One question we get often from new investors is "How do I get funding for my deals?"
With conventional financing harder to get these days, it's even more important to have alternate sources of funding for your deals. Even pro investors can get hung up once they hit the 4 mortgage limit imposed by many lenders.
If you're not going go to the bank, the bank won't lend you money, or you've borrowed too much, what are some alternate sources for funding your investments?
Private Money
My favorite source of funds are from private lenders. You'd be surprised at how many individuals out there have cash, want a better return than they're getting in their savings account or in the stock market, and want to diversify into real estate without the hassle.
Simply put, you borrow money from a private individual, provide them with a return on their investment, and you've got your funding for your deal.
You can even get into deal syndication (advanced!) whereby you pool together a group of investors to buy larger properties that you otherwise wouldn't have access to.
In addition to not having to provide a credit report to your lender, you can also get the money relatively fast with the stroke of a pen on the lender's part.
Where do you find private money? The easiest source is from friends and family, but you can also network for private money and seek out individuals who have funds, but not the time, experience or patience to deal with investing directly in real estate.
Self-Directed IRAs / 401ks
It's easy to think of funds as only coming from a bank or from a checking/savings account, but many deals are done using retirement funds, typically from an IRA or 401k.
Not just any retirement account will work, however, and you need to use what's called a Self-Directed IRA account.
You're not borrowing money from the account, but rather your (or someone else's) retirement account is investing the retirement funds in a deal, much like traditionally a retirement fund invests in a mutual fund.
Your regular brokerage house may not have heard of a Self Directed account, and your broker might outright say it won't work, but investors have been happily using Self-Directed accounts since 1973 to invest in real estate.
In fact, ~84% of investment funds that we use for our investments come from self-directed IRA/401k accounts.
Money / Credit Partner
An alternate to borrowing money from a private investor is partnering with someone who has money (OPM - Other Peoples Money) or credit (OPC - Other Peoples Credit).
You bring the deal, time and resources to the table, and they provide either the cash for the deal or the credit required to get a loan on the property.
For this, your partner gets partial ownership in the property, which entitles them to their share of the risk - and their share of the rewards.
Partnering up with somebody else is a great way to get into a deal with "Nothing Down" and if you partner with a more experience investor, can provide an excellent opportunity to learn from a mentor.
The Money is Out There
Regardless of if you're being turned down by the bank, you're just getting started or you're a pro investor but have hit your borrowing limit, there is plenty of money out there. It's simply a matter of financing more creatively. Using the 3 strategies above, you can open up the tap to millions of dollars of financing waiting to be invested in your deals.
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For more up-to-date articles, visit http://www.ForeclosuresMass.com/blog/
Can a 5 year old really own an apartment building? Even better, can your children own an apartment building AND save for college at the same time?
I recently discovered a very interesting article from the IRS (when was the last time you heard that?) covering Tax Benefits for Education (Publication 970) and one of the accounts types you can setup for your kids is a Coverdell Education Savings Accounts (CESA).
What is a Coverdell Education Savings Account?
A Coverdell Education Savings Account is an account created as an incentive to help parents and students save for education expenses.
Your contributions ($2,000 max/year) to a Coverdell ESA are not deductible, but the amounts deposited in the account grow tax free until distributed.
The beneficiary (your child) will not owe tax on the distributions if they are less than a beneficiary's qualified education expenses at an eligible institution.
This benefit applies to qualified higher education expenses as well as to qualified elementary and secondary education expenses.
Take your post-tax dollars, put them into the CESA, then let it grow tax free, much like a Roth IRA, but instead for your children's education.
Self-Directed CESAs Allow You to Invest in Real Estate
Here's where it gets interesting... You can setup your CESA as a self-directed account and instead of being stuck to "traditional" investments (stocks, bonds, and mutual funds) you can expand it to cover alternate investments such as real estate.
How Can You Buy an Apartment Building for Your Kid
Getting your kids involved in real estate couldn't be easier. Follow these simple steps:
How Do You Setup a Self-Directed CESA?
If you don't already have a qualified custodian, send me an email and depending on what you're looking for, I should be able to point you in the right direction. Remember, not all custodians are created equal!
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Jeremy B. Shapiro is a nationally recognized expert on the real estate industry and has been featured in the Boston Globe, National Public Radio, NPR Morning Edition, CBS Nightly News, Fox News, Boston Business Journal, PBS and has even been interviewed by Toyo Keizai - the Business Week of Japan.
To learn more about how local investors are routinely pocketing $10,000+ per deal - even in today's economy, visit:
http://www.ForeclosuresMass.com/introcd/
When I first got started in real estate investing, I read a LOT of books. One thing I seemed to hear again and again was "Whatever you do, do NOT become a real estate agent if you're going to be an investor."
As a new investor, I believed most of what I read and heeded that warning, but it always stuck in the back of my mind and I found myself wondering why you wouldn't want to be both. After some research, I found that the big reason you're not supposed to be an agent AND an investor is that as a real estate agent (or broker, or Realtor), you're held to a "higher level of responsibility".
If a dispute ever arose between you and someone you were involved in a transaction with, it could be argued in court that as a licensed agent, you knew more than the other party, had an unfair advantage and used your additional knowledge to take advantage of the less knowledgeable party.
Herein lies the big question.
Do you plan to take advantage of someone you're doing business with?
Hopefully, your answer is "No."
As a real estate investor and/or agent, it's our ethical obligation, licensure aside, to put together fair, legal and "above board" deals.
So if you're putting together deals ethically (as I hope you are) then it begs another question:
Why would you want to be both an investor and a real estate agent?
As an investor, when you approach a homeowner and talk to them about their property, you may realize that it's not the best deal from an investment standpoint, but it would make for a good listing. There have been many cases where I had a property that just didn't fit my investment criteria, but it made more sense to list. In these cases, we listed and sold the properties on the market and took our commission.
In addition, as an agent, you get leads for sellers looking to sell, some of which may be better opportunities as investments. As a real estate agent, what happens when you're meeting with a seller and you realize that the deal you're looking at has a lot of upside potential, and you would rather pick it up yourself?
Simply switch hats, put the listing paperwork away, and put on your investor hat.
What kind of opportunities do you miss out on when you're only an agent?
A fellow real estate agent at an office where I used to work was a top sales agent. He would knock through 300 cold calls a day, line up dozens of closings a month, and top the charts in the office month after month.
He was a fantastic real estate agent.
One day, he came across a listing where the seller wanted to simply "walk away." In investor speak, this was a "Motivated Seller." The seller was leaving over $90,000 on the table and was wanted to be done with the property and move on.
Our fellow agent listed the property, brought it to closing and the seller walked away with a check for just over $90,000. Our agent friend was busy working on other deals when he got a post-closing call from the seller looking for help.
The seller didn't know what to do with the check, didn't have any place to put it and just needed some money to put gas in the rental truck on their way out of town. As a real estate investor, our friend could have solved the sellers problems from the get go, helped them with the move, put some cash in their pocket and taken away the problem property all while hanging onto the excess $90,000.
So when it comes down to choosing between being a real estate investor, an agent or both, I hands down choose both every time. It gives you more options and opens more doors to more deals.
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Jeremy B. Shapiro is a nationally recognized expert on the real estate industry and has been featured in the Boston Globe, National Public Radio, NPR Morning Edition, CBS Nightly News, Fox News, Boston Business Journal, PBS and has even been interviewed by Toyo Keizai - the Business Week of Japan.
To learn more about how local investors are routinely pocketing $10,000+ per deal - even in today's economy, visit:
http://www.ForeclosuresMass.com/introcd/
Nationally recognized expert on the real estate industry and has been featured in the Boston Globe, NPR, CBS News, Fox News, Boston Business Journal, PBS and even been interviewed by Toyo Keizai.
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