How To Fund Your Next Deal (And Where To Find It)
By JD Esajian on August 24, 2016
Your real estate transaction starts with the financing. How and where you finance your deal usually determines the type of property, the market and what you end up paying for it. It is the centerpiece for which everything else revolves around. In today’s real estate world there are more sources for financing than ever before. Instead of solely relying on traditional bank programs there hard & private money options available as well. These options are available in almost every market for every investor if you know where to find them. The more financing options you have the easier it is to close your deal. Here are the three most popular forms of financing and a few places to find them.
Private Money. A private money lender is anyone in your network who has personal capital to invest in real estate. With increased interest in real estate coupled with the instability of the stock market a good number of people have started looking to dabble in the real estate market. The odds are that you know at least a few people who have money to invest but aren’t quite sure how to go about it. Here is where you come in. Most private money lenders simply lend their money to a deal and want to move out of the way. They do not work like traditional lenders. In most cases they just want a return higher than the 1.5% they are earning in their current savings account. You can handle the real estate side of the transaction and they supply the capital. This partnership can be for one deal only or for a predetermined period of time.
- Where To Find It: The best place to find private money lenders is in your personal network. Start by sending an email to your friends, family, co-workers, neighbors and parents of your kid’s sports teams. This email should state that you are looking for a real estate investing partner. You may have an opportunity to purchase real estate in the right scenario but you need their help. You don’t need to explain in every detail how you go about finding properties and what you will do with them. The initial email should lead to a follow up which should lead to a meeting. You can also use social media if you are willing to put yourself out there to the public. There are more people interested in real estate than you may think.
Hard Money Lenders. A hard money lender is a traditional bank alternative. Unlike private money lenders they operate under a similar bank structure with the big difference being they determine the guidelines. They are not bound by definitive set of rules and regulations. Often ties they lend on a case by case basis. Much of what they do is dependent on the individual property. If the property is strong they may be more willing to lend with less money required from the borrower. They also determine the interest rates, fees and terms as agreed upon from the borrower. What makes hard money lenders most attractive is that they provide the funds so you can close as quickly as possible. This alone gives you an inside track over your competition.
- Where To Find Them: The number of hard money lenders has exploded over the past five to ten years. In most markets there are more hand money lenders than ever before. You can find these lenders through your personal networking contacts, meetings and investing clubs. Reach out to your real estate agent, attorney, accountant and mortgage broker to help supply you with multiple options. You can also go on sites such as Craigslist and look for ads from people who buy houses. With just a little effort you should be able to quickly accumulate multiple hard money lending options.
Traditional Lenders. Depending on your real estate goals a traditional lender may be your best option. Even though traditional lenders have been given a bad rap in recent years there are still plenty of positives. Interest rates are still hovering around all-time lows. For any buy and hold investor this alone makes them an attractive option. There are also favorable loan terms and options that make working with a bank their best bet. The downside is that they require around 20% down payment and take an average of 45 days to close.
- Where To Find Them: There is a difference between traditional banks and mortgage brokers. While they both carry similar functions how they operate is much different. Traditional banks are the lenders that you find throughout your neighborhood. They have fairly strict guidelines and require the same set of documentation. A mortgage broker has access to a greater number of lenders and a different set of programs. Some of the programs may suit your profile better than a large bank. Even though the number of mortgage brokers has declined there are still a good number to choose from. Like anything else you should shop around until you are comfortable with whoever you work with.
There is plenty of financing available if you know where and how to look for it. Regardless of how you invest you never know when you will be presented with an opportunity that requires a different type of financing. Always give yourself as many different financing options as possible.