Updated: Aug 17, 2022
In the first part of this article, we have covered the first five methods of finding finance to your deals. Financing is one of the cornerstones for real estate investors and are the first step towards scaling your investments.
Option 5 - Finance your real estate deal with HELOC
HELOC is an abbreviation of Home Equity Line Of Credit, meaning you are taking a second mortgage on your home. HELOC is sometimes used as a cheap bridge loan. Instead of an HML whose rates are higher, you can take a HELOC for a short time. When refinancing the property with a conventional loan pay, the HELOC back.
Pros: You only pay interest on the part you loaned, secured credit line, flexible line of credit.
Cons: Can be too leverage to some, the risk to go underwater
Option 6 - Finance your real estate deal with credit card loans
Credit card loans can be compelling way to finance your deals as they sometimes offer 0% loans for a short term, they help you build your credit score, and potentially scalable. You can take them fast and then refinance to a conventional loan soon after the house is rent ready.
Pros: Short term 0% loans, accessible.
Cons: Risky if you can't refinance your way out of it.
Option 7 - Finance your real estate deal with your 401K
One of your available cash reserves lies within your 401K. The way to do it is to pass your 401K from a previous employer to be a self-directed IRA and then you can invest it in your real estate deals.
Pros: Your hard earned cash is creating you wealth right now
Cons: Playing with your retirement fund can be risky
Option 8 - Finance your real estate deal with owner financing
One of the easy ways to finance a deal is to get to terms with the current landlord. Instead of you assuming his mortgage, or taking a new mortgage on the property, the current owner can be your lender. This financing method is a win-win - for the owner don't have to pay tax, can still enjoy cash-flow, and don't need to mess with tenants. For you, you get financing without it appearing in the books, you don't have to pay points, you can always buy the owner out, etc.
Pros: A true win-win for both the homeowner and you the investor
Cons: Higher interest than a bank, seller can foreclose if you miss payment by a bit.
Hope you enjoyed and learned something new from these articles, come back for more!