So you made the phone calls, you have tiled the elements and looked out to look at properties looking for the deal and now you’ve found it. The next step is to determine which method of real estate financing option you will use.
It depends on a few things, such as whether you want to hold the property or want to sell quickly or how much money you have in the deal and how much you borrow. It depends on how your credit looks.
Do you want monthly interest payments or would you rather pay on the back end. Should you use your money or other money?
Much of this depends on your strategy and personal resources.
Real estate financing can take many forms. I simply break it into three categories.
If you have the credit and the required deposit, you can get a loan from a bank or mortgage broker. When you run this route, it’s important to make sure you charge monthly fees, such as taxes and insurance, and make sure your budget includes the monthly note.
Six months of non-income mortgages can divide all your profits and let you work for nothing.
If you buy rehab grade real estate, the bank can be picky, as the real estate will be their security. They may not seem to be financing a home that is not quite habitable.
Another thing to keep in mind with banks is that you pay a higher interest rate on non-occupied assets
Cold, hard money is King when buying real estate below market value. The ability to act quickly and not wait for bank approvals is the key to acquiring sad property or otherwise inviolable property.
If you do not have your own money for the deal, you can use a hard money lender.
Hard money lenders will most likely be local investors, but there are some medium-sized companies in the hard-cash company. Most will almost double the interest rates a bank wants, plus additional points for the financing of the deal.
Many hard money lenders are long-term real estate investors who are branched and will understand the process better than most bankers. They will care less about your credit than they want if you have a good deal or not.
Hard money lenders will only do business with you if you buy the property at or below 65-70% of the After Repair Value.
Another route is to find your own private investors to set up the money and split the profits on the backside. Give the investor a 1st position on the property as collateral.
This way, both private investors and hard money lenders can earn more money if you default by closing and completing the project itself.
Many real estate investors specialize in buying homes with little or no money down.
They achieve it through a variety of ways that fall under the umbrella of “Creative Deals”. They are usually situations in which the owners are in need of shielding, bankruptcy, divorce, or other situations that make it urgent to sell quickly.
Methods include the lease option, in which you rent the property with the option to purchase later. You can accept the existing mortgage. In some situations, the owner of the property can simply terminate the act in exchange for taking over payments.
With creative deals, make sure you have a good real estate lawyer on your part to make sure that you do everything legally and that all parties are well-informed about their rights.
Each of these methods allows you to finance or manage the property so that you can apply your wealth strategy, whether it is rented or sold.
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