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One question we get often from new investors is "How do I get funding for my deals?"With conventional financing harder to get these days, it's even more important to have alternate sources of funding for your deals. Even pro investors can get hung up once they hit the 4 mortgage limit imposed by many lenders.
If you're not going go to the bank, the bank won't lend you money, or you've borrowed too much, what are some alternate sources for funding your investments?
Private Money
My favorite source of funds are from private lenders. You'd be surprised at how many individuals out there have cash, want a better return than they're getting in their savings account or in the stock market, and want to diversify into real estate without the hassle.
Simply put, you borrow money from a private individual, provide them with a return on their investment, and you've got your funding for your deal.
You can even get into deal syndication (advanced!) whereby you pool together a group of investors to buy larger properties that you otherwise wouldn't have access to.
In addition to not having to provide a credit report to your lender, you can also get the money relatively fast with the stroke of a pen on the lender's part.
Where do you find private money? The easiest source is from friends and family, but you can also network for private money and seek out individuals who have funds, but not the time, experience or patience to deal with investing directly in real estate.
Self-Directed IRAs / 401ks
It's easy to think of funds as only coming from a bank or from a checking/savings account, but many deals are done using retirement funds, typically from an IRA or 401k.
Not just any retirement account will work, however, and you need to use what's called a Self-Directed IRA account.
You're not borrowing money from the account, but rather your (or someone else's) retirement account is investing the retirement funds in a deal, much like traditionally a retirement fund invests in a mutual fund.
Your regular brokerage house may not have heard of a Self Directed account, and your broker might outright say it won't work, but investors have been happily using Self-Directed accounts since 1973 to invest in real estate.
In fact, ~84% of investment funds that we use for our investments come from self-directed IRA/401k accounts.
Money / Credit Partner
An alternate to borrowing money from a private investor is partnering with someone who has money (OPM - Other Peoples Money) or credit (OPC - Other Peoples Credit).
You bring the deal, time and resources to the table, and they provide either the cash for the deal or the credit required to get a loan on the property.
For this, your partner gets partial ownership in the property, which entitles them to their share of the risk - and their share of the rewards.
Partnering up with somebody else is a great way to get into a deal with "Nothing Down" and if you partner with a more experience investor, can provide an excellent opportunity to learn from a mentor.
The Money is Out There
Regardless of if you're being turned down by the bank, you're just getting started or you're a pro investor but have hit your borrowing limit, there is plenty of money out there. It's simply a matter of financing more creatively. Using the 3 strategies above, you can open up the tap to millions of dollars of financing waiting to be invested in your deals.
My favorite source of funds are from private lenders. You'd be surprised at how many individuals out there have cash, want a better return than they're getting in their savings account or in the stock market, and want to diversify into real estate without the hassle.
Simply put, you borrow money from a private individual, provide them with a return on their investment, and you've got your funding for your deal.
You can even get into deal syndication (advanced!) whereby you pool together a group of investors to buy larger properties that you otherwise wouldn't have access to.
In addition to not having to provide a credit report to your lender, you can also get the money relatively fast with the stroke of a pen on the lender's part.
Where do you find private money? The easiest source is from friends and family, but you can also network for private money and seek out individuals who have funds, but not the time, experience or patience to deal with investing directly in real estate.
Self-Directed IRAs / 401ks
It's easy to think of funds as only coming from a bank or from a checking/savings account, but many deals are done using retirement funds, typically from an IRA or 401k.
Not just any retirement account will work, however, and you need to use what's called a Self-Directed IRA account.
You're not borrowing money from the account, but rather your (or someone else's) retirement account is investing the retirement funds in a deal, much like traditionally a retirement fund invests in a mutual fund.
Your regular brokerage house may not have heard of a Self Directed account, and your broker might outright say it won't work, but investors have been happily using Self-Directed accounts since 1973 to invest in real estate.
In fact, ~84% of investment funds that we use for our investments come from self-directed IRA/401k accounts.
Money / Credit Partner
An alternate to borrowing money from a private investor is partnering with someone who has money (OPM - Other Peoples Money) or credit (OPC - Other Peoples Credit).
You bring the deal, time and resources to the table, and they provide either the cash for the deal or the credit required to get a loan on the property.
For this, your partner gets partial ownership in the property, which entitles them to their share of the risk - and their share of the rewards.
Partnering up with somebody else is a great way to get into a deal with "Nothing Down" and if you partner with a more experience investor, can provide an excellent opportunity to learn from a mentor.
The Money is Out There
Regardless of if you're being turned down by the bank, you're just getting started or you're a pro investor but have hit your borrowing limit, there is plenty of money out there. It's simply a matter of financing more creatively. Using the 3 strategies above, you can open up the tap to millions of dollars of financing waiting to be invested in your deals.
I have conducted several interviews over the past few weeks with "experts" in real estate and funding is one of the common themes.
Private money is an incredible source to tap into but it does take time in order to locate and build a portfolio of private lenders. When talking about this concept, networking has always been at the center of the discussion.
As a real estate investor, you MUST network with others in your community. Regardless of whether folks you meet are investors, entrepreneurs, or just live in your community; networking with them will help to grow your business.
Always make the situation a win/win and try to do something for the other person before you ask there help.
When you find the deal at 50 cents on the dollar...you will have no problems finding several investors to offer up their cash to make the deal happen.
If you buy right, having the funding in place will be the easy part!
Cheers,
Ross Treakle
Good article well written. A very good authority site on the subject is http://www.myrealestateira.com
Stated income loans are very ancient but FHA has provisions to refinance mortgages so that documentations and underwritings are reduced. The income of the applicants are not verified and they do not have to submit cumbersome proofs of their income, pay slips, W-2 forms, bank statements, assets statements etc. There is no need for credit reports also though some lenders require having a look at it for deciding the rates. The only thing that is verified in detail is the status of the existing loan and its payment details. The existing loan should not be delinquent. Borrowers who have defaulted monthly repayments are not allowed or eligible for the FHA streamline refinance.
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jonathan
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Home Loans - Home Loans
If you are thinking of buying real estate with your IRA check out this article by Andrew Waite of Personal Real Estate Investor. It's an excellent read and explains the benefits and pitfalls of different options some of which you may not know about.
http://www.personalrealestateinvestormag.com/uploads/Articles/IRA-Nov_Dec-08-v3.pdf