It takes money to make money. That’s one indisputable fact of business. You must invest in your business in order for it to be profitable.
Some businesses, such as real estate businesses of almost any sort, require a substantial upfront investment in simply procuring the property. Unfortunately, that investment is only the beginning in most cases.
The only time sizeable additional investments aren’t required is in a brokerage situation in which you have a buyer lined up and are acting as a “middle man” of sorts, between the buyer and the seller. These quick flips require only the costs of the paperwork in these transactions, which is something you can often pass on to the other parties.
For the most part, you’re going to have to part with some serious cash in order to secure the property and even more to get it where you need it to be. Whether you’re planning a cosmetic rehab and flip or simply preparing a property for tenants, expect to invest well beyond the initial purchase price of the home.
Where Do You Get Funding for these Types of Investments?
As you’ve probably found out by now, banks are still a little gun shy when it comes to real estate lending although it’s better now than it has been in the past.
Unfortunately, real estate investors are having a hard time going through traditional channels — which were never overly fond of real estate investors. There are many reasons for this.
One of those reasons is the lack of a safety net for lenders that offer funds to real estate investors. Lenders that offer funds to people purchasing primary residences have a few safety nets in place in case those deals go south in a post-bubble marketplace.
That said there are ways to get the financing you need — even in today’s real estate market.
1) FHA Financing. While you may agree that this type of financing source is fairly traditional, the loans for investors generally have interest rates that are at least one full percentage point higher than families purchasing homes to occupy and they require 20 percent of the purchase price down as well as thirty years amortization.
Always read the fine print to see if there are penalties for early payoff with these types of loans and factor those into your plans if you’re hoping to buy and flip.
2) The 40 Percent Rule. Well, it’s more of a guideline. Regardless, if you front 40 percent of the value of the home as a down payment, it’s hard to find a lender that isn’t willing to lend as long as the property is used for security.
3) Non-traditional Funding Sources. There are all kinds of exciting opportunities cropping up for people with good, solid business plans to obtain financing. One of the most exciting is peer-to-peer lending. Interest rates are higher on these loans than bank loans, but these loans are available to people who don’t always qualify for bank loans.
It may seem like the cards are stacked against you when it comes to getting the finances you need to get your investment dreams off the ground. However, if you come up with a solid and well-laid business plan, doors will open for you. These options are great ideas to consider.