Financing Your Real Estate Investment

The most common and traditional route for financing Real Estate Investment is taken through banks, credit unions and other home mortgage companies. The rates generally fixed for a fixed time period, for example, at 6.35% for a 30-year time period. One should expect to be asked for full documentation of income and debts to be qualified. Most lending scenarios require at least a 10% down payment for the qualified candidates.

Although this is the most safe and traditional way to finance a real estate investment, we will introduce you to a number of other ways which you may not have come across before:

Creative financing

Any other method of financing besides the traditional method is known as creative financing. For savvy investing, use OPM(Other People’s Money). Under creative financing, real estate investors try to use as little of their own money as possible.

a) seller carry back:

This is thee first creative-financing method you’ll need to know. Here, the seller agrees to carry the note for your purchase and happens when you find a seller with a free and clear property. Like, they don’t want the property anymore and don’t mind receiving a monthly payment on it. However a time limits for when the note must be paid in full is fixed by the seller which may be anywhere between one to five years.

b) Name your price

Greed or fear often creeps in when it comes to real estate. One should be sure about what he is willing to pay for a house. Look for in terms of profit, other expenses such as interest and repairs. So put a definitive number on the purchase price and improvement cost, or you may end up overpaying. The deal is after all just a numbers game.

One can market the property simultaneously to potential buyers that are willing to purchase your flipped homes. You will have ready buyers even before your project starts.

c) Fix it and flip it

Renovating a house and improving its looks requires time and hard work. If you handle the process entirely on your own, expect better returns. But it’s advisable to get professional help to avoid costly delays and mistakes. Form specialized teams to run various aspects of the project, like- construction, landscaping etc; You can split the profits once the house is flipped.

If your network is good, you will have a potential buyer lined up.

d) Subject-to

This is a short-term solution but a great way for funding a real estate investment quickly. Here you buy the property on the condition that the existing financing stay in place. That means, the loan will stay in the seller's name but the title is transferred. The buyer will make the payments. Savvy buyers use this method when they don't want to cough up a down payment and when they are sure that they can refinance in six months and get the loan put in their name. After all, no seller's is going to like the idea of having a loan in their name for an extended period of time.

e) Seller second

The "seller second" means that the seller provides a second mortgage which will be large enough to cover most, or all, of a required down payment. This way to finance a real estate investment is used often. This way, the buyer gets the property without using any of his money and the seller gets the bulk of his equity and makes the deal.

f) Lease option

The lease option allows you to buy the house for little to no money typically, in two or three years. You will get ample opportunity to procure financing during this time period

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