Imagine you found yourself living 150 years ago. Seeking new opportunities, you take your family and head west. You find a patch of land on the prairie and decide to build a house. By yourself. No construction crews, no plumbers (no plumbing, for that matter), no inspectors, no Realtors, just you, your hands, your tools and your wits.
The world of real estate and real estate financing has come a long way since those times. Every property you see is the result of teamwork: architects, builders, real estate agents, lawyers and investors. But how do you find real estate financing? Here are a few places to look for real estate investors and other financing methods.
This isn’t to say you can walk into any bank and expect to walk out with financing. Banks tend to charge greater interest rates, require larger down payments and look for higher debt-to-income requirements for investment properties.
Expect to do a lot of legwork when finding real estate financing through banks, as some banks are more investor-friendly than others. But if you manage to build a sturdy relationship with one of them and establish your credentials as a credible developer, you’ll have access to a solid source of financing.
In some cases, finding real estate investors can be as simple as letting people in your networks know that you are looking for investors. Connect with local real estate agents, who tend to keep their ears open for possible investors in exchange for a chance to represent them in a sale.
Seek out accountants and financial planners, who are in regular contact with investors and people who are looking to become investors.
You might also want to scope out bankruptcy and foreclosure auctions to find investors who might be looking for a partner: they’ll put up some of the money while you handle day-to-day operations.
3. Real estate investment clubs
Your local real estate investment club is a great place to secure real estate financing, or at the very least learn how to do so and build up your network. These groups tend to contain people with diverse skill sets: builders, brokers, Realtors, lawyers, etc., and often have connections outside your local market that can point you to deals in other areas.
4. Hard money lenders
This can be an intimidating proposal. Hard money lenders typically charge a higher interest rate and more points than you’d pay with traditional loans.
On the plus side, these lenders usually offer a great deal of experience and a strong pool of contacts. And hard money is usually a good indicator of whether your deal will work out or not. If they say no, it might be time to rethink your project.
5. Owner financing
With owner financing, the seller of a home agrees to take payments in installments from the buyer rather than having the buyer get a traditional bank loan. This arrangement has advantages for both the buyer and seller. The buyer doesn’t have to wait as long as they would with a bank and has more flexibility with the size of the downpayment. The seller, meanwhile, is able to sell fast and can do so without having to make the expensive repairs other lenders might stipulate.
6. Asking for financing
Finding real estate investors is just half the battle. The other half is convincing them to work with you. Make sure you have a detailed plan to present to them, detailing:
- Why you want to buy
- The margins for the investment
- Your experience in building, rehabbing or selling homes
- Your rehab budget and timeline
Investors have heard pitches like yours before, so make sure you generate confidence and professionalism, and show them the upside in order for them to invest.
Finding real estate investors
Are you stressing about finding real estate investors for your next project? Do you need a way to bolster your real estate network? DIG – the Diversified Real Estate Investor Group – can help.
More than just a real estate investment association, our group offers members a chance to sharpen their skills and come away with practical real estate investing knowledge. Stop by our next meeting to learn how we can help you find financing for your next project.