Finding Capital For Your Next DealBy JD Esajian on August 3, 2016
One of the biggest hurdles for many new investors is finding the capital to fund deals. While this can be an obstacle it doesn’t have to be a roadblock. There are many more avenues for capital today than ever before. Like anything else in the real estate business you need to go out there and make it happen. You can find capital from your real estate agent, at networking meetings or from friends and family. The cash for deals is all around you as long as you are willing to find it. Here are a few ways to find capital for your next deal.
- Private Money. There are more people interested in real estate than ever before. Many of these people are the people closest to you. Without even knowing it there are a handful of people in your network that want to invest in real estate but aren’t sure where to start. If you are looking for capital start by reaching out to your personal contacts. Send an email to your friends, family and co-workers explaining your position. Tell them you have gotten are into real estate and may be looking to partner up with someone on the right deal. You don’t need to get too specific with your first email. All you are looking to do is gauge interest and garner a response. You can answer any questions they may have on subsequent deals. For now you want to plant a seed and give them an opportunity to respond. Make it clear that if they are interested to reply to your email or give you a call. From there you can discuss terms, rates of return and other specifics.
- Hard Money. One of the biggest changes in the industry is with the number of hard money lenders are now available. In the past hard money lenders were only used in specific scenarios to stop foreclosure or to prevent a bankruptcy. Today there are most likely several hard money lenders in every market. Hard money lenders have changed dramatically in recent years. Instead of having strict terms and interest rates they are much more flexible. Hard money lenders have also changed in how they look for business. Instead of being a last resort for damaged borrowers they are now a go to source for A credit borrowers as well. Most people in your network know of at least one hard money lender. Between your real estate agent, attorney, mortgage broker and accountant you should be able to have a handful of options. Hard money lenders now have websites, business cards and look for business instead of borrowers looking for them. Hard money lenders can make closing your first deal as easy and painless as possible.
- Home Equity Line Of Credit (HELOC). If you have an existing real estate portfolio you may be sitting on the capital you are looking for. One of the most cost efficient ways to get cash is through a home equity line of credit. A HELOC is a new second mortgage on your property. You keep your existing first mortgage and add a new loan based on your current equity situation. With a HELOC the borrower is capped between 70 and 80 percent of the property value. There are strong requirements for credit score and debt to income ratio. However if you can get approved a HELOC is a low cost capital alternative. Most lenders offer loans with minimal closing costs. Since this is a second mortgage no property taxes are included further keeping your closing costs down. Another benefit of a HELOC is that you have the ability to draw the funds when you wish. You only repay on the amount that you take out. With a HELOC you can take a bulk of capital out but not have to pay all the closing costs.
- Cash Out Refinance. Another financing option if you have a real estate portfolio is to take a cash out refinance. As many similarities as there are with a HELOC there are some stark differences. For starters with a cash out refinance you are rolling your existing loan into a new one. Instead of having an open ended line of credit you will get a check for the cash out at your closing. With a cash out investment loan you are usually capped at 75% of the property value with credit scores over 720. If you do qualify you can take advantage of new record low interest rates. Both the 30 and 15 year fixed rates have continued to hover around all-time lows in the last few months.
- Partner. You can find a handful of capital options simply by attending networking meetings and real estate clubs. There are many people who would welcome partnering up with you on a given deal. They may have the capital and you may have the deal. You don’t need to lock into a long term agreement to work on an individual deal. In fact there are many investors who would look to a partner on a given deal. You can always work together again in the future but you can take your partnership on a deal by deal basis. Like anything else if you don’t ask you have no idea of what they will say. As long as you know the deal inside and out you have a great chance at finding someone to partner with.
There is capital out there if you are willing to look for it. Don’t let a lack of capital stand in your way.