Creative Financing Real Estate
Borrow from friends and family. If you go this route, keep it all business. In any cae, loaning you money at 7% isn’t a gift if their money is getting 2% in the bank. No-doc or low-doc loans. With these loans, no (or low) documentation of your income or credit is required. You can find banks that do these online now. You’ll only be able to borrow 70% to 80% of the purchase price or property value. However, if you have 10% in cash, you might be able to borrow the other 10% or 20% from a friend or the seller.
Seller financing help. 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. Use your retirement accounts. The laws are 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.
Use hard money lenders. Ask around or find these online. These lenders specialize in short-term loans at high interest. Typically, you use this type of financing for a “fix and flip.” You can get the money fast, and if you make $30,000 on a project, who cares if you paid $10,000 interest in six months? Use real estate note buyers. Suppose 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, but you got in with no money down. Borrow on another property. If you take out a home equity loan for a vacation, and then forget to use it for that, you can later use the money 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. Start 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. Remember, these real estate financing techniques are just to get you started.
