Top 5 Sources of Financing for Real Estate Investing and Why Private Loans Beat Them All!

There are many sources of financing available to use as a real estate investor. It is important to know the different financing options to structure your real estate investment business. As you will see in this report, private loans have several advantages over other sources.

Mortgage loans – Mortgage Loans are the traditional way of financing real estate investments and are generally granted by banks, mortgage and savings and loan companies. Mortgage loans are typically 15-30 years with interest rates in the 6-8% range depending on your credit score and history. Home loans require you to go through a qualifying process and involve a lot of paperwork and can take weeks, if not months, to finalize.

Home loans have several major weaknesses, including a 20% to 30% down payment, a credit score of 700 or higher, and strict limits on the number of loans a person can make. In fact, down payment requirements for investors have moved up to 40% in some cases. Banks and other financial organizations are also clamping down on credit scores, typically requiring scores above 700, whereas, just a year ago, they led with a score of 600 or below from an estate investor. estate.

Mortgage lenders will only allow you to purchase a certain number of properties before they cut you off from any additional financing. Fannie Mae and Freddie Mac, who really control the US mortgage market, recently placed new credit restrictions and now only allow a maximum of 4 loans per investor.

Mortgage lenders are also very reluctant to make loans to LLCs or corporations and usually require you to personally sign for the loan. This nullifies many of the advantages of LLCs or corporations of asset protection and limitation of liability.

hard money – Hard money loans are also known as rehab financing. Hard money loans tend to have very short terms of 6-12 months and hard money lenders expect you to pay them off after 12 months with a new home loan. These types of loans tend to have very high interest costs sometimes exceeding 20% ​​with very high initial and final fees. On the plus side, hard money loans generally require less qualification from the investor due to very low LTV ratios.

Creative Financing – Creative financing is a general term for techniques such as lease options, subject to, and owner financing that will allow you to acquire control of a property without putting up any money. These techniques are great when he can use them, but are not applicable when the seller needs to sell for cash.

Revolving Credit Sources – Sources of revolving credit include commercial lines of credit and credit cards. While these can be flexible sources of financing, interest rates tend to be high and require large monthly payments. They also limit you to the size of your available credit line.

private lenders – Private lenders are individuals with money to lend for investment purposes. They may or may not be wealthy, but have excess cash or disposable assets beyond what they need to live on. These people are willing to lend for a higher return than they can get from bank CDs or money markets. There are no limits to the number of private lenders you can have or the amount of real estate business you can do with private money.

Private lenders seek yields in the 9-15% range and are secured by local rental real estate. This type of return will provide investors with a positive investment return of nearly 300% on CDs and money markets. The result is a perfect mix of private lenders looking for better returns on their money and secured by real estate and real estate investors looking for cash to finance deals and the ability to pay higher yields.