Creative financing is something all real estate investors need in their toolbox. It ensures you can get started when lean on resources, and keep growing your real estate business when the market changes or you’ve got capital tied up in equity.
There are many types of alternative and creative financing structures real estate investors can use. Here are seven to get to know and put in your pocket for doing more deals now, and making sure your deal flow never slows.
- Rent to Own
Rent to own deals are becoming popular again. They can be an attractive way for investors to both get started and acquire deals, and to resell properties to end buyers and tenants. On the acquisitions side, it takes very little money to secure a rent to own deal. Just like getting into a new apartment. Yet, you get to lock in a purchase price and take control of the property right away. On the resale side you can attract tenants who will take better care of your assets, and take responsibility for repairs and maintenance. They will also typically be willing to pay a premium price for the property, providing the payments work for them.
- Owner Held Mortgages
This type of seller financing is different in that the buyer gets to take title and full ownership to the property immediately. Instead of having to jump through hoops for a bank mortgage loan, the owner provides the loan. There are typically no qualifying criteria, and no need to check your credit. As the buyer you’ll be able to close fast, avoid lender fees and delays, and then do whatever you want with the property. Many real estate investors are also choosing this way to sell their assets too. It helps achieve a higher exit price, without triggering higher taxes now, but retaining cash flow without maintenance responsibility in the interim.
- Lease Options
Lease options are unique in that they are really a two part deal. You gain immediate control of the property through a lease for a certain number of years. You also get the option to buy the property for a predetermined price. You can sublease it for cash flow right away. Then if it has gone up in value, you buy it later. If you no longer want to own it, don’t exercise your option and let the seller keep it.
- Land Contracts
Land contracts or contracts for deed are like rent to own, but enable buyers to steadily pay down the amount owed until they own the property. Each payment gives them credit toward ownership. Though title doesn’t change hands until it is paid in full. This can be a highly attractive way to promote properties for sale, and to generate long term income streams on assets you are familiar with.
- Subject To Deals
Subject to transactions are almost a hybrid of the above options. It enables a buyer to take over existing financing that is already in place, without getting a new loan. It means the ability to close instantly, with no lender fees, and to lock in good financing. The seller gets to immediately exit the burden of monthly payments, without playing the waiting game to see if a mortgage company will really come through for the buyer.
- Reverse Wholesaling
Reverse wholesaling works completely differently. You’ll still be giving the seller cash at closing. This can come from a transactional lender or direct from your end buyer. If you find your buyers first, then connect them with a deal, you don’t have to worry about conventional loans or your own cash. Either the buyer can fund it all up front, you can assign the contract, or use easy short term funding for a back to back closing.
- Private Money Lenders
Either using private mortgage lenders or capital partners you can also close on properties in a conventional way, without having to deal with conventional bank loans and lenders. There is less risk and stress in trying to get approved, and more joy in working with funding sources which are really investor friendly.
Which of these will you learn to master this year?