Do all the creative financing techniques you hear about really work? Yes! They probably have all worked somewhere for someone at least once. The point isn’t if they will all work for you. The point is to know what is possible, so you can find your own creative ways to invest in real estate. Here are ten methods to give you a head start.
1. Hard money lenders. You can find hard money lenders by networking within your local real estate groups or simply searching online. They specialize in short-term loans at high interest. You typically use this type of financing for a “fix and flip.” You can often get the money fast, and if you make $60,000 on a project, who cares if you paid $20,000 interest in six months.
2. No-doc and low-doc loans. No (or low) documentation of your income or credit is required. You can also find banks online that fund these. The downside to these types of loans is that you will only be able to borrow up to 80% of the purchase price or property value. But, if you have 10% in cash, you might be able to borrow the other 10% from a friend or the seller.
3. Seller-carried second mortgages. 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.
4. Land contract. Also called “contract for sale,” this just means the seller lets you make payments and delivers the title upon payment in full. I sold a rental this way for $1,200 down because I wanted the 9% interest and the higher price I got this way.
5. Credit cards. If a seller takes $10,000 down on a fixer-upper you expect to make $20,000 on, why not use a credit card to fund the deal? This is an actual zero money down deal for you, and if you turn the project in six months, you will have paid $900 in interest on an 18% credit card. Don’t let $900 get in the way of making $20,000. The risk is definitely worth the reward in this case.
6. Retirement accounts. The laws get pretty complex in this area, but don’t let them prevent you from taking action. Check with a tax attorney to see how you might borrow from your retirement account to finance real estate investments.
7. Friends and family. Keep it all business if you decide to take this route. But loaning you money at 7% isn’t a gift if their money gets 2% in the bank.
8. Note buyers. 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 money he wanted. You make two payments now – one to each note holder.
9. Get a loan on another property.You can borrow money against the equity in one property to fund the purchase of another using a HELOC or home equity line of credit.
10. Partnerships. For larger projects, you could arrange for five investors to each put money into a partnership, with your share being the management responsibility instead of cash.
For more tips on how to invest in real estate without any money, check out The Beginner Investor: A Simple Guide to Real Estate Investing with Little or No Money Down.
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