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Dec 12

An Exposure to Creative Financing for Real Estate

An Exposure to Creative Financing for Real Estate

Real estate is one of the most exciting investment options out there. There are many deals both nationally and internationally and the versatility of the market makes this one of the most ideal investment to add to your portfolio. In addition, there is always a demand for housing being that the population is increasing every year and if you are able to target the appropriate market strategies; your cash flow will be impressive.
One of the most conspicuous benefits of real estate is the fact that over time, your recurring income increases after deducting all expenses including tax and additionally, most properties in the market appreciate over time. Tax benefits are also quoted by investment gurus as one reason why real estate has retained its allure even during economic slumps over the years. However, one of the most challenging aspects of this form of investing is financing. A lot of money can be required and if you want to succeed, there is need to explore creative financing as a shift from traditional sources of funding. Here are a few examples of creative financing options;

Motivated Sellers

When buying real estate its best to deal with a flexible seller who is anxious to sell their property.  Once you find this motivated seller always make one of your offers a terms offer where your asking for them to make financial arrangements with you for payment. In such a situation, the seller owns the property free and clear and they will not mind carrying some type of financing thus receiving monthly payments. Negotiate with the seller the amount and time limit when the payment must be made monthly and in full. Advantages include the fact that there is no prepayment, less paperwork, faster qualifying, and you will essentially get into the property without using little to no money.

Subject-to

This innovative financing option involves a seller of a property leaving existing financing in place. It is similar to assuming a loan in this case you are working directly with the motivated seller and not a bank. This short term financing option dictates that a property is sold subject to existing financing but the deed will be transferred to you the buyer.  As a buyer, you can get into the property with zero down or little down depending how well you negotiate with the seller and this helps the seller to dispose of the property quickly.

Private Investors

In real estate parlance, these people can be private individuals or hard money lenders (HML) and over the recent few years, their role in this market has increased exponentially. They offer loans for acquisition and/or rehabbing of property. These lenders use their own money or get the money from different sources and rates are higher as these lenders also collect yield spread.

Traditional Options

Some traditional sources of financing are still classified as unique as they provide solid and well-structured financing. These include credit cards, insurance companies, mortgage companies, FHA and VA, commercial banks among others. Each of these has its own pros and cons and as an investor, you need to understand them in detail.

 

The options of creative financing are unlimited and as such, you need to look at the ones which best suit your investment strategy. Begin to learn the many types of financing both traditionally and creatively so you can have more options of tapping into this rich market without loosing deals due to a lack of financing.

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