Post by Brian Gibbons on Mar 20, 2005 15:17:03 GMT -5
How you are going to finance your acquisitions?
How you are going to finance your acquisitions?
We will briefly discuss the following:
private money,
owner financing,
cash-out refinance,
wholesale,
lease/options,
agreement for deed and
getting the deed.
Private Money
Private money is exactly what it sounds like. It is not money from a bank or other lending institution, but rather from private individuals. You may know someone who has a self-directed IRA, and they would like to invest with you, as long as you can provide them with a higher return on their money than they are presently receiving.
There are also individuals or companies that are called hard-money lenders. Hard-money lenders typically broker money for private money lenders. To provide this service, they charge points as well as the
interest rate which will be paid to the private lender.
Private money is typically easier and quicker to obtain than a conventional loan. Although the requirements vary by lender, the loan is typically based on the value of the property, more than the credit of the investor.
Bonus Tip #1: Your local real estate investors association meeting is a great place to locate hard money lenders. Just remember that they all have slightly different requirements, so shop around to make sure that you get the best deal.
Owner Financing This is a great way to fund your real estate transactions. Owner financing is a lot easier to come by than a lot of people realize.
Bonus Tip #2: Motivated sellers are a wonderful source of owner financing.
Basically, when the owner of a property is willing to allow you to purchase the property without your having to obtain a new loan (either conventional or hard money), you are now involved in an owner
financing deal. Depending on the deal, the interest rates may be better or worse than those offered by another lending source. Typically, you will find that the terms are better, but they are almost always something
that you can live with. Remember that you will not have to go down to a bank and qualify for a loan. These are sweet deals!
Cash out refinance The cash out refinance is the double-edged sword of the real estate investor. This financing strategy allows you to refinance a property and get cash for some of the equity. However, many
real estate investors take out too much of the cash, which makes their mortgage payments higher than the rent that they are able to get for the property. It also makes the property harder to sell, if that is their exit
strategy.
Bonus Tip #3: Cash out refinances are great for rentals or keepers.
Wholesale Wholesaling is a strategy that we briefly touched on earlier. Many times a real estate investor will find a house that they can acquire way below market value. The house may not be in their target
area; it may not fit their strategy, or they just might not want to take on another project at that time. This does not mean that they will have to pass on the deal. Instead, a savvy real estate investor will find another
investor who is interested in the property. They will add a finders fee to the sales price of the property, and sell it to another investor. This strategy will allow you to make a quick profit.
Bonus Tip 4: Whenever you are involved in a wholesale deal, the majority of the profit should be left for the end investor. If you locate a property, but another investor is going to rehab it, sell it or keep it, this
investor should make the most on the deal.
By the same token, if you are purchasing a property from another investor, you should make the most on the deal.
Bonus Tip 5: Again, your local real estate investors association is the perfect place to locate wholesale properties. If you have located a great deal and aren't sure what to do with it, or just prefer not to hang on to
it, you can market it at your REIA meeting. Note: please check to see if there are any guidelines that you must adhere to when presenting your property to other investors.
Lease/Option The Lease/Option is another financing strategy that does not require you to qualify for a loan. You can use this strategy when your seller is motivated and is willing to allow you to lease, rather
than purchase the property. However, you should always sign an option agreement, which allows you to sell the property, if you so choose. This strategy gives you quite a bit of flexibility, when deciding your exit
strategy.
Agreement for Deed This strategy is pretty straightforward. You will agree to make to make the payments for the seller for a specific period of time. You do not get a new loan. The seller agrees to put the
deed in escrow with a real estate attorney. Once you have satisfied the requirements of your agreement with your seller, the deed will transfer to you. By keeping the deed in escrow, you are offering the seller a layer
of protection. Many sellers feel more comfortable with this scenario.
Get the Deed In this strategy, the seller simply gives you the deed to their property. It is important to note that you do not get a new loan. The mortgage stays in the sellers name.
Bonus Tip #6: This strategy is used frequently with pre-foreclosures.
How you are going to finance your acquisitions?
We will briefly discuss the following:
private money,
owner financing,
cash-out refinance,
wholesale,
lease/options,
agreement for deed and
getting the deed.
Private Money
Private money is exactly what it sounds like. It is not money from a bank or other lending institution, but rather from private individuals. You may know someone who has a self-directed IRA, and they would like to invest with you, as long as you can provide them with a higher return on their money than they are presently receiving.
There are also individuals or companies that are called hard-money lenders. Hard-money lenders typically broker money for private money lenders. To provide this service, they charge points as well as the
interest rate which will be paid to the private lender.
Private money is typically easier and quicker to obtain than a conventional loan. Although the requirements vary by lender, the loan is typically based on the value of the property, more than the credit of the investor.
Bonus Tip #1: Your local real estate investors association meeting is a great place to locate hard money lenders. Just remember that they all have slightly different requirements, so shop around to make sure that you get the best deal.
Owner Financing This is a great way to fund your real estate transactions. Owner financing is a lot easier to come by than a lot of people realize.
Bonus Tip #2: Motivated sellers are a wonderful source of owner financing.
Basically, when the owner of a property is willing to allow you to purchase the property without your having to obtain a new loan (either conventional or hard money), you are now involved in an owner
financing deal. Depending on the deal, the interest rates may be better or worse than those offered by another lending source. Typically, you will find that the terms are better, but they are almost always something
that you can live with. Remember that you will not have to go down to a bank and qualify for a loan. These are sweet deals!
Cash out refinance The cash out refinance is the double-edged sword of the real estate investor. This financing strategy allows you to refinance a property and get cash for some of the equity. However, many
real estate investors take out too much of the cash, which makes their mortgage payments higher than the rent that they are able to get for the property. It also makes the property harder to sell, if that is their exit
strategy.
Bonus Tip #3: Cash out refinances are great for rentals or keepers.
Wholesale Wholesaling is a strategy that we briefly touched on earlier. Many times a real estate investor will find a house that they can acquire way below market value. The house may not be in their target
area; it may not fit their strategy, or they just might not want to take on another project at that time. This does not mean that they will have to pass on the deal. Instead, a savvy real estate investor will find another
investor who is interested in the property. They will add a finders fee to the sales price of the property, and sell it to another investor. This strategy will allow you to make a quick profit.
Bonus Tip 4: Whenever you are involved in a wholesale deal, the majority of the profit should be left for the end investor. If you locate a property, but another investor is going to rehab it, sell it or keep it, this
investor should make the most on the deal.
By the same token, if you are purchasing a property from another investor, you should make the most on the deal.
Bonus Tip 5: Again, your local real estate investors association is the perfect place to locate wholesale properties. If you have located a great deal and aren't sure what to do with it, or just prefer not to hang on to
it, you can market it at your REIA meeting. Note: please check to see if there are any guidelines that you must adhere to when presenting your property to other investors.
Lease/Option The Lease/Option is another financing strategy that does not require you to qualify for a loan. You can use this strategy when your seller is motivated and is willing to allow you to lease, rather
than purchase the property. However, you should always sign an option agreement, which allows you to sell the property, if you so choose. This strategy gives you quite a bit of flexibility, when deciding your exit
strategy.
Agreement for Deed This strategy is pretty straightforward. You will agree to make to make the payments for the seller for a specific period of time. You do not get a new loan. The seller agrees to put the
deed in escrow with a real estate attorney. Once you have satisfied the requirements of your agreement with your seller, the deed will transfer to you. By keeping the deed in escrow, you are offering the seller a layer
of protection. Many sellers feel more comfortable with this scenario.
Get the Deed In this strategy, the seller simply gives you the deed to their property. It is important to note that you do not get a new loan. The mortgage stays in the sellers name.
Bonus Tip #6: This strategy is used frequently with pre-foreclosures.