One question we get often from new investors is "How do I get funding for my deals?"
With conventional financing harder to get these days, it's even more important to have alternate sources of funding for your deals. Even pro investors can get hung up once they hit the 4 mortgage limit imposed by many lenders.
If you're not going go to the bank, the bank won't lend you money, or you've borrowed too much, what are some alternate sources for funding your investments?
Private Money
My favorite source of funds are from private lenders. You'd be surprised at how many individuals out there have cash, want a better return than they're getting in their savings account or in the stock market, and want to diversify into real estate without the hassle.
Simply put, you borrow money from a private individual, provide them with a return on their investment, and you've got your funding for your deal.
You can even get into deal syndication (advanced!) whereby you pool together a group of investors to buy larger properties that you otherwise wouldn't have access to.
In addition to not having to provide a credit report to your lender, you can also get the money relatively fast with the stroke of a pen on the lender's part.
Where do you find private money? The easiest source is from friends and family, but you can also network for private money and seek out individuals who have funds, but not the time, experience or patience to deal with investing directly in real estate.
Self-Directed IRAs / 401ks
It's easy to think of funds as only coming from a bank or from a checking/savings account, but many deals are done using retirement funds, typically from an IRA or 401k.
Not just any retirement account will work, however, and you need to use what's called a Self-Directed IRA account.
You're not borrowing money from the account, but rather your (or someone else's) retirement account is investing the retirement funds in a deal, much like traditionally a retirement fund invests in a mutual fund.
Your regular brokerage house may not have heard of a Self Directed account, and your broker might outright say it won't work, but investors have been happily using Self-Directed accounts since 1973 to invest in real estate.
In fact, ~84% of investment funds that we use for our investments come from self-directed IRA/401k accounts.
Money / Credit Partner
An alternate to borrowing money from a private investor is partnering with someone who has money (OPM - Other Peoples Money) or credit (OPC - Other Peoples Credit).
You bring the deal, time and resources to the table, and they provide either the cash for the deal or the credit required to get a loan on the property.
For this, your partner gets partial ownership in the property, which entitles them to their share of the risk - and their share of the rewards.
Partnering up with somebody else is a great way to get into a deal with "Nothing Down" and if you partner with a more experience investor, can provide an excellent opportunity to learn from a mentor.
The Money is Out There
Regardless of if you're being turned down by the bank, you're just getting started or you're a pro investor but have hit your borrowing limit, there is plenty of money out there. It's simply a matter of financing more creatively. Using the 3 strategies above, you can open up the tap to millions of dollars of financing waiting to be invested in your deals.
------
For more up-to-date articles, visit http://www.ForeclosuresMass.com/blog/
Comments (3)Subscribe to CommentsComment