It just sounds way good too good to be true. But in fact, it is possible to invest in real estate without using any money of your own. How? Mike LaCava, president of House Flipping School explains 4 ways to fund your house flipping business.
Option #2: Friends and Family
Like private money investors, friends and family are somewhat similar. You approach them in the exact same way, but they may need less convincing than people who are not close friends or family.
However, borrowing money from family is never as easy as it seems. Families always seem to come with their own sets of complications – whereas with friends or associates, these kinds of emotional issues tend not to occur. Just keep in mind that whenever family is involved in business, things can get complicated fast.
This didn't stop Donald Trump and many other now famous real estate investors from starting their career using funds from mom, dad or Aunt Gertrude. Just make sure that you pay it back no matter what or Thanksgiving dinner could be very uncomfortable.
Option #3: Hard Money Lenders
Lots of new investors shy away from hard money lenders and I'm not exactly sure why. True, hard money lenders do charge extremely high rates as well as points – but if you’re new to investing in real estate and you’ve worked your numbers so that they are very favorable even despite the high interest rates, why not use them?
See also: Advice for Beginning Investors
If you're not familiar with what a hard money lender is, it is a person with money who lends it at a very high interest rate – and then charges points on top of that as well. You'll probably find that these kinds of money lenders are most useful for shorter term real estate investment deals like house flips.
Just be aware that you can typically expect a hard money lender to loan you money at anywhere between 14% and 20% interest, with perhaps 4 to 6 points on top of that. A "point" equals $1,000 for every percentage point of the loan – therefore, four points on $200,000 would equal $8,000.
Option #4: Partners
Partnering with people who have money is a great way to get started investing in real estate. A typical scenario is where you might have a private investor who funds you all the cash for the investment and you do all the work. You then split the profits 50 – 50. Although you might be giving away 50% of the profits, it's a very easy way to get some real estate investing momentum this way. This partner might be a coworker, a friend, a business partner, another business owner, or even another real estate investor.
There's no need to draw up a formal partnership in the classic sense with these kinds of investors – simply work on a deal-by-deal basis. It's far safer this way and protects your interests. Once again, I've met some of the best partners of my real estate ventures at local networking events - and of course the multiple monthly REIA meetings I attend regularly.
Be Creative When Investing in Real Estate
Although we listed 4 potential sources for funding for your real estate investment, there are 100 different ways to mix and match the funding mentioned here for any kind of deal. For example, you could have a hard money loan for 20% of the deal, 50% of the deal comes from a private money lender, and the remaining 30% comes from your mother and father. The possibilities are endless, so be creative and think abundance.
After all, money is everywhere – you just have to go out and get it!
Mike LaCava is the President of Hold Em Realty and of House Flipping School, both located in southeastern Massachusetts. Mike is a full time real estate investor and a house flipping coach. To learn more about Mike LaCava, visit houseflippingschool.com. Connect with Mike on Facebook, Pinterest, and YouTube.