Creative real estate investing strategies offer alternative funding options for real estate investors. Real estate financing is one of the main barriers to success with real estate investing. Even for successful real estate investors, creative real estate financing provides avenues to pursue more investment opportunities.
Stay on top of your business growth by incorporating creative real estate investment strategies and financing into your business plan. This type of financing is especially useful for buyers with little cash, poor credit or individuals entering the real estate investing industry. Think outside of the box to grow your business and your wealth.
For 2019, it’s predicted that mortgage rates will continue to rise making it less affordable to pursue traditional financing options, even if you have good credit and a cash down payment. Be smart with your real estate investing business as the real estate market shifts this year. With a strategic approach to financing, you can take advantage of the shifts instead of being negatively impacted.
Types of Creative Real Estate Financing Options
Seller financing is when the seller of a property acts as the lender. This type of arrangement may also be referred to as owner financing. In this type of deal, the seller manages the mortgage process. A contract is developed between the buyer, or investor, and the seller. The contract identifies all the details of the deal, including payment amount, interest rate and rights to the property.
With seller financing, the buyer doesn’t have to go through the traditional mortgage approval process. The buyer’s credit history doesn’t impact the ability to receive a loan since the seller, and not a financial institution, is making the lending decision. The buyer pays the mortgage to seller.
The seller may have a mortgage with a payment for the property or own it outright. Either way, if the buyer decides to sell the property and pay off the contract amount agreed to by both parties, the seller doesn’t have rights to retain ownership. This is a good option for property owners that must sell a property but can’t find a buyer with financing.
Crowdfunding is a relatively newer real estate investment strategy in real estate financing. However, this type of funding option may be good to explore for both new real estate investors and seasoned professionals. Crowdfunding not only impacts the real estate investing industry but also other industries, including non-profits.
The idea with crowdfunding is that many people contribute a smaller amount to help you reach your goal. Sites like GoFundMe and Kickstarter are among the most popular. These sites offer crowdsourced funding without many restrictions. Also, there are crowdfunding sites specifically for real estate investing, including Fundrise and Realty Mogul. Do your research to determine which crowdfunding option works best for your specific needs.
If you’re new to real estate investing, start with a small deal for crowdfunding. Make sure you understand how the site you use works and the specific requirements for the deal. While crowdfunding is a solid option, it’s like anything else with real estate investing, you should treat it like a business in order to see the best results.
Private money is another popular creative real estate financing option. Private money is money from individuals, usually individuals you have some type of relationship with. This can include family, friends and acquaintances. Since you’re dealing with people you know, it’s especially critical to be honest and responsible with the borrowed money.
If you’re investing in solid opportunities based on your business plan, both you and the lender should receive a positive outcome. With a private money deal, you may have one or multiple lenders. However, treat this type of financing like any other. Negotiate the terms and create a written contract with the interest rate, payment amount and term.
Private money is a great way for beginners to break into real estate investing. Be professional and honor the contract. When both parties are successful, you open the door for private money real estate financing in the future.
Lease Option to Buy
Lease option to buy real estate financing works like rent to own. This means that a portion of your lease or rent payments is retained to apply to your purchase amount. However, the buyer doesn’t have to apply for a mortgage.
The lease option to buy differs from seller financing. With seller financing the seller acts as the lender and the buyer takes ownership and responsibility for the property at the beginning of the contract. With lease option to buy, the buyer has only the option to buy the property but ownership of the property remains with the seller or current owner.
This is a good option for both new and seasoned real estate investors. This option is a win for both parties. The property owner receives monthly income in the form of rent. The buyer, or renter, doesn’t take on the risk and responsibility of ownership, while still earning a portion of the payment toward the future purchase of the property.
Get Creative with Real Estate Financing
Take the barriers out of real estate investing with creative real estate investment strategies and financing solutions. Thinking outside of the box allows investors to bypass the traditional funding options. Creative financing works well for new real estate investors, real estate investing women and experienced real estate investors.
Don’t limit yourself. Instead, seek the wisdom of real estate investing mentors and coaches who are experienced in creative funding strategies. Also, educate yourself through online courses, webinars, blogs, videos and eBooks from experienced professionals with a track record of success. Creative financing opens doors to real estate investing deals.