One of the biggest complaints that many investors have is that they can’t find money to fund their deals. Between heightened investor guidelines and increased down payment requirements, using traditional lender financing may not be a viable lending option. However, that doesn’t mean there aren’t other options available. In reality, there are many different ways you can find money that you may not have thought of before. Lender financing is the most obvious route, but it is far from the only option. If you are looking to find money you need to look at all the different options that are available. Finding money to fund your real estate deals is easy, as long as you know where to look.
In looking for money, don’t skip yourself. Your personal checking or savings accounts aren’t the only places that you may have money. Between a 401k, IRA, stocks or bonds, you may have multiple sources of money that you may not have thought of. Before you blindly dismiss taking money from these areas, you should investigate if it is possible and what the ramifications are. In some cases, it is easier and less cost prohibitive than other alternatives. Some areas are much more restrictive and don’t make a lot of sense to pull from. Either way, you should perform a comprehensive look at your personal portfolio first.
Aside from personal accounts, you should reach out to the people closest to you and see if they want to contribute financially to a future deal. Some of the strongest partnerships are formed in the most unlikely places. It may be a little uncomfortable, but you should send a letter or email to your personal contacts stating that you are a new investor looking for financial backing. You will be surprised just how many people may have money that they want to invest but are intimidated by the real estate market. If you can find deals and take care of the process, they may be willing to be a silent financial partner with a set return on their money. Working with friends and family is not always easy, but it can be a source of money that you never thought of.
If you own any real estate, you should have an idea of what you owe and what you think the property is worth. Values have certainly changed over the years, but if there is equity, you may be able to get money through a home equity line of credit. As the name would indicate, this is a loan against the equity in either your primary residence or an investment property. The guidelines on an investment property are much stricter and not available with every lender, but both types of properties need at least 30% equity. If the equity is there, this process is a much cheaper and easier option than using bank financing or other sources. Depending on the type of loan you take, you may have the option of only repaying what you use with an interest only monthly payment. You can pay the money back slowly using interest only, and when you close you can pay it back and still keep the line open. What you think the value is and what the reality is may be two different things. Talk to a realtor or an appraiser to get a much better of idea of whether or not this is an option.
The most common way to get money is through the use of private financing or hard money. These are groups or individuals that will lend money to investors. You can meet these groups through investment club meetings, local networking events or through your personal realtor. Instead of following traditional lending guidelines, in respects to debt-to-income ratios and credit scores, they have their own set of lending criteria which they use. They won’t lend to every investor that asks for it. You need some collateral and a plan of what you will do with funds received. You also have to be willing to find deals and have an exit strategy firmly in place for any new properties. The cost of the money will also be high, but if you use it to grow your business and close more deals throughout the year, the money will pay for itself over time.
The bottom line is that finding money is the most important part of closing any deal and there are multiple options out there. Even if you have to partner up with a fellow investor until you can raise money, making something is always better than making nothing. You have more options than you think if you are willing to try multiple options and not take no for an answer. Finding private money lenders in almost any area is as easy as calling around to local attorneys or spending a few minutes on Craigslist or social media. You don’t need to have your own money if you really want to invest in real estate. There are plenty of options out there. All you have to do is take the time and explore them.