I am thinking about using an FHA loan for my first deal when buying a multi family property and living in one unit.
I don’t want to end my REI journey there though.
I’m sure banks won’t just give me an infinite amount of money to invest, so how do you find other ways for funding?
I’ve read about private lenders, but books and articles just mention them and leave it at that. What are private lenders? Rich people that want to make money off interest? What other ways do you get your funding to make more and more investments?
Lender · Costa Mesa, CA · Member since 2018 · 336 posts · 245 votes
7y
@Scott Shimala how do you find other ways for funding? contact a broker.
Here's the thing -- with traditional financing, you're right, you won't just get infinite amounts of money to invest in RE. You're capped to 10 financed properties, and you'll have to show (with tax returns and other financials) that you have the ability to repay each loan before they give it to you.
BUT! With commercial lending, there's no cap... and they only look at the subject property's financials, not your financials as a borrower.
With that said, you could essentially continue to buy an unlimited amount of properties, so long as you're strategic about which properties you want to buy (they need to be cash-flowing positive) and so long as you can provide a healthy down payment.
Private money, yes, its rich people that want to make money off your interest. they usually offer interest-only payment options with a balloon after x amount of years. meaning they're collecting just the minimum interest from you for a period of time, and then they get ALL their money back once it balloons. It's pretty genius, actually. and the property is collateral so if you mess up on repayment, they can take the property through foreclosure. you have to put more down and subject yourself to higher rates... ideally PM is short-term, not a long term strategy for investing. be cognizant of balloons and prepayment penalties with PM.
tons of schools of thought on this, and tons of ways to structure deals to make it work for you. it's all about the numbers.