Want to Find Money for Your Deals? Start Looking Closer to Home
A lot of investors have difficulty finding money to finance their Real Estate projects. I hear this challenge from individuals who are new and some with experience under their belt.
For the beginner, the difficulty is different than that of the seasoned pro. They lack the track record of success. We all start with the best of intentions. But how do you convince someone that they’ll get their money back (with a profit) if you’ve never done a deal before?
Experienced Real Estate investors have a track record. Finding money is not necessarily the problem. Their difficulty lies more with the cost of the money they have access to. Cheaper money equals higher profits.
So how do you find the money you need at the right price? Look closer to home.
Newer investors should look no farther than their deal. I recommend using a hard money lender for any rehab project when you’re just starting out. Hard money lenders are investors. They know their market and can identify a winner and a loser. In addition, if they have a vested interest in the property, they’re going to get an experienced “partner” in your project.
These lenders are looking for deals and they have the money. If they do not want to invest in your project, it’s probably not a deal. Use these companies for funding. You’ll eliminate the emotion that can cloud your judgment. Yes the money is expensive, but in the long run you’ll save a lot more than the cost.
Experienced investors have some different options. They’ve got the track record. They know what a good investment is, and what properties they should walk away from.
For these individuals, your immediate sphere of influence is a great place to start looking for cheap money. Friends and family are a good place to start. Offer them decent terms where they can make money. I’ve paid 10-12% for short term capital (less than 1 year) and 5-8% for longer term funding. The higher-than-average returns can be very attractive for people accustomed to a 2-4% (maybe) return from a CD or investment account.
The investor’s benefit is obvious. No points. Full control.
As you continue to perform and succeed, a few thousand dollars from friends and family will turn into more money than you’ll need. It may take time, but good news travels. You’ll have people calling you to get into one of your deals. The key is performance.
Finding the right money at the right price is an integral part of Real Estate investing. Find good deals. When you do, the money may be as close as your own back yard.