I fully admit that when I first started in this business, I had no clue how I was going to pay for my properties. I didn’t have much money, and truth be told, I thought I’d have to actually BUY properties to get my piece of the real estate investment pie.
Man was I wrong. Turns out, I just needed the right tools in my tool belt, which brings my confession full circle…
I learned (painfully) that I could control my deals through paperwork and strategy, NOT by physically buying properties. Look, every deal is unique, and when you decide to get in bed with a deal, you probably have a plan in mind – an end goal, right?
It boils down to this: You need to analyze a deal to know how to categorize your lead. I’m talking about being a transactional engineer.
Engineering 4 Types of REI Deals
So how do you categorize a deal or a lead? Most fall into the following categories:
- Deals that require no money
- Deals that require some money
- Deals that produce quick cash
- Deals that produce some cash flow
Check out my handy-dandy matrix as I explain each…
So what type of real estate transaction needs little to no money? Wholesale deals or quick flips fall under this umbrella. The beauty of these types of deals is the low risk. All that’s at stake is your earnest money deposit.
Lease Options and Seller Financing are a few more examples of what I call creative deals. They include wrap-around mortgages, and they’re known as creative ways to add properties to your rental portfolio without coming to the table with big bucks.
What about deals that require money? Fix and flips come to mind, and remember that these should be what I call “no hammer needed” deals. In other words, you shouldn’t be installing toilets with your fix and flips, contrary to what you see on TV. Your time is much better spent finding deals and duplicate dollars. Am I right, or am I right?
Then there are buy, fix and hold properties (calling all Landlords) that generate cash flow.
Types of Funding
So how do we finance these deals… where does the money come from? You’ve got two options:
- Hard Money – These are asset-based loans that can quickly fund investment properties. They are defined by 12%-20% simple interest rates, 3- to 12-month periods, and super-fast funding. I’m talking just a few days. The deal is what counts here – not you. (No offense.) Hard money lenders fund deals based on the loan off the asset itself. You can find hard money through investor referrals.
- Soft Money – With these loans, the focus turns to you and your personal credit, for example. These loans are defined by 7%-10% interest rates over 12-24 months. The lending process, however, is much slower. We’re talking at least 2-3 weeks. Ouch. You can find soft lenders (again) through investor referrals or by that little thing known as Google.
Note to self – both hard and soft money are for investments only, so be prepared to kiss your property goodbye if you plan to live in the property. My advice? Don’t do it.
Man this stuff is getting good, isn’t it? Well this real estate investing training post is a wrap for now.