o you think the real estate market is finally starting to go up and NOW is the time to start investing. Well you may be right but here is the hard part: how do you pay for your investments. This is THE issue that makes or breaks your ability to be a real estate investor. Prices are down as much as 30% in some areas and opportunities are available in every neighborhood, but without money you cannot take advantage of these great prices.
Unless you are going to owner-occupy a property, you will be required to bring 30% to 50% as a down payment to closing. Do you have that kind of cash? The days of 5% to 10% down payments are gone. This is the new realty of today’s’ real estate market.
Additionally, most of the great deals today involve distressed properties that may need work. This work also cost money and you have to be prepared to fund these extra costs. These may included small repairs, fresh paint throughout, new kitchens or bathrooms or new carpets. All these cost money.
If you want to buy a $100,000 deal you will need $30k to $50k upfront. Then you will need at least $10k to fix up the house with fresh paint, carpet and small repairs. Can you afford this?
So now that you know how much you will need to purchase your real estate investment the question is how you are going to finance this amount. Here are a few options in the current market:
- Traditional financing: Local and national banks, as well as mortgage brokers, are still going to be the best source for large-sum and long-term lending on anything four units and under. Expect to pay around 25% down, but interest rates should continue to be well under 7% for the foreseeable future. Make sure you talk to at least one mortgage broker and as many small local banks as possible before settling on a lender.
- Lines of credit: Pulling out equity from your home or other investments should be done with caution, but is a great way to free up funds. Many investors buy and repair properties with cash from a line of credit, with the intent of financing the finished product six months or so after purchase. You should always check with your lender before taking this route, but it can be a great path to affording multiple properties in a short period of time.
- Hard money lender: If you are looking for short-term money to leverage a property while you do repairs, this remains a viable option. Interest rates and fees are generally higher and hard money is currently less available than in years past, but if you develop a successful relationship with a hard-money lender it can really add a lot of flexibility to what kinds of projects you can take on.
- Private lending: Technically, most hard money lenders are private, but I am referring to the type of money that comes from a less seasoned source. Someone like a family member, friend, or even an acquaintance with the desire to invest their money. This kind of money relies mostly on your own personal network, but if you can find a backer with deep pockets, you can both benefit greatly. Since you are generally not competing with other investors for these funds, this money can be more reliable and flexible as well.
- Partnership: In many ways a partnership is a more formal and permanent form of private funding. Instead of just borrowing money under certain terms from someone, they actually have a stake in the property itself. Whether you split profits 50/50 or 75/25, if you need help with managing your investments and/or paying for them, finding a partner can be a great way to open up your options.
As the real estate market continues to improve more and more people will start to come back into the market and as a result prices will start to go back up. Now is the time to get into this market before that happens. These future price increases should be your equity. But you need to get over the financing hurdle.
If you would like more information on this topic or to learn more real estate investing tips, ideals or "real world" investing strategies please go to my blog at http://www.learnrealestateinvestingblog.com/.
Mike Lautensack is a full-time real estate entrepreneur, coach and mentor in Philadelphia, PA and creator of the Private Lending Presentation Kit. This powerful done-for-you kit is loaded with tools and techniques to attract and develop a consistent stream of private investors into your real estate business. To learn more about this kit and receive your FREE eBook go to Real Estate Investing Blog.
Have you ever thought that with a little help from a experienced coach might help your real estate investing business take off? Consider a mini-coaching session by going to http://www.realestatewealthtoday.com/MiniCoaching.html
Comments(1)