The first question investors ask is, “how do I find great deals?” Next is, “where can I get funding?” Here are a few of the beginning money sources we used. I hope you find these helpful:
- Personal money and credit. Our own money didn’t go very far, but the banks would allow 8 mortgage loans per borrower back in 2005 when we started. So, that was our first money source as it was the only one we even knew existed. I continue to recommend borrowers go this route for long term funding (rental properties) because, if you qualify, bank money is still inexpensive.
- Private Money: After our own money and credit, the next thing we used was private money. My husband was golfing with a long time friend and discussing what we were doing in real estate. He casually mentioned a deal we wanted to do and confessed that we were unable to find funding. As they were walking to the car after the game our friend said, “I’d be happy to give you the money for that deal.”
Lesson here: always talk about what you do – you never know who’s listening. This friend had worked with us for years in our pre-real estate lives. We had no money so it never occurred to us that he had any. NEVER make those assumptions about anyone!
But, one thing you need in order to ask for other people’s money is a track record. Until you have some success, why would anyone lend to you?
- Existing Financing: This is about taking over the seller’s existing financing, purchasing subject-to the existing mortgage. This strategy was much more common after the 2008 crash than today and much less regulated than it is now.
- Properties with No Mortgage: For years, we’ve marketed heavily to free-and-clear properties. Did you know that almost half of all houses in the U.S. have no mortgage? These include:
- inherited properties – many of which are owned by out of state heirs
- properties where people have paid off their mortgages
- properties where owners paid cash to begin with
- Seller Financing: One option with the above “free and clear” properties is to have the seller carry back part or all of the financing. If a seller is willing to finance the property to you, you’re actually able to pay more for the property because you don’t have financing costs.
- Hard Money: An additional money source that’s always available. Hard money is usually a little more expensive than other sources, but hard money lenders have larger pools of cash to lend so you never need to miss a deal for lack of funding.
Finally, always get involved in your local real estate investor (REIA) meetings, local landlord meetings, and any investor meeting you can find to learn the processes others are using. Typically, there’s a lot of money available in real estate investment groups. If you find a great deal, there’s probably an investor who will finance it for you.
Please, leave any questions you have about funding below, and go get some funding!
