So how and where do you get the money you need to fund a real estate investing deal? Easy answer – the money is all around you.
Do you think anyone likes keeping their money in the bank, where they’re only earning around one percent interest? Think about it: Inflation is at four percent; this means that someone with money in the bank is actually going backward three percent each year.
The big question is: What would make someone want to loan you the money to do a deal? First, the lender needs to make a much better return than he can make at a bank. Second, his loan must be safe, and by safe, I mean that it’s secured by a whole bunch of collateral.
Your next question is probably this: Where do I get the collateral? From your deal, of course. Over the years, Kim and I have done a good bit of lending. When someone brings us a deal where the collateral offered is a solid property that doesn’t need a lot of work and they’re buying it for forty-cents-on-the-dollar, we’re usually good to go. But if it’s a stinker of a deal – in other words, the collateral isn’t very good – there’s no way we – or anyone else – will lend the needed purchase-money funds.
Do you think you could find the money to do a deal if you were willing to pay 10 percent interest or maybe you were willing to give the lender 25 percent of the deal? Outside-the-box thinking isn’t good enough any more. If you want to be a successful real estate investor, you must remember that there is no box.
Let’s look at two deals we recently did and see how each was creatively funded without going to a bank.
We wanted to buy a property at the August foreclosure auction in Bartow County. Our top-offer price was around $80,000.
Problem was, we were exactly $80,000 light of having the $80,000 we needed to do the deal. So we found a money partner and offered him a percentage of the profits. In exchange, he loaned us the purchase money, which was secured by the property.
Back in May, we found a sensational home that could be a great rental property. The owner’s asking price was a fair $65,000. There was only one problem – yep, you guessed it – we were $65,000 light.
To make the deal work, we asked the homeowner to finance the property to us at five percent interest for 30 years. He readily agreed because if he put his money in the bank, the bank would only pay him one percent interest. This was a win-win deal. We got owner financing on a property that would cash flow $360 a month, and the seller got a five percent return on his money, secured by the property.
The best way to learn how to creatively fund your deals is by hanging out with experienced investors who are not just surviving, but thriving in this market.
Bill and Kim’s North Georgia Real Estate Investors Association meets on the second Thursday of each month, from 7 - 9 p.m., at the Hilton Garden Inn off Main Street in Cartersville. For more info, go to REIoutpost.com