The two biggest problems any real estate investor has are finding deals and funding your deals. Today I have 7 ways to fund your deals that will give you options to close more deals.
As your business grows and matures you will need larger and larger amounts of cash. In fact as time goes on, you will likely need multiple ways to fund your deals.
When Do You Need to Start that Process of Lining Up Cash?
Now! You need to start the process before you need the money. So what does that mean? Well, it means that if you are buying property and you still have a job, now is the time to pay a visit to your local investor friendly bank and find out what their loan requirements are or set up that HELOC so you have cash for future purchases. Don’t wait until you have quit your job and then try to get a loan.
If you have already quit you “JOB” and you are a full time investor, there are still plenty of way that you can get that much needed cash for your next project.
7 Ways to Fund Your Next Deal
Today I would like to go over some of the common types of funding you can use in your real estate investing business.
1. Your Money
I have a few buyers on my list that are actually buying with their own cash when they sit down at the closing table. These are successful real estate investors for the most part that can simply write a check for the property so that’s what they do. This won’t be what most folks do however.
2. Lines of Credit
Some real estate investors are able to use personal lines of credit or home equity lines of credit to buy properties. This is a great way to fund your deals that allows you to be a cash buyer.
If you have a lot of equity sitting in your house or an investment property you own, you can take advantage of this type of funding for your deals. This works especially well for a couple of rehabber friends of mine that use their HELOC for down payments, then they will add bank financing for the purchase and rehab. So they are using a combination of these two sources of cash.
3.Investor Friendly Banks / Portfolio Lenders
I can remember the days when all you had to do was walk into a bank, bring your tax return, and if you had a half decent income you could walk out with all the money you needed for your deal. It really was that easy.
That’s not the case today, but there are still small banks willing to loan money if you are a good risk. What I mean by that is if either you or your spouse has a job or a regular source of income (and therefore the ability to pay back the loan) it’s still possible to get those types of financing for real estate. The key is to get approved for this type of loan before you need it.
4. Hard Money
Hard money is what I like to call a necessary evil. You might turn to this source of financing if you don’t have any other options. However in some cases, you might actually choose to use hard money for funding your deals simply because it’s available and it’s easy to use. In the end, it’s just one more way to fund your deals. Whatever the reason, just know that it will always cost you more upfront (in points and fees), and it will always have a much higher rate of interest.
Here is the thing you need to remember; if you have found a “smoking hot deal” and you need cash for the deal, the extra costs associated with using this funding source just might be OK. After all, what is the cost if you lose out on a great deal? Most investors I know have used hard money at some point in time to fund at least one of their deals.
5. Retirement Funds
Did you know that you can use your self-directed Roth IRA to fund your real estate deals and any money you earn on that deal will be returned to your IRA account TAX FREE? What an incredible wealth building strategy!
The only thing you need to set up a Roth IRA is W-2 income. So if you currently have a job but you anticipate quitting that job at any time in the future, go ahead and set up your Roth IRA now. You will pay some fees annually to administer this account, but it is a great way to build wealth. Think about this for a minute; what if you put $10,000 profit from just one or two wholesale deals in your IRA each year? How much money could you accumulate before you retire?
6. Seller Financing
Some people think seller financing isn’t an option in today’s market to fund your deals, but that couldn’t be further from the truth. The Dodd Frank Act only applies to homeowners when it comes to seller financing. If you need information on the “ins and outs” of the Dodd Frank, I did an interview with my buddy and real estate that you can check out here. Dodd Frank Podcast
A homeowner can sell their home to an investor and legally provide seller financing. There are many reasons why a motivated seller might agree to seller financing but the biggest one has to be that they have a house they have been unable to sell any other way.
What will the terms of the loan be? That’s the beauty of seller financing. You get to structure it any way that you and the seller agree on.
7. Private Money
This brings me to number 7 which is one of my favorites; private money.
The question I get the most is, “Where do I find private money”? And the answer is, “It’s all around you”.
The truth of the matter is you never know who has a stockpile of cash sitting in the bank or in a retirement account; you can’t tell by looking at someone. In fact I would go so far as to say, you will find it in the most unexpected places, and from the people you would least expect it have it.
It’s a Tweetable ….
You can’t tell just by looking at someone, if they have cash to partner with you on a real estate deal. Don't “pre-judge folks.
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Excellent blog with unique information.