Financing is a powerful tool for real estate ventures.
The big questions most have are what the real benefits are to using financial leverage, how to use it wisely, what fundraising and loan options are available, and of course where to get the best financing?
They used to say “cash is king.” It still is to some extent. Though cash can be even better when it is leveraged, and involves helping others putting their cash to work in great investments. Financial leverage remains the life of the real estate world, and the economy. It must be handled well. But real estate investors and entrepreneurs can’t ignore the real benefits of having more money and liquidity. To be truly effective funding must be from a source that is a good match and the right type of financing for the specific needs and goals you have. So how do you ace this part of the real estate business and maximize your potential?
BENEFITS OF REAL ESTATE FINANCING
Do not underestimate the benefits of real estate financing.
It is true that you can get started in real estate, and do very well, without your own cash or credit. It is also true that having access to more funding can amplify the benefits of investing in real estate or launching a real estate business. In fact, there is no question that giants like Zillow, Realtor.com, HGTV, and Airbnb owe much of their success to financial leverage. Without the capital they have raised and deployed you may still never have heard of them.
Visibility & Marketing Dollars
Low cost guerrilla marketing is great. So is growing at a steady and sustainable pace. Yet, it is no secret that funding has turned many poor products and companies into wild ‘successes’. At the same time there have been many great ideas, entrepreneurs, products, and companies in all industries which have completely failed, all because they didn’t have enough funds, couldn’t gain enough visibility, or ran out of marketing dollars. Investors need to be cautious in how they spend this money, and need to demand the maximum ROI on it, but it can help to fuel the results you want.
Your Best Work
Having a little extra money can help you do your best work. That can apply to creating a new real estate gadget or app, presenting your properties in the best way, or doing the best job renovating a property.
Winning in real estate has a lot to do with speed. With access to financing you can make more offers faster, close faster, and do more deals.
Time is our most precious resource. Financing can speed up our traction and put the power of compounding gains on our side earlier. Funding can help employ assistance so that we can enjoy more free time. And all together it means reaching our goals faster, and enjoying the journey more, without sacrificing our values and what we care about most.
More financing means you can go a lot bigger. With 90% financing you could turn your existing capital into buying ten homes instead of just one. Size has advantages in the marketplace against competitors. It offers the efficiencies of scale so that you also benefit from better profit margins.
Flexibility is crucial. The unexpected happens all the time. You need to be able to seize on ripe opportunities in a heartbeat, enjoy more protection from risks, and to be prepared to adapt to the market.
Financial leverage empowers you to do more. The more deals you can do the more you can serve others. Beyond recycling distressed properties and providing housing, those that use private lender financing also get to help other individuals improve their finances, just by borrowing their money.
TYPES OF REAL ESTATE FINANCING
There are many types of real estate financing. It is about finding the right fit for you. For example you may need a business loan or venture capital if launching a real estate startup. If you are wholesaling houses you want transactional funding. If you are going to buy and hold income property you want a solid lender with good terms for the best cash flow and stability. If you are fixing and flipping houses you want access to both mortgage loans and rehab funds.
Look for a Lender who offers More Than Just Money
The mortgage and real estate finance industry has long become too transactional. In general borrowers haven’t been given a reason to look for more than a good rate quote or a promise of a fast closing when choosing lenders. You call, ask the rates, submit an app, and end up in a very cold and mechanical system, which doesn’t always seem to serve you well. Ultimately both sides have trained each other to focus on the wrong things.
Smart investors look for something different. They look for smart lenders, and real connection. They know that the lender can only provide the very best product, service, and program if they are able to get the full picture of the deal and your personal goals for it. A few lenders have also stuck to their values and actively look for more ways to add value and increase the success of their clients. This is much like how smart startup entrepreneurs and venture capital firms and angel investors look for the best matches. Smart entrepreneurs know that the money is really just as green from once source as the next. Just as serious capital investors know there is no shortage of individuals and businesses seeking fundraising. The best just look to where they can add value. Think Shark Tank or The Profit. Having the Shark Tank panel of investors back you can offer infinitely more times the benefit than the same money from the bank down the street. Having someone with those credentials, connections, and level of experience is a game changer.
Now imagine you can find a real estate lender with powerful local contacts, experience, and a vested interest in your success. Maybe that deal with the $94k construction budget can get done for just $66k. That’s an extra $28k in your pocket, on just one deal.
Perhaps the biggest challenge and dilemma for real estate flippers is the ‘chicken and the egg’ money situation. Do you find the deals and then hope you find the money? How do you make an offer without the money? How can you get the money unless you have a deal?
Experienced real estate professionals always line up the money first. You know shopping for groceries is much smarter done when you are full, not when you are starving. If you shop for food when you are broke or hungry what do you get? Junk. When you are full you shop for better deals and put items in your basket that are actually good for you. The same applies here. Consider the edge you’d have if you were hitting the field with a $1M or $5M line of credit. Already pre-approved and just waiting for you to decide where to wire the funds. You’d be able to shop and negotiate with confidence, intelligently, and from a power position.
There are three types of lenders out there. Those that just want to make the money on originating your loan and then cash out. Those that want to put a lien on your property with the hopes of grabbing it in foreclosure. And then there are those that want to actually see you succeed, and know that if they stick to what they specialize in and simply fuel your growth, you’ll both seeing increasing results.
The bottom line is that not everything goes as planned when flipping houses. Timelines get skewed, things cost more than you thought, you get less coming back in than anticipated, and plans change, and the best buys are not always pretty houses which check all of a traditional underwriter’s boxes. It is in these times that having the right lender makes all the difference in the world.
Savvy investors look for lenders that provide good customer service, and can also be flexible when needed. That may mean speedier inspections for releasing repair funds, extending loan terms, and opening up loans or lines of credit to added needed working capital, facilitating rapid releases of units from liens, and even working with you in a helpful way when you may be coming up short on repaying your loan.
Finding Financing for Your Real Estate Ventures
Know what you need your financing to do for you, and then find the right type of lender. This may be a transactional funding lender, hard money lender, friends and family, local community bank, an angel investor or venture capital fund, or a wealthy private money lender.
The current real estate landscape offers a buffet of incredible opportunities for fast moving investors equipped with financing. While there are many new lenders that have thrown their hats into the ring over the last six years, not all provide the financing that wholesalers, rehabbers, and landlords need to operate at their full capacity. The savviest and most effective are those lining up their capital first, finding flexible funding sources with the capability of extending substantial lines of credit and higher loan-to-value financing, while taking a smart money approach to ensuring the success and longevity of their business partners and clients.
Look for Private Lenders in your area with the Find Private Lenders Now system – a propriety database of private lenders nationwide; an endless supply of money to buy real estate REOs, Short sales, auction properties, and fixer uppers.