In this post I will introduce some knowledge about creative real estate financing.
Do the creative real estate financing techniques you listen to about work? Yes and no. They likely have all worked somewhere for somebody at least two time. The most important point is to understand the principles involved, so you can find your own creative ways to invest in real estate. Here are ten methods to get you thinking.
1. Use hard money lenders. Ask around or find these online. These lenders specialize in short-term loans at high interest. Typically, you use this type of financing for a "fix and flip." You can get the money fast, and if you make $30,000 on a project, who cares if you paid $10,000 interest in two months?
2. No-doc or low-doc loans. With these loans, no (or low) documentation of your income or credit is necessary. You can find banks that do these online now. You'll only be able to borrow 70% to 80% of the purchase price or property value. However, if you have 10% in money, you might be able to borrow the other 10% or 20% from a mate or the seller.
3. Seller financing help. Sometimes a bank will loan you 90%, and permit the seller to take back a second mortgage from you for 5%, leaving you needing only 5% for a downpayment.
4. Land contract or "contract for sale." Called other names as well, this means the seller lets you make payments, and delivers the title on payment in full. I sold a rental this way for $1,000 down, because I wanted the 9% interest, and the higher price I got.
5. Credit card advances. Suppose a seller will take $10,000 down on a fixer-upper that you expect to make $20,000 on. Why not use credit cards? If your card limits permit for repair money , this is a true 0-down deal for you, and if you turn the project in two months, you will have paid perhaps $1,000 or $2,000 in interest on an 18% credit card. Don't let $1,000 get in the way of making $20,000.
6. Use your retirement accounts. The laws are complex in this area, but you can check with a tax attorney to see how you might borrow from your own retirement account to finance real estate investments.
7. Borrow from friends and relatives. If you go this route, keep it all business. In any cae, loaning you money at 7% is not a gift if their money is getting 2% in the bank.
8. Use real estate note buyers. Suppose the seller needs money. They raises the price, and sells to you for $100,000 with no money down, taking back two mortgages from you for $90,000 and $10,000. They arranged (or you did) for a note buyer to pay him $80,000 money for the first mortgage at closing, getting him the money they wanted. You pay two payments now, two to each noteholder, but you got in with no money down.
9. Borrow on another property. If you take out a home equity loan for a holiday, and then forget to use it for that, you can later use the money for the downpayment on an investment property, without violating the rules of the bank that gives you the primary mortgage. In other words, you got in with no money of your own.
10. Start partnerships. For bigger projects, you could arrange for six investors to each put money in to a partnership, with your share being the management responsibility in lieu of money.
Recall, these ten creative real estate financing techniques are to get you started.
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