Find All The Cash You Need To Fund Deals Without Going To The Bank – Part 2

Another way I use to fund my deals is by utilizing money from private lenders. Hard money lenders and private lenders are distinctly different in their approach to lending you money.

A private lender is a person who will fund your deals usually with no points and a much lower interest rate. There are usually no pre-payment penalties and they are usually more flexible with regard to the terms of the loan. For example, they may allow you to pay part or all of the interest payments at the end of the loan. So the cost of the money is a lot less in the long run. Working with private lenders offers me a lot more flexibility as a real estate investor, so if a private lender will allow me to pay all of the interest at the end of the loan for example, I may offer them a higher interest rate or maybe a point or two for allowing me to pay at the end. If I can pay all of the interest at the end of the loan, then the property cash flows at one hundred percent each month. This gives me the opportunity to fund multiple rehabs at the same time without having to worry about monthly payments. Then once I sell the property the private lender receives the principal amount they loaned me and all of the interest that has accrued.

There are several ways for you to find private lenders for your real estate investing business. One way is to simply check with people around you (relatives or friends) who may have funds available that are not drawing a very high interest rate in a CD, IRA or money market account. In today’s market that shouldn’t be too difficult. I have found several of my own private lenders this way.

Another way to find private lenders is to check with doctors, dentists, CPAs or attorneys you may know, or other professionals who may have money available to lend or who know someone with money to lend. You can also check with your local real estate club, mortgage brokers or with people you meet at real estate seminars you attend. You can also work with your Realtor to locate private lenders. Often they have clients who are both investors and private lenders. I have successfully implemented several of these strategies to locate private lenders in my own business. In fact I have even gotten calls from potential lenders who came as referrals from other lenders I work with.  One of the best ways I have found to find private lenders is with my Attorney letter which is one of the direct mail campaigns I use to find incredible deals none of my competitors know anything about.

Another way that I suggest to fund deals is to simply ask your sellers if they are willing to owner finance part or all of the sale amount of their property. Many of them may be looking for a monthly income and may be willing to hold a mortgage for you. Many times they will only require a small down payment or no down payment at all. If you are working with motivated sellers, very often it is easy to find sellers who will be willing to owner finance the sale of their property.

I also know that sometimes sellers will simply deed you their property for what they owe on it. This way, you take over their mortgage payments and continue making the payments each month. Taking a property this way means you didn’t have to go to the bank for a new loan. And, the original loan you are making payments on stays in the name of the seller until it is paid off so it doesn’t affect your credit score.

If the seller has equity in a property and they want some cash out of the deal, very often they will hold a small second mortgage for you. Usually when they are motivated sellers, they are flexible on the terms of this loan as well. I have had sellers hold small second mortgages for me with no payments and all of the principle and interest to be paid at the time the loan balloons, which is usually five years or at the time I sell the property. This gives me time to gain equity and cash flow and then sell the property before the balloon comes due. By structuring a deal this way, I end up having no cash out of my pocket involved in the deal. And better yet, usually when I get ready to pay off the second mortgage the seller held for me they end up discounting the balance due so I make even more money on the deal.

For more information on finding ways to fund your real estate deals, check out part three of this article next month.