Funding – Part 1
For many investors, funding is a bit of an enigma. Let’s clear the air with a couple solutions.
Let’s begin with no money. You may even have lousy credit. Or maybe you have money and good credit but you don’t want to use it or risk losing it. Begin with wholesaling.
When you wholesale a real estate transaction, you essentially act as a matchmaker. You find other investors who buy properties for cash. You talk to these fellows and see what they buy, where they buy, and how much they pay. Next, you essentially go shopping for them. Who doesn’t like shopping?
Once you know what your cash buyers want, you find highly motivated sellers with matching properties. These sellers might have their house listed on the MLS, in which case you will work with a real estate agent. These sellers might have them advertised as For Sale by Owner (FSBO), in which case you work with them directly. Or these sellers might not be waving any kind of flag saying “I want to sell my house” until you dig them up with your creative marketing. You make a lot of offers, which costs nothing.
Once you have a property under contract (the owner has agreed to your price and you have a purchase agreement signed), you essentially sell the deal to your cash buyer for a fee. You can wholesale, wholesale, wholesale to make money, money, money.
Or you do have cash…
Now you’ve wholesaled some houses and you have cash or maybe you are starting out with cash. Cash is king as the saying goes. You can make cash offers, get better deals, and then fix and-flip or hold properties for cash flow for yourself.
You may have sources of cash you have never considered. One potential source of funds is a Home Equity Line of Credit (HELOC). Do you own your home? Is it worth more in today’s market than the balance of your mortgage? If the answer is yes, then very possibly you could get a HELOC. This can be a very effective way to use your money to grow more money. If you took out a HELOC and were paying perhaps 4% interest and you used these funds to purchase, renovate, and resell a house to make a 10-20% profit, you are ahead of the game. Or maybe you use the funds to purchase a home as a rental and get a 10-15% return on your money. Again, you are ahead.
In fact, you have created what in the financial world is called “arbitrage,” a profit based on the spread of two purchase prices, or in this case two rates of interest. Just toss that word around at your next REI Club meeting and you’ll immediately sound like a savvy investor
There is a myriad of ways to fund real estate transactions. These are just a couple. Make your money work for you! Don’t let lack of funding be a roadblock in your investing endeavors.