Ten Creative Financing
Techniques |
By Steven Gillman |
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Do all the creative financing techniques you hear about really
work? Yes, actually. 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 get you thinking.
1. Hard money lenders. You can ask
around or find these 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 $30,000 on a project, who cares if you paid $10,000
interest in six months.
2. No-doc and low-doc loans. No
(or low) documentation of your income or credit required. Again,
you can find banks that do these online now. The catch is that
you will only be able to borrow up to 80% of the purchase price
or property value. 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 down payment.
4. Land contract. Called "contract for sale" or other names as
well, this just means the seller lets you make payments, and
delivers the title upon payment in full. I sold a rental this
way for $1,000 down, because I wanted the 9% interest, and the
higher price I got this way.
5. Credit cards. If a seller
will take $10,000 down on a fixer-upper that you expect to make
$20,000 on, why not use credit cards? This is a true 0-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.
6. Retirement accounts.
The laws get 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.
7.
Friends and family. Keep it all business, if you use this
source, but loaning you money at 7% isn't a gift if their money
is getting 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 cash he wanted. You pay two payments now, one to
each note holder.
9. Get a loan on other property.
Interestingly, if you take out a home equity loan for a
vacation, and then forget to use it for that, you can use it for
the down payment 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.
10.
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. |
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