Creative Investing: Utilize all Options to Purchase an Investment Property

Purchasing investment property in the current economy may require a little creative investing. Gone are the zero money down-100% financing-bank backed loans. Today the banks require 15%, 20% or EVEN 25% down payment to secure a bank backed-conventional loan.

Examples of Creative investing:

Seller financing:

Sellers may be willing to finance the required amount needed for the down payment or a portion there of. The closing attorney can easily draw up the agreed upon loan document.

Equity Lines (loans), credit card advances:

Equity can be used from any existing property that you own, including your primary residence. An Equity Line’s terms may be better than from other sources, however, please check with your financial institution for availability of these funds. Money from credit cards is very expensive and the pros and cons of this money should be carefully considered before obtaining.

Loans from family, or friends:

Another source of potential money. Careful attention to the terms of the loan should be made. Defaulting on any loan has a consequence, but for a close friend or family member the problems can be awful, to say the least.

Partnerships-LLCs, Limited Partnership, etc:

Forming a partnership with other individuals reduces your initial investment, but also your liabilities. It requires setting up legally binding documents stating each partner’s equity stake, responsibilities, liabilities, and exit strategies. It is a good way to begin investing in real estate.

Tenants in Common:

These TICs are similar to the above listed partnerships except for the liability protections spelled out in partnership agreements. All the TIC buyers finance an equal share of the property and hold an undivided and equal interest in the investment property.

Hard Money Lenders:

An excellent source of money if time is of the essence. However, this money is not cheap and may come with some strings attached. The interest rates are usually very high, the terms are relatively short, and if the payments are not received the lender will quickly foreclose on the loan. Hard money is typically used short term, most often in the case of purchasing a property for a rehab and quick resale. This is fine in a quick-moving market when you are confident the property will sell quickly to an end-user. In a slower real estate market, the option for short term hard money is risky!

IRA Real Estate Investing:

Retirement funds can be used in creative investing. Holding real estate in your retirement investment portfolio is a great way to diversify your investments and build wealth.

Creative investing fits the axiom:

“If there’s a will, there’s a way”. But not all creative investing is the same. Some are much more risky than others. TICs and partnerships are very good ways to get involved in investment property. Seller financing, if available, also has its benefits. Hard money is usually available at short notice, but beware of cost and strings attached and definitely have an exit strategy in place before securing the loan.