You’ve heard it said before that you “have to have money to make money”. And while this may be true, the caveat here is that it doesn’t have to be your money. That being said, with conventional financing being harder and harder to come by, finding other ways to finance your deals has become even more important. Even professional investors can get stuck if they run out of funding.
But if you don’t have any money of your own to invest, and bank financing isn’t currently an option, then what are some of the other possible avenues for funding your deals?
How To Fund Your REI Deals
The first step to getting one of your deals funded, be it a buy and hold, fix and flip, or a new build, is simply to make sure it’s a GOOD DEAL. People aren’t exactly going to be lining up to finance a deal if they think you’re after repair value is inflated or your repairs/build costs are overly conservative. That being said, once you’ve come across a deal that you KNOW you’d be a fool to pass up, there are ultimately several options of funding it outside of using conventional financing or using your own money.
One of the most popular forms of financing among investors is private funding. You’d be surprised how many people have money, want better performance than they’re getting on their savings or stock portfolio, and want to diversify into real estate without the hassle. Any of these individuals could possibly be the funding partner for your next project! In this arrangement, you would bring a great deal to the table and then give up a percentage of the profit on the back end in exchange for the funding partner financing the entirety of the deal.
There are many benefits to using this kind of financing, including (but not limited to): speed of transaction, no credit check, and not having to deal with banks. But where do you find private money? As mentioned above, you can really find it anywhere. The simplest source is family and friends, but you can also connect with people looking to passively invest in real estate on Craigslist, other investor websites, or at your local REI meeting.
SELF-CONTROLLED IRA / 401KS
Though most people are unaware of this fact, you can also borrow money to invest from a retirement account, like your self-directed IRA or 401k. Your usual brokerage may not have a self-directed account available, and your dealer may not recommend investing your funds on your own, but investors have been using self-directed accounts since 1973 to invest in real estate. So just keep in mind, if you have funds in a retirement account, they can be made available for your own personal real estate investments.
MONEY / CREDIT PARTNER
This is ultimately another way to look at private money, but another way to finance your deal is to take on a partner who has both money and experience, in exchange for a larger percentage of the profit on the back end. In this scenario, your financing partner would collect 50% (or more) of the profit on the back end, but would also run some of the deal, in addition to financing the project. This is a great option especially when you’re just getting started and feel like you could benefit from a little direction and/or guidance on the project.
Are these the only ways to finance your future real estate projects? Definitely not, but they are a great place to start when considering how you’ll finance your ventures in the future. If you’d like to learn more about financing and about getting the rest of your real estate investment business of the ground, check out my Free Book offer in my bio.