Unconventional Ways To Finance Real Estate
A significant number of real estate investors with limited investment funds will naturally gravitate towards conventional real estate financing methods like mortgages, hard money, or loans from private and portfolio lenders. For one reason or another either related to your credit history or your cash flow, you may not qualify for these loans or you may just not prefer taking these paths. Even in those cases, there is no reason why you should put investment plans on hold. With a little financial creativity, you can still get your project to take off. Consider these unconventional ways to finance Real Estate alternatives.
- The Seller Financing Option
This is an excellent way to get around traditional mortgages. Mortgage payments are made to sellers rather than to banks. An agreement synonymous to a promissory note is usually framed to detail the agreed terms between the buyer and the seller. This includes interest rates and the repayment period. It is important to note that this is not a popular alternative among sellers. It is often taken as a last resort. Especially when they encounter difficulties getting a buyer for their properties. Selling financing is off the table if the seller is unwilling or if he/she does not claim full ownership of the property.
- The Lease option
The lease option, also known as the rent-to-own option, can be a great option to acquire a home. Ordinarily, the buyer and the seller will strike a deal that will see the buyer rent the property for a specified period of time. Then after which he/she has the choice to buy. The rent charged by the seller during that period is generally higher than normal. The higehr amount of rent is because some of it forms part of a down payment for the property. If you are to take this route, you have to be willing to buy the property before that period expires because you risk forfeiting your money.
- The Private Funding Option
Private funding has to be the best option if it can be accessed. Different from typical private lenders, private loaners involved in this case are friends and relatives. This means that you can agree to very friendly terms as compared to all other financing options. The only problem with this option is that it is not very common. Real estate investments are capital intensive therefore not many of your friends and relatives will be willing to part with large sums of money to finance your project. In addition, some people are reluctant to do business with their family or friends since defaults can strain relationships.
- The Insurance Policy Option
The insurance policy referred to here is the whole life insurance. If you have taken this policy and you have made significant contributions, you may be allowed to borrow from it. As a matter of fact, you can access these funds without any sort of vetting.
These unconventional ways to finance Real Estate go a long way to demonstrate that your financing options are not limited to the traditional ones. In fact, the chances of negotiating good terms are better with unconventional ways. Some Investors have made use of these options before and there is no reason why you should not try them.