Saturday, March 7, 2009

How Investors Finance Their Real Estate Deals.


Most people think that you have to have money to make money in the real estate investing game. In order to be a successful real estate investor, you don't necessarily have to have money in the first place. It's nice to know that you have available funds in your account. However if you’re like most people then you don't have your own funds. Therefore it’s imperative that you MUST get access to other peoples money.

Beware of scams. You don't want to ruin your reputation. There are lenders that over promise and under deliver. Can you imagine having THE deal of a lifetime, but not being able to close on the property? This is the number one reason why people cannot get started in the real estate investing game. People simply do not have access to funds.

Funding from other people can come in many different forms. An investor can get their hands on money one of two ways. There is the traditional way and the non-traditional way. Here is a breakdown of the two types of funding.

Most people are familiar with the traditional way of real estate financing. A traditional way of financing real estate is through FHA, VA, Fannie Mae, and Freddie Mac loans. Buyers consider these as "main stream" loans. The majority of time these lenders will loan up to somewhere around 85 to 90% of the appraised value depending on other factors (such as credit score, appraisal & condition of the property). Most of the financing done by traditional lending is amortized over 15, 20 or 30 years.

In opposition to traditional financing there is more than one way to get a deal funded by non-traditional ways. For simplicity sake here are a few: (1) lines of credit, (2) hard money, and (3) private money. Real estate investors today have been know to use all three of the fore mentioned non-traditional ways to get a deal financed.

More specifically, a line of credit can be money that the investor usually has the quickest access to. For instance, credit cards are a form of credit that can be used to quick transactions. Now keep in mind that credit cards provide some of the worst terms; however, they are convenient and fast. Another example of a line of credit is a personal loan. Lending institutions can provide individuals with personal loans that can be used to purchase real estate. Often times a check (from the personal loan account) can be written to purchase a property. As with credit cards, personal loans provide some less than favorable terms; however, they to are convenient and fast.

A second method for financing real estate purchases is through the use of hard money. These lenders can lend money to purchase the property itself. Oftentimes if the investor buys the property at a favorable price then there will be enough money in the transaction to finance some if not all of the rehab project. You must be asking, “What’s the catch?” The catch is that these lenders have loans for a short amount of time with a relatively high price of borrowing.

The final source of money for funding real estate purchases is through private money. A private lender can be pretty much anyone that wants to loan the investor money. This can be: (1) another investor(s), (2) a friend(s) or (3) a family member(s). The terms can be stringent or whatever that is mutually agreed upon.

We at Roberts Investment Properties LLC want to see real estate investors succeed. It does matter if your business is in Portland, Maine or Knoxville, Tennessee, these techniques will work for you. Our goal is to help others learn from some of the pitfalls that even advanced investors still make to this day.

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4 comments:

Stewart said...
This comment has been removed by the author.
Sandy said...

In essence, the choice of investing in real estate is not as easy as it sounds as it also has its down lows. The fainthearted may find it hard to understand how the system works so as to be able to increase profits from their investments. One man once likened information to power. This is where you need to start from. Find all the relevant information that you can put your hands on. A lot of information sources already exist. And as the internet if ever developing, you can get a real estate investment guide online by scrolling through the web pages dealing with this field of investment. You can also find some old magazines which are rich with investments tips and information which will aid in real estate investing.

Noc said...

One of the most significant factors, to reflect on while selecting a real estate investing course is that ,the individual who built the course and the teacher who is training it. Now and then this individual could vary. You must ensure that the real estate investing course you select developed by a real estate expert, who has complete knowledge of the subject and accomplishment in the real estate industry.

Johnny said...

Well,

The first step in anything that involves your hard-earned money is to understand fully where it is getting to. If you decide to make money on real estate you have to know a lot of things. One is learning how to buy a house and what are the things involved in buying one. You must know that peripheral items such as landscaping expenses and carpet are all included in the price.

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