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Investing In Real Estate: Have Money Ready

One of the most common excuses from new investors, as to why they aren’t more active in finding deals, is that they don’t have access to money. You can spend time educating yourself on the business and finding good properties, but if you don’t have money to close your deals you won’t get very far. Finding money to close can be as simple as getting pre-qualified by a bank or as complex as finding a private money lender. Whatever your source is, and there are more than you think to choose from, finding money should be one of the first steps you should take when you get started.

As much as your options are limited without capitol, many doors will open once you have funding lined up. The ability to close quickly can entice lenders to accept your offers and for you to be involved in more deals. If money is your problem, you need to make some concessions when you are getting started. You can’t have your cake and eat it too. You need to find a money partner that will make a majority of the profits while you do most of the work. This may not seem all that appealing, but until you have money of your own to invest, your options are rather limited.

Most of the traditional mortgage programs are still calling for anywhere between 20-25% down on investment property loans. Since money is the main issue, coming up with the down payment on top of the closing costs and property taxes is not very realistic. There are a couple of lenders who are offering no income loans again, but these loans still require a significant down payment and excellent credit scores. If traditional financing is out, you can either look for an investing partner or a private money lender.

If you are forced to go the private money route, contact your attorney, realtor, mortgage broker and any investor you are friendly with at local REIA meetings. Finding a private money lender is usually not the issue, agreeing to terms is. Since they are operating from a position of strength, they can dictate the terms. The interest rates and fees will be high at the beginning, but your risk is kept to a minimum. Remember, making something on a deal is better than making nothing.

The alternative to traditional mortgages and private lenders are self-directed IRAs, lines of credit, lease options or possibly seller financing. The next best option is to find an investing partner to finance the properties while you line them up and do the grunt work. Investing is a cash intensive business where you need money to make money. Once you establish yourself and get a few deals under your belt, you may be able to renegotiate terms. Moreover, if you are happy with the current situation, continue with it for as long as it takes to build up your own nest egg and invest on your own.

The ability to find money and finance your deals is a huge part of the investing business. Much of your business will be dictated by how and where you find funding. Network with as many people as possible and review as many options as you can. This can be the most important thing you do as an investor.

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