Real estate investment may be a lucrative business, but you’ll need money to get started. Your capital is what allows you to get your foot in the door. It enables you to purchase that run-down foreclosure, make an investment in a duplex or multifamily property, or pay your contractors on your most recent fix-and-flip. Simply said, you can’t be a real estate investor until you have it.
Fortunately, even for inexperienced investors, getting cash for real estate isn’t as difficult as it may appear. Are you searching for a way to raise money for your first (or future) project? Try on these seven techniques to see how they work.
There are a variety of mortgage loans available to help you finance your next real estate investment. You may utilize an FHA or conventional loan depending on the sort of property you’re buying, or a 203k loan if you’re renovating the home.
Many lenders also provide lending packages tailored to investors. However, these usually come with more stringent financial reserve, down payment, and credit score restrictions.
A private money lender
To fund your project, you don’t need to go via a bank or a well-known lender. It’s also possible to borrow money from a friend, family member, coworker, or a cash-rich acquaintance or business professional. In most situations, you’ll have to pay interest or guarantee a return on the private lender’s investment.
The bright side? There is no red tape or onerous qualification process, and you should be able to collect your money quickly. Just be certain it isn’t a long-term answer. A private lender often expects to be repaid within a few years.
Hard money lender
Another private financing alternative is hard money lenders, who have less strict qualification requirements than traditional mortgage loans and financing products. But what’s the catch? They also have significantly higher interest rates attached to them. As a result, a hard money loan is best suited to quick projects such as fix-and-flips or as a bridge loan between purchasing a property and obtaining a longer-term loan.
You’ve most likely contributed to a GoFundMe or KickStarter campaign. Real estate crowdfunding, on the other hand, is a similar strategy. You propose your idea on a crowdfunding platform and interested investors can donate as much as they like to your cause. They get a piece of the project in exchange (and its profits).
Another comparable technique is P2P lending (peer-to-peer lending), which works more like a loan than crowdfunded transactions. You submit your idea to a peer-to-peer financing platform and get paired with a potential investor. That investor then gives you the cash you require, which you will repay over time — plus interest. PeerStreet is a well-known peer-to-peer lending network.
P2P loan terms vary greatly, so make sure you read the fine print before taking this option. You should also look at the platform’s data security and other investor assessments. Not all fundraising methods are made equal, much like traditional mortgage lenders and banks.