How to Finance Real Estate Investments

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Author: Gabrielle B Dahms

Gabrielle B Dahms is a real estate professional and a real estate investor with over a decade of experience. She is active in the San Francisco/Bay Area. Gabrielle knows the real estate marketplace, can communicate it, and devise the appropriate strategy with her clients. She is an expert in her field, who listens to her clients and who delivers.

Financing a Real Estate Investment may well be one of the most important topics in this series because without the real estate investment financing knowledge, deals remain hyptothetical only.  Often the kind of financing chosen depends on the exit strategy employed as well as running the numbers.

First and foremost, use as little of your own money as possible. None of your own money in the deal is preferable. The same applies to credit. The idea is to create leverage by working with other people’s money and credit. Once again, that is where the right partners and mentors come into play.

Even though we are staying away from traditional financing, it is an option. Basically, going that route depends in large measure on the investor’s income, debt, and credit score. This route to money also generally requires a minimum of 10% of a down payment.

A better way to finance real estate deals is through owner-financing, also known as seller carry-back. This type of financing depends on the seller owning the property free and clear, and agreeing to carry the note and receive agreed upon monthly payments.

Another option in financing investments is known as subject-to (existing financing). In essence, the buyer purchases the property on the condition that the exisiting financing stays in place. While the title is transferred, the loan remains in the seller's name, and the buyer/investor makes the payments. An investor needs no money to employ this strategy but a subject-to deal must be executed correctly so that all parties are protected.

Another financing option is having the seller provide a second mortgage, also known as seller second. Ordinarily the seller second covers whatever the down payment is, say 20% of the purchase price. Using this method also ensures that the real estate investor uses none of his or her own money. You will, however, finance the remaining amount the traditional way and that means using your credit. And you must make sure that the loan you will get allows for a second mortgage.

Lease options provide a real estate buyer with the option to purchase a particular property. Most often the buyer pays a lump sum up front, the option money, then continues to pay above-market rent on the property. This is an attractive option for people with poor credit, who do not otherwise qualify for a property. The real estate investor makes money through the lease option agreement, finances any down payment he or she may have for the property with the option money, and has no landlord issues.

This article is one of several in our Anatomy of a Real Estate Deal series. Please read any and all of them and send them on to the people you like and trust – anyone who has ever considered being a real estate investor or is one now.

Gabrielle B Dahms is an active real estate investor as well as a real estate agent with a decade's experience. She continually educates herself and applies her energy, understanding, knowledge, and love to serve her clients. Follow her on Facebook at http://www.facebook.com/pages/San-Francisco-Bay-Area-Real-Estate-News/161447533871389 and connect with her on LinkedIn at http://www.linkedin.com/in/gabrielledahms

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