Non Conventional Financing

Non Conventional financing opens up a whole new world of options for purchasing property.

Sometimes, you may find yourself in a situation where traditional methods of financing will just not work. Should you give up and not buy any more property until you've saved enough money for a down payment? Or you've repaired your poor credit score? Or you've paid off all your debt?

Of course not! In some situations for some people, the following non conventional options may work. For others of you, they may not. Let's take a look at them:

Hard Money Lenders - They call it "hard" because that's what the terms are. This is the most expensive way to borrow money there is. Normally it is for a very short period of time, rarely over 6 months, sometimes as long as a year. The interest rate will be high, they may charge you points and/or fees, but if it's the only way to get a deal done, many people keep one or two hard money lenders they know in their rolodex.

Click Here for an Amazing E-book that reveals secrets to real estate investors on how to borrow money from hard money lenders!

Self-Directed IRA's - If you have money in a self-directed IRA, then you can use that money to buy real estate, a business, tax liens, loan as a promissory note, and many, many other options. Most people are not aware of this, and that is because the brokerage houses want you to keep your money right where it is - in their institution, so they never let you know that stocks, bonds and mutual funds aren't your only option.

This does not apply to those of you who have 401K plans through your employer, since they control where you can invest. But if you have an IRA or SEP, and it is under performing, than this may be an option for you. Of course, check with your tax consultant for all the details. There are strict limitations on getting a loan with your IRA, too much detail to cover here. But with a little investigating, you might find this is a viable option.

To read the book The Real Estate IRA, Your Road to Retirement Wealth, CLICK here

Lines of Credit - Home Equity Lines of Credit (HELOC's) are a very non conventional way that investors get capital to invest. Let's say that you find a house you can buy for $50,000 cash, so you pull it out of your HELOC. You then put $15,000 into it rehabbing it, and now, because of the improvements, you can sell it for $75,000. That's a $10,000 profit. Once you've sold the property, you take the original $65,000 and pay back your HELOC.

Just keep in mind your interest rate may be higher than you could get at a bank, and make sure you're aware of any annual fees or pre-payment penalties if you pull the money out. But this is a great way to do a cash only purchase without taking out a mortgage and having to pay all those closing costs.

Credit Cards - I've never done this myself, but I know of investors who have. One very popular multi-family investor started his investment career this way, and is now a multi-millionaire. This can be one of the most non conventional, some might say risky, ways to invest, so make sure you have a great plan and a strong stomach, because you may need it if anything goes wrong.

Other People's Money - How about borrowing money from somebody you know with an IRA. They could loan you the money you need on a promissory note. You get to buy the property, they get a stream of interest income. Just keep in mind, promissory notes are generally for a shorter term than conventional financing, but some people will give you five or ten year prom notes if the interest rate is right, so remember everything is negotiable. And if the property's cash flow covers the extra interest rate, then why not.

Seller Financing - This is the most common non conventional way of obtaining financing. Many seller's are quite willing to be the bank in the sale of their home. They may not be able to sell any other way, and just want so desperately to move on, that they will let borrowers pay them a monthly mortgage.

This is a win-win. A buyer gets a house they may not otherwise be able to qualify for, and the seller gets a stream of monthly income while simultaneously selling their home. Sometimes you can combine this technique with conventional financing, where you get an 80% loan with a bank, and a 20% seller carry back loan, or 100% financing. Again, as long as the property cash flows, this is a great strategy.

Money Partners - If you have no money to invest but you enjoy researching an area, finding great cash flowing properties, and handling all of the details of making a deal happen, find a partner to invest with. Of course, you will subsequently have to manage a team to take care of the property, because even though your partner wants to participate in the profit, they don't want to do any of the work. But for doing the work, you get to split the profits with your partner for an agreed upon amount (usually 50/50).

Check with your local investment clubs or forums and you will find people like this. Just remember, you have to bring them good deals and be able to manage real estate and team members.

Again, some of these won't be for you, but at least knowing there are other non conventional options out there is better than thinking you have none at all.

Return from Non Conventional to Sharon's Real-Estate-Investing-Support.com