One of the most common excuses used by investors for not closing more deals is a lack of available funds. However, while real estate funding can certainly be a legitimate hurdle for investors (old and new), finding money doesn’t have to be a roadblock. There are many more ways to find money that you may have never even thought of. Some of these avenues involve people that you see and talk to everyday. Others are a little more unorthodox, but just as effective. If you are just starting out and have aspirations of funding your deals, there are some simple steps you can take to get to that point.
If you are looking for funds to close deals, the very first thing you should do is reach out to the people around you. Do your friends, family and co-workers know that you have an interest in investing? In most cases, you can find the money you need from the people in your inner circle. A nice letter or email stating that you are actively looking for a financial partner on your next real estate deal can get the ball rolling. You can find deals, put them together and your financial partner can supply the funds. Doing business and talking money with people close to you can be uncomfortable, but it doesn’t have to be. Put everything out on the table before you make a single offer. Let it be known what the risks, returns and expectations are prior to doing anything. If you are both comfortable, you can find the money you need to fund your deals without looking anywhere else.
Every deal you close is an opportunity to gain valuable contacts. In any given transaction, you can have multiple realtors, attorneys, a buyer, seller and possibly a mortgage broker or lender. There can be as many as half a dozen people in a transaction that you now have done a successful transaction with. Ideally, your funding partner will be there on future deals, but that may not always be the case. You can use these contacts to find alternative sources of funding that they may have. If you close just one deal every two months, you can have well over a dozen real people that are part of your network that you have closed with. If just a handful of them has someone that they know that offers funds, you now have multiple options you can go to.
The most likely source of funds will be from hard or private money lenders. The idea of hard money has a negative connotation to many new investors. Hard money is simply an individual or group of individuals that lends money to investors seeking a return. Gone are the days that you would walk into the back room of a smoky bar to accept whatever terms were thrown at you. In almost every area, there are most likely multiple hard money options available. The terms will not be as favorable as working with a friend or family member, but they may have deeper pockets to do more deals. What many new investors fail to realize is that it takes time to build a bankroll to fund your own deals. You need to watch every penny on your first several deals and look to hit multiple singles instead of that one big home run. If you find the right hard money lender, you may make less per deal, but you can close twice the number in the same period of time.
Once you begin to establish yourself and build a portfolio, people will want to work with you. It is important not to rest on your laurels and think that you have everything figured out. Even if you have a private money contact and a hard money lender, you should still look for as many options as possible. One of the best ways to find these contacts is through local networking groups and investment clubs. Investment clubs are filled with area investors who are actively looking for deals. You may not feel the need to go to a meeting one month, but that month you miss could be the one that has a contact that changes your business. There are a handful of investors who are looking to sell properties in their portfolio, but need to do so from cash buyers who can close quickly. If you continue to network and have cash lined up, you can gain another valuable contact who will surely think of you when they have a deal down the road.
Between friends, family, coworkers, realtors, attorneys, mortgage brokers and hard money lenders, there are plenty of ways to find money to close deals. These people will not advertise that they want to invest or know someone that lends money. It is up to you to reach out to these people and take a proactive approach. You may be disappointed with the returns on your first few deals, but you need to keep the big picture in mind. Making something is obviously greater than making nothing. Even if your return is small, you can still gain contacts that may have access to future deals. In time, you build your nest egg and have money to fund your own deals. It will take some time to get to that point, but not having access to funds should not be an excuse not to close deals.