Money is the Key

 Real estate investors always need money. Money for the next deal, money to rehab or money to expand. Money can be had from several sources, banks, relatives, partners, hard money lenders and sellers. I will briefly cover each of these and there is more about money, getting and using money in the articles (Real Estate financing)  on this web site. Before I get into that I want to talk about getting off the money merry-go-round and avoiding the money pitfalls.

Money becomes a pitfall or trap that can lead to failure when you leverage to much, or take to many short term loans for long term goals. For example; If the bank gives you a five year balloon note on a rent house and you do not make arrangements to refinance the note before it is due, you just might get your loan called by the bank. Unless you have other options you just might find yourself out of business. I avoid this by having options such as; other properties I can borrow against, lots of monthly positive cash flow so I can qualify for loans, and a debt to equity of 66% or lower. The more options I have the better.

The other issue is getting off the money merry-go-round. I am a cash flow real estate investor. I buy, re-hab or reposition and rent the properties for the long term. I could flip properties, and deal in buying and selling but that never ends. As a cash flow investor I want monthly income. The advantage is that eventually I can accumulate enough properties to produce enough income that I can stop at some point. I have a five year plan (see Gem properties articles). At the end of five years I plan to have enough rental properties, producing enough monthly income so that if I choose, I can hire people to run things and I can semi-retire. Knowing me, I won't retire but I will be able to. At that point I can refinance the properties and enjoy the monthly cash flow, or sell them and carry the notes, or sell the whole lot of them and cash out, or syndicate them to investors to get rid of the bank loans, or do a combination of all of these.

Getting money to finance your real estate investing business. The nice thing about real estate is that there is a whole lot of ways to borrow money on properties. Here we are talking about sources of money. In the articles on this web site we discuss the different types of loans and how to use them.

Banks Loans: Banks, Savings and loans, and credit unions are the preferred lenders as they are the least costly. A typical loan will be at a 70% loan to value with a twenty year amortization and a five year balloon. At the moment banks are reluctant to lend for a whole host of reasons.

 Relatives: A good place to get money to get started.

Hard Money lenders: These are private individuals and other entities such as investment pools, and insurance companies. Individuals will be your prime source for hard money and finding them can be difficult and the loan expensive.

 Partners: Partners can be you and a buddy, a limited partnership (syndication), or a REIT, all are partnerships. Each deal is individually structured to give each partner what they want.

Sellers Financing: My favorite way to finance a property is with seller financing. This is because anything is possible. I can structure the deal anyway I want that the seller will agree to. This is how I got started in the rental business.

There is lots of money floating around for you to use, all you have to do is have a plan and keep looking. You are always looking for money and ways to get your hands on it. Money is fundamental to making money in real estate.