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Ten methods of creative financing
Do all the creative financing techniques you hear about really work?
Yes, actually. They probably have all worked somewhere for someone at
least once. The point isn't if they will all work for you. The point is
to know what is possible, so you can find your own creative ways to invest
in real estate. Here are ten methods to get you thinking.
1. Hard money lenders. You can ask around or find these online. They
specialize in short-term loans at high interest. You typically use this
type of financing for a "fix and flip." You can often get the
money fast, and if you make $30,000 on a project, who cares if you paid
$10,000 interest in six months.
2. No-doc and low-doc loans. No (or low) documentation of your income
or credit required. Again, you can find banks that do these online now.
The catch is that you will only be able to borrow up to 80% of the purchase
price or property value. If you have 10% in cash, you might be able to
borrow the other 10% from a friend or the seller.
3. Seller-carried second mortgages. Sometimes a bank will loan you 90%,
and allow the seller to take back a second mortgage from you for 5%, leaving
you needing only 5% for a downpayment.
4. Land contract. Called "contract for sale" or other names
as well, this just means the seller lets you make payments, and delivers
the title upon 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 this way.
5. Credit cards. If a seller will take $10,000 down on a fixer-upper
that you expect to make $20,000 on, why not use credit cards? This is
a true 0-down deal for you, and if you turn the project in six months,
you will have paid $900 in interest on an 18% credit card. Don't let $900
get in the way of making $20,000.
6. Retirement accounts. The laws get pretty 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. Friends and family. Keep it all business, if you use this source,
but loaning you money at 7% isn't a gift if their money is getting 2%
in the bank.
8. Note buyers. The seller needs cash. He 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. He arranged (or you did) for a note buyer
to pay him $80,000 cash for the first mortgage at closing, getting him
the cash he wanted. You pay two payments now, one to each note holder.
9. Get a loan on other property. Interestingly, if you take out a home
equity loan for a vacation, and then forget to use it for that, you can
use it 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 cash of your own.
10. Partnerships. For bigger projects, you could arrange for five investors
to each put money into a partnership, with your share being the management
responsibility instead of cash.
About the author
Steve Gillman has invested real estate for years. To learn more, and
to see a photo of a beautiful house he and his wife bought for $17,500,
visit http://www.HousesUnderFiftyThousand.com |
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