It’s not always easy to invest in real estate without much cash on hand, but it’s certainly not impossible either. There are several ways you can finance your real estate without having an overflowing bank account. These include borrowing money privately as well as utilizing seller financing and using a business line of credit.
There are many people with money in the bank who aren’t too happy with the low-interest rates they receive from it. The money doesn’t yield much at all when you take into account the country’s rate of inflation. In fact, these investors could technically be losing money while it sits in the bank doing nothing. This is why numerous entrepreneurs are willing to lend their money to those looking to invest in real estate. They can accrue much more interest on their cash by lending it out privately. Private loans are available if you can prove to the lender that you’re not a big risk and all of your paperwork and documents are well organized.
As long as you can answer all of their questions satisfactorily, you may find somebody willing to finance you deals. The loan is basically secured by real estate. The lender is given a first or second mortgage on the property, which secures their legal interest and investment in it. This means the loan is secured by an asset, which is the property. The maximum loan-to-value ratio the lender is willing to negotiate will depend on the individual. For instance, if the maximum is 75 percent, it means the lender would finance up to $75,000 on a $100,000 property. If you should default on the loan, then the collateral property is taken over by the lender.
Seller Financing (Vendor Take Back)
In some cases, home sellers may agree to finance the home they’re selling or finance a second loan on it, and this means the buyer can offer a down payment of 20 percent or less. If you can then secure a loan at 80 percent loan-to-value you may find the seller will offer to lend you the amount of the down payment. This is called a vendor take back, or VTB. In this instance, you wouldn’t need any money down to purchase the property. Seller financing is a little more common when somebody is attempting to sell a property that isn’t in top condition. They’re usually looking to sell the home as quickly as possible and that’s why they’re willing to help out with the financing of it, or they may need to unload it quickly for personal reasons and are willing to do a VTB in order to expedite the process.
Business Line of Credit
You may be able to acquire 100 percent real estate financing establishing a business line of credit. You don’t necessarily need an established business with high cash flow to do this. Most new companies in Canada are able to obtain a line of credit when the owners use their personal credit when applying. In addition, once you do obtain a line of credit for your business it won’t affect your personal credit rating, only the company’s. If your credit rating isn’t too good to begin with, though, you can usually have a partner cosign for the company. Once you’ve obtained a business line of credit it can typically be used for a real estate investment. In addition, lines of credit are basically unsecured loans without any collateral and are as good as money.
Many real estate investors use their business line of credit as cash for a down payment with a lender, which enables them to receive 100 percent financing.
Other possible ways of purchasing a real estate property without any money of your own is by obtaining a private loan, using a home equity line of credit or home equity loan on another property you already own, find a willing purchase partner, use a lease-option, or use a combination of these methods. For more information on receiving 100 percent financing on your real estate investments please don’t hesitate to contact one of our mortgage professionals at MortgageMeister.com.
Speak With a Professional
Have questions about financing investment properties? Speak to one of our mortgage professionals today, we can walk you through the process and go over all of your financing options.