4 Ways to Finance Your Developing Real Estate Business

Real estate investors have multiple ways to start or develop their business, but they do need to take into consideration some factors beforehand. All funding methods have advantages and disadvantages, of course and in order to find the best possible option, you need to be aware of them. While some funding methods may work for others, they may not work for you, depending on how fast you want to receive funding, the amount you need, as well as your entire investment strategy.

Traditional Loans

Probably the most common type of loan are traditional loans, for which you need to provide a down payment and receive the rest of the money from the bank. In return, the bank will ask for a claim on the property, such as a mortgage, until you can pay back the entire loan. The down payment can range from as little as 5%, to as much as 20%, depending on the bank. If you do opt for a bigger down payment, you will be able to avoid having to pay a private mortgage insurance.

The biggest disadvantage is that, typically, banks are not interested in short term loans, so this may not be a good option for house flipping. If you have a limited liability company and you buy properties on the company name, it may be nearly impossible to get a loan, so it may be better to do it on your personal name directly.

Crowdfunding

Crowdfunding is an alternative to traditional loans, as it implies that, instead of depending on the bank to receive funding, you can list your project on a website and receive funding from other people. This is a good option for big projects, as you can raise the money form multiple investors on the platform. Investors are generally quite open to lending to real estate owners, and you can find crowdfunding platforms built exclusively for real estate.

There are two options for crowdfunding:

• Equity-based: the investors that loan you money will receive part-ownership of the property you are about to buy, to secure the loan. This means that, in case you fail to pay the loan, the property can be sold and all investors will receive a return.
• Lending-based: the investors are lending you money directly, to fund your project. I return, you will have to pay back the loan, together with a fixed interest rate for each investor.

Investments

This is more of a long-run option and does require you to have some money to start investing, but it does offer far more benefits. First of all, the advantage is that all the money is yours and you do not need to pay anything back. You do need to spend some time looking for good investment opportunities and start to actually build up capital before opening your business, so if you are in need of money fast, this may not be a good option.

A good investment opportunity, and a quite popular one nowadays, is the forex market. You will need to spend some time studying strategies and doing research on the market, but if you find a reputable forex forum to join, your chances to gain profit are much higher and it can get you enough money to finance your business.

Private Lenders

Private lenders can be anyone, from family to friends to business partners. Loaning from private lenders can be a good option for your first projects, as the pressure of paying back the money won’t feel that big. Closed ones can be more understanding when it comes to returning the money, but be careful not to mix your personal life with your business too much.

For example, if you need a small loan for final renovations or for putting up a down payment, loaning from friends and family may be a much better option. Some of them may even offer to help you when your business is going well, in return for a small profit. Who knows, maybe you can even find a business partner along the way.

As you can see, there are plenty of options if you plan on funding your real estate company. The best way to make a decision is to study all options and compare them to your goals. While some options, such as investments, are better suited if you plan on starting the business sometime in the future, others such as crowdfunding seem to be the best option if you need money fast. The amount of money you need will also be a decisive factor, as some loans may only get you part of the amount you need.