There are many ways to finance real estate today. Most think that because banks are not lending (not really true) the funds for real estate are found only with high-priced, low LTV hard money lenders. Not true. There are many programs available for business or personal, as well as those with good and not so good credit…and the terms might surprise you.
The keys to perfect funding programs are found in three absolute criteria;
- The funding must bot be tied to the deal in any way other than by association. In other words, it can be “associated debt”, but it cannot be “lien-able debt”.
- The funding must be self sustaining, which leads directly into criteria number 3…
- The funding must be repeatable…as in “you can use the funding many times,…but only have to pay for it once”.
All three criteria are non negotiable, and also work together to form the perfect funding program…which in tern provides the basis for your perfect real estate investing system. See, if you don’t have to pay back the debt when your flip a house or note (this is because the loan is not lien-able, like a mortgage, you can re-use it on the next property or note.
This leads to criteria number two. The loan must have either built into it, or added to it, a means to make it self-sustaining. I use a couple of different ways/sources for this. Essentially this means that your system covers the debt service over a period of time (or forever…like one of my sources will) that allows you to…and this leads to criteria number 3,…
…use the funding over and over again. Also, since you don’t have to get approval to use it again, there are no other added fees or costs, other than what is being applied to the debt service…that your system is covering for you.
Once you follow this basic system of funding and application of funds, the skies the limit.
You can build out (make ready for financing) an existing corporation or start from scratch. Now, by now many have experienced the “shelf corporation” people lurking out there…and have had bad experiences with them. Well I to have had bad experiences with them, but I’ve also had some very good experiences with them. It comes down to a couple of things. Can they deliver, and what are the upfront costs? For the source I use, the upfront cost is very little, around $1500 compared to some that are over $10k. They’re pretty easy to check out too.
This is a great program for those with poor credit history since the corporation you will be getting is clean and ready for funding, and there is no personal credit involved in the approval process or the re-payment process.
Equipment Lease Funding
The other option is using a form of business loan called “Equipment Lease Funding”. This is a very good program where the approval process is quick (about 1-2 days), the funding is just a quick (about 2 weeks) and the cost out-of-pocket is, well, nothing. You can’t beat that now can you? There is a requirement for a minimum 650 personal credit score, but they seem to be able to “fix” that if needed, and the worst thing that happens is you find out you don’t get approved, in about 2 days, with nothing out-of-pocket, and you move on to other options. The source I use has a maximum of around $200k and a clean corporation of at least 2 years old works best. You are scratching your head now? Think of it this way. Have you ever leased a car with a cash rebate? This is the same thing but the equipment isn’t a car, and you aren’t going to use the rebate as part of the down payment thus reducing the monthly car payments (after all, the main reason for using this program is to get the cash to use for real estate investing).
My System of Investing
Using these tow programs, and others not mentioned here (they are actually the best), I have worked out a universal system I have applied to real estate investing. This is a brief summary of it:
- Use the ELF program for funding the $200k
- Find an analyze the deals based on my program’s criteria
- Buy seasoned LLC and fund it from the ELF funds
- Use $100k to have the LLC buy and rehab the house(s)
- Put the rest of the money in a cash reserve, a security blanket, to make payments while you rehab. You won’t need it all, but it’s real nice to have more than you need. (This is how builder/developers do it, so if it’s good enough for them,…)
- Sell the LLC with the asset (house) in it, put the money back, use it again.