How am I supposed to break into Real Estate investing if I can’t get financing? I don’t have any credit or money!
After teaching and speaking to thousands of aspiring Real Estate investors, I have come to realize that financing is the number one thing that holds them back from flipping houses and buying investment properties. Regrettably, some never get started because they believe they can’t access the funds they need to take the next step.
I commonly hear questions like – How am I going to finance my first flip without any money? What if I can’t qualify for a loan, or don’t have the proof of funds to lock up that investment opportunity when it comes across my plate?
Honestly, I shared the same the same limiting beliefs when I was first starting out. It wasn’t until after I finished my first deal that I started to realize how easy financing could be. I was the one who was overcomplicating things. Once I learned about some of the simple financing strategies that I am going to share with you, I was able to remove the mental roadblocks and focus on doing the fun stuff. I was able to scale my business, find more deals, and start to see the checks coming in. That’s what it’s all about right?
You’ve heard me say it before and I will say it again. If you find a good deal with a great profit margin, you will never have to worry about finding the money for it. The bottom line is, if you find a great opportunity, the money will find that deal! How is that possible? Well, let’s talk about four ways that you can structure your financing to make a good deal come together for you.
Joint Venturing/Finding Partners: So, you are just getting started and have found a great deal. But you have little or no money to finance that deal. Partnering with another investor or other money source could be a great option for you. This is how many investors get started, and it has many benefits. First, it allows you to stay in the deal without having to qualify with a bank or bring any money to the table. Partnering on your first deal also allows you to learn and gain experience. It also strengthens your relationship with your partner and opens the door to future deals. Keep in mind though, you may not be partnered with someone who has experience, who may not be a mentor, or may want to invest their money but not their time. So, make sure to cover your bases when you structure the contract with your partner to avoid any potential pitfalls down the road.
Hard Money Lender: These lenders typically put more weight on the deal then they do the borrower. This is a great benefit for a new investor or less seasoned investor. They are less stringent with their lending guidelines than most traditional banks, and they have an appetite for funding riskier deals like flips and short-term rentals. So, if you find a great deal, you can locate a hard money lender that will be interested in investing in it. There are some things to keep in mind when using a hard money lender.
- Most are known for having higher interest rates.
- They usually have shorter loan windows which will require a borrower to repay the loan sooner.
- They typically have loan and underwriting fees, (called points), they attach to the loan, and can eat into your profits.
You want to take all of these costs into consideration when you are evaluating your deal to make sure it still makes sense.
Private Money Lenders: This is my favorite option, and the one I use for all of my deals. OPM: Other people’s money! You have heard me talk about this, and I train on this strategy in a little more detail inside the mastermind.
The greatest benefit of this option is your ability to negotiate terms that you cannot get from hard money lenders or banks. That means you can typically get a lower interest rate with no points.
So, you are now asking, how the heck do I find a private lender? I suggest you start within your sphere of influence. This can easily be a boss, family member, even a friend, or another investor. You can almost always find someone who has some cash and is wanting to make a better return on their money than what they are getting from their savings account. Investing in a safe deal that is secured by a tangible asset, like real estate, might be attractive to them.
Start having the conversation with people you know. Be patient and you will find a great private lender.
Crowd Funding Websites: This is somewhat of a newer trend in the investment financing world. On line mortgage companies and crowd funding websites like realtyshares.com and lendinghomes.com are just two of many available to investors like you. These companies are somewhat of a hybrid of private money lenders and hard money lenders who have tried to simplify the lending process by automating on-line. I suggest you do your due diligence if you are considering this option, as these companies have certain regulations and criteria that need to be met in order to fund your opportunity. Reach out to them and find out what those requirements are, so that you are organized when you find your opportunity. If you have what they need ahead of time, you can avoid costly time delays or the risk of losing your deal.
Now you are aware of the most common ways to fund your deals, but just know that there are unlimited ways to creatively structure funding and financing your investment opportunity. If the deal is great, the options are that are available to you are endless.
Feel free to check out my video where I share more information on each of these options.