12 Ways to Get Capital for Real Estate Investing
In the lucrative world of real estate, one inevitable truth is it takes money to make money. Fortunately, it doesn’t take a lot. Most hard money lenders require at least $10,000 in capital to get started. The Investor's Edge is different in that we can help others achieve success in their investments without $10k – $20k in savings. In fact, we recommend starting with half that amount: $5,000. This amount covers needed costs which always come with fix-and-flip deals:
- Earnest Money – You have to have earnest money in order to secure a property.
- Property Evaluations – In order to accurately estimate the ARV (after-repair value) of a property, independent evaluators need to inspect the property.
- Property Inspections – Borrowers typically pay for termite inspections and other health or property stability inspections out-of-pocket.
- Cash-to-Close – If the property purchase price, rehab costs, points, interest and closing costs do not fit within the loan amount (typically calculated at 65-70% of the ARV among hard money lenders), you need cash to make up the difference.
- Marketing Materials and Lead Costs – The more you market a property, the higher the chances for a quick sale. Unfortunately, marketing materials and buyer leads cost money.
We certainly don’t let you in on this information to scare you in any way. The Investor's Edge is committed to the borrower’s success. Therefore, we aim to clarify expectations and keep all loan info exactly where it belongs: out in the open.
*Here’s where The Investor's Edge differs from other lenders:
Most hard money lenders require a 20% down-payment on the property purchase price, plus repair and closing costs. They also charge monthly payments for the loan. Like other hard money lenders, we like to see borrowers with $5,000 in capital, ready to invest. However, unlike other hard money lenders, we provide so much more than mere fix-and-flip funding:
- The Investor's Edge doesn’t require a down-payment. Because we use private investors to fund our deals and we want to ensure that you will use our funding, we do require an enrollment fee. We want borrowers who are serious about completing deals quickly. Therefore, to guarantee this and help mitigate our risk, we have an enrollment fee of $3,000 – $2,350 of which you receive back after you complete your first fix-and-flip deal with us. Plus, this enrollment fee covers your first property evaluation and grants you access to 100% financing. 100% financing, in addition to funding, provides a complete investment package of tools and resources for the serious investor. These tools teach you how to find the best, most profitable properties, how to negotiate with sellers, how to build up a team of professional, reliable contractors, realtors and lawyers, every contract you’ll need, unlimited proof of funds letters, access to our Advanced Deal Analysis software, marketing materials, checklists and much more!
- You Do Need Earnest Money, No Matter How Good the Deal Is. Earnest money allows you to purchase properties and you can’t secure properties without it. Sellers take borrowers with earnest money and proof of funds from hard money lenders seriously. If you start looking for properties armed with earnest money and proof of funds, you’ll snatch up excellent prices quickly.
But wait…I don’t have the money to invest right now! What do I do?
One of the biggest obstacles that keeps people from the path to financial freedom is a lack of capital. However, if you don’t have $5,000 just yet, don’t worry! We’ve come up with 12 Ways to Get Capital for Real Estate Investing. These methods can help you come up with the $5,000, plus cover additional costs such as cash-to-close:
1. Put a Little Money Away Each Month
If you have a checking account, a savings account and income, you’re already set to go! You can access your bank account and set up an automatic deduction each week or month. If navigating this feature on your bank’s website is difficult, you can visit a branch and have a teller take care of it for you. For example, say you can put away $50 a week from your checking account into a savings account. Then, you’ll have the investment saved up in a little over two years. If you can really scrimp and save $125 a week, you’ll be ready to invest in only 10 months!
2. Sell Some Items to Generate Capital
Do you own seasonal items that don’t get much use, such as a boat or jet skis? It may be time to offload them. Take stock of items you own that you don’t really need or use much. See what you can sell to generate the $5,000. Remember, this investment is the first step towards financial freedom. Investing in real estate is far more lucrative than holding onto items which don’t appreciate in value. You can always get another boat or big screen TV later when you regularly accumulate $50k plus per deal.
3. Borrow from a Family Member or Friend
Do you have family members or friends who are well-off and wouldn’t mind an investment opportunity? Instead of sponging off of their funds, you can offer them a cut of the real estate profits in exchange for helping finance the $5,000. We often encourage our borrowers to work with a partner. Partners are a valuable asset if you are lacking in capital and also provide added motivation to see deals through to the end.
4. Pick up a Part-Time Job
This is another excellent method to gain the investment capital quickly. Plus, this will take far less time than waiting for savings to accumulate from your usual income. If you acquire a part-time job working 20 hours a week, paying $15 an hour, that’s $300 extra (minus taxes, etc.) a week. At that rate, you’d be able to come up with the capital needed in a little over four months! Then, once you obtain your needed cash, you can kiss the part-time job goodbye (or even keep it, if you enjoy it!…Just saying, once you start investing in real estate, you definitely won’t need that income).
5. Look into Your 401k or Other Savings
If you have a 401k or other savings that you can pull a small amount from, that’s certainly an option. Be sure to read the fine print on these options before you pull $5,000 from any such account. Many 401ks, IRAs or other savings and retirement plans have a penalty for early withdrawal. Plus, they may charge taxes on a percentage of the money you take out. Check your current situation to see if this is a viable option and if it’s one that’s affordable in the long run. If you are already retired, you may find this option more agreeable than if you were decades away from retirement.
6. 100% Financing Option
This is an excellent option The Investor's Edge offers to cover cash-to-close. Once you secure the capital needed to invest, we can enroll you in our 100% financing. This gives you access to all of the real estate goodies we mentioned previously, plus it can cover 100% of your costs, pending deal qualification. 100% financing works this way: if you have a deal in which the property purchase price, rehab costs and closing costs are less than or equal to 70% of the property’s ARV, you don’t have to bring a dime of cash-to-close to the table.
Say, for example, you find a property selling for $125,000. The Investor's Edge performs evaluations and determines the property to have an ARV of $275,000. They offer a loan covering 70% of the $275,000, or $192,500. Now, say it costs $39,000 to rehab the property and closing costs come to $26,000. That brings your costs to a total of $190,000, which is less than the 70% of the ARV ($192,500). Therefore, you qualify for $0 cash-to-close.
If you’re not quite ready for retail fix and flipping, wholesaling is a fantastic option to earn more capital. Then, you can use that capital to put towards future fix-and-flip deals. Wholesaling is an easy way to flip a property, getting cash in your hand in two weeks with less than five hours of work. Here’s how it works: you find a property and get it under contract. Then, you sell the property for a profit to someone else who will rehab and resell it.
For example, say you secure a property for $50,000 (with a $100,000 ARV). You then sell the property to a buyer for $60,000 and they fix it up and resell it. With wholesaling, the buyer walks into instant equity and you get to pocket the $10,000 difference. This way, you can avoid the rehab and resell processes until you’re ready for them. This is also a great way to get fast capital to use to invest in other deals.
8. Partner with a Pro
This is a very popular option for those with little or no capital to put towards deals. You are a motivated investor who lacks money. Somewhere out there is a business professional with all the money in the world, but lacks time to put towards investments. It’s a match made in heaven. You can team up with a professional and use their capital to complete the fix-and-flip deal. Then, once you sell the property, you can split the profits and use your profit towards future deals. The Investor's Edge provides an excellent opportunity called “Partner with a Pro.” Take advantage of this option to learn a great deal about real estate investments and advance to the bigger, more lucrative deals when you’re ready.
9. A 3rd Party Lender
Once you secure the hard money loan, there is a great possibility costs could lie outside of the 70% of the ARV. This is what’s known as cash-to-close. For example, say you purchase a property for $100,000 and the ARV is $200,000. Then, you find it costs $30,000 to rehab the property and closing costs add up to $20,000. 70% of the ARV comes to $140,000, but your costs add up to $150,000. This leaves roughly $10,000 cash-to-close.
One popular option to come up with the cash-to-close is to work with a 3rd party lender. Once you sell the property, you can pay off both the hard money loan and the 3rd party lender in one go and pocket the rest of the profits. It’s important to apply as soon as possible f0r 3rd party funding and make sure you can keep up with their payments and other requirements.
10. Gap Financing Through a Business Line of Credit
To come up with any needed cash-to-close, you can take advantage of gap financing to make up the difference. *Note: You need to have a good credit score to be eligible for gap financing. The Investor's Edge offers members of 100% financing exclusive access to a secure business line of credit up to $100,000. This line of credit covers any cash-to-close you may need for your deals.
Here are some good tips:
- The better your credit, the less money you’ll need in gap financing.
- The more experience you have in real estate investing, the less money you’ll need in gap financing.
- The more of your own money you put down, the less money gap financing takes from the deal.
To take advantage of this gap financing option, you must have a good credit score.
11. Unsecured Business Line of Credit
The difference between a secured line of credit (such as a business line of credit) and an unsecured line of credit is a secured line includes collateral. A creditor establishes a lien against an asset belonging to the borrower and the asset can be seized or liquidated in the event of loan default. The most common example of this is a home mortgage.
In an unsecured line of credit, no asset acts as collateral against the lent funds. One excellent example of unsecured lines of credit is credit cards. If you decide to cover cash-to-close with an unsecured credit card, you need to apply now. An unsecured line of credit can take months to obtain. In contrast, gap financing takes only a few days for approval. Therefore, if you have good credit, we highly recommend taking advantage of gap financing as opposed to an unsecured line of credit.
12. Seller Carryback
A seller carryback means the seller agrees to receiving payment for the majority of the property purchase price immediately. You then pay the remainder of the balance after selling the home. For example, if a property costs $90,000, a seller carryback occurs if the seller agrees to you paying them $70,000 up front and $20,000 later. *Note: In some states, seller carryback is not allowed. Be sure to research which states would allow a seller carryback situation.
This would be an option to save money at the start of the fix-and-flip process. In many cases, you can find a seller willing to do this for no extra money or interest charged on the back end.
If you really want to invest in real estate, but don’t have the money… now you know where to get it! We want to help you start down the road to financial freedom as soon as possible to enjoy the perks of living life without financial burdens. It doesn’t cost much to get in the game – if you have $5,000 to invest, we want to hear from you right away!
Learn how to flip properties with us by attending our next webinar.