How to Control Real Estate Without Signing the Dreaded Bottom Line

The majority of us have been taught that financing means putting your name on that dreaded bottom line.  Be thankful that the time has come for you to learn a new way to play the game of financing.  Understand, however that the rules of financing have not changed; you were just not aware of all the rules.  I am about to share with you ways to buy real estate without having to jump through credit hoops and debt to income foolishness.  Since going to the bank is my least desirable method to finance real estate, I will discuss with you my four favorite ways:  owner financing, subject 2 financing, private lending and hard money.

Owner Financing:

Owner financing is my all-time favorite way to finance real estate due to the fact that you get to set the terms of the financing, if the property is owned free and clear.  You may be asking yourself, why would someone owner finance a property instead of just selling it and moving on for cash?  Well, I could give you all the reasons in the world; however, for the sake of time I will give you the top three reasons: 

(1) Owners want to get the deal done so they can move on to other important things in their lives;

(2) Owners don’t need the money all at once and can wait to get a lump sum at a future date;

(3) The most surprising – because I ASKED. Are you familiar with the expression, “We have not because we ask not?”  I am not saying that every free and clear property that you come across will accept owner financing.  However, what does it hurt to give it a shot?  Especially if the property is in bad shape or in an undesirable location.

Subject 2 Financing:

Subject 2 financing is second on my list, especially in today’s market.  People are looking for relief from adjustable mortgages that they took out two to three years ago.  I must warn you, however that just because someone is willing to let you take over their payments does not mean it is a great deal for you.  I know because I took more than my fair share of deals in the beginning years and it cost me a lot of heartache and money.  I can say I got my degree in that area from the School of Hard Knocks.  That is why I am sharing this point now.  Subject 2 financing is a great way to buy and control real estate. Make sure you look at the numbers closely and ask yourself whether this property could generate enough income to cover this loan today, tomorrow and in the future when the loan adjusts.  Because, I promise you, that loan will adjust in due time.  Make sure you get all of the information on the loan before you use this tool of financing if you plan to hold this property in your portfolio.

Private Lending

Number three on my list is private lending.  Private lending, like owner financing, allows me to set the terms of the loan.  When you become a “Transaction Engineer,” you not only have several options available to conduct deals but you also develop a whole new network of people to conduct business with, especially if you have documented proof and pictures of deals you have done.  Believe me.  There are a lot of people in the world who would love to receive returns like six percent to fifteen percent annually on their money secured by real estate.  Again.  You must ASK people.  Remember, “A closed mouth does not get fed!”  When using private lenders, you must always protect your lender.  Never take risks you cannot recover from if the deal does not go as planned.  Yes, this is investing, and risks are involved if you are in the game for the long haul.  But it doesn’t take much to turn your reputation upside down because of a bad deal.  Take care of your private lenders first so you can go to them again in the future.

Hard Money Lending

When it comes to hard money lenders, you must play by their rules.  That’s why it’s easy to have a love/hate relationship with these guys.  Understand, though, that it is not how much money costs, but the availability of the money.  It took me a couple of years to grasp this point because there were times I felt the lenders were getting too much of the pie.  However, without them I would not have had the opportunity to even taste the pie.  A piece of the pie is better than a whole pie of nothing.

Now that I’ve given you my top four ways to finance real estate, I encourage you to consider all of your options in the decision making process.  Who knows…you might be able to open a new stream of income.