Finding a property that’s a good investment is only half the battle. Unless you have enough money to buy the property in cash, you’ll have to find a way to finance the deal. And if a traditional mortgage is out of the picture, you’ll need to get creative.
How to Analyze a Real Estate Deal
Deal analysis is one of the best ways to learn real estate investing and it comes down to fundamental comfort in estimating expenses, rents, and cash flow. This guide will give you the knowledge you need to begin analyzing properties with confidence.
4 Unique Financing Strategies to Consider
If a traditional bank loan isn’t an option, then you may find the following unique financing strategies enticing.
1. Seller Financing
Seller financing is the first thing that comes to mind. With seller financing, the seller of the property acts as the bank and agrees to sell you the property while accepting monthly payments for a predetermined period of time.
This method only works if the seller already owns the property free and clear (or has a very small amount of outstanding premium remaining). It also has to work out just right since a lot of sellers don’t want to deal with what seems like a complicated process.
2. High Leverage Investing
Have you ever thought about high leverage investing? This method is notably risky, but can work if you have some time, experience, and the financial means to take a loss and still be fine. Futures trading is one of the first investment niches that comes to mind.
It can be complicated and challenging, but futures trading offers massive leverage. Thus, if you know what you’re doing, you can turn a small amount of money into a large amount of capital in a short period of time. As a result, you may be able to put a down payment on a property without having to bring on other investors.
3. Hard Money Lending
Many investors have found success using hard money lending. Hard money lenders operate in a private mortgage market and lend their own money to investors in return for higher interest rates and shorter payback periods.
The benefit of using a hard money lender is that their requirements are usually less stringent and the approval process takes far less time. You can often find hard money lenders in local investment clubs or even in your social circle.
4. Peer-to-Peer Lending
Over the past few years, peer-to-peer (P2P) lending has gone from a cute little niche strategy to something that a lot of successful real estate investors are using to finance deals.
P2P lending is essentially an investment version of crowdfunding. Large pools of people come together online and contribute varying sums of money until the entire deal is financed. The investors then get principal plus interest back in return. This allows someone with limited resources to purchase a piece of real estate.
Making Your Deal Financing Work
Would it be nice to qualify for a traditional mortgage on every investment property? Would it be even nicer to have the resources to purchase real estate in cash? The answers are yes and yes, respectively. The problem is that the average investor—folks like you and me—can’t always make this happen. And it’s at this point that you have to decide whether you want to throw in the towel or find a way to make it work.
Making a deal happen is rarely easy or straightforward. You’ll have to get creative, which could mean trying one of the alternative financing strategies discussed in this article. And until you give them a shot, you won’t know if they work.
Have you tried any of the above strategies? What’s your go-to creative financing method?
Leave your comments below!