The real estate investment world is very dynamic and cash intensive especially if you intend to grow your investment and do it long term. Although it is possible to do this with your own funds alone, but for many investors, borrowing to buy real estate whether short or long term is part of their strategy.
Sometimes an investor comes across a property with advantages he or she wants to access. For Instance, the property may be strategically located and is available for purchase at a good price.
This is an opportunity and they sometimes come when you are least prepared. This is what drives investors to source for funds creatively.
There was an instance where an investor, in order not to lose the opportunity to buy a prime property, had to sell some other properties and use the funds realised on the purchase of his desired property.
There may be the need to access fund from willing families and friends who trust you and believe in your vision.
And where this is not feasible, you may contact financial institutions and banks who are in the business of providing funds for such purchases.
One of the most challenging steps to real estate riches, for many all over the world, is approaching a bank to give them money.
While agreeing that the process is not a walk over, I dare say that it is also not as difficult as many people perceive it to be. And I will be focusing on a few tips that should serve a borrower well.
Banks are in business to make money and they make reasonable amount of their profits by lending to individuals and businesses as well as by rendering associated services.
If you know what they are looking for and you present your request properly, all things being equal, you will be given the required money.
One of the realities you have to deal with is the fact that the process of obtaining a loan from the bank takes time due to internal and external processes that must be adhered to.
Thus, it is important that you inform the property seller that you will need a period of time to process your funds from the bank/financial institution.
This is necessary because you do not want to get the money after the property had been sold to someone else. And in order to gain a little bit of time, you may need to make a little down payment to the seller.
This is a sign of commitment to the transaction that most sellers would prefer to see before giving you time.
In addition, before approaching your chosen lender, make sure that you have your paperwork in order. The bank/lender is usually concerned with two categories of document –one relating to the authenticity of the title to the property and your personal /company financial standing as shown by your various bank statements. Depending on the lender, they may demand six to twelve months bank statements which will enable them calculate how much income flows into your business and also calculate the maximum limit of the loan they can give you. The lender is concerned with your ability to pay back the loan and would ensure that your monthly repayment does not exceed 25 per cent of your salary or monthly income.
Concerning the property, the lender is interested in a clearly documented and registered root of title. A root of title is the explanation of how the ownership of the land has moved from one person to the other. It also explains how each person documented or did not document their ownership.
Banks in Nigeria are generally not going to consider a property that does not have a certificate of occupancy or a Governor’s Consent to subsequent transfers or is not a land Certificate or Registered Conveyance.
The bank will not disburse money without the involvement of the person whose names are on the title papers. Mortgage documents must be signed by the person who has a registered legal interest in the property sought to be purchased. The bank is not a charity organisation and does not intend to give out money that would be difficult or impossible to recover. When you understand what your bank needs from you and why, you will be better able to prepare and package yourself properly.
One counsel that has also stood many in good stead is to have options. It is better to simultaneously approach at least two lenders in order to gauge which is more likely to grant your application and stick with that one. Because loan processing comes with certain costs (e.g. valuation reports) it may not be economical to apply in too many places.
You should also ask experienced investors about the banks reputation as a lender. There are some banks with excellent customer service but very poor reputation as lenders to individual and company. Such organisations hardly give loans to starters and it is better to pitch your tent with a lender that has a greater potential to help you.
Finally, you need to know ahead that 100 per cent funding of a real estate purchase by a bank is a rarity. You will be expected to provide between 15 to 20 per cent of the purchase price as your ‘equity contribution’. In addition, there could be several bank charges that you’ll pay. Factor in the interest rate and do read the fine prints. – by Abiodun Doherty (abiodundoherty@yahoo.com)