Where Do I Get the Money to Invest?
You can use money you have in savings or a retirement account (IRA or 401K) to invest in real estate. The money in the retirement account would have to be transferred to a
Self-Directed IRA plan. There are several companies that facilitate this of which Equity Trust and Entrust are very common.
4 Ways to Invest If You Don’t Want to Manage Rentals (tenants)
Lend your money to a Hard Money Lender who will put you together with an investor/buyer and pay you a fixed amount of interest. These loans are usually written with a 1 year balloon. The investor/lender is in first position as a lien holder recorded in the county. The Hard Money Lender earns his fee by charging the investor/buyer points.
You are lending your money to a real estate investor that is buying a property to rehab and flip it. You become the bank and the Hard Money Lender is the matchmaker (broker). He/she is responsible for providing:
- Statistics on the Property (After Repair Value & Renovation cost)
- Mortgage documents
- Title Commitment from the Title Company
- Proof of Insurance
- Proof of Funds for the Investor’s down payment and rehab
Lend your money directly to an investor short-term. The investor/buyer will pay you a fixed amount of interest for up to one year or whatever time period you negotiate. The closing will take place at a Title Company and the investor will provide the same documentation as when you are lending to a Hard Money Lender. You have a little more flexibility when you are investing directly because you have direct contact with the investor/buyer.
Lend your money directly to an investor long-term. The term of the loan is usually one to two years. The investor/buyer is buying a property for the purpose of renting it to someone who will have an option to buy the property in one year.
The renter/future homeowner is screened carefully. We look for FHA minimum credit score, 3.5% in escrow plus $1000 option payment, 2 year job stability, rent payment history and 2 prior Landlord recommendations. The renter pays a monthly rent that will cover the interest payment and a portion of the rent is held in escrow and credited to the buyer at closing.
The investor/buyer is purchasing the home and doing the necessary rehab so that the future buyer will be able to get an FHA loan. Regardless of whether or not the renter makes the rent payment, the investor/lender is paid his or her interest payment on a
quarterly basis. Again, the investor/lender is in first position as a lien holder recorded in the county.
Lend your money for 1 or 2 Days for Transactional Funding. On Bank owned foreclosures and short sales, investor/buyers have to do two separate closings. They have to buy from the bank and close and then sell to the end user (retail buyer) and close again. Therefore, money has to be borrowed for a couple of hours or overnight depending on what time of day the closing is and how efficiently the banks operate in recording incoming wire transfers. A flat fee is negotiated for this type of lending.
In this instance, you are not a lien holder, however, the money is in escrow at the Title Company and can only be released to the lender for the payoff and then returned to you in the second closing.
WORDS OF CAUTION: You should always do your own due diligence. Get some education about whatever you are investing in. Do not rely on someone else’s opinion when making any type of investment. At the very least, you should be able to verify any information given to you through public records.