Real Estate Investment Financing Strategies: How to Develop a Solid Financing Arsenal
I was speaking to an investor group in Columbia, South Carolina last night on recruiting private investors. That always seems to be a popular topic among beginning investors. It seems that many investors have a hang up when it comes to getting a deal financed. One of the investors asked me what I thought about using credit cards, and it got me to thinking not just about his question but about how to develop a solid financing arsenal.
Let’s just say that you find someone to finance some deals for you. You work out some terms and how the relationship will be structured. You hit the ground running and before you know it, your doing deals. You’ve bought, renovated, leased, and sold a few houses. You get another deal under contract and set up the closing.
Right before closing, you get the dreaded call. Your investor says, “Sorry but I’ve had some things come up, and it’s just not a good time.” Your heart drops because you don’t have a back up plan, and you have to break the news to everyone that expects the deal to close the next day.
You’re thinking to yourself, “Well, I guess that things like this just happen sometime. It was out of my control.” WRONG! You only had one source of capital and relinquished all control to them. He said no, and you had no place to go for the money.
Developing a Solid Financial Arsenal
There are two areas to look for capital: on the inside and on the outside.
Start by asking yourself, “What assets do I have that could be used to fund my real estate deals?” Do you have cash, equity in a house, stock you could borrow against, or room on a credit card? Total up everything that could be used and see where you stand. If you are structuring deals creatively with seller financing, often times, you’ll find that you don’t even need much cash to get a deal done.
Now ask yourself, “Who would be interested in provided funds for good deals in real estate?” Friends, family, other investors in the area, hard money lenders, banks? Almost everyone you will ever talk to is interested in making more money. If you can show any of these people that it makes sense to lend money to you because they will make more money by doing so, you’ve got a lender. And the only one that cares about credit are banks!
Developing a solid financial arsenal is all about options! When you have multiple options to getting a deal financed, you are in control which is exactly where you want to be.
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Patrick Riddle: