, each real estate investment must stand on its own fundamentals, local market conditions and the overall market demand and economics. Occasionally, we see investors who establish a business plan that reaps suc- cess, then get “trapped” in that mind-set and are surprised by factors that hadn’t arisen before or may even be out of
eal estate investors often start small—a single-family home
the same token, it’s important for a property investor to develop a sound strategy that works and stick to it, with reasonable flexibility. Build a real estate portfolio upon the knowledge that one has acquired rather than constantly learning new things. SOLIDIFY ONE GREAT LENDER RELATIONSHIP, THEN SEVERAL Early-stage investors utilize a variety of sources for investment capital—saved funds or inheritance, stock market proceeds, home equity and other cred- it—but in practically every scenario, a crucial part of the business plan is a lending partner, whether the property investor needs to borrow or not. An existing banking or lending relationship is, of course, the best start. Even if the source is not strong in real estate, it can be a part of the mix in establishing new credit with other sources. Investors with a lending partner who knows them, has experience with their credit history and has an interest in developing a relation- ship will be in the best position to exe- cute a transaction or secure additional help when needed. Beyond that initial relationship, it’s important to develop secondary sources, too, such as when a specialty investment or need arises.
investment or a small apartment, office or retail building—before leveraging that early experience into multiple properties and a larger portfolio. The move up from new property investor to a seasoned property investor level can require training in the “school of hard knocks.” But experience demonstrates there are tried-and-true tips and tactics for success. BUILD FROM INITIAL SUCCESS, MAKE A PLAN The single most consistent trait of successful property investors we’ve seen over the years is that their early suc- cesses were the foundation of next-step and ongoing investments. Nurture and develop a property’s ability to produce income. It’s a simple truth that challeng- es every investor, because lenders rely on a borrower’s history and ability to repay, as much as on the property itself. A conservative and market-proven approach is what most experts recom- mend—building confidence and experi- ence as one moves up the risk curve. New investors are well advised to do extensive research up front and even work with a partner or a highly experi- enced broker or consultant to minimize potential missteps. Real estate markets and economic fluctuation are always part of the risk equation, but solid advice and expe- rience can help avoid a lot of pain. By
BEWARE THE IRRATIONAL EXUBERANCE SYNDROME Early successes are key, but can also
48 | think realty magazine july :: august 2016
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