Funding in the real estate business can be one of the biggest barriers to entry and one of the biggest headaches! Here are some tips to help get your next deal funded. For more tips get my free report on creative financing at www.GetCreativeCash.com.
1. Remember that the only thing that sellers really care about is solving their problems. Make your offers a solution to their problems. Do your homework on the seller and the property. Find out why they are selling and if the property is distressed in any way (differed maintenance, low occupancy, etc.). Make an offer that solves the seller’s problems. An example might be using a master lease option to take control of a distressed property, fixing it up and then refinancing or selling it.
2. Use master lease options. A master lease option or lease option is a set of two contracts that give you the right to control the property (master lease) and an option to purchase the property for a set price and for a set amount of time. A master lease option will allow you to take control of the operations of the deal and give you time to stabilize the property. Once that is done you can exercise your option to purchase or sell the option to a new buyer for quick cash.
3. Get seller financing. If you find that a seller has full equity in a property seller financing may be an option. If the property is distressed then you need to explain the seller that banks and lenders are not quick to finance distressed assets these days. Offer seller financing that will allow you to mitigate the distress on the property. If you can get seller financing and the property needs repairs, don’t give the seller a down payment. Do the repairs in lieu of a down payment.
4. Refinance after getting seller financing. If you get seller financing then you are the new owner of record and you will be in a position to refinance the deal with a bank or lender. Banks and lenders will loan you a % of the sales price or appraisal value (whichever is lower). Since it will be a refinance not a purchase (seller financing makes you the owner) the lender will have to use a new appraisal for the loan to value. If you have done the rehab while you were under seller financing the property should appraise for more than you bought it for and the difference can get you 100% financing from the bank.
5. Join a seller in a deal. In many cases sellers own properties that need repairs and they don’t have the cash to do them. Find distressed sellers and bring cash to do the repairs to their deal. In return you will want to purchase the majority share of the entity that holds the property. Once the repairs are done and the property value increases you can sell or refinance and buy your new partner out. Have this agreement worked out before you do the deal and always have an attorney review all documents and strategies before execution.