Hard Money Loans

If you’re an experienced or novice real estate investor, you have many options available for financing your properties. One widely used method is having multiple loans. This is usually a second mortgage. For example, the buyer puts up a percentage and effectively borrows the negotiated balance on a separate loan.

For many years most people financed a property with 20% down and 80% on loan. Some even put MORE down. But 20% was considered the minimum. And fortunately many things have changed over the years.

And while it’s great to use less cash for the same property, the downside isn’t limited to the higher rate on the second note. You’ll find that lenders almost always require PMI (private mortgage insurance) if the buyer doesn’t meet the standard 20% minimum. And the fees can be unattractive.

It’s “possible” to have the lender remove the PMI after a certain number of payments have been made. But it rarely happens. Here’s the theory…

Once the loan has been paid down so the LTV (loan-to-value ratio) is at the 80% mark, this is usually the combination of paying down the second mortgage and the property value appreciating, the lender will consider removing the PMI fee from your monthly payment.

But usually the loan is refinanced or the property is sold before that happens. So keep that in mind. You should know or have some idea about how long you intend to hold onto the property.

But you should know as an investor that there are other sources of financing.

If you’re looking at properties in a new development, the manufacturers sometimes finance home loans for early buyers. And the interest rates for these loans can be very low. Some are as low as 5% of the purchase price.

You can also invest by ‘buying’ and selling a property without ever owning it…well, at least not owning it for very long!

What you’ll do is buy a property and create a contract. Then you’ll simply sell that contract. You’ll sell it without ever taking possession or being on the title. Your profits will usually be smaller than other investing techniques, but you can make a quicker profit.

Another form of creative financing involves Sub2 deals…or subject to.

The usual sub2 involves having the seller deed you the property. The existing mortgage is left in place. You won’t legally assume the existing mortgage loan. You’ll simply start making payments on it. There are nuances and variations on sub2′s and they’re not recommended for the beginner investor.

You can form limited partnerships to finance your properties.

Again, there are many ways to structure limited partnerships. Sometimes each partner contributes a percentage and profits are paid according to the original percentage invested. Or, one partner invests capital and the other contributes time in the form of work or services.

You can finance a property with your credit card. But there are some downsides to doing this. Lenders consider all outstanding debt when deciding whether to give a loan on the remaining balance. Of course you’ll have to consider interest rates, as well.

These are just a few available options for the creative real estate investor. But they really are only the tip of the iceberg. I’ve shown thousands how to successfully invest in real estate properties of all kinds.

Peter Conti, http://www.MentorFinancialGroup.com, is America’s leading real estate investment expert. He has helped thousands of clients create financial independence using real estate through his many books, investing courses, boot camps, lectures, and personal mentoring. Peter still actively invests in single family homes and commercial real estate.