funding sources & resources

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FUNDING SOURCES FOR REAL ESTATE!

1. CASH - Work towards saving your own capital and improving your credit score.  Get second PT job, part time side gig, or flip other cheaper items to generate more capital and save until you have enough to invest in real estate.  

2. JOINT VENTURE with someone who does have capital or better credit with access to funding.  Call up legitimately funded investors in your area and say something like:

• >>> "I'm good at finding discounted deals but don't have funding or credit to close myself, would you be interested in doing a Joint Venture on some wholesale deals with me? I'll do all the work, find the deals, and you choose which properties you feel comfortable bringing the funding to close on and if we do not assign it, after we close, I'll do minor repairs, and clean up the property to whole tail and bring a better profit for both of us. Then we'll split the profit 50/50 and repeat."
• It wouldn't take very many contacts before you had a few key investor JV Partners and a huge capital backing until you had your own funding. 

3. BANK FUNDING once you have at least 20% down payment and credit to qualify, however banks won’t typically lend on fixer-uppers.

4. PRIVATE LENDERS - INDIVIDUAL people you know or meet who have funds they're looking to invest to get better returns.

5. HARD MONEY LENDERS - BUSINESSES who loan with less credit and down payment, but charge higher rates and fees and shorter term then banks do.  These companies advertise and are legitimate entities.  You can find them by googling “hard money lenders in (your market)” or “asset based lenders in (your market)” Do your research before responding to the many ads you see on FB, most are scammers or brokers who will try to charge you big fees up front and some will never deliver on getting you funds.

6. RETIREMENT ACCOUNT - borrow from your retirement account, or if you have a SDIRA or SOLO 401K, you can own real estate inside the account trust.

7. LIFE INSURANCE - borrow from the Cash Value in your Life Insurance.

8. CREDIT CARDS - borrow from your credit cards using zero/low interest balance transfer offers, or use zero/low interest cards to pay for materials, utilities, etc while doing flips. 

9. CREATIVE FINANCING - Owner Carry Back, Land Contract, Contract for Deed, Subject To, etc. All creative ways to fund real estate and make your own capital go further. 

Identifying 15 Funding Sources for Investing in Real Estate:

1. Your own Capital/Cash
2. Conventional Mortgages
3. Commercial Loans
4. Home Equity Loans and Lines of Credit
5. Portfolio Lenders 
6. FHA Loans
7. 203K Loans
8. 1031 Exchange
9. Owner Financing
10. Hard Money
11. Private Money
12. Partnerships/Joint Ventures
13. ROTH IRAs/Solo 401Ks 
14. Life Insurance
15. Crowd Funding

#ThinkOutsideTheBox

“We All Need Them and How to Become One”

When most people think about Hard Money Lenders (HML’s) or Private Money Lenders (PMLs) they think of some shady loan shark type guy that you meet in an alley somewhere, and hope the cops are not around.  However, that’s not the case with real estate.  HMLs and PMLs provide a much-needed portion of funding that makes the real estate investing community operate.  They provide funding on deals where the banks will not, such as properties that need full rehab, and where the borrower may not qualify for bank credit.

What’s the Difference Between Hard Money vs. Private Money?
Hard Money Loans - A hard money loan is a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private investors or companies who are in the business of lending for higher interest rates.  It’s not uncommon to be charged points, fees, and high interest rates of 8-20% and these are typically short-term loans of under 12 months.  HML’s typically will loan up to 75/80% of the purchase price and up to 100% of the rehab and repair costs.  HMLs are not set up for your long-term buy and hold needs, but can be used to acquire distressed properties, and once you finish rehabbing the property, a regular bank will typically refinance the loan. If you google “hard money lenders”, there’s literally thousands of companies out there.

Private Money Loans – A private money loan is the same as a hard money loan, with the exception the party lending the money typically has some relation to the borrower, such as a relative, friend, business colleague, or other private individual who isn’t typically in the lending business, but has established enough faith in the borrower to lend them funding.  Private lenders will also want a fair rate of return on their capital, but are more open to longer terms, and typically lower rates then HMLs.  PMLs can be secured for both rehab projects, and long-term buy & hold projects.

Rules When Raising Private Money
There are many rules set by the Security & Exchange Commission (SEC) regarding raising private capital. Please talk to a qualified securities attorney in your area or your local SEC office.  The SEC takes these rules very seriously.

Here’s 4 main rules to always remember:

1. No General Solicitation or Advertising – This means no advertising period.  This can include postings on your website, message boards, newspapers, etc. 
2. Do Not Present Offers to Unqualified Investors – You must have an established relationship with them and they must be Accredited or Sophisticated investors.
3. Never use “guaranteed” – This is a word that can get you into a lot of trouble.  As a real estate investor, you cannot guarantee the property or investment’s results or performance.  Instead, show different scenarios and possible outcomes, but do not guarantee.
4. Always Use Proper Paperwork – Talk to a real estate attorney and make sure you have the proper legal work in place.  Some of the common paperwork includes an operating agreement, subscription agreement, and even a private placement memorandum if you are raising bigger amounts of money or combining investors into an investment.

Limited Risk… If you do accurate projections, and are tying each investor to a separate deal, there’s very minimal risk for HMLs or PMLs because they’re investing in a 1st or 2nd lien position tied to a property that has existing value of more then they’re lending.   So, worse case scenario, they have to foreclose on the borrower and end up with a property typically worth more than they’ve loaned on it.  

It’s also not hard to find PMLs, you just have to identify people in your network with money setting around in the bank drawing minimal interest rates, and be able to express the security of the investment being backed by a 1st or 2nd lien position on the real estate property.  The more success you have doing deals, and the more you grow your network of people who know about your business, the easier it is to acquire private money lenders.  Many times, people in your network will contact you with interest in investing in real estate, but they don’t have the time.  That’s the perfect potential private lender.

Also, once you’re vested in your real estate investing career, and start having a lot of extra capital, becoming a private lender for other investors is another source of revenue to consider pursuing.  I like to do short-term lending, especially transactional funding, or bridge loans for rehabbers, or small business owners.  You can make great returns, and not tie your capital up long term.  Just use caution and properly research anyone before investing, there's always some risk.

I've posted about using zero interest credit card advances to help grow your business a few times over the past few years.  Which can be a great source of cheap money for those who have the cash flow to make the minimum payments and pay off the balance prior to the term.  Most offer balance transfers & allow you to request a check that can be written to yourself or your business instead of paying another card balance.  Here’s a card offer I used and recommend.

💳 Get 0% Intro Credit Card from Chase

I used this technique starting off to get an extra $15K at the time at 0% for 12 months, but you still have to pay a 3%-5% fee, so its really 3%-5%.  But where else can you get unsecured funding at 3%-5%?

I do not recommend this for those who do not have the cash flow or discipline to make the minimum monthly payments, or who cannot pay off the balance in full within the 12 month term. But for those who can, you can obviously turn that money into a lot better return then the 3%-5% it cost you. 

After doing this a few years in a row, I built my credit lines up to being able to take over $80K at 0% over 12 months, but still have the 3%-5% fee.  This is a huge chunk of cheap money to fund additional projects throughout the year.  I use this at times when I need a little more cash for deals instead of using high interest Hard Money and then I pay the min payments and pay off the balance in the 11th month. 

CAUTION...... Again, use caution and only consider this if you have the ability and responsibility to make the minimum payments and payoff within the term.  Otherwise you'll be charged full interest which can be 15-29% depending on your card & credit. ALSO, If you’re in the process of getting other bank loans, don’t do it because your credit score will dip a little because your CC usage will jump up and your DTI also. 

BE THE CEO OF YOUR BUSINESS & NETWORK WITH YOUR CIRCLE OF TRUST!!

Why people offer me private money all the time, but you cannot find any...Even though I rarely use any funding other then creative financing, I still get offered funding all the time and know its always there if I need it.  

But I get asked almost daily "how do I find private money lenders".  The first thing I normally do is pull up that persons social media pages to see if they are using their free tools to market themselves and their business to their circle of trust, and 90% of the time, the answer is NO!! Even some of you who are doing a lot of deals, and making some good money, still don't use your circle of trust. I do not understand it. 

Everyone you know should know what you do.  You ask anyone who knows me, or even just follows me on social media from other connections, and they know I'm in real estate investing and flipping. But I live it, breathe it, and wear it.  You can go to any of my social media pages (Facebook, Twitter, LinkedIn, etc.) and without even searching, you'll know very quick what I do, its in my profile intro on all of them "Entrepreneur, Real Estate Investor, Mentor, Motivator, Blogger, & Coach" along with links to my companies.

Social media is a FREE tool, that everyone should use to help build their business.  Not to mention if you want to also do PPC ads.  But just posting in your social profile what you do, can generate interest, and posting your successful deals, or a post at least once a week asking for referrals of motivated sellers, or offering a referral fee/bird dog fee, can generate more deals and potential PMLs from friends, family, and other contacts.  Use this free tool!!  Be proud of what you do!! 

We all have those friends and family members who are "negative nancys" and will talk us down or make fun of us for trying to get ahead in life.  Well ignore them, and prove them wrong, and they'll be coming to you. Never be ashamed of what you do, we all provide a valuable service to the communities we live in. We help homeowners out of bad situations, we help improve the quality of homes and neighborhoods, we help ourselves and other investors earn better livings, we help create jobs for contractors, title agents, etc., and many times we help new homeowners or tenants into homes, who a lot of times couldn't qualify otherwise. 

WEAR YOUR BUSINESS & NETWORK WITH YOUR CIRCLE OF TRUST!!

The real estate industry is an extremely profitable industry. A home is the most expensive purchase the average individual or family buys over his/her lifetime. Big money, equals big opportunities. However, anytime there’s big money involved, criminals and scammers will be looking to prey on the naïve and use creative ways to swindle a lot of money out of victims all over the world, whether buyers, sellers or realtors.

For real estate investors, it can be difficult to identify legitimate lenders from the bogus lenders, looking to scam you. Even experienced real estate investors have fallen victim to funding scams.

Here are 3 of the most popular lending scams and helpful ways to avoid being scammed:

1. The Upfront Fee Lending Scam. A money lender pre-approves your loan and then ask you to pay a sizable upfront fee. Because even real lenders may sometimes charge an upfront fee, this can be tricky scam to avoid.  If the upfront fee is more than $1,000, this should be a red flag. Always ask for references with a local title company where they have closed loans before, or verify the lender has closed a loan with someone you trust. A real lender will happily provide multiple references for loans they have closed.  Also, suggest paying the upfront fee to the escrow agent where the contract is being held.

2. The 100% Financing Scam. Lenders will claim to offer 100% financing and require you to pay another upfront fee. Rehab lenders typically will lend on the ARV (after repair value) of a property, but rarely more than 70% of the ARV. If a rehab lender is offering more than 70% of ARV, this may be a sign it’s a scammer.  Some legitimate lenders will offer up to 70% ARV, but will also offer up to 100% of the repair needs, this isn’t necessarily a scam, as long as they’re not offering 100% of everything.

3. The Bait and Switch Lending Scam. The lender advertises very low interest rates and no fees to “bait” the borrower. Then right before closing on the loan, the lender contacts you to “switch” the terms. They know that rather than risk losing a deal, many real estate investors are forced to accept the new loan terms at the last minute.

Additional Ways to Avoid Scams

Do your homework on the lender by searching on popular scam reporting sites such as Ripoffreport.com. Search for bad reviews about a lender on real estate forums and other mortgage-related websites. Real estate investors who have already experienced a bogus lender, could save you time and money.

If it’s a post on the internet, or social media, don’t assume its legit.  Especially if it’s just some individual who reaches out to you unsolicited, or is trolling and posting in online group forums for free.  One common red flag is when the only contact info they post is a common email carrier such as gmail.  Always request a phone number, and do more research.  Scammers will be creative, they may have other scammers who they use as references, and may even have a nice professional looking website, with a company email, and their name and profile on the website…it can still be a scam!!

Bottom line, if it seems too good to be true, it probably is. 

Conclusion…

If you discover a scammer, or get scammed yourself, you should always immediately report the fraud to the Federal Trade Commission at www.ftc.gov  Let your friends, family and other investors know about any real estate scam or questionable businesses by sharing their name in REI forums, and social media groups.