4 High Power Strategies for Investing without Using a "Big Bank"
I think we can all agree that now is probably one of the best time in recent memory to invest in real estate. Real estate values and mortgage rates are at all time historic lows. My personal belief is that if you can intelligently purchase just a few choice income properties today you can literally set yourself up for financial freedom in the near future.
Ok, you say. Sounds all well and good, but I can't get a loan with a "big bank". How can I continue (or even start) to invest in deals without being able to get the "big bank" financing necessary?
It's true. Getting approved today for a conventional loan on an income property is almost like winning the lottery. First you have to submit to a financial "strip search" by the bank. Then if you are lucky enough to pass this first test you must literally navigate a minefield of deal breakers ranging from appraisals to ever changing underwriting guidelines.
The reality is you don't need "big bank" financing to successfully invest in today's real estate market. By being creative and thinking outside the box for financing solutions, we can still successfully acquire properties. I will tell you, however, that it does require additional specific knowledge, time and effort.
Top 4 most powerful strategies for purchasing investment property without having to get a "Big Bank" loan:
- Cash - OK, this is pretty obvious. But sometimes we can't find the glasses that are on our face. Using cash is a powerful way to acquire properties and in many cases get the biggest discounts. If you don, have a lot of cash, you ca buy smaller properties or partner with other investors to pool your funds (NOTE: Never without a written partnership agreement). Don't forget that you can tap your retirement savings and invest by setting up a self-directed IRA account.
- Structure your deal "Subject-to" - Simply defined, this is when you purchase a property "subject-to" the existing financing. You are note officially assuming the loan but stepping into the shoes of the current owner and making the loan payments on their behalf. The liability for the loan stays in the name of the seller so you need to find a motivated seller willing to let you take over their loan. This is not a simple process so get educated on this strategy before attempting it.
- Private Debt Partners - Do know someone who is not happy with the returns they are getting in their retirement or brokerage account? Offer to make them the bank (debt partner) and lend you money on your next deal. Give them an above market interest rate of 7 to 10%. This is not a personal loan but a true mortgage or deed of trust that will be recorded against your property. You will also sign a promissory note clearly defining the terms of the loan.
- Owner Carry-back Financing - Many sellers have built-up tremendous equity in their properties. Some may even own them free and clear. If this is the case, ask the seller what they plan on doing with the proceeds of the sale. See if the would be willing to carry-back financing on the property so they can continue to enjoy receiving income on a regular basis and benefit from not having to pay the large capital gains tax on the sale.
This list literally just scratches the surface of creative financing strategies that are available to investors. The simple truth is that the more strategies you understand and can utilize in your deals the more opportunities you will be able to take advantage of and prosper in this market.