6 reasons Real Estate Investors should focus on building a good credit rating.

6 reasons Real Estate Investors should focus on building a good credit rating.

Better credit rating encourages most lenders to offer credit at relatively lower interest rates, a wider choice of lenders, and, the most importantly higher amount offered as credit if required. Mortgage amount borrowed being high; a minor reduction in mortgage interest rate can knock off ‘000 of dollars from interest costs in the long run. This situation is particularly true to Buy to let investors.

• Lower Interest costs, more Profitability

One of the main costs of the Real Estate Investor is interest/mortgage cost. A prudent investor tries to reduce the cost of capital to make greater cash flow and portfolio more profitable. Better credit rating can potentially encourage lenders to offer credit at lower rates of interest.

• Quicker access to funds

Most lenders have adopted automated processes to assess the credit worth of the borrower. Credit rating provided by major rating agencies is a key component of the creditworthiness assessment. A good credit rating can significantly enhance the chances of automated approval or reduces the checks required before granting of credit. A poor rating can result in a decline or refer to an underwriter. Decline or referred decision can reduce the chance of obtaining the credit in short notice, limits the amount of credit accessible and increase the interest rate charged due to higher risk associated with credit request applications with poor credit rating.

• Makes deals attractive

Many a time, investors focus our investing to a particular geography or type of investing strategy due to several non-financial reasons; time constraints, emotional attachments, fear of the unknown, or lack of knowledge. Better credit rating and result lower interest can be handy, providing great financial flexibility to deals. Though picking that deals with wafer thin margins is not recommended.

• Access to better real estate deals

Real Estate investors with better credit rating have access to funds at relatively low cost and, a higher amount of fund at short notice. Access to funds at short notice empowers a Real estate investor to take advantage of opportunities, which are short lived at times.

• Better cash flow

Better credit rating encourages lenders to offer capital at relatively lower interest rates contributing to lower monthly costs to the real estate investor. Lower monthly interest cost payments can improve the cash flow from Buy to let properties. More cash in the pocket every month, who would not want it!

• Provides more leeway during hard times

When the going gets tough due to economic cycles, lenders make it difficult to borrow. The overall probability of successful approval of credit request is lower, real estate investor with better credit rating shall be preferred. Having to access unlimited credit in all economic cycles is a boon for a real estate investor. In a recession, one with access to low-cost long-term funds can make a fortune, more opportunities with limited competition. One of the key success factors in real estate investing is access to low-cost capital, available at will.

Happy investing.

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