Just the other day, I was driving around and saw a hand-drawn sign tied to a post. It said “GET RICH QUICK”, and said that you could learn how to “fix and flips houses” and “get money easy”.
Now, I don’t put much stock in a hand-drawn sign that promises to help me get rich quick. Maybe I’m wrong; maybe the guy is a real estate genius who refuses to invest in a real sign. Maybe you can call that number and learn how to be truly wealthy. But I doubt it. Not just because the sign spelled “real estate” incorrectly, but because this isn’t a get-rich-quick kind of business.
This is a business that requires hard work. You can achieve your financial goals for sure, but not overnight. It requires building capital and sweat equity. It requires taking risks, yes, but it also means being smart. It means looking for the best sources for your real estate funding.
That’s key to the whole enterprise. When a house comes up that you think can help you turn solid ROI, you might need to get cash fast. You also have to do it in a way that doesn’t leave you in debt for years. You need someone who understands your business.
Top 3 Options for Funding Real Estate Investments
Our business runs on tight margins. Even if you’re doing well for yourself, you always might be scrambling for cash. You might be scrambling especially if you’re successful because you keep expanding your business. If you’ve done 20 deals, there’s still that other one waiting. And, that means getting cash.
There are pros and cons for each real estate funding option. You might even use some combination of traditional loans, leveraging your own IRAs, or hard money. I know I’ve used them. Here is how I feel about all three.
Taking Out Traditional Loans
By “traditional loans,” I mean those from a bank or other lending institution, not the guy with the dark office in the back of the sandwich shop. These have long been the main source of funding for beginning real estate investors, and for a good reason: they are a well-known quantity.
These traditional loans can be excellent if you only want to buy one rental property and have very good credit. You can get big loans at pretty good rates. Banks love lending to people who are doing pretty well.
But, if you have higher aspirations than a single rental or have bad credit, you might not get a good rate. And, the interest on your loans can eat into your cap rate. A bank might also look at your financials and see a risk. They don’t look very far into just the potential of the house you’re buying. That’s because, for the most part, they don’t really understand your business.
Leveraging a Self-Directed IRA
If you’ve been working in a “normal” job before you got into real estate investing, you might have an IRA. It’s a great financial device for your retirement. And, if you have a self-directed IRA, you can use it to invest in real estate.
A self-directed IRA is a very popular tool for real estate investing and it comes with some very specific potential tax benefits. You may be able to buy, rehab, and sell properties while still maintaining the tax deferrals that come with an IRA.
But the risk is in how well you follow the rules. If you run afoul of these rules, you risk what financial advisors call a “taxable event”—which is about as fun as it sounds. You could even disqualify the IRA completely.
At the end of the day, you’re borrowing against yourself. You could possibly hurt your retirement savings. But, if done right, you can certainly boost your real estate investing income and enhance your IRA. I’d recommend paying a lawyer who specializes in self-directed IRAs and tax law in any before diving into this option.
Working With Hard Money
Hard money is an increasingly popular way to get more money quickly and for getting the money you need before the deal lands with someone else. Like all loans, there are advantages and disadvantages to hard money. A lot of lenders vary their rates a lot based on experience. There is also a higher out-of-pocket cost since many hard money lenders like to see you have some ‘skin in the game.’
The interesting thing, though, is that the metric offered for your funding is different than with banks. A bank might just look at your immediate financials. Hard money lenders look at the actual deal on the table.
This is because hard money lenders generally work specifically with real estate investors. They understand the business and can see the true potential of a project. That makes it more than just about numbers. It makes the borrowing process part of what you do. It’s not the most fun part, but your passion for the work and the equity you’ve built through your hard work, matters.
Making Hard Money Work For You
Of course, as we said, there is no perfect system. But, you can make hard money work for you. I started making it work for me when I became an independently owned and operated HomeVestors® franchisee. Becoming an independently owned and operated HomeVestors® franchisee has helped me find the best hard money lenders nationwide.
See, in UGVilleSM’s proprietary hard money portal, I can reach these hard money lenders directly. When you have a potential deal, you put the information into the system, and—bam!—hard money lenders offer you their terms. That means they are basically competing for your business.
You don’t have to go around applying for loans and comparing rates. You save a lot of time, and that’ll save you a lot of money. It’s ideal. It’s easy. And while I said there is nothing fast and easy in this business, there are ways to do the smart thing the quick way. Using the hard money portal is the smart and fast way to get your real estate investment funding.
If you’re interested in accessing some of the best hard money lenders, too, request information today. It’s much better than answering a sign on the road.
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