Investing in Real Estate: 6 Ways to Raise Capital

David Banks
Authored by David Banks
Posted: Friday, May 13, 2022 - 15:28

The real estate business can be a good investment since it can promise excellent returns at low risk and offers you a way to earn money passively, among other things. And like any significant undertaking, investing in the real estate business involves finding the source to raise capital for your venture. 

When you have capital, it can help ensure business security since you’ll have funds readily available to cover expenses, which include possible renovation costs or acquiring a new property. 

That said, the outline below highlights some ways you can raise capital for your real estate venture:

  1. Bank Loans

Banks have relatively reasonable interest rates for their loans; hence, they can be a favourable source of funding for your real estate project. 

However, banks generally have to evaluate your rent-to-income ratio, assets, and credit score before offering you a loan. And in some cases, they can also ask for a particular percentage as a deposit on the property. Therefore, you need to have a solid credit score, minimal debt, and a reliable source of income to be eligible for applying for a bank loan.

  1. Hard And Private Mortgages

A hard money mortgage is a type of loan where borrowers use assets like real estate or equipment to acquire a loan that they repay with interest. One of the advantages of using hard money loans is that they have lower eligibility requirements and can only take a short time for the transaction or process to be complete.

Generally, traditional lenders won't easily give money to every borrower. You may need to provide them with detailed information regarding your financial status and credit score. Some may even ask about the details of the property you want to purchase. But since hard money loan is based on assets, lenders are generally not after the credit score.

Private money mortgages refer to loans secured and underwritten by private investors rather than banks. This can be an excellent way to raise your real estate business capital since the lender focuses more on the potential return on investment (ROI). The underwriting process can also be relatively fast as hard money loans, saving you time. You can check out various sources such as at novellusbridging.com to learn more. 

  1. Self-directed Individual Retirement Accounts (IRA)

An IRA is an account that you can set up and contribute to instead of a brokerage firm or bank managing on your behalf. And as the owner of a self-directed account, you can determine how to invest with the money you save up for your retirement. This may include real estate, commodities, and other investments. The profits you gain from using the money in the account to fund your real estate project return to the IRA and resume with their tax-deferred growth.

  1. Federal Housing Administration (FHA) Loans

These are loans designed to fund low and middle-earning borrowers. FHA loans have lower eligibility requirements, making them a good option for your real estate funding. FHA loans may also allow down payments as low as 3.5% and generally require a monthly mortgage premium of about 0.85%.

However, FHA loans are designed for owner-occupied premises. Therefore, as an investor, FHA loans can help you fund a multi-family property. You can then occupy one unit of the multi-family property and then rent out the other units to generate your income.

  1. Peer-To-Peer (P2P) Loans

Another way you can fund your real estate business is through a peer-to-peer loan. You can usually find this type of loan from online marketplaces designed to connect borrowers with lenders. The lenders list their requirements, allowing you to choose an offer that suits your needs. 

After requesting a P2P loan, different investors on these sites can approve or reject the application. Some lenders may provide your real estate business funding without verifying your income, existing debts, or credit history. Some sites can also allow daily loan requests.

  1. Wholesale

Wholesaling is another way of acquiring a real estate property without spending your own money. This is where you can raise money by identifying property for sale, putting it under contract, and then flipping the contract to a buyer at increased prices. 

Being the intermediary between the buyer and the seller, you can get profits through the difference in your price and the seller's price. To earn more with this strategy, you may need to have adequate working capital and a swift response.

Conclusion

Investing in real estate requires you to have adequate funding. Fortunately, many sources can offer capital to real estate proprietors. However, some may offer higher rates and require you to meet specific eligibility requirements. As a result, this could take a lot of time to process the loan. Therefore, it's crucial to understand how all these funding sources for real estate work and which one could work best for you.


 

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