In this article, I will share ten creative financing real estate ideas that you can try to arrange the money for your investment. These are proven methods to finance your real estate investment by answering three simple questions.
These are not just some regular questions. These will reveal the most important part of the whole process. The investors want to know, is your offer worth their time and money?
- Your main work is to convince them.
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Creative Financing Real Estate Ideas
Financing a property is very tough when it comes to real estate investing. Have you ever thought, why will anyone give you their hard-earned money? But, without these funds, no business can grow nor any investment.
So don’t skip any part of this. As we will learn what is the exact process to get the funds. Otherwise, you will face big troubles.
Many average people think that the bank is the only and easiest source that can finance their property. In reality, there are many. Here is the list:
- Credit companies
- Life insurance companies
- Mortgage funds
- Hedge funds
- Real Estate Finance Corporation
- Mortgage Funds
- Industrial Banks
- Pension Funds
- Opportunity Funds
- Credit Unions
- Private Debt / Equity
- Offshore Investment Funds
- High Net Worth Investors
Yes, finance from a good bank is easy as they will collect mortgage payments. But, it’s pretty hard to get the same thing from an outsider (The above list).
1. Answer the Following Questions
So one of my first creative financing real estate ideas is answering these three questions. Because these are the base of your finance that every investor will surely ask you. If you have the answer, you will get the money.
- Why should I buy this?
- How much risk am I able to tolerate?
- What are the exit strategies?
Answer these accurately and get the funds.
2. Solving the Main Problem
To solve this problem, you need a great business plan. Without a strong business plan, nobody will finance your property, no matter how excellent your property is in the current market.
You have to show them:
- How do you operate?
- How can you double or triple their money?
- What is the future view of your plan?
- Why do you think that this plan will work?
Nobody will finance your real estate investment by just putting trust in you. You have to show them the proof. Explain every part of your business in great detail. Only then, they will agree with you. Otherwise, you may lose that lender.
They have got only one question at the very beginning of the deal
- Why should I invest here?
If you can answer that with proper proof and convince them to invest, your finance money will be delivered to you automatically.
There are more things that you should be aware of. When you are making an offer, be honest. Never give them any wrong information. And to reduce the risk, add them to your team. Because their experience will help you a lot to grow the business.
3. The Risk Tolerance Level
There is a big difference between risk and risk tolerance. Risk means we don’t know how much risk is involved in it 4, 5, or 6, and risk tolerance means we do know how much risk there is, and we also know at what level we can control that risk.
Many investors will not invest if the risk is over level 5 or more as per their criteria. Every investor got a list of rules which we call investor’s criteria. If something does not match that list, they will not invest, no matter how good the investment is.
So to solve the problem you need to show them how fast their money will come back to them. Because in the end, we all need profit. Now move to the last important point.
4. What is the Exit Strategy
When a good investor analyzes an investment property, they first focus on how to get out of that deal? What is the easiest way to get out with a profit? That means that they are asking for an exit strategy.
Successful investors suggest that you should create multiple exit strategies. Because you never know which door will block you. So always have a plan B.
5. There are Three Types of Exits
If you plan these three types of exits, then the chances are you will get the fund. So, plan them accurately. I would say, all the creative financing real estate ideas come to this point. What is your exit plan?
1. No exit: That means you are buying the property for your personal use. So you are the exit where no good investor will invest.
2. Refinance : Refinance means you are financing one property again by taking money from a 3rd party or via your savings. This technique is useful when applying for a 1031 tax exchange to save your taxes.
By showing the refinance plan, investors will know how fast their original capital will come back. It doesn’t matter who is financing, you or any 3rd party. They need their money as soon as possible, no matter what.
3. Sale: It is the last platform. If you are planning to buy & sell the property, then you should explain how, when & why you are going to sell it. Show the exact reason.
- Remember: One exit plan will not be enough. You need multiple exit strategies.
6. Real Estate Finance is Not Easy
There is a big difference between real estate finance and startup finance. In real estate, the risk is not as high as in startups, an investor can lose all the money by investing in a company, But in real estate, you will lose a bit of it, not the whole amount.
That is why most investors will finance your property investment if it sounds legit and profitable. You must use it to convince those people and get the necessary fund.
7. Built Your Real Estate Network
One of my first creative financing real estate ideas is a build a strong network. Create a relationship with those people and try to stay honest. They will finance your investment property again, but first, you must prove you are capable enough to generate profits.
Many investors do this, including Robert Kiyosaki, Doland Trump, and more. These giant real estate investors use OPM and build their fortune. I am not saying it’s easy to finance, but not impossible. Most investors will not hesitate that much,
So these are my creative financing real estate ideas. Prepare all these questions, and they will finance your investment. Be honest and try to make friends. So, now you know how to finance your real estate investment. Share with someone who needs it. Thanks for reading.
What is creative financing?
Creative financing means prearranging a good plan to finance your real estate investment and answering all the questions they ask.
How to finance an investment?
Find an investment partner, approach a friend, or go to the bank to get the money. You have three options.
How to exit from an investment?
You have two options, either you sell it or refinance it. Refinance is the best that provides many benefits.