I perfectly enjoy real estate investing. I like talking about it. I like schooling it. I like doing transactions. In this blogI want to share with you a very important topics, fund as it pertains to get real estate transactions done. I’m going to peel back some blankets in this blog. Some thoughts “youre supposed to” wouldn’t customarily sound like. I want to expose some of the misconceptions, some of the stories, as well as share with you really how to do it right.
Getting Started
The 30,000 Foot View of Money
So often I find when I talk to people that are first getting started, or those that are really trying to get into the business, they always share with me that their biggest issue, the biggest issue they have is money.
They tell me that if they have the money they could do a lot of transactions, and that they’d make all this cash. I would argue that if you took an opinion poll of 100 people right now off the street, kind of like a Family Feud,” Survey says ,” most of them would tell you that if they had, say, $500,000 in their bank account they could be successful at real estate endowing because that’s the biggest problem, fund. They is commonly point to,” Hey, there’s three residences down the road that are great deals right in my own vicinity. I exactly don’t have the money, but if I did I’d rip them up, and I’d resell them. I’d make all this fund .”
The Real Problem
I am not convinced that fund is the biggest problem in real estate investing. In knowledge, I would indicate the most serious problem is great deals. Great transactions are what’s missing. I have a lot of friends and accompanieds that are giving fund for real estate investors, and they always tell me their biggest problem has nothing to do with their lack of fund. It’s the lack of great deal that students or investors bring to the table. That they’re structured accurately. That they’ve been done in such a way where they increase the risk, but maximize reinforces. Great transactions is what’s missing.
Great Deals
Now, great deal presumes something really important, that somebody is well aware a great deal is. Feeling the great deals, structuring them, negotiating them, putting them together with the privilege paperwork, yes, that is incredibly important. It likewise means you have to know what they look like. One of the most serious problem with fund, when you have access to a lot of it for real estate, is it can enable you. Money can be an enabler. It can enable you to manufacture bad decisions that can be very costly.
Money is really not a problem when you have great deal. Money is only a problem when you have marginal transactions. “Theres lots” of marginal transactions out there. You can find tons of bad deals. They’re everywhere. The objection is find great deal and get educating. What I’m going to do now is I’m going to break down these different options because this goes into a whole new subject matter that I’m really passionate about. Let’s talk about bank money.
Bank Money
Bank money, genuinely, really interesting. Banks loan up to 10 periods as much fund as they have in their tombs. Here’s what I signify. Let’s say they’re going to give $100,000 for someone to buy a house. Technically that bank only has about $10,000 in their bank account to give this amount of money. How does that work? Well, welcome to our fiscal method. Banks give 10 periods as much as they have in situates, so that would be like you if you have $10,000 in your bank account right now giving your neighbor $100,000, and get interest on $100,000 when all you really have is $10,000. That’s our banking institutions in literally three sentences.
Here’s the beauty of bank funding. Watch this. If the deal get bad, and the bank only get, say, $50,000 after, says, a foreclosure or something, did they lose any fund? They lost maybe the interest payments, but did they lose any of their principal? Uh-uh( negative ). No. In knowledge, they’re still ahead $40,000. They’re okay. They’re fine. They give this $40,000 back to the Federal Reserve. The Federal Reserve is neither federal nor a modesty. Different topic. I The beauty of bank fund is that if thoughts go wrong no one’s really hurt. Now, yes, your credit may be hurt , no fund is actually lost, and that’s one of the great things about bank money.
The Issue With Bank Money
Now, as “youre supposed to” know the problems with bank money are pretty simple. Everybody knows those. You have to have ascribe, and you have to have a down payment in most cases, and all sorts of interesting thing. Bank money has it challenges, but what I like about it is that if fund is lost no one’s really hurt. Now, why is that so important? Because with real estate investors there is a inclination to want to go find private money.
Private Money
Private money is where you have a friend, own family members, you have an relationship, somebody is going to take fund out of their 401 K or just out of their savings, and they’re going to give that fund to you. That’s what private fund is. My feeling and my trouble with a lot of those individuals who try to raise private fund is I don’t believe that they should be doing it because they’re not successful enough to be playing with somebody else’s fund. Because when you raise private fund, and if you lose that fund all of it’s lost. It’s not like a bank where there’s leverage there. This is other people’s livelihood.
Bad Deal Example
The number of transactions that I’ve seen go south where private fund people have lost fund it’s merciles. There’s a deal today that’s going to tariff auction here in my region. The being had get an $80,000 private fund loan from a neighbourhood person who owned a plumbing company here, and it’s going to tariff auction for $6,000. Now, there is an opportunity be brought to an end auction up about $10,000. I know those amounts are small, but this house is in the ghetto. The private money lender’s mostly going to lose all $80,000. That’s brutal. I am not a huge love of private fund for people that aren’t already really good at the business and know what they’re doing.
Upsides to Private Money
Once you are good, and you do know the business well private fund can be nice.
It is available for down payment. If you’re trying to get a bank loan for the majority of it, maybe you need help with a down payment. Perhaps you can help with rehab rates. Perhaps the bank will give you the loan, but you need the rehab fund. Perhaps you need help with the entire balance. I’ll set entire balance here. Where it’s secured money against that real estate, and that can be good.
Private money, if they can pay 6 to 10% on their coin that’s a lot better than, say, a lot of other speculation options they may have. It’s not that private coin can’t be a win-win for, say, your uncle’s 401 K.
Be Smart
The difference is you have to be wise about it. I am really concerned when I ensure newer investors trying to raise private coin because they don’t know what’s going on yet. Often occasions it’s those bargains that go south because like I said earlier in the video, coin can be an enabler. It can help individual get into a real estate treat that’s a lousy deal they should have never gotten into. That’s what I like about bank coin is that even if things go wrong no one’s really hurt, whereas with private coin people are hurt when things go south. There are other options, by the acces, so let’s talk about those real quick.
Options
Now, if you’re just getting started, and you can’t get a bank loan, and you don’t want to play with your uncle’s 401 K and his livelihood for the future, what do you do? Well, I require talk about two really great options.
Option 1 Hard Money :
It’s kind of like private coin, but it’s people who give coin to real estate investors. They’ve been doing it a long time in many cases. I desire these people. These people know as much about real estate investing as anybody you’ll ever gratified in many cases. Now, they are not able to wishes to educate you anything, but they know what’s going on. It’s because they’ve been burned a lot. They’ve lent coin to other investors and they’ve learned video games. Hard money lenders often give somewhere in the range of about 65%. Sometimes up to 70%, but often 65% of value.
The Problem
Now, right there that already forms a huge, gigantic hurdle for numerous people. Spotting a treat at 65 pennies on the dollar. That’s a good deal, isn’t it? What do those amounts look like? Well, for a $200,000 house this is gonna be, what, $130,000. As you go up it even get increasingly difficult because now you’re starting to really get a plagiarize of a treat. At $100,000 that’s a little more reasonable to get onto at 65%, although it’s still challenging.
The Upside
Hard money is a great option because they’ll give you based on the treat. They are real estate investors, so they know what they’re get themselves into. It’s not a private money lender like your cousin, who you’re using their coin and they have no notion. Hard money lenders know what they’re doing, and they’re likewise very useful sometimes as you’re going through a deal.
They may be able to help out with the reputation of a contractor or those sorts of things because they genuinely know the game. In fact, there’s a neighbourhood hard money lender in Orlando that he’s been in the game forever. He just really knows his substance. I really like this alternative for new investors because if you can do some of these bargains, find good deal that fit for a hard money lender, use their coin, do the whole deal, that can be awesome. That gives you a great education, and you probably aren’t going to get hurt because the hard money lender would have never likely lent you the money if the treat was a bad deal. There’s already that natural checks and equilibriums. Does that make sense?
Transactional Funding
You may have some of my other videos that I’m not always a fan of buying it with real coin, tying it up, and reselling it. What’s another option? Transactional funding. This is a relatively new one. This has only been around for about five years, maybe a little bit less. This almost brand new various kinds of substance. Transactional funding.
What’s that? These are people that give coin because you already have another purchaser lined up to close. Now, you still have to buy it, so maybe you buy it at $100,000. That’s your purchase cost , but then you’re selling to the new person or girl for, say, $120,000. That’s the sale price , so you may have to own this for, I don’t know, a week, three days, sometimes even precisely an afternoon. You buy it at $100,000 and resell it to them for $120,000. The transactional funder is protected because they already know this thing is locked and loaded.
Typically you need nonrefundable earnest money. All the stints have to be through on their area. Much easier if the new buyer’s pay in all money versus a lend. This is great very, and I genuinely, really like it when new kinfolks are employing this proficiency. They get the treat under contract then they proceed locate a purchaser, and then “theyre using” transactional fund. Because this substance often overheads anywhere from like 2 to 3 %. On this treat it would probably be like $2,000 to $3,000. Depending on the area and some other things.
The Upside
This right here is an awesome alternative for new kinfolks because it allows you to get into the business without having a ton of peril implied because you’ve already got the new purchaser in place, and you’ve already learned all the skills about procuring the treat, and then get rid of the treat. Guess what? In the real world this part’s huge. If you close on a enter into negotiations with hard coin, and you can’t find a purchaser six months down the road that’s a real problem. The nice occasion about transactional fund, you’ve already got the buyer. These are great options for people that are first getting started, but there’s more.
Creative Financing
There’s also this thing called artistic investment. Inventive financing is what I do a lot. Inventive investment is using the existing substance on the belonging to structure the funding. I use this a lot when I’m taking on copes for long term rentals.
Owner Financing
The first is owner financing, which I precisely introduced a treat like this under contract on Thursday. Owner financing is great. You get the owner to be the bank, so you pay them each month. You can give them an interest rate. A low-pitched interest rate, high, up to you. That’s all structured in the negotiation. The marketer grows the bank.
Example
In the suit in the belonging I put under contract on Thursday, here’s what happened. The being owned the home outright. No lend against the belonging, so we worked out $93,000 was how much was passing be the owner financed lend. I did it at 6 %, but that’s because it’ll rent real nice. The total fees like $750. It’s going to rent for maybe $1,200, maybe $1,300 depending. A lot of great substance on that treat. The value’s awesome. The occasion is I didn’t have to go to get a bank loan for it. I was able to use the owner as the bank, but they’ve lived there. They know the home, so they understand a lot of the risks involved in it. It’s a slam dunk.
Subject To
Another thing you can do is called a subject to, and that’s where you merger an existing lend. You merger a bank loan that somebody else got on their home. I get dealers asking me quite a bit,” Why would you take over my lend when you have been able got to go get a new one ?” I tell them. I say,” Look, it’s because your lend is a lot lower interest rate than mine “would’ve been” .” If you go to a bank as an investor they jack up the interest rate, but it’s a lot lower of an interest rate if you buy the home to live in because banks have done their numbers. Those that live in the home, they have a lower default proportion than investors do.
Subject to
You’re not actually going to a bank.
You’re not going to a hard money lender.
You’re not going to a transactional funder.
You’re not getting private money.
You’re not doing owner financing.
You’re literally taking over the existing mortgage.
Plenty of Options
I hope what this blog has shared with you is that there are plenty of options, but in most cases the key done a great deal structured correctly, and then your funding alternatives, or your money alternatives open up. I’m just not a big fan of somebody going out there and trying to do deals when they don’t know what they’re doing. Specially if you’re going to lose somebody else’s money. It’s one thing to lose your own money in a bad investment decision. It’s another thing to lose Grandpa’s money.
This goes beyond real estate too. You’ve watched these television pictures like Shark Tank where people will spend their life savings. I insured one the other day. He spent like $300,000 to start this business, and then when they get in front of this panel of these sharks they all look at the business, and “theyre saying”,” I don’t think it’s a winner .” That’s a problem.
Know What A Great Deal Looks Like
You see, that goes back to the great deal happening I was just talking about in the very beginning. If you have a great deal then there’s a lot of funding that gets thrown at it. It’s so much better to know what a great deal looks like. In this case I employed the example of Shark Tank. Know what a great business looks like that’s going to make good money, and have good expectations, and good capability. Better to know that first before you start dropping your entire life savings into. Does that make sense?
Get Some Education
Know what you’re getting yourself into. Educate yourself. Now, if you have to spend some money for education I believe that’s money well spent because that money will be a lot less than the expenses you’ll memorize on a bad deal.
One real estate deal can cost you a ton of money.
Some education, is it going to cost you some money? Sure, but it’s the right kind of expenditure because now you’re getting yourself into a position where you can be wise with government decisions you represent, and that is actually starts with government decisions about money.
If you want money for real estate exit put together some great deals. How do you do that? Get developed. How to find them, how to formation them, how to get the right paperwork in place. Get that education in you.
You can start off simple. You can start off only putting bargain under contract and flipping them, and never use any money like this. You don’t even have to. A slew of the person or persons that we teach, and coach-and-four, and mentor, that’s what we do. It’s baby steps. We start them with some smaller deals. Stimulate $6,000. Make $ 10,000. Make $20,000. Not a lot of money before they dive into the bigger material, and then eventually you may become this stone idol that conjures tons of private money.
Mobile Home Parks
We have one of our students who now does these huge mobile home ballparks. Three million plus, and he conjures millions of dollars to buy these happens because mobile home ballparks, a lot of banks won’t lend on the mobile homes. They’ll only lend on the actual region, and they usually only give about 60 to 70% on the region, so a big chunk of a$ 3 million mobile home ballpark buy is actually private money.
This guy only flat out knows his material. He’s been through our planned. He’s made a lot of money with us. He went on to make a lot of money after working with us. Actually knows his material. Super dependable. You truly can trust this person, so him raising money is not nearly as difficult. He has a great deal. He can present what the numbers are. He can show his track record. I also feel confident this person, where reference is conjures that kind of money, is not going to hurt a knot of other people.
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