Real Estate Lending: Finding Funding – Introduction
October 25, 2014
As we’ve discussed previously, the number one problem for the majority of new investors is that they are unable to find their first deal. The second biggest problem for new investors, or occasionally experienced investors, is finding the funding for your deal. However, my decade-plus worth of experience has showed me that these problems are more or less excuses!
One must first understand and be aware of the different types of lending when it comes to real estate investing, rehabbing, or flipping. I will list them below and we will expound on them much more in the very near future. Here are the types of lenders:
1. Hard money lender – aka “HML,” this is an easier route as they’re in the business to loan you money.
2. Private lender – obviously “private lenders” can lend you money but is not considered an “institutionalized” lender. These usually come from immediate circles of influence such as a doctor, attorney, church member, friend, or family member.
3. Lines of credit/cash – aka “LOC, Business LOC, or credit cards”. This is borrowing money on a line of credit or a credit card. I know of several investors who have bought and rehabbed investments using only a credit card. Especially with low or no interest rates. Cash, this is obvious. If you have the cash, you’ve got the house.
4. Self-directed IRA/401K – this is using one’s 401k or IRA money or using someone else’s 401k or IRA to loan you capital
5. Joint Venture or JV – finding an investor who will put up 100% of the money for the purchase and rehab and then split the profit on the backend. This is a very popular source of funding
As I mentioned earlier, we will expound on each of these in future blog articles. We’ll talk about how they work and how investors use this type of funding. Usually, investors don’t only use one source of funding. They use multiple sources of capital. In my opinion, the most successful way to use lenders is to utilize all avenues of funding! When it comes to accessing capital for your rehab, you don’t need to have liquid cash in your bank account. You just need access to someone who has funding available. Don’t sit around and wait for all of the money to be into deposited into your account in order to buy a house. I simply grab my Rolodex and call my lenders directly.
A lot of investors both teach and state, “find the house and the money will find you“. There is an element of truth to that statement but the market is always tough and depending on the area, the inventory might be low. This is why the investors who already have access to funding are usually far more successful. The capital is already there so you can focus on finding the right deal.
I always recommend gutting your funding squared-away first. You have to be a confident player to make it in this business so line up your money first and then start looking for your deals.
