Creative
Real Estate Financing
by Steven Gillman
Do the creative real estate financing
techniques you hear about really work? Yes and no. They likely have all
worked somewhere for someone at least once. The important point is to
understand the principles involved, so you can find your own creative
ways to invest in real estate. Here are ten methods to get you
thinking.
1. Use hard money lenders. Ask around or
find these online. These lenders specialize in short-term loans at high
interest. Typically, you use this type of financing for a "fix and
flip." You can 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 or low-doc loans. With these
loans, no (or low) documentation of your income or credit is required.
You can find banks that do these online now. You'll only be able to
borrow 70% to 80% of the purchase price or property value. However, if
you have 10% in cash, you might be able to borrow the other 10% or 20%
from a friend or the seller.
3. Seller financing help. 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 or "contract for sale."
Called 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.
5. Credit card advances. Suppose a seller
will take $10,000 down on a fixer-upper that you expect to make $20,000
on. Why not use credit cards? If your card limits allow for repair
money too, this is a true 0-down deal for you, and if you turn the
project in six months, you will have paid maybe $1,000 or $2,000 in
interest on an 18% credit card. Don't let $1,000 get in the way of
making $20,000.
6. Use your retirement accounts. The laws
are 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. Borrow from friends and family. If you
go this route, keep it all business. In any cae, loaning you money at
7% isn't a gift if their money is getting 2% in the bank.
8. Use real estate note buyers. Suppose 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, but you got in with
no money down.
9. Borrow on another property. If you take
out a home equity loan for a vacation, and then forget to use it for
that, you can later use the money for the downpayment 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. Start 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.
Remember, these ten creative real estate
financing techniques are just to get you started.
Steve Gillman has invested in real estate
for years. To learn more, go get your free real estate
investing course at: http://www.MakeThatOffer.com
Steven Gillman may be contacted at
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