So, you have just decided to buy your first property, but you don’t know if it’s even possible. Money is tight! And, unlike a home you live in, you are going to need a downpayment. Where are you going to come up with a 20% down payment on the property?
Don’t despair, there are a lot of possible ways for you to fund your first project.
Not everyone has a sizable amount of money in their checking account, but most Americans don’t realize that they do have a sizable investment ready if they want to use it. If you have been funding your 401K account through your “real job”, then you could have a large or sufficient amount of money available to you to pay that down payment on the property. Borrowing from your 401K won’t affect your day-to-day expenses and burden your bank account, but you need to be aware of the repayment rules. Talk to your accountant before you take a loan out on an investment account.
Refinancing your primary residence is also an option for many newcomers to the real estate market. If you have equity accumulated in your primary residence, you can refinance to pull it out and then use that as a down payment on your next property purchase.
Let’s look at how other industries fund projects. In the tech industry, there are venture capitalists, in the movie business there are production houses/distributors, and in the real estate market there are many ways to finance your purchase.
If you are just starting off, and especially on a small scale, then it can be hard to find big firms to invest in you and your property. Why not, instead, search for a person who has more money than time?
The best way to finance your investment would be to find a private investor, but they are the hardest to find. A private investor is a person that has the money available to invest in your business but does not want to be directly involved in the day today.
All they get is a cut of the profits, while you retain full control and handle to day to day work. Sometimes you have to look closest to home to find the answer. Maybe you have close family members or friends looking to invest money, but don’t want to get their hands dirty. If you bring them on board, you can secure your down payment and give them a share of the profits when you get them.
The owner of the property may be willing to finance the purchase for you to avoid receiving profits in one lump sum. If the seller doesn’t need the money right away, they may be willing to take payments for a higher interest yield than they can get on other investments. It’s worth asking! I find the best way to get a seller on board is to have your financial documents in order, like a recent credit report and Personal Financial Statement.
These are just some of the ways you can find funding for your real estate project. Other ways might be by starting off wholesaling in the real estate market so that you learn about the industry, while still gathering enough money to invest in your own property. Not having a downpayment right now is no excuse to not invest; you just have to be smart about where you find the funds.