Getting Real Estate Financing
Investing In Real Estate – Finding Funding.
No money down real estate investing is possible, but it is not what most new real estate investors think it is. Money is always required to do a deal, no money down means that you don’t put any of your own out of pocket funds into the investment. So what do you do when you need funds to purchase properties, but don’t have any available on hand? Here are several ways an investor can come up with financing for projects.
Conventional bank mortgage. While this seems obvious, some investors forget that banks do lend money for investing. If you have good credit, this might be your best option. You will get a favorable interest rate with good credit, the higher your credit score, the lower your interest rate. If you are planning on flipping a single family home, you can apply for a residential mortgage, which will automatically have lower interest rates than other types of loans. Some banks will not lend more than the actual value of the home, so if it needs significant repairs, speak with them about a piggyback loan for the rest of the money. Make sure to shop around, as rates, fees and terms will vary depending on the lender. The best way to do this is with a mortgage broker, who will find the best rates for you.
Private investor. Private investors are people who have the liquid cash, but don’t have the desire to actually do the work themselves. They are willing to put up the money and take a certain percentage of the deal. So if you find a property that you want to invest in, the private investor would give you the funds needed to complete the deal, or they would undertake the financing. The terms you would have with the private investor would depend on your mutual agreement. Just as you would with a bank application, make sure you have sound fundamentals on the property and an expense worksheet showing where the money will be spent and how much expected profit there would be on the deal. The better the numbers, the more likely you will find a private investor.
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Hard money. Hard money lenders specialize in real estate investing. They will lend you normally up to 70% of the After Repair Value (ARV) on your property. Hard money is only for short term financing. The interest rates are very high – sometimes 14% or more, but unlike with bank financing, they will get your funds to you fast (normally in installments as work is completed). Hard money is good for those who need to get funds fast to do a deal.
Seller financing. If the seller is not in need of immediate cash, they may consider financing you. You could write up a mortgage contract, agreeing to pay the seller a set percentage rate and set monthly payments. Once you sell the property, you can then pay off the mortgage note to the seller.
No matter which way you look at to finance your real estate investments, make sure your cash flow numbers work. If you have good cash flow numbers on your deal, the financing will be easy to find!