The Best Ways To Finance A Property
Financing, a word that often makes consumers cringe or petrify a buyer when they see the qualifying interest rate, is not such a scary word for the savvy real estate investor.
While consumer financing for cars, boats, large appliance purchases, and other necessities may cause angst, financing in real estate, especially as an investor, is a different experience.
As a real estate investor, financing a property is probably one of the most creative aspects. Why? Real estate is, as the term suggests – a real asset.
It’s not paper, like stocks and bonds, nor is nano bytes like the metaverse. Real estate encompasses real tangible assets such as:
These assets provide multiple ways to finance or secure funding to acquire ownership.
Let’s examine the three most common funding strategies: Seller Financing, Subject To Financing, and Private Lending.
EXPLORING THE CONCEPT OF SELLER FINANCING
Seller financing is a strategy that allows the investor to partner with the seller.
Sellers who want a particular asking price for their home that is above what the investor is willing to accept opt to use this form of financing.
Due to renovation costs and market conditions causing shrinkage in the profit margin of the deal, investors must be savvy in their financing strategies.
Seller Financing means the seller maintains the current mortgage on the home while the investor renovates the house and prepares it for sale.
The seller does not receive their desired price until the home sells.
Using this strategy, the investor can renovate the house without worrying about maintaining mortgage costs. As a result, the deal is more amenable to them since the investor assumes the risks associated with renovations.
While the seller may not get the desired purchase price, they still reap the benefit of alleviating the carrying costs of a mortgage.
The margin may still be smaller than expected but good enough to make doing the deal profitable.
WHAT IS THE “SUBJECT TO FINANCING” STRATEGY
Subject to financing is a strategy that allows the savvy real estate investor to assume mortgage payments.
This strategy works best when a homeowner is in danger of foreclosure but not yet registered on foreclosure listings. We call this being a motivated seller.
The homeowner is typically very stressed because they are having financial troubles. The home quite possibly needs renovation, which may or may not be extensive.
Here’s how this 5-step strategy of financing works.
b. Remediation Possibilities c. Demand Letter
d. Foreclosure at City Hall
b. Pull the home out of default status c. Retitle the property in their business name.
4. Continue making payments while the house is renovated or sold.
5. Settle the mortgage at closing and retain all profit.
This powerful strategy is also subject to varying state real estate laws. Be sure to consult your title company on the specifics of Subject To Financing in your state.
You are really not taking advantage of anyone but in reality helping someone out of an extremely stressful situation.
Are you ready to be someone’s hero?
THE BENEFITS OF PRIVATE LENDING
Private lending is a great way to finance deals. Private Lending is partnering with a financial capable individual, group of individuals, or a family to fund your deals.
Instead of seeking money from a bank, private lending circumvents unwanted details such as:
A private lender provides an investor with the needed capital to secure, renovate, and sell a home.
Private Lending can work in several ways, but here are a few common strategies:
2. Private lenders may partner with the investor. The private lender provides some capital for securing the property, and the investor provides the remainder. Together they work to renovate the property and sell it with the profit split according to the percentage invested.
3. Private lenders fund only the renovation and obtain payment either throughout the renovation process or a lump sum at closing.
4. Private lenders may fund the entire deal, purchase, and renovation, and payments throughout the process are negotiable or payable as a lump sum at the sale of the home.
This form of investing is contingent upon negotiation. Almost anything is possible, but all terms must be legal.
Many states have a ceiling on interest rates and constraints on real estate contracts and financing. Be sure to verify what is legal in your state.
An excellent real estate-focused title company can help with this.
WHAT ABOUT YOU?
Do you have excellent or good or bad credit? Do you have massive amounts of capital at your disposal? Do you want to leverage your credit? Do you want to put all your money at risk?
Before answering these questions, it would be wise of you to watch The Best Ways to Finance a Property by Glenn Schworm.
Click the link now.
This video will provide some insight, but more importantly, it will show you how to obtain training to ensure you are successful in financing real estate.
For more details, blogs, and resources about real estate investing also visit, www.HomeFlippingWorkshop.com.