Investing in real estate can be highly profitable if you know how to play the game. It has made regular people into millionaires and millionaires into billionaires. The property asset class is certainly worth adding to your portfolio if you’re serious about creating lasting wealth.
Of course, to start enjoying the benefits of real estate investing, you need to come up with enough capital to buy a property. Capital will get your foot in the door—it’s money that you can use to purchase and renovate that run-down foreclosure, pursue a fix and flip, or invest in a multifamily property that can generate a generous monthly cash flow.
And like many new real estate investors, you’re probably asking yourself: Where do I get the money to start? Here are some ideas:
1. Use your funds first.
Use your funds first is the most conservative way to invest in a property. If you have some savings, you may be able to buy a fixer-upper outright, renovate it, and quickly sell it for a profit, growing your capital from thereon. You may even have enough for a small commercial property in an area that is not too expensive. It’s amazing how many successful property investors started their real estate investing journey using their own money.
Don’t have enough? Make it your goal to save up and buy a property in cash. It can certainly be done—many others before you have succeeded. All you need to do is to make that commitment, get frugal, and have a systematic way of saving for this purpose.
Learning solid saving habits means setting yourself up for future business success. Using your own hard-earned money will also likely inspire you to become more prudent and conservative about your investments, so you don’t make rash decisions.
2. If you want to borrow money, understand what lenders are looking for.
Using other people’s money may be necessary if the property you want to invest in is costly. There’s nothing wrong with borrowing funds; in fact, many successful property investors almost exclusively use money from other people to maximize their returns and reduce their liability.
Are you interested in applying for a traditional mortgage from a bank? Or perhaps you are considering private funding?
No matter which road you choose, the key to successfully getting a loan is to give lenders what they want. Identify what a potential lender covets the most and focus on giving it to them. Knowing how to do this is critical for all real estate investors, from beginners to seasoned professionals.
Understandably, novice property investors usually struggle to get potential investors to fund their projects. Real estate investment capital is more widely available than ever. And if you want to get noticed, you have to send the right message.
So what do lenders want? Banks tend to lend based on your financial situation as a borrower. In contrast, private investors tend to fund deals based on the potential profitability of the property and their confidence and trust in you as a borrower.
Private lending has become widely accepted in the industry, and in many cases, it is more attractive than traditional loans from conventional lenders. If you’re interested in raising private capital or commercial hard money loans for your project, you have to put yourself in the shoes of these money partners. Think from their point of view and di the following:
- Clearly explain how fabulous the deal is.
- Present realistic returns and a solid business plan.
- Show them how you intend to protect their capital.
- Demonstrate your potential as a reliable real estate investor by providing your track record.
- Build a relationship—show them that you want to work with them on many other projects in the future.
Private lenders want your business as much as you enjoy theirs. Winning their approval is a matter of showing them how they can profit from the deal and why they should trust you.
3. Consider crowdfunding.
Have you ever backed a Kickstarter campaign or donated to a cause on GoFundMe before? Real estate crowdfunding works similarly to these platforms. Pitch your project, and investors who are interested in it will contribute funds as they see fit. They will own a percentage of the deal and its profits in return.
4. Look into peer-to-peer (P2P) lending.
This type of lending is similar to crowdfunding, except that it works more like a loan. Go on a P2P lending platform and post your project there, and it will match investors. Those investors then lend you the money you need for your property investment, and you have to pay them back with interest over time.
P2P loan terms vary wildly, so make sure you understand the fine print before finalizing anything. It’s also important to check the platform’s security and read reviews made by investors who have used it before. Some P2P platforms are better than others.
5. Partner up.
Do you have some capital saved up, but it’s not quite enough? Consider partnering up with another investor. You and your partner essentially invest in the deal together and profit from it together. This strategy solves the issue of capital and allows you to share the work with someone.
Of course, you have to be extremely careful when choosing a business partner. It’s essential to find someone who can commit to the project and has the time and capacity to give to it. An ideal partner has knowledge and expertise that complements yours.
It’s a good idea to bring in a lawyer when structuring your partnership deal. Ensure that both parties are clear on how they will handle profits and losses.
If you want to attract capital to invest in real estate, you have to position yourself as a reliable property investor who knows what they’re doing. You also have to demonstrate to potential investors that you can establish and run a thriving property business.
One of the most important things you can do to accomplish this is to become very good at handling details. Make it a point to document all project elements accurately—from the purchase to the rehab to the sale. A spreadsheet and a camcorder or camera can go a long way.
Confirming details will allow you to have a library of reference points that you can use for future deals, serving as a foundation on which you can establish yourself as a reliable and safe investment.
It’s also essential to find time for networking. You don’t have to limit your circle to just lenders necessarily—you can also reach out to people who might not know about the potentials of property investing but may be interested in getting into the industry.
Building relationships, having conversations about acquiring deals, and sharing resources will increase your chances of meeting new potential lenders or partners while increasing your credibility at the same time.