When you’re not able to close a real estate deal because you don’t have enough money, it can be extremely frustrating, not to mention, embarrassing. As an investor, closing deals is part of your job description. To stay at the top of your game, you may decide to get your future rehab project financing plans in place as soon as possible. There are many alternative financing options available and it’s good to have several strategies ready just in case something goes wrong.
If you have enough saved, you could use your IRA account to fund the deal. Just remember to put all of the money back into the account when the deal has been closed. To make sure that you have enough cash, you can also borrow equity. This is when you use the equity from another property that you own by drawing up a promissory note and using it as collateral since it is now the second mortgage. You could also ask your friends and relatives if they would be willing to become your partner in your next rehab project. You would want to show them the particulars of the deal and how much of a profit they would get if they supplied the money for the down payment and repairs.
Another form of financing is called “fixer-upper lease option”. You would be renting the property with an option to buy it at a later date, usually anywhere from three to five years. In addition, part of your rent would be applied to the principle balance. When you decide to purchase the property, you would get conventional financing and pay the seller the balance of the purchase price.
An additional option to consider for the rehab project is “short-term balloon financing”. You would make payments directly to the seller for a stated amount of time, and then get financing to pay off the balance. The financing would be necessary because the balloon payment would be due all at once. This is something like a lease option, except that you are buying a property from the beginning instead of just having an option. This would also give you time to get the property looking better in order to get the bank loan.
Real estate investment has its ups and downs and you want to be able to ride out the bad times with sufficient financial resources. One way to do this is to make sure that you have many exit strategies available to you for your rehab project.