One question I get asked all the time is “Scott, if I’m just getting started in real estate, How do I get financing?” That’s a really good question, especially now given the difficulty in borrowing money from banks and mortgage companies.
In this article I’m going to give you my two top tips for getting financing if you are just starting out.
1) Find a Money Partner
The first tip I’ve got for you is to get into a partnership where you are doing all the work involved in the real estate transactions. You find the properties. You supervising the rehab. You provide for the property management.
The other party, your partner, will be responsible for all of the financing. That means they will put up the money and credit to fund the project.
But at the end of the day, you are 50% owner of these properties. The down side is that you are giving away half of the deal.
When I was just starting, for a whole year I bought ten properties with a partner in this manner. These properties were long term rental. I still on those partners those those properties in partnership.
2) Borrow from Friends and/or Family
The second tip is to rely on friend or family as a private lenders. Private lenders are cheaper than 50-50 partners in the long run.
However, most of the time it’s a great for you AND a great deal for the private lender. If they’re looking to make a good return on their money you can be an excellent opportunity for them. For example, if they’re going to the bank to buy a CD, they might only be getting 3% or less. But if you are borrowing that money from your private lender on real estate you can offer them 8% to 10% interest secured with a mortgage.
My private lenders have been critical to me since the banks have tightened up their lending standards.
Are either of these easy? No way. But if you are just getting your start as a real estate investor and want to buy properties for the long term, they represent a great avenue for you to get the financing you need.
The next question is how to approach a prospective private lender or money partner. I’ll leave that to another blog post.
May 17th, 2010 at 9:33 pm
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May 18th, 2010 at 2:15 pm
Financing is the biggest barrier for many right now. Many don’t believe that there is real money out there outside the mortgage market. However if you really search and you are dedicated you can find it.
May 18th, 2010 at 9:54 pm
As Jason mentions, there is money out there. Banks and mortgage lenders may have tightened up credit requirements, making it near-to-impossible for people with relatively good credit histories to find financing. But there are hard money lenders who are more than willing to lend at slightly higher interest rates for the short term, i.e. 1 year or less.
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