The following article was submitted to me for publication. I am sharing it with you because I think it makes an important point that most new investors need to hear. Enjoy…
How many times have you heard or said something like “There’s no such thing as free money?” Probably many times. So why do you think that you can walk in, buy a house for $250K, spend $20K on it, and sell it for $330K? The truth is, those deals are out there, but it requires a very savvy, seasoned real estate investor to make them. Or at least, to make them consistently.
Every beginning real estate investor has to rub the stars out of their eyes and try to think realistically. The truth is, you need to pay your dues in the industry before you can get to the level that you aspire to. It’s not an attractive thought, but it’s the only sure way to avoid financial ruin. So here are some tips to get you started.
First, and most importantly, use your own money. If you can’t come up with $50,000 to get rolling, you probably shouldn’t be buying a house just yet. The absolute minimum that you should consider investing with is $25,000. With that amount of money, you can buy a dirt-cheap, undesirable home in a bad neighborhood to cut your teeth on. Since you’re spending your own money, you want to be very careful not to get stuck with a house that is not legally habitable. Since you’re looking at the bottom of the barrel, the actual purchase price might be as low as $10,000 (or even lower). The rest of the money is what you need to have on hand to get through two closings, any minor (often times major) repairs, and unforeseen expenses.
Second, buy that first home with the idea that you just want to make a little something on the deal. More than anything, it’s a learning experience for you. Maybe you lay out $15,000 and you sell it to a local family as a rent-to-own that they will be able to pay off in two years. If they can afford $1,000 a month, you can turn about a $5,000 profit on your investment over a 2 year period. Not bad.
It doesn’t sound very glamorous, but they can’t all be Beverly Hills mansions. You need to make several of these types of small deals, slowly working your way up to bigger numbers, until you really have a handle on all of the little problems that can wind up costing you big dollars.
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Until my next post,
James
Hard money loans are available from a variety of sources.
First, check with your local real estate investor group. This is a great place to network with other investors and find out where they get their hard money loans.
You can also look in your local newspaper under the “money to lend” section.
Additionally, your mortgage broker may be able to put you in touch with some hard money lenders, or, he may even broker hard money himself.
You might also consider another source for your hard money needs: Yourself.
That’s right. You probably have access to money that you never thought about using to finance your real estate investments. Here are two possibilities:
Credit cards – If you have a substantial amount of untapped credit, chances are that you regularly receive offers for three to six month long teaser rates. This could be a great way to get the money that you need at a substantially better interest rate than a hard money lender would give you. But remember, as with all hard money loans, it’s a short-term proposition. You need to get in and out and pay off your credit cards before the teaser period ends and the interest rate spikes.
Home equity loan or line of credit: Do you own your own home? If yes, and you have some equity in it, you might consider borrowing against it to do your hard money deal. Again, it will probably be at a lower interest rate than a hard money lender would give you. If you get a line of credit, this can be an ongoing source of money to finance deals. Once you finish a deal, pay back the money and it’s ready for the next time.
Remember too, that just like private investor loans, you can always encounter new sources for hard money by talking to lots of people about what you are doing. Put the word out that you are in the market for hard money, and you are bound to find some lenders.
Until my next post,
James
P.S. For our Real Estate Investor Bronze Members, we discuss a variety of ways to finance your deals from owner financing, private money, traditional loans, hard money and more creative offer structuring. Plus, part of the membership includes you being able to bring deals you have to consulting sessions to have us help you analyze possible ways to purchase them so that you, and other members, can learn creative deal structuring. Sign up for Real Estate Investor Bronze Membership today to access a variety of courses on deal structuring and financing strategies plus the live training and consulting.
