Real estate investing can be a surefire road to financial freedom -unless you lack the capital to do deals! This one item -albeit a major one, holds back investors from achieving their dreams more than any other. Most people think that lots of cash on hand is required in order to do deals, but this is simply not the case. There are many other sources of cash for raising funds for real estate investment deals available -even in this market.
- One source of funding is called Hard Money. This funding is usually provided by private individuals who will fund the purchase and rehab of investment property. Loan terms are usually 6-12 months. These lenders will charge anywhere from 3-8 points and 10-18% interest for making the loan. (Hence the term “Hard” Money) Care must be taken when using this type of funding, as the property must be rehabbed and sold within a relatively short period of time. The lender is not required to provide extensions, and may simply foreclose on the house at the end of the term.
- Wholesaling real estate is a technique where the investor places a house under contract with the seller, and then “sells” the contract to an end-buyer. The investor has none of his own cash in the deal. This technique can be repeated over and over in order to raise cash to purchase real estate to rehab or hold for rental.
- Another source is to utilize a home equity line of credit from a bank. These interest rates tend to be lower, and there is no specific end date on the loan term.
- Converting an IRA into a self-directed IRA would allow one to borrow money from their IRA to use in real estate transactions. The benefits of this technique include the ability to defer taxes on capital gains, and the possibility of earning far more return on your retirement money than in the stock market.
- Borrowing from friends, family, and private individuals is another way to raise the cash for your deals. Most people would be thrilled to earn 8-10% return on their money. If you have experience and can show them some positive results, they would be happy to lend. (If you do not have experience, partner up with someone who does for the first few deals!) This technique is similar to using hard money, but there are typically no points paid and the interest rate is usually lower. There are plenty of courses and boot camps out there teaching investors how to raise private money. Because of the difficulty in obtaining bank financing nowadays, this technique is very important.
- Seller financing for your deals is a terrific way to get in with no money down. A desperate seller might be willing to finance 100% of a purchase or even delay monthly payments until the deal is rehabbed and sold. Be creative in how you structure your deals with seller financing!
- Websites like Prosper.com and other peer-to-peer lending sites can also be great sources of money for deals. Many people are interested in real estate but do not have the knowledge (or courage) to attempt to do a deal. Sell yourself and your real estate prowess on these sites, and people will be interested in lending on your deal.
These are just a few of the possible sources of money for your deals. Real estate investing is all about creativity. Don’t give up just because you do not have the cash (for now)!
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