This pandemic became the most significant contributor to job losses in the American workforce which caused many to miss payments on their mortgages. According to the CFPB, there are 2.1 million families who are currently falling behind in their mortgage payments for at least 3 months (as of March 2021). Government-imposed forbearances might be a fragile dam holding back a wave of foreclosures and forced sales. But what happens when it breaks?
As a real estate investor, you can either be worried or take this as a unique opportunity to further invest in the market. If you plan on entering this future door of opportunity, then you should also start thinking about possible sources of funds to finance your venture. You should consider looking into creative funding or alternative courses of action that minimize cash or funding requirements
We rounded up a list of creative funding solutions and options for your real estate investments:
1. Hard Money Loans
They are asset-based loans with terms that range from 6 to 36 months. These are loans you secure from hard money or private money lenders.
Pros:
Hard money lenders are on top of our creative funding list because they care more about your collateral and profitability than your credit. Their terms are more flexible, and approvals usually take 15 business days or less.
Cons:
Higher risk for your lender means you are paying for a risk premium. Interest rates charged on your loan are higher than the rates commercial or traditional lenders charge so they are best used for short-term funding and can be refinanced later with a commercial bank.
2. Properties Open to Subject 2 Deals
In these investment practices, the buyer or investor assumes payment of the amortizations from the seller. However, the property remains under the name of the original mortgagor or seller.
Pros:
You get to enjoy the terms and rates of the original mortgage, which could be lower than the rates offered by financial institutions for investment properties. It also means that you assume somebody else’s mortgage.
Cons:
You, as a buyer or investor, have minimal protection. Since the property and mortgage are still under the seller. There is also no formal or official agreement lodged with the mortgagee or government agency.
3. Personal Loans
These loans are non-collateral and are available to banks’ long-time borrowers and those who have satisfactory repayment histories.
Pros:
No collateral loans are evaluated based on your business relationship with your bank or financial institution, as well as your capacity to repay the loan. Having an excellent credit score and history increases your chances of being approved with this type of loan.
Cons:
Loans have relatively higher interest rates and shorter terms.
4. Home Equity Line of Credit or HELOC
This program allows owners to secure loans from their properties. So if it is a mortgaged property, the difference between the loanable amount and the outstanding balance will be the additional loan amount released.
Pros:
This loan acts as a revolving line of credit, the same concept with credit cards. As an investor, you can avail the whole amount or only a part of it, as needed. HELOCs have comparable rates as home mortgages.
Cons:
This loan scheme adds a mortgage to your home, thus exposing you to more risks.
5. Joint Ventures
Joint ventures or simply called JV, is one creative funding way you shouldn’t miss out on. For joint ventures, you can find a business partner who can partly fund the property. While you negotiate and bring the deal in, you then split the profits evenly or depending on your agreement. Another option is to propose a joint venture with the owner of the property.
Pros:
You may end up contributing less funds, or you can minimize your exposure to the investment.
Cons:
You will realize reduced profits since you have to divide amongst joint venture partners or investors.
6. Seller Carry-Back Financing
In this scheme, the seller acts as a financial institution to allow the transaction to push through. The investor pays the seller every month until such time that the balance is covered. The interest rate, loan term, monthly amortization, and other conditions are usually stipulated in a contract between the seller and the investor. The transaction is also almost always entered as a second lien.
Pros:
The investor need not come up with a large amount for the property. It is also usually applied when there are not enough funds to cover the purchase. Terms and conditions are very flexible, depending on the agreement between the seller and the buyer or investor.
Cons:
Rates could be higher than those from traditional banks. Terms of Loan can also be shorter than anticipated.
7. Credit Card Personal Advances
Most card companies allow you to withdraw the remaining balances of your card and pay these within a period.
Pros:
Easy access for the needed funds.
Cons:
High-Interest Rates and a short-term period.
8. Equity Loans From Existing Properties
The bank extends a cash loan against a property you own, that is, free from the lien, like a refinancing. You then use the funds to finance an acquisition or a Real-estate Investment.
Pros:
You can borrow cash as much as the appraised value of your property can handle, usually between 70 to 75% of your property’s appraised value.
Cons:
The rates are relatively higher than with a house purchase loan.
Final Words: Be Like The Ant
Ants are known for diligently storing food to prepare for the rainy days and you can take from their example. Using creative funding solutions and lining up your capital before you even need them. Besides, it’s a great way to get ahead of the competition. You’re ready to acquire while others rush in to look for capital.
At GL&L Holdings, our goal is always to help you prepare for the future. We can help you with your investments and creative funding requirements through hard money, private money, or even joint ventures.
To know more about how our financial services can help you, give us a call at (832) 770-9415, or use our online prequalification form. We’ll guide you and make the process as easy as possible for you.
