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Financing Real Estate: What you Need to Know

By
Real Estate Broker/Owner with Arizona Resource Realty BR518926000

As a beginner investor, understanding how to finance a deal is just as important as finding one. A lack of real estate financing continues to hinder the majority of new investors in today’s market simply because they are not aware of the different financing avenues. Whether you have access to working capital or not, there are always ways to acquire money. Investing in real estate is never a bad idea. It offers potential investors a slew of financial and personal benefits, such as increased cash flow, home appreciation, and tax benefits. Real estate investment continues to be one of the most popular vehicles in producing financial wealth.

 

What is real estate financing? 

Real estate financing is generally used to describe an investor’s method of securing funds for an impending deal. As its name suggests, this method will have investors secure capital from an outside source to buy and renovate a property. Unlike traditional financing, however, real estate finance comes complete with terms and underwriting, not the least of which need to be fully understood before entering into a contract.

 

How to obtain real estate investment financing? 

One of the biggest misconceptions of real estate investing is that you need to have a lot of money to get started, which isn’t true. However, the secret that many professionals don’t understand is that there are many different real estate financing options available to fund every investment. As an investor, there are a few different ways to go about financing real estate investments. Each one will have its own set of pros and cons, and your financing approach will depend on the property and the situation. Beginner investors need to remember that not all real estate investment financing options are created equal. 

 

If you have a great deal on the table, there is no limit on ways to fund it. A great example would be leveraging a self-directed IRA, which would require careful consideration beforehand; however, it shows that there are many available options for real estate investment financing.

 

Cash Financing: Great for investors who have access to a significant amount of capital, either personally or through their network, and wish to purchase properties free and clear.

 

Hard Money Lenders: Accessible to investors who have less-than-perfect credit or financial history and need a short-term loan.

 

Private Money Lenders: Well-connected Investors can often tap into the capital from personal connections, borrowing money at a specified interest rate and payback period.

 

Self Directed IRA Accounts: Individuals who have elected to create savings through a self-directed IRA may decide to tap into their account as a way to access capital.

 

Seller Financing: Buyers and sellers can sometimes strike up a mutually beneficial agreement, allowing the investor and seller to avoid having to go through a private lender altogether.

 

Peer-To-Peer Lending: This is an excellent option for investors to raise the last portion of funding for a project. Peer-to-peer lending can offer high flexibility and low-interest rates.

Comments (4)

Richard Weeks
Dallas, TX
REALTOR®, Broker

Great information, thanks for sharing.  I hope you have a great day.

Mar 18, 2021 01:05 AM
Tamra Lee Ulmer

Thank you for reading, Richard!

Mar 18, 2021 02:41 PM
Grant Schneider
Performance Development Strategies - Armonk, NY
Your Coach Helping You Create Successful Outcomes

Good morning Tamra - there are many ways to finance a deal if people are willing to pursue them.

Mar 18, 2021 03:54 AM
Tamra Lee Ulmer

I agree! Thank you for reading, Grant.

Mar 18, 2021 02:48 PM
Bill Salvatore - East Valley
Arizona Elite Properties - Chandler, AZ
Realtor - 602-999-0952 / em: golfArizona@cox.net

Love the options! Great information, thanks for sharing.  Make it a great one.  Bill Salvatore

Mar 18, 2021 05:15 AM
Tamra Lee Ulmer

Glad you love them, Bill. Thank you for reading.

Mar 18, 2021 02:48 PM
Will Hamm
Hamm Homes - Aurora, CO
"Where There's a Will, There's a Way!"

Hello Yamra and thanks for the great blog on this subject.  So many people do not know what hard money is.

 

Mar 18, 2021 08:54 AM
Tamra Lee Ulmer

I agree! Thank you, Will. 

Mar 18, 2021 02:52 PM