5 Places to Find Money for Investing in Real Estate

Are you ready to invest in real estate? If so, you will need some capital. Below are five ways for investors to find money. Each approach has its benefits and restrictions. As an investor, it’s up to you to decide which form of capital raise fits with your goals and objectives.

Cash

Cash is king in real estate investing. With a quick closing process, no contingencies, and minimized risk, a cash deal is good for many investors. All-cash investments typically yield positive cash flow earlier than financed investments that carry profit-eating debt. For new investors, earning high positive cash flow on the first investment makes it easier to stomach the risk of investing in more properties. Even with low interest rates on financing, cash investments are still a safer bet.

PROS: Completely flexible and spent at your discretion.

CONS: May limit your future liquidity.

Bank Financing

Traditional bank financing is an excellent way to secure funds for your first real estate investment. Currently, loans that offer low interest and longer terms are the most cost-effective way to borrow money for a rental. However, to qualify for institutional financing, you must meet several requirements:

You must have proven income to support the loan.

Must have a good credit history and score.

Must have cash on hand for a down payment, typically 20-25%.

One benefit of financing a rental investment is that some banks may include the property’s estimated net rental income as part of the investor’s debt-to-income ratio.

With current interest rates at their incredible lows, a traditional loan is one of the best options for investors.

PROS: Low-interest rates and long terms.

CONS: Can be difficult to secure if you don’t meet income requirements.

Hard Money Lenders

Many first-time investors do not qualify for traditional bank loans because of their income, credit history or the condition of the property they are buying. An alternative in this situation is a hard money loan. This option is an expensive, but sometimes necessary alternative to traditional financing. A hard money loan is secured by a physical asset, such as real estate. The interest rate is usually higher -- as high as 18% in some states -- so hard money loans are more ideal as a short-term solution.

PROS: Faster approval and processing, fewer qualification requirements, able to borrow up to 100% of the purchase price.

CONS: High-interest rates can eat into investment profits.

Syndication

Syndication involves a private group of businesses, funds, and/or individuals who pool their capital into a real estate venture. The funds can be used to purchase property, or they can be used as a commercial loan for real estate deals. Those who coordinate a real estate syndication group receive compensation, in the form of a management fee, from the syndication for locating the investment property. Investors in a syndication typically expect a 7-9% annual return on investment as well as an equity share of the property. If you’re not looking to invest in a property, but you want to be a part of a real estate deal, and you have a network of wealthy investors, acting as a syndicator can be the way to go.

PROS: As the syndicator, you don’t have to invest any of your own money.

CONS: You are responsible for the financial interests of other investors.

Wholesaling

Wholesaling, much like syndication, is an excellent way to enter the real estate industry without investing any cash. A real estate wholesaler finds properties that are great real estate investments. The wholesaler negotiates the deal to close on the property, then sells the contract to an investor who has the cash to invest. As the middleman in the investment deal, the wholesaler is paid a percentage of the sale – on average between $1,000 to $10,000 per deal, depending on the value. Wholesaling is an excellent way to participate in real estate deals without spending any cash. It’s also an excellent way to network within the industry.

PROS: No money needed to invest, and you can build your network.

CONS: More time investment required. Returns are not always ideal.

Get Cash For Real Estate Investing

Whether you are trying to build cash flow, diversify your investment portfolio, or save for retirement, real estate investing is an excellent way to accomplish all three goals. Your method of finding money to invest will affect each goal in different ways, so it’s best to account for things like estimated returns, the level of risk, time requirements, and more when deciding which way to go.