The question for most beginner real estate investors is “Do I have to have money to invest in real estate?”
Therefore, we are here to answer this particular question and introduce you to the myriad of investment property financing strategies in real estate investing.
Of course, the answer to the previous question is, no, you don’t. We know it sounds strange and now you are wondering how that is possible. But remember, the title for this blog “The Myriad of Investment Property Financing Strategies” says it all. So, hang on to learn how to buy an investment property with no money.
Real estate investing for beginners might be a bit challenging as money is the main concern for most of them. However, when it comes to investing in a property, there are plenty of investment property financing strategies available.
First of all, let us take a look at some tips to find the right investment property financing strategies. Then we can go straight to the financing methods available.
Find the right investment property financing strategy
The right investment property financing strategies are one of the main factors to build a successful real estate investing business. Therefore, a good idea would be doing proper research on all the different methods that are available. But before you do that, you should decide on the right investing strategy that you are going to be working with. Then, you can proceed with the research on the financing strategies available for that investment strategy.
Another useful tip is asking others. In other words, ask for referrals. See if someone you know has done it before, and ask for feedback.
Keep in mind, though, that you have to have some money on hand. There is almost no financing method that covers 100% of an investment property’s price. Therefore, be careful to check all the terms and requirements of all the financing strategies you find.
Now that you know what to look for, let’s take a look at some investment property financing strategies available for you:
Investment property financing strategies
Private money lenders
This is one of the most basic investment property financing strategies in real estate investing. Private money lenders are people you know including your family members and your friends. You surely know someone who has the extra money to give you. So, do not be shy and ask someone you know to lend you the money.
The good thing about this strategy is that it is done with fewer formalities. This saves you the pain of going through the formal and endless procedure. If your private money lender asks you for guarantees, of course, you will have to provide them and you can sign a repayment agreement between the two of you.
Bank loans are also common amongst real estate investors. For most, it is one of the safest investment property financing strategies. Basically, you apply for the loan and provide the bank with the required guarantees and agree on a certain monthly payment. However, you should keep in mind that most of the banks require a down payment of 20% of the property’s overall value.
If you do not have 20% for a down payment, you can always find other banks that require less. Thus, looking at a local bank might be a good idea for a less down payment.
Hard money lenders
Hard money lenders are professional money lenders. They tend to lend money depending more on the equity than on your borrowing strength. The main difference between hard money lenders and private money lenders is that the first have more formalities to follow than the latter. Therefore, you have to be ready to go through the formal procedures associated with borrowing the money.
A mortgage broker is not the one who is going to lend you the money. Instead, he/she will find you the right lender. What you should know about this financing strategy is that mortgage lenders take a commission on their work. You will have to add that to your expenses as you are expected to pay the commission at the time you close your deal.
Real estate partnerships
This is one of the investment property financing strategies that does not require you paying monthly dues. You can find a person who is willing to invest his/her money in your business plan. In other words, you will have to have a detailed business plan and convince someone to invest his/her money in it.
Finding a business partner, however, is not easy. You will have to have the real estate education, the experience, and the deals. Otherwise, it might be hard for others to risk their money.
As for where to find these real estate partners, do not worry. The only requirement for a business partner, in your case, is having the money. It does not matter if you invest with your father, your uncle, your friend, or even another real estate investor. The main objective here is to finance the business.
This is one of the creative investment property financing strategies that are mostly available when buying rental properties. It is common amongst residential real estate investors in particular. Basically, you sign an agreement with the property seller that instead of paying all in cash or getting a loan, you can schedule monthly payments between the two of you, directly. However, you should know that this also comes with an interest. In this case, the property seller will ask for a higher price than when you pay in cash. So, it is almost like taking a loan, but with fewer formalities.
As you already saw, there is a myriad of investment property financing strategies available for beginner real estate investors. It only takes doing the right calculations in order to determine whether a certain financing strategy is worth it for you. Therefore, Mashvisor provides you with the best rental property calculator that will help you perform proper profitability calculations when buying a rental property. All you have to do now is sign up for Mashvisor and enjoy your guide to the real estate investing business.