Raising Private Money is one of the best ways to fund your projects. Private money can come from almost anywhere. You can seek private money from your friends or family members, business associates, colleagues, etc. People are always thinking about how to make their money grow so what better way than to present an opportunity for them to grow their money in one of the fastest ways possible. You have the ability to provide them with a higher rate of return than any bank or long term stock market holding can provide. Go to them with your deal, explain what you are going to do with their money, tell them how much you will need, and let them know how much interest they will receive. Show them how their investment will be secured by the property. There is much more to know about raising private money though. We will go into further detail in future posts.
Another form of funding for your deals is going through a Hard Money Lender. Most hard money lenders do not care so much about your credit history. Many will not require a down payment. Also, hard money lenders typically lend up to 60 to 70 percent of the After Repair Value (ARV) of the property in which you are renovating. Hard money interest rates are usually between 12 to 20 percent with added points in the range of 2 to 8. Hard money loans are costly, but they are there for you when you have nowhere else to turn to get the funding needed for your projects. Also, hard money loans usually come with fees. There are processing fees, draw inspection fees, wire fees, and other fees. Many hard money lenders require you to use your own money for your first draw. You will not receive that money back until the end of the project. Keep in mind that hard money loans are only used toward the purchase and repair of the property. They are not used for closing costs or taxes, title fees, or insurance. When obtaining a hard money loan, you will still have to seek carrying cost funds from another source.
If your credit is not so great, find someone that would like to partner with you who has great credit! It’s worth splitting a bit of the deal if you can get good financing. There are plenty of people out there with great credit and good jobs who would love to invest in real estate but do not have the time. Network at your local real estate investors association to find credit partners.
If you have equity in your house or rental property, this is a great strategy to use to fund your deals. The interest rates on home equity lines of credit are typically pretty low. You do not have to pay the points and fees to access the cash like you do for hard money. You will also save the Mortgage Recordation tax you would normally pay when using private or hard money lenders.
Bank financing may be another option for funding. Most banking institutions will offer a loan with less interest rates than a hard money loan. However, when going through a bank to receive a loan, you will need a good credit history and a down payment. Most banks require a 20% down payment of the purchase price of the property in which you are investing. Also, if you are purchasing the property from a wholesaler, most banking institutions will not cover the wholesale fee. Some banks will provide you with a line of credit that you can draw from for each house. They usually need to underwrite each project with its own appraisal, but at least you have a set amount of credit available that you know you can use for future projects. The best place to search for investor friendly banks is through your local and regional banks. The smaller banks tend to keep their mortgage loans in-house and do not have the same kind of underwriting requirements that larger banks have. It’s also much easier to meet with the decision maker at a smaller bank.