Welcome Back!
This week’s topic is funding.
No matter what any guru tells you about funding, and not needing your own, you will absolutely need some of your own money to invest. Don’t get me wrong, you can use other people’s money to do deals and leverage bank money to make money, but you will need to find some money to invest. There are always things that come up in any transaction that will require you to come up with something.
You may need earnest money, money to contribute to your rehab while waiting for your repair draws or money for down payments. There are several ways to fundraise but you have to be careful about how you do it.
Different sources of funding:
Cash – You can invest your own money into the deal
Hard money – You can borrow the money from a hard money lender. This will cost anywhere from 10-15% for interest payments, and 3-5 points. You will either need your own money or a private lender’s money for this.
Private Money – Many people now are holding onto large amounts of money. They have money invested in IRAs and other types of retirement accounts. You can borrow the money from them to fund your deals if you know the right way to do it.
Bank Loan – This is great if you have good credit. You will get lower rates then most the other options and the flow of getting your repair funds is much smoother then hard money.
I have funded all my deals in real estate with a combination of all of the above. Very little of my own money, but I still needed some.
There are several strategies also to get the seller to hold onto the property while the renovations are being performed to help with cost of your project but there are also risk associated with that.
I have coached many lenders on how they should strategically invest their money and provided the services to ensure they are putting their money into a good investment. Having knowledge of repairs and the costs associated with them are a necessity when you are a private or hard money lender.
The items needed to work with all hard and traditional lenders:
Cost of purchase
After Repaired Value (get comps or an appraisal)
Money needed for renovation
Company Articles of Incorporation
Tax id
Tax returns if you have them
This is the basic information they will ask for. They will do their own due diligence but it is best to have these items up front.
Best lesson I ever received was learning how to be effective as asking for money for projects. If you structure it correctly and come prepared to the meetings, it is a lot less scary then people make it out to be. Give it a try and start by talking with people in your circle.
Remember, at Sota Real Estate Group, we are here to help you on your path to learning this business. We would be happy to sit down with you and discuss your situation and learn more about how we can help you be successful!
Happy Investing!
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