This video covers some of the different ways you can finance a real estate deal.
Whether you are a first time homebuyer or a more experienced real estate investor, this video is for you.
The first way you can finance a deal is paying cash. This one’s self-explanatory. You have cash in your bank account and you pay for the home from the money in your account.
The second way is using a conventional loan. Conventional loans typically have a longer escrow period like 30 days, and the lender will look at your personal financial statements to determine if you are a buyer they are willing to lend to.
It can be a bit difficult to use conventional homes to purchase properties that are in rough condition, as conventional lenders will want to make sure the homes they are lending on are in somewhat decent and livable condition already.
The third way is hard money. When I say hard money, I am referring to a hard money lender, lenders who specialize in lending for fix & flips.
They lend based on how good of a deal you bring them, not based off of your personal financial situation like a conventional lender. This allows you to get financing even if you don’t have the best credit, etc.
The downside to using hard money is that they do charge higher interest rates than conventional lenders do. Typically, interest rates for hard money lenders will be within 8 – 14%.
Yes, this may be “high” interest but you’re only paying the interest for a short period because you would use the loan to flip a home.
And it allows you to get a deal done when conventional financing isn’t an option. Hard money is a fantastic way to get the financing you need to start flipping homes.
The fourth way is private money. Private money is what you eventually want to transition to after hard money. Private money is essentially lending from any individual who is not a bank or lender.
Typically, it’s people you know like a rich uncle, etc. Or, it’s people you don’t personally know but they trust that you will perform and pay them their initial investment and interest back once you finish flipping the home.
Private money is so powerful because it allows you to do deals without any of your own money. This allows you to scale.
The fifth way is seller financing. Seller financing is one of the more creative ways to finance a deal.
This is where you go to the seller and offer to buy their home, but instead of you getting a loan on the property, you would instead ask them to finance the purchase so that they could receive monthly payments.
A lot of sellers will not be interested in this option, but some will if it makes sense to them. Sometimes, sellers intend to throw the sale proceeds right into their bank account where they will earn very little interest on that money.
So, perhaps an option where they can sell their home and receive monthly payments is a good option for them. Every seller is different, so it never hurts to ask for seller financing if you feel it makes sense for both you and the seller.
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