How to Fund Your Real Estate Investments

Even if you don’t have a ton of money saved up for a down payment to get started in real estate, there are still so many ways to finance a real estate transaction.

Here’s a summary:

1. Traditional Financing

Traditional financing on a residential investment property typically requires a 25% down payment. If you plan to house hack, you can likely qualify for up to 97.5% loan to value! Terms may be more flexible on some commercial products.

2. Partners

There are many mutually beneficial partnership strategies that you could use. If you bring enough value to a deal, and/or source the deal, you could try to bring in a capital partner to fund the deal. In return, you could manage a majority of the project. The great thing about partnerships is that you can structure them however you’d like, so think creatively!

3. Seller financing

If the seller is willing to provide seller financing, you may not need to put any money down. Some sellers are interested in providing seller financing, while other sellers may need to be educated on the benefits of seller financing, including the tax benefits and passive income. It is always worth a conversation to see if this is a route the seller may be willing to consider.

4. Hard money lenders

Hard money lenders sometimes get a bad name. The average person may scoff at rates between 10-12%, but the reality is, if the deal still works even while carrying those holding costs for a brief time, it is better to get the deal than not. Some hard money lenders will finance 100% of the purchase and rehab, though beginners may not be able to obtain rates quite as competitive. There are tons of hard money lenders, so shop around to try to find one that will work with you to meet your goals.

5. Private money

Private money is simply a loan from folks in your network, including family, friends, and fellow investors. Put the word out that you are investing in real estate, and people will ask how you are doing it and be interested in joining. Even fellow investors may see an opportunity to eventually invest with you, especially if they need to unexpectedly place some capital.

6. Lines of credit

If you do not have liquid money, lines of credit could help create it. Nowadays, many folks have equity in their primary residences, so consider a home equity line of credit. Similarly, many folks may have seen their brokerage accounts spike recently. Look into a securities-backed line of credit, where your brokerage house will loan you money against your securities. For example, if you have a $100,000 brokerage account, a brokerage house may loan you around $65,000, or 65% loan to value, depending on your holdings.

7. Personal/business unsecured loans

Unsecured loans are more difficult to qualify for, but some banks have programs for them. Check out whether your bank has a program or shop around.

8. Self-directed IRAs and 401k loans

Tax rules will apply to these, and you should consult a CPA before proceeding, but leveraging your IRAs and 401k can be a great wealth building strategy. For example, you can take a low interest loan right from your 401k, with minimal hassle.

What other creative funding solutions have you used? Let’s hear!