Via Mike LaCava @ http://www.quickanddirtytips.com
I didn’t believe it either at first, but once I started networking and talking to people about investing in my real estate ventures, I discovered that money is, in fact, everywhere. It is possible to invest in real estate without using a cent of your own money.
Turns out, many people are dissatisfied with their current investments and are very open to other ways in which they can get a better return on their money.
Don’t get me wrong, if you can get money from your bank, then go for it! But today, we will purposely leave out banks and traditional financing options and discuss ways in which you can finance your very first real estate deal with money not loaned from a bank. Some of these sources of financing are avenues you’ve probably never even thought of, while others are lying there right under your nose.
Where to Find Money for Your Real Estate Deals
If there is one place the new investor should go when they are first starting out in their career is there local Real Estate Investors Association (REIA) meeting. Although these meetings are notorious for being “pitch fests,” if you can around the obvious sales pitches, there are plenty of people at these meetings who are willing to invest with you. Additionally, events organized by the Chamber of Commerce, meetup.com, as well as any business get togethers are also ideal places to meet potential investors.
Option #1: Private Money Lenders
Private money lenders could be just about anyone you meet or know. Private investors are just regular people like you and me who have retirement accounts or disposable income reserves that they are looking to invest. In most cases, they are not actively seeking new investment vehicles – but if you know them and talk about what it is that you do, then chances are very good that they may actually approach you instead of you approaching them.
And if you do approach them about a better opportunity to invest their money, it’s very rare that they won’t at least sit down with you and hear you out. Provided that you have a solid plan, they are more than willing to listen to and consider what you have to say.
What most new private investors don’t know is that there are other options for them to invest their retirement money. So when you talk to them about investing, they may not even think about their retirement accounts like 401(k)s or IRAs that can be rolled overwith real estate as the investment vehicle. As long as the transfer of those funds is done correctly, that money can be used to fuel your investments with zero tax penalty to them.
Option #2: Friends and Family
Like private money investors, friends and family are somewhat similar. You approach them in the exact same way, but they may need less convincing than people who are not close friends or family.
However, borrowing money from family is never as easy as it seems. Families always seem to come with their own sets of complications – whereas with friends or associates, these kinds of emotional issues tend not to occur. Just keep in mind that whenever family is involved in business, things can get complicated fast.
This didn’t stop Donald Trump and many other now famous real estate investors from starting their career using funds from mom, dad or Aunt Gertrude. Just make sure that you pay it back no matter what or Thanksgiving dinner could be very uncomfortable.
Option #3: Hard Money Lenders
Lots of new investors shy away from hard money lenders and I’m not exactly sure why. True, hard money lenders do charge extremely high rates as well as points – but if you’re new to investing in real estate and you’ve worked your numbers so that they are very favorable even despite the high interest rates, why not use them?
If you’re not familiar with what a hard money lender is, it is a person with money who lends it at a very high interest rate – and then charges points on top of that as well. You’ll probably find that these kinds of money lenders are most useful for shorter term real estate investment deals like house flips.
Just be aware that you can typically expect a hard money lender to loan you money at anywhere between 14% and 20% interest, with perhaps 4 to 6 points on top of that. A “point” equals $1,000 for every percentage point of the loan – therefore, four points on $200,000 would equal $8,000.
Option #4: Partners
Partnering with people who have money is a great way to get started investing in real estate. A typical scenario is where you might have a private investor who funds you all the cash for the investment and you do all the work. You then split the profits 50 – 50. Although you might be giving away 50% of the profits, it’s a very easy way to get some real estate investing momentum this way. This partner might be a coworker, a friend, a business partner, another business owner, or even another real estate investor.
There’s no need to draw up a formal partnership in the classic sense with these kinds of investors – simply work on a deal-by-deal basis. It’s far safer this way and protects your interests. Once again, I’ve met some of the best partners of my real estate ventures at local networking events – and of course the multiple monthly REIA meetings I attend regularly.
Be Creative When Investing in Real Estate
Although we listed 4 potential sources for funding for your real estate investment, there are 100 different ways to mix and match the funding mentioned here for any kind of deal. For example, you could have a hard money loan for 20% of the deal, 50% of the deal comes from a private money lender, and the remaining 30% comes from your mother and father. The possibilities are endless, so be creative and think abundance.
After all, money is everywhere – you just have to go out and get it!
KeShawn Stanford 