Finding Money For Your Real Estate Investments
By Paul Esajian on August 18, 2014
You can have access to all of the deals in the world, but if you don’t have the financing to acquire them, it won’t do you much good. Fortunately, there are multiple ways to fund your deals. You just have to know how to look for them. From traditional lender financing to pulling money out of a line of credit, there are different methods for different deals. Many new investors get caught up in thinking they don’t have a way to finance their deals when, in reality, all they need to do is explore their options.
The most popular method for funding deals is lender financing. Many of the programs and guidelines have changed over the years, but if you have a strong credit score, low debt, solid income and a sufficient down payment, you still have plenty of options. Conventional investment lending programs do require some form of down payment in the range of 10-20% of the purchase price. There are ways to find that money, which we will get into, but if you are looking to lender financing, there are options available. Much of the approval will be based on your credit score and debt-to-income ratio. Before you meet with a mortgage broker or lender, you should know your score and see where you stand.
If you do not show all of the income you make, or simply want the flexibility of being able to close quickly with cash offers, access to a private money lender is something you should consider. Those unfamiliar with private money lenders may have a dated opinion on just what they entail. A private money lender is an individual or group of individuals that lend to investors based on their own criteria. Their guidelines will differ, however. They will cater to investors who they know are not lender qualified. The rates will be higher and the terms may seem unfavorable, but to be able to borrow funds is worth it. You can close several more deals yearly using private money than you would be able to without it. If you focus on short sales, foreclosures and REO properties, they will lean towards offers made with cash and can close quickly. Even if you can get lender approval, you should have a private money lender on hand. You never know when you will need them.
If you are having trouble with either of those options, you can look at finding an investment partner that has access to capital. You may have to make a little less on the first couple of deals, but this can be the bridge until you find your own contacts and can finance your own deals. You may also find that working with the right partner will give you access to deals that you would not have otherwise. Every investor’s situation is different and working with partners can be tricky at times, but if you find someone you click with it can really help your business take off. Before you get involved with anyone, you need to make sure you are both on the same page regarding allocation of funds, work responsibilities and percentage of profits on every deal. By joining networking groups and going to investment club meetings, you can quickly meet people that can end up being valuable financial partners.
If you are looking for down payment money or money to fund deals, you can also look inside your own portfolio to find the answer. Self-directed IRA accounts and retirement plans can be an option in the right situation. Some of these may have penalties but they can also be treated as a loan that can offer a higher return on your money. Before you consider these options, you have to know exactly what you are getting into, the repayment options, and if there are any penalties.
Another option that you may have without knowing it is access to a line of credit. If you have equity in your primary residence or even an investment property, you may be able to borrow against it. Lines of credit act as a loan against your property where you repay only what you take out. If you have a low first mortgage balance or no mortgage at all, you take out a line based on the appraisal amount of the house. Most lenders will only allow the total loans to be 80% of the value, but if the balances are low enough, it can be a great option. The repayment can be made in interest only payments for the first ten years with the principal being added over the last ten years. Rates are based off prime rate or another index that is traditionally lower than a fixed 30 year rate. If you have equity, it could be an option for you.
Not having access to money is not a viable excuse. Between your realtor, attorney, mortgage broker, accountant and own personal network, you have numerous people around you that can help you find money. You have to be willing to get on the phone or in your car and talk to people. The more options you have, the more types of deals you can close and the higher your profits will be on every deal.