I recently discussed how the market is turning around creating new opportunities for us investors. Two of the suggestions I had was to buy rentals and to start rehabbing.
House prices are climbing and since there is already a housing shortage, I expect (and economists expect*) them to continue to rise.
The question then becomes how to fund these deals?
A major portion of the purchase price can be financed right in the purchase negotiation.
If the seller has a lot of equity (based on your purchase price) then ask for Seller Financing. You’ll discover that many sellers have no immediate plans for all of the proceeds and investing back in their house makes sense.
If instead, the seller’s mortgage represents a significant portion of your purchase price, then ask to purchase Subject To the existing mortgage where you take over making payments on their existing loan.
There are some disclosures that need to be made, but this is an easy way to cover a significant portion of the purchase price. Since I never make promises for when the loan will be paid, this becomes long term financing if needed.
For a complete guide on how to structure a subject to deal, consider my Wholesale Pretty Houses program where I walk you through how to negotiate these deals and how to structure the deal and the paperwork.
One of the most flexible ways to fund all of your deals and cover 100% of your project costs is to use private lender funds.
True private lenders are individuals that have money invested in low yield vehicles like CD’s; Money Market Certificates; bank accounts; and IRAs. You show them how to increase their interest from 1-2% to 8-10% making real estate loans that are secured by the real estate at no more than 75% Loan-To-Value (LTV).
Once you have a private lender, they are loyal to you and you determine all of the terms of the loan.
I especially like Private Lenders that use IRA funds to make loans. The money can be available within 24 hours; and they will usually accrue the interest until the end of the loan meaning you have no cash flow issues.
Use Private Lender loans to fund 100% of the project costs (Purchase+Rehab+Holding Costs) for rehabs without having to hold money in repair escrow which forces you to have working capital.
These loans are also perfect for rentals. Use these funds to purchase and rehab the property. Once tenants are in place for a period of time; and the property appraises at a higher price, then re-finance with permanent financing.
By the way, man private lenders would prefer to make longer term loans (3-5 years) then constantly turning over their money in different projects. These lenders are ideal for rental properties.
You do need to be careful with soliciting Private Lender loans. A tactical mistake can mean that you transitioned from a simple real estate loan to a security under the jurisdiction of the SEC.
I recommend that before you attempt Private Lenders that you get properly educated in the process. I personally really like Patrick Riddle’s program. He takes the same low-key approach that I take.
Click here for more information on Patrick’s Private Lender program.
Cameron Dunlap has a list of contact information for established Private Lenders. This would be a great way to get started locating Private Lenders.
Click here for Cameron Dunlap’s Private Lender list
My final thought on funding deals is this: Don’t rely on your own funds or tie up your personal credit. Look to use Other People’s Money and Other People’s Credit.
All of these techniques are viable strategies for funding deals. I use these almost exclusively; and use multiple strategies on the same property.
Practice using these strategies and get comfortable with them and you’ll never again have ot pass on a deal because of lack of funds.
Expect abundance,
Lou Castillo
BTW…here are those links again to help you out:
Click here to learn Subject To financing
Click here to learn Private Lending financing
Click here for a Private Lender listing
*CNNMoney using CoreLogic Case-Shiller home price indexes predicts housing prices to climb at a rate of 6.5% through at least the end of the first quarter 2014.
