Lacking Capital for your Next Deal? - Here are 2 Creative Financing Options

Author

Caleb Smith
July 29, 2023

Hey everybody!

Welcome to another edition of “The Financial Freedom Blueprint” where we discuss the topics of real estate and financial freedom.

My goal is to help as many people as I can get started investing in real estate and eventually reach a goal of financial freedom where they can create a life they don’t need a vacation from.

Quick story

After my 3rd deal, I realized all of my money was tied up in my properties.

In order to scale, I was going to have to think outside the box and find other ways to fund these purchases and rehabs.

After talking with many experienced investors, I realized they rarely use their own money for deals.

Turns out, they usually have other resources to fund these projects.

So today, I am going to mention 2 ways you can fund your next project outside of using your own capital.

#1-Hard Money Lenders

Hard Money Lenders are companies that lend out money to investors for rehab projects.

The sole purpose of a hard money loan is for the investor to use the money to fix up the property and increase its value.

Another name for a hard money loan is a rehab loan.

The length of the loan is usually between 6-12 months.

Hard Money Loans are typically easy to qualify for as they don’t look at your personal financial situation. They are typically looking at the specific deal.

In addition, the property you are working on will be used as collateral.

Meaning, if you fail to pay the money back with interest, they can take that property from you.

Hard Money Loans also tend to come with higher interest rates.

Currently, I am seeing rates anywhere from 12-13.5%.

Something to note, these interest rates are normally annualized. This means you take your interest rate and divide it by 12 months. This will give you the percent per month.

For example, if you have a 12% annualized interest rate, but you only use the money for 4 months, then it would be 4%.

So the quicker you can complete the project, the less interest you will have to pay!

In my experience, the interest is paid on a monthly basis, while the principal is due at the end of the loan term.

Also, origination and closing fees are also paid on at the initial closing.

If you don’t like Hard Money Loans, then you can consider another option, Private Money Lenders.

#2-Private Money Lenders

Private Money Lenders are typically family members or friends that want to put their money to work in real estate.

For instance, if somebody has money sitting in a savings account and would like higher returns, they can put their money into a real estate deal.

Most interest rates I have seen for private money lenders range anywhere from 8-12%.

Once again, make sure you determine if the interest rate is annualized or not.

Anytime money is exchanging hands, you will have to put this in writing.

I recommend a promissory note signed between both parties showing the principal and interest as well as when it is due.

This is another way you can fund your next deal!

Well, that is all I have for today’s newsletter!

I hope this gave you a couple of ideas if you are feeling stuck when it comes to lack of capital.

In the meantime, let me know if you have any questions!

Whenever you are ready, there is a way I can help you get started:

For Active Investors

If you want to learn how to purchase your first investment property within 6 months, but don’t know what steps to take, please schedule a call with me using the link below to see if my coaching program can help.

The main strategy I teach is the BRRRR (Buy, Rehab, Rent, Refinance, Repeat) strategy.

I’ll help you minimize beginner mistakes and shorten the learning curve from years to months.

For Everybody

If you haven’t already, be sure to follow me on Instagram: @realestatewithcaleb

Disclaimer: My newsletter should be viewed as educational content and should not be construed as actionable advice without consulting the proper professionals.