“Buy land, they’re not making it anymore.” – Mark Twain
Real estate is simply one of the most profitable investment sectors. The cash flow you get from your properties can help you build wealth quite rapidly. We won’t go into details of just how fruitful real estate investing is in this post, but you can always read our previous blog posts to learn more about it.
Once you have decided to dive into the real estate market, you will now be looking at sources to fund your real estate investments. This is a tricky part of this business. With increasing restrictions on bank loans for investors, it has become quite a no-go path for some people, especially small-scale investors. However, that has not stopped the real estate market from flourishing over the last few years by finding non-traditional ways to fund real estate investments.
How to Fund Your Real Estate Investments
You might think that you need to slowly save 20% for a down payment. This is the traditional method of buying a property, but did you know there are many other ways to fund your real estate investments? We are now going to look at six ways methods to help you get the cash you need to build your real estate empire. Experts and beginners in real estate investing can take advantage of these funding opportunities.
1. Family and acquaintances
Family always comes first. This is probably the main reason for you to confide in them and even ask for their help when looking for funding on your investment deals. If no one in your immediate family and circle of friends is financially capable of helping you in this regard, there are always acquaintances that they may be on good terms with.
A very positive point with this source of funding is that you can always count on it even if something doesn’t go as planned. On the flip side, this same point can quickly turn into a lot of negativity and may even harm your relationship with the involved party. Another benefit you may get from this particular source of funding is that if it comes from an immediate family member, they may not want much in return. At the very least, they might not expect to collect interest on their loan.
2. Borrowing hard money
This type of funding is kind of similar to those that you may receive from your friends, family, and acquaintances. The lenders of these funds are not part of any institutions, like banks or money-lending organizations. This is private money where the traditional borrowing and lending rules do not apply. The only difference between this type of funding and the ones from your family and friends is that the borrowing fees in this are usually a lot higher than the traditional funding sources like banks or even family and friends.
Given this fact, you may not want to opt for this source of funding, but that would be unfair to the potential it holds for your investment. Hard money lenders do not care about your past financial records; rather, they just look at the opportunity or value of the investment that you take with you to them. If they like your proposal, the money will be yours. Typically this is a short-term solution for investors to buy and rehab properties, or use the cash to close. Due to the high interest rates, it is ideal to convert to a loan with more friendly terms and rates.
3. Real Estate Crowdfunding
If you have a solid investment plan in hand and an equally good opportunity has presented itself to you, you may be looking for quick funding for this investment. Unfortunately, this is simply not possible with traditional funding sources and in many cases, even with your friends and family. Not many people walk around with enough money to fund your real estate investment.
There is another option that is commonly referred to as crowdfunding. Crowdfunding is similar to hard money in that its fees are much higher than traditional funding sources, but it’s a quick solution for your real estate investment problems. You can take to the internet and begin a campaign. In return for funding you, the investors will expect to receive their initial capital and then some. Learn more about the top crowdfunding sites.
4. Have tenants pay your mortgage
This is probably a lesser known technique of funding your real investment, but it is very effective. If you don’t have too much capital to start with and you are not the biggest risk-taker, this is a very good fit for you. You can buy a property where you move in yourself, but the property has enough space for a tenant to move in as well. This is commonly referred to as “house hacking.” A common technique for beginners in real estate investing.
If you get a single-family home, you will have to share the property with the tenant. If you get a duplex or larger building, the tenants will have full autonomy. There are various mortgages for these scenarios, but tenant income will help increase your ability to pay off the property.
5. Sell what you don’t need
Again, this may not seem like a very effective way of funding your real estate investment, but it actually is if you get into it. Analyze your lifestyle. What are the things that you can give up to secure your future by investing in real estate? You’ll be surprised by the number of things that you possess that are unnecessary expenses.
Selling these items may bring in enough to reach your financial goals. Old electronics and other items can be sold on eBay, Craigslist, or a variety of apps these days. People might even want your lightly worn clothes or shoes. Parting ways with something you don’t use will put money in the bank and declutter your life.
Also consider giving up certain expenses you routinely accrue. Review your monthly transactions and discover which items you truly need and which are luxury items. Cutting cable and quitting the gym membership, if you’re one of the 15% who pay-and-go, could be an opportunity to save at least $100-200 per month! Eating out and alcohol are also very expensive. You can cut expenses and help save for your down payment.
6. Asset-Based Mortgage
This is another useful source of funding where, unlike traditional funding sources, your personal income doesn’t come in the way of your real estate investment. These lenders are only concerned about the type of investment and how much rental income it can secure for you. So, even if you currently have an unstable income and you go to these lenders with a solid real estate investment opportunity, they might lend you money. The best aspect is that you can borrow cash for multiple properties using this type of real estate funding, so it’s much more flexible than traditional funding sources.
What to do after buying a rental property?
Once you have your investment property, do you know all the steps to take to maximize profitability? Tenant placement, vacancy, turnover, and maintenance can all become a headache. Beginners in real estate investing often consider hiring out property management. Which typically consumes 18-20% of your gross income.
Instead, consider an incentive-based property management. Simply called Co-Management. Co-Management is for experts and beginners in real estate investing. Co-Management is an affordable and lower risk opportunity to ease into self-managing. Or, perhaps you are an out-of-state investor and need local presence. Landlords have complete control and transparency over their rental properties. Learn more about Co-Management. Or, calculate your potential savings compared to traditional property management.
If you are more of a do-it-yourself person, use our software to simplify all aspects of managing a rental property. You can advertise your rental, find tenants, and collect rent efficiently thanks to Burbz.