By Roz Miller Choice. R & W Holdings LLC
Many real estate investors are hindered in their ability to acquire property because they believe they do not have the funds necessary to finance their deals. In today’s “buyer’s market,” we can not afford to use this as an excuse. After nearly a decade of investing in income-producing real estate, my advice would be to find a great deal then do whatever it takes to find the money to get the deal done. Here are 7 tips to help you finance your dreams:
1. SELLER FINANCING
With Seller financing the seller of a property becomes a bank. Without pulling a dime out their pocket, they can “loan” the buyer the money to buy their property. After the purchase price is agreed upon, there is a discussion between the seller and buyer regarding how the principal balance will be handled. They discuss payment terms including the interest rate, when payments are due, the penalties for late payments, where payments should be mailed etc. Once those particulars are determined the agreement documents are prepared by an attorney, those documents include the mortgage (or trust deed in some states) and the Note or Promissory Note. Those documents are filed with the county records department in the county where the property is located. This makes it clear that a debt is owned on the property and the terms to which that debt is to be paid off. If the debt is not paid in accordance with the agreement, the Seller has the right to foreclose on the property —- just like any other lender would.
This type of financing is good for both the Seller and the buyer. Unlike the traditional lending process, with Seller Financing the terms are negotiable between the parties involved. When a traditional lender sets the terms of a loan, it is more difficult to negotiate changes in the terms.
When you are dealing with the Seller of a property or business, you are talking directly to the person that will be receiving the loan payments. You can have input in the payment amount, when payments are due, the interest rate, when payments start etc.
To find Sellers willing to provide financing check the newspapers or the Multiple Listing Service (if you are working with a real estate agent) and look for ads that say “no bank qualifying, “ or “Seller will hold a Note,”.You may have to educate a seller on understanding Seller Financing. Although it’s been done for many years, most sellers do not know about this option. It would be helpful if you understand seller financing and it’s benefits so that you can impart that information to your Sellers. The book “My House is Sold & Off the Market” was written to explain the intricacies of Seller financing to Sellers and buyers. It would be helpful to have a few copies of the book to pass onto your Sellers. It’s a small investment that could pay off big for you.
Also take along an amortization chart to your negotiations to show the Seller how much they could earn if they Seller Finance the property. Seller Financing has been around for a long time. People continue to use it because it works.
2. FINDING/ATTRACTING INVESTORS
There are a lot of people who have money that they can earmark toward real estate investing. Many of those people would get more involved if they knew what to do. Some of them have tried to buy properties but can’t figure out how to get it done. They are your goldmine and you can be the answer to their prayers. You certainly can find people willing to fund the deals if you are a novice, however if you have done deals in the past you have a track record that increases your credibility and make you competent in the mind of an investor.How do you reach these people? Read real estate agent trade magazines – for ads for investors.
Placing an ad in your local respectable newspaper will let investors know that you are looking for them. The “Business Opportunity” section of the newspaper should attract investors. Have deals in the hopper before advertise for investors. Once you have investors responding to you, you want to be ready. Do not give out key information ex. specific addresses but you want to have your financial analysis of the deal ready to show potential investors. They are most interested in the cap rate and the cash on cash return. Being ready with this information shows that you know what you are doing and are reliable. Be prepared, some of these investors are going to want you to have “some skin in the deal.” They want to see some of your funds in the deal — it makes them feel like you will follow through if you are invested side by side with them. However not every investor will require this.
3. USING YOUR OWN MONEY
Let’s talk about using your own money.
You might want to use some savings, equity in a property you currently own, your 401 K plan, an inheritance, etc. Of course use your money to fund your deals and many people new to real estate often do. The problem is that your capital probably has limits. Please note that if you have funds that you want to invest in real estate and want a good return on your investment, please feel free to call us at National Note Exchange to hear what real estate deals we are currently negotiating.
4. HARD MONEY
Finding hard money lenders these days is easy thanks to the Internet. Be careful that you are working with a reputable company. There are a few large ones that many investors use regularly.
5. PARTNERING
Real estate can be fun and exciting but it can also be difficult to execute every aspect
of the transaction. Partnering with someone who has funds takes the pressure off. The added benefit is that you have someone that you will need to be accountable to. You will more than likely find that you will do more deals if you have someone to work with.
You can do the legwork, finding the properties, negotiating the terms with the seller, dealing with all the inspections and paperwork. Your partner provides the money to get the deal done —it’s a win-win.
Look within your own circle, for these potential partnerships. Parents, relatives, your doctor, dentist, dry cleaner, hair dresser, restaurateur may have money to invest — but not the time or know how to make deals happen.
6. LOCAL BANKS
The local banks are often overlooked as money sources. Everyone flocks to the big well-known national branches to apply for loans. The big banks have large corporate structures and can be rigid.
Find banks with just 3-5 branches they can probably be more flexible. Your local bank’s mission is to fund deals in their own communities. Take advantage.
7. TITLE COMPANIES
Title companies exist to facilitate the transfer of real estate. You will be using them regularly to close your deals, but they can do more for you. Many owners of Title Companies have money to invest for short term and long term real estate purchases. If you have been closing your deals with a particular title agency then 1) you should be getting a discount off your closing costs. 2) You should ask them if they would be willing to fund your real estate deals.
GET INTO GEAR
Do not allow the lack of funding to be an excuse for not moving forward. Do yourself a favor and get some momentum started. Find the deal first, and then start searching for funding. You will work harder and more diligently to find money if you have a good deal on the table. Your lender — who ever he/she maybe (hard money lender, private investor, partner,)—will also look more favorably on your efforts.
Roz Miller Choice Is a partner in R&W Holdings LLC, a real estate investment company that owns and manages residential real estate property. She is also the owner of National Note Exchange which specializes in the brokering of discounted private mortgage notes.She is also the author of the new book “My House Is $old & Off The Market,” teaching Sellers the techniques of how to use Seller financing and other methods to sell houses fast and for more money. POA members can buy the book at a discounted price of $10. E-mail Roz at note2exchange@aol.com