Funding Real Estate Investments

Where are the most successful real estate investors getting their funding from?

Financial leverage is a critical part of investing in real estate. Yet, viable and attractive funding for rehabs, flipping houses, wholesaling properties, and for rental deals can sometimes seem elusive. So where do the top investors get their capital from? What do the most successful real estate entrepreneurs look for in a financing source?

"Just Sold"

Unless those words are coming out of your mouth they can be really painful. You finally got up the cash or lined up the loan to fund that deal. You call back, and the words “just sold” make you cringe. If only you would have had the additional capital a little sooner.

This is the same feeling when you step out of the front door and see your competition clearing the landscaping on the home you’ve being eyeing right down the street. If only you had a little more funding that could have been you. It could be you tearing into that new deal, calling out the scope of work list, bringing your vision for the property to life, and already salivating at the nice juicy check you’ll be cash when you flip it to someone else in a few weeks. But no. Someone else beat you to the punch because all of your cash is tied up in another deal.

Rentals & Flipping Houses is Hot

Flipping houses isn’t just ‘hot’ because it has become a trending theme in reality TV shows, or because celebrity actors and music artists are getting in on the game. The numbers are making it almost irresistible.

Quick Facts to Know:

  • Gross flipping profits have hit highs of an of $62,000 per deal (ATTOM Data)
  • Average ROI on a home flip is now almost 50% (Yahoo Finance)
  • ​51,434 homes were flipped in Q2 2016 alone
  • ​Around 70% of flips in the first half of 2016 were purchased with cash (an 8 year low)
  • ​Several markets have seen 100%+ ROI on home flips
  • ​9 housing markets had average flipping profits in excess of $100k in 2016 (RealtyTrac)
  • ​The number of investors flipping homes has been hitting new highs
  • According to DistressedPro there are still 2x the number of defaulting mortgages than before the 2008 crisis (approx. 35,000 per month)

This new data suggests that while home flippers, smart rental property investors, and wholesalers are presented with some of the most profitable deals the U.S. real estate market has ever seen, and plenty of volume potential, it’s also a competitive marketplace. Being a cash buyer, or at least being the first to secure the best funding may never have been more important.

The #1 Reason for Failure

Hammers down, no question about it, the number one reason for failure is lack of capital. For some this is a fear of a lack of money which causes them to make excuses for not getting started in real estate. For others it is biting off more than they can chew with the wrong strategy, or without the knowledge, and then running short on cash.

From the top reasons for not getting started to the collapse of new startups, established finance houses, and the new generation of fix and flippers spawned by HGTV – it’s all about the money.

The Washington Post says the first of four things you need to know to flip a home is “You need money.” The SBA (Small Business Administration) cites “insufficient capital” as a top reason for business failure. While Statistic Brain credits real estate with one of the highest rates of success, it notes only 58% of new businesses in this industry are still going after 4 years. At least 88% blame money related factors for not making it including; no knowledge of financing, poor credit practices, and inadequate borrowing practices.

Of course it isn’t always as easy as that right? Some lenders seem to just be in business for the fun of taking applications and driving investors insane with quirky underwriting and paperwork requests. Others just aren’t offering viable types of loans for the specific investment strategy you have.

So how so you top bleeding all of those deals and lost profits as the real estate conveyor belt keeps churning out sweet potential acquisitions and flips, and find that cash edge to make the most of the incredible opportunities in the current market?

Types of Real Estate Funding

There are different types of real estate investment funding to match different types of needs and strategies.

Real Estate Business Funding

For some of you the goal is to fund a new or existing real estate investment business. This capital may be used for investing in software, staff, training, and working capital.

Transactional Funding

For real estate wholesalers the key to success and more volume is ample transactional funding. This is short term financing for quickly flipping houses. You may only need it for a few hours or days, but you need a lender who is fast and flexible.

Rehab Loans & Working Capital

Rehabbers often need different types of financing. They need lenders willing to finance properties which may not be in the best condition. Then they need money to actually fund the repairs and improvements to increase the value of the property and hold on until it can be resold.

Long Term Financing

Income property investors need attractive long term financing from good lenders with terms that will maximize their cash flow and accelerate equity build up.

What to Look for in Real Estate Investment Funding

High LTV Loans

There are great arguments to be made about cautiously leveraging yourself in business in general, and when holding properties long term. But when it comes to flipping houses, minimizing risk, and maximizing revenue potential the key is maximizing leverage. It keeps more working capital free for rehabbing and marketing, and expands your deal flow capacity.

Just expanding from doing 4 flips a year to 6 at a modest average of $50k per turn, you’d be increasing your income by $8,333 per month, or $100k per year.

Types of lenders providing this kind of funding to real estate investors include; specialized rehab lenders, government backed loan program lenders, and private lenders.

Lenders with No Limits on Deals and Mortgages

​If you’ve been in real estate long enough you already know that most conventional mortgage lenders and banks will cut you off as soon as you start warming up. Some will have a 4 loan limit maximum. Others will cap you if you have a certain number of outstanding mortgages with other lenders too. Even if you are getting into the game with $1M to $2M that can get tied up very quickly. Envision have access to a financing source which can provide $5M in funding, and actively encourages you to take on more deals. You’ll have credit pulled less often, if at all, and will keep your credit freed up for emergencies. All while having far more power on the front lines.

Types of lenders providing this kind of funding to real estate investors include; hedge funds, conduits for institutional lenders and banks, private money lenders.

Fast Funding

Speed is everything. Being able to act fast, write contracts fast, and fund deals fast will make all the difference in the discounts you can negotiate, the profit spreads you can make, and how many deals you can do each month and year. Most investors can’t wait weeks or months to see if they can ensure funding. They need to know in hours, if not in advance.

Finding Private Lenders

While there can be various sources of real estate investment funding, many will find that private lenders truly check all the boxes they need to operate at their best. Private lenders may decide their own terms and some will have different goals than others, but they are also very flexible and need opportunities to fund. They can finance real estate businesses, rehab projects, house flips, commercial real estate deals, wholesale deals, and even long term holds.

​Private lenders offer many advantages including speed, flexibility, and being without all of the ludicrous hoops and paperwork demands required by banks.

The key to success is funding these private lenders. There are more out there today than there used to be, but they aren’t always advertising or found in a quick Google search. And there are plenty of other investors looking for their help too.

REWW’s Find Private Lenders Now system enables you to find and connect with private money lenders all around the U.S. You can even use this system to breakdown and target lenders by the type of deals they like to fund so that you are spending your time with the best matches.

Find high LTV private lenders, private lenders for transactional funding, for rehabbing, and for financing your real estate business. The money is out there, if you know where to look, and have the right tools for the job.

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