Investing in real estate remains one of the most promising ways to gain financial wealth. But how can you get started? A common misconception of real estate investing is that you require a bunch of money in order to get a project going. However, this is not necessarily the case.
There are many channels through which you can obtain funding for your real estate investment. Real estate agents can assist you in identifying some of these channels and selecting the most promising ones for raising capital.
Traditional lenders involve loans from financial institutions such as commercial banks. These sources are becoming increasingly popular because interest rates are at historically low levels. Traditional lenders are also familiar sources that can be trusted and easily followed up incase of any issues that may arise.
A downside of these lenders, however, is their lack of flexibility and strict lending guidelines. They often also require high down payment amounts (between 15-25%). They can be a good option for you if you prefer a familiar option that you understand well. Real estate agents can help you negotiate more competitive down payment amounts and overall repayment periods.
With recent technological advancements, certain software platforms are offering the opportunity for investors to raise money online. They provide a platform that is direct to the investor, is efficient and transparent.
By eliminating middlemen, these funding sources act as a powerful networking tool, linking people who want to invest in real estate with others who are seeking funding for high quality projects.
Private Money Lenders
Private money lenders are individual entities who have the capital to help you with your investment. They provide short term loans of between 6 months to 1 year, and are an ideal source for projects that will raise money soon.
When considering private money lenders, it is important to have a clear exit strategy as to how you will repay the lenders in good time.
Real Estate Investment Trusts
Real estate investment trusts operate by accumulating money from single investors and putting them in a common pool that they use to invest in various projects. These trusts can act as equity trusts, mortgage trusts or a combination of both.
Equity trusts purchase a portion of the property and derive their money mainly from renting. Mortgage trusts offer loans and benefit from the interest. Real Estate Investment Trusts can be a good source of funding for your project depending on their individual policies.
Insurance companies are another great source of funding for real estate investments. The payments they receive as premiums, and relatively lower payouts in claims, allow them to possess extra capital which they are eager to invest for a possible return.
Not all insurance companies deal directly with the borrower, however. Some go through larger entities such as real estate brokers or bankers, who then offer loans to individual borrowers. It is therefore critical to deal with real estate agents who are well versed with various sources of funding and how you can access them.Share