The real estate investment business is blowing up. Everyone who is anyone has come to realize the long and short-term earning potential that comes from purchasing properties. Whether the purchase of the property is to increase its value and flip or to update it and rent it out, property investors are able to supplement and even surpass their traditional income. Though investing in real estate can be a lucrative opportunity, many avoid getting involved due to costs.
It’s true, purchasing a property can be expensive. If you don’t have thousands of dollars saved up for the purchase of the property, repairs, and other associated fees, you’ll need to find other financial resources to invest. While the most common choice would be to take out a second or third mortgage, the eligibility requirements are strict and not everyone can get approved. Fortunately, there are alternative funding options you can turn to such as those listed below:
Hard Money Loans
One of the first alternative funding solutions for real estate investments is hard money loans. These are loans provided by investors or private companies to those interested in investing in real estate. As this guide to hard money loans points out, they’re a lot easier to qualify for than a traditional mortgage. This is because borrowers put collateral (the property you’re purchasing) against the loan. So, should they default, the lenders can take over the property to compensate for the financial loss. While credit, track record, and income/capital do still matter, the underwriting process is a lot less strict and easier to get through.
To apply for a hard money loan, you’ll need to have as much information as you can on the property. This includes its resale value before and after repairs have been completed, how much repairs will cost, and how long it will take to get the property sold or rented out. The loans are typically for a term of 1-5 years and investors can repay these quickly by flipping the properties and using the proceeds to repay the loan in full.
Retirement Loans
Another option for those interested in investing in real estate is to borrow from your retirement account. Depending on the type of account you have you are able to borrow as much as 50% of your account balance. While there are some interest and fees applied to the loan, you will have up to five years to repay the balance in full. Keep in mind, however, that should you go this route there are tax implications you will have to account for. Also, if the loan is not repaid in full as agreed you can also have to pay penalties and fees to the local and federal governments. Again, a retirement loan can quickly be repaid by using part of your profit to pay the balance in full or applying a portion of the monthly rental income to the retirement loan payments.
Bring in Partners
Do you know someone else who would be interested in investing in real estate with you? Perhaps a relative, co-worker, or friend that you trust? If you know them to be pretty good professionals, have a great work ethic, and also have the capital to help reduce your out of pocket costs, why not consider it? Adding someone else to the mix means more financial resources. It can make it easier for you both to get approved for loans and/or add more money to the pot from your personal finances (i.e. savings, retirement, life insurance, etc.). If you’re going to partner with someone, however, be sure that you have drawn up a contract that protects you both.
Liquidate Assets
If you’re really serious about investing in real estate and don’t want to take on too much debt or acquire a partner, there are still ways to find capital. This option would require you to sell things of value. If you have two vehicles, for instance, you could sell one and put the cash towards purchasing an investment property. You can take out a home equity loan on any existing properties that have equity in them, sell some shares of your stock, or have a yard sale and get rid of things you have lying around the house.
Investing in real estate isn’t cheap, but that doesn’t mean you need to be rich and famous to get into this market. All it takes is a bit of creativity, sacrifice, and the above-mentioned financial resources. Once you’re able to secure funds to purchase the property, the goal is to get it up to code, complete remodels that help to increase the value, and get it sold or rented out so that you can repay the loans in full while also turning a profit.
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