How to make money in real estate using other people’s money

Smart real estate investors know that the best way to make money in the real estate investment market is to use other people’s money and trade their own expertise and negotiating skills for a slice of the profits.

As a real estate investor of many year’s experience and with a certain reputation for closing lucrative deals I am constantly being approached by groups of investors who want to break into the real estate market without risking huge chunks of their money and without having to go through the painful learning curve that’s often associated with investing in a market you know little about.

I am in the advantageous position of being able to wait until a good deal comes along and then choosing the group of investors I will work with. This, in essence, is what a syndicate real estate deal is. Rather than put up all the money, investors put in a percentage which will reflect their percentage of the profits, thus minimising their exposure in each single real estate deal.

The question is what do you do if you have not yet got a reputation but can still pull off a profitable real estate deal and do not want to risk your money? Well, this is where you need to be creative. The moment you have a deal you think you can close at a profit you need to move fast to get your syndicate together.

Potential real estate investors willing to put their money up can come from almost anywhere: friends, family, colleagues, people you work with, acquaintances, business angels and professional investors who earn their money by investing through syndicate deals. The list is almost endless and putting a syndicate together will depend on two things, first the kind of deal you think you can close, which will also determine the profit margin and the maximum number of people you will want to come in and second on how convincing you are in getting people to trust you with their money and give you a free hand so you can make it work for them.

If, right now, you are thinking that there is simply no way you can say anything to anyone to get them to trust you with a few hundred thousand dollars you can think again. Putting together a syndicate and fronting it is very much a case of cool judgement, steady nerves and the ability to negotiate carefully, pay attention to detail and find new ways to squeeze profit out of a real estate investment.

Good news travels fast and it usually takes no more than one successful deal to get you a reputation in which case you will find that then people trust you enough to want to come to you rather than you having to hunt for them and that is the hallmark of success.

David Lindahl, also known as the “Apartment King” has been successfully investing in single-family homes and apartments for the last eight years. He is the author of four popular, money making home study courses “Apartment House Riches”, “How To Estimate And Renovate House For Huge Profits” “Managing For Maximum Profits” and “The Real Estate Investors Marketing Tool Kit”. He can be reached at dave@real-estate-fortune.com and www.TheCoachingClub.com.

How to Be Creative With Financing

By Ken Rolf

If you are a seller, you need to widen your pool of buyers to people who do not qualify for traditional financing as well. Some options may be the following:

Seller Financing

If you have equity, you may want to offer seller financing. With seller financing, the seller is the bank.

Assumable Mortgage

Other alternatives are checking with your lender to see if the buyer can assume your mortgage. Although most loans are not assumable, today some lenders may offer that as an option to a seller who is about to fall behind in their mortgage payments or who is already in default. It may make more sense for the lender to allow a buyer to take over the loan than have to foreclosure on the property. Average foreclosure costs to a lender are approximately $50,000 per foreclosure.

Lease Options

Lease options are a way to sell your home in a difficult market for a higher price because the buyer enters into a contract to lease your home with an option to buy it at a specific price in the future. Lease options are a great way for buyers who do not have enough cash or who have bad credit to own a home. During the option period, they can work on cleaning up their credit and qualifying for traditional financing or saving more for their down payment. Generally, the buyer pays an upfront option fee to you. A portion or all of the lease payments can be used as credits to the buyer towards purchasing the property. If at the end of the term, the buyer chooses not to buy the property, you just keep the lease payments, and you can continue renting the home to them or look for another buyer or tenant and enter into a lease option with them.

Creative Financing Options for Investors/Buyers

Finding traditional financing for your deals is getting tougher because banks have tightened their lending guidelines. So here are a few options that are available for getting financing if you don’t have cash:

Private Investors or Hard Money Lenders

Private investors are individuals or companies that will loan you money on a short term basis quickly. They don’t have to follow any strict lending guidelines like traditional lending institutions must do. Most are interested in the equity of the property and how quickly you can pay them back. You will have to pay a higher interest rate and points upfront, but the advantage is you don’t have to fill out a lot of formal paperwork, go through credit checks and you get the money quickly so you don’t lose your opportunity to buy the investment property you have found.

Seller Financing

You may want to have the seller finance the transaction if they have equity.

Assume Seller’s Loan

Another option is to assume the seller’s loan if the lender will allow it. This way you can save on some of the costs associated with a traditional mortgage.

Wholesaling

Wholesaling real estate means putting a piece of property under contract and assigning it to another investors/buyer. You receive an assignment fee from your investor/buyer for finding the property and securing the contract. The advantage is you don’t have to close the deal yourself, and you make a quick assignment fee of approximately $5,000 so you can move on to the next project.

Being creative and thinking outside the box is what makes today’s investor successful. Once you do enough deals and accumulate some cash, financing won’t be an issue for you. But if you are just starting out or short on cash, you will need to secure financing ahead of time in order to do your deals and stay in business. Compiling a list of private lenders is a smart thing to do so you can contact them when you find a good deal and jump on it.

Today is the best time to buy real estate and take advantage of the buyer’s market. So having financing available is critical to your success. Just taking the time to plan ahead and get your financing ready will allow you to continue to grow your investment portfolio and give you the financial security and long term wealth you hope to achieve.

When Fast Cash is Needed
There will be instances during your real estate investing career when you will need up-front cash quickly on a short-term basis. Because of the short time span, it is not practical to go the conventional route which usually takes 30 to 40 days. That’s why there are hard money lenders available. Loans through a hard money lender typically will be more expensive than other financing strategies. The most important aspect of using a hard money lender is the quick availability of the cash. Sometimes you can have the money in hand within 72 hours of receiving the final docs from the title company.The name “hard money” is due to the strict parameters that come into play when you enter into such a loan. Interest rates can run anywhere from 10% up to 18% which makes it a costly option. The cost of the money, however, can become secondary when you need cash fast to close a viable deal.
Little or No Red Tape
Perhaps you’ve located a great property to renovate quickly to turn around for profit. You may need the loan fast because you already have a buyer lined up for the house when it’s completed. The hard money loan will be in place much faster than a conventional loan and without all the red tape.
These hard money loans are usually written for a period of three months up to a year. The time depends on your needs and the lender’s criteria. Obviously the longer you hold the loan, the more expensive it becomes.
The LTV (loan to value) on a hard money loan may be lower than other loans. Usually it runs 70% or lower. This will be based on a professional appraisal of the property and calculation of the needed repairs.
Remember you will need a title policy, insurance and an appraisal which could amount to several hundred dollars. Most hard money loans will require origination points ranging from 2 points to 10 points. These closing costs must be paid up front.
Does Credit Rating Matter?
Don’t make the mistake of thinking you can use a hard money loan to override your bad credit rating. While there is sufficient collateral involved, still and yet these lenders want to know they are working with someone who has a track record of paying – and paying on time. They will look for bankruptcies, foreclosures, charge offs and collections. Whether or not there will be a credit check in your case will depend on the individual hard money lender. Some investors are able to procure hard money loans without ever having their income or their credit verified. Again, it will depend on the policies of the particular lender.
If you are borrowing for the express purpose of rehabbing a property, most of these lenders will offer what is called a “draw request” form. This will be filled out to identify the repairs that have been completed – usually taken from copies of invoices from the contractors. The draws are dispersed following a satisfactory inspection.
A Last Resort
When it comes to hard money loans, they should always be used as a last resort – after you have tried other methods of raising needed capital. Never go after this type of loan unless you are completely confident that you have a great bargain property on your hands. And you must be sure of your exit strategy.
In dealing with hard money lenders make sure you are working with credible lenders. There are loan sharks out there who will purposely set you up to fail so they can take over your property. Double check credentials and ask for references.
One last tip, if your credit allows it, you might consider securing your investment property with a hard money loan for a short period of time and then refinancing it into a conventional loan.
Which ever way you choose, know that creative financing abounds for you to grab that bargain property you found. All you have to do is keep on thinking outside the box.
Using a marketing system that allows her to find some of the very best ‘below market’ deals around the country, Iman Yusef-Yahya’s system has enabled her to assist other real estate investors looking for simple, high profitable deals. Get instant access to these profitable deals at http://www.ImanAndJoesWholesaleProperties.com