This reality is pushing lenders to hold back from offering financing. Some lenders have placed a freeze on originating new investment loans. Right now it’s far from easy to find a lender for financing real estate deals.
A common misconception is that you need a lot of cash to invest in real estate. Far from the truth! For instance if you do wholesale real estate investing, you usually just need earnest money, typically under $500.
But cash is still good to have, and most people are short of cash right now.
So how do you finance your deals during covid-19 pandemic?
Here are some financing options for you to try for your real estate investment deals.
1) Private Money – Fast, Flexible Real Estate Financing
Private money comes from individuals, and rarely from institutions. Usually it’s from people you know such as friends and family.
They could also be other real estate investors that you can partner with on a deal to deal basis. My first private money investor happened to be a motivated seller whose rental houses were being foreclosed on.
We ended up doing many deals together – I found the deals, she financed the deals and she got a percentage interest when we closed the deal, or we shared our profits as agreed.
Because this money comes from individuals, it’s cheap and it comes fast. This frees up your money so you can do as many deals as your financing can support.
Not sure where to get private money? Start with a source such as this one.
Downside:- Some private money lenders have pulled back and adopted a wait and see attitude. However, there are still private money lenders who will finance your deals.
2) Partners – Deal By Deal Real Estate Financing
It’s quite easy to find partners on a deal by deal basis, especially from your local real estate investor meetings.
Depending on the deal, your partner can raise the money needed, and you share the profits as you agree.
Google “real estate meetings” in your area, REI Facebook groups or meetup groups. Craigslist might be a good place to look as well!
3) Seller Real Estate Financing – If You Can Convince The Seller
During this covid-19 pandemic, anxious motivated sellers will be ready to accommodate seller financing to walk out of the property.
This is where you’ll need to negotiate with the seller for a win-win solution. For example, if the property does not have enough equity for you to buy in cash, owner financing may be the best solution.
The best deal is where the seller walks away with some money as you agree. You’ll probably also need to agree on the loan term and the interest rate. Most owner financing deals come with a balloon where you’ll need to refinance and cash out the seller.
Be careful to comply with your state laws as some states (such as Texas) have placed some limitations on what you can do with these deals.
Downside:- Owner financed deals are not always a reliable source of financing. Some sellers won’t even consider it. But some will!
If they are walking away with a paycheck, they’re likely to agree to the deal.
4: Self-directed IRA – If You Have Substantial Savings
If you have some substantial retirement savings, you can borrow from it for a low interest rate. A self-directed IRA (such as Roth IRA) would be a perfect tool for this.
By using your own money this way, you avoid the high fees associated with taking traditional loans and mortgages.
This money is also available when you need it fast.
Downside:- IRA funds can come with tax and legal red tape. Do your homework to make sure you don’t lose on taxes. When all is said and done, this is a very cheap way to finance your deals.
5) Home Equity Line Of Credit – For Homeowners With Equity
If you have some substantial equity in your home, you might consider a home equity line of credit (HELOC). A home equity lender will take out a new mortgage on your home creating a line of credit, or you receive cash at closing.
Some lenders will do a second mortgage, others will only refinance and take a first mortgage on your home.
A HELOC is a revolving line of credit where you draw cash as needed, more like a credit card. You are allowed to borrow up to a fixed amount. After a given period of time, it converts to a fixed loan where you make payments for it.
Downside:- If you take a HELOC on your primary residence and you’re unable to pay it for some reason, this can create a scary situation.
6) Business Credit Lines & Credit Cards
Business credit lines and cards are unsecured, just like regular credit cards – so they won’t attach to your property.
They do attach to your personal credit. Creditors set a line of credit based on your cash flow, personal credit and any business credit if you have previously established this.
Typically, these lines of credit range from $50k – $250k.
You can use this credit to pay for renovations, down payments, or buy properties outright. Once you have a line of credit, you can keep using it up to its established limit.
Fund and Grow is a good place to start looking for a business line of credit.
7) Personal Loan
A personal loan is a great option if you need a loan quickly. Many personal loan companies will pay you as soon as the next day.
Your credit score is a major factor that determines how much you get, the interest rate and the term of the loan.
Downsides:- There are a few downsides to personal loans:
- You usually need some good credit to qualify for a personal loan.
- They are typically around $50,000, which may not be enough to do most deals.
- They tend to have high interest rates, typically around 10% or more.
Here’s a good resource to compare personal loan companies to get you started.
There may be other sources of real estate financing you can use at this time, but these are the main ones that will get you going.
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