Financing options for investors have not been as readily available as they were during the boom. Many investors believe their only option is Fannie and Freddie backed loans, which is far from true. While the ease of getting a loan with little money down are not abundant like years past, there are plenty of options for savvy investors. We are not lenders or mortgage brokers but we do consult with investors on financing for rental properties, contact us with questions or assistance with your financing needs. For flips, you may benefit from our Free Guide to Raising Private Money. Here are 10 options.
1. Fannie and Freddie – 30 year fixed with low rates are very appealing. You can do 10 loans with Fannie and 4 with Freddie, requirements to get the loans can make things difficult as many get maxed out quick. Many investors give up and do nothing. While other options may not have rates as low, most savvy investors are focused on the overall goals of a portfolio rather than one deal. With that in mind investors can still charge forward with financing options that are far more flexible and big goals are well within reach.
2. Portfolio Lenders – Many investors are not aware of Portfolio Lenders. These are usually smaller local banks that do not have the rigid requirements as Fannie and Freddie backed loans. They will blanket multiple properties into one loan, require equity either as down payment or existing and they are really powerful for investors seeking to build a strong monthly cash flow from rental real estate. Do a search, check online and on forums, even call local banks to find out what programs they offer. A little research can open up a world of opportunity.
3. More Non-Conventional – There are also investor loans that require around 50% down payment that are options. They do not care much about credit and will lend to foreigners. The other options may look sexier on paper, these can however increase your cash on cash return vs a full cash purchase so you can buy more volume. I am seeing more and more investors using these types of loans even if only temporarily until they secure a more appealing loan solution.
4. Business Lines of Credit – For those investors who are aggressive, they can use their credit to obtain a lot of money to buy investments cash or use for down payment. Of course there is interest on these lines of credit which must be factored into the numbers. Many savvy investors utilize lines of credit to do a lot of great deals and find great success. The pitfalls cannot be ignored, investors who buy wrong and make mistakes can take lumps using an aggressive strategy.
5. Bridge Loans – These are short term loans to take control of properties while securing longer term financing. They can be great for a large purchase then refinance. They can also be costly so you simply have to factor that in to the cost of doing business. Many investors are comfortable with these types of loans as they do exactly what they are intended, they give them a “Bridge” to meet their goals.
6. Private Placement Memorandums – These are amazing and allow the ability to publicly market your investment opportunity to Accredited Investors. In a nutshell, a business plan is created and marketed to high net worth individuals. You can raise millions this way.
7. Partnerships – A simple example is your money partner puts up all the money, you find and do all the deals and you create an entity such as an LLC and have a profit split and/or agree upon terms. Very powerful and very easy when you find an investor seeking strong returns and comfortable with investments backed by real estate.
8. Syndications – In its simplest form this is pooling money from multiple investors into an entity such as an LLC that is involved in real estate investments. They were very popular in the past as tax shelters and are still to this day a very viable option for funding.
9. Crowdfunding – This is also pooling money like Syndications, very new and has it’s own rules that could change quickly as it evolves and is utilized more.
10. Private Money – For flips this is by far my favorite. You can find hard money as well, they can be really expensive and with terms that make it near impossible. Working with Private Money Lenders can be a win-win for everyone. Terms and rates can be negotiated to be reasonable for both sides to meet their goals. The challenge for many is how to find and raise private money. This is a huge skill that most savvy investors must learn as most make a mess of it and look quite laughable in the process. My best advice is to build credibility, trust and get them to like you. Don’t ask for money, offer them an incredible investment opportunity secured by real estate. You may find our free guide on Generating Private Money helpful.
For assistance with financing needs, fell free to contact us.