Where to Find Funding for Your Next Real Estate Deal

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When looking at getting the best real estate investment deals, it really comes down to two factors: finding and funding. Once you’ve located a great investment opportunity, getting your hands on capital to purchase the property can be challenging. If you’re looking for a source of capital for your next deal, consider these options:

Private Money Loan

A private money loan is financed through private investors who control their own capital. Because they do not rely on a third party (like a bank) in their approval process, they have fewer guidelines and are able to move faster than conventional lenders. They may also be more open to negotiating terms with you than other lenders, since they control the capital and loan decisions.  Although private money lenders focus on collateral, their objective is creating a loan that will ultimately be successful for the borrower.

Terms: 6-12 month term
Interest Rates: Typically 7-12% (plus 2-6% Origination fee)

Hard Money Loan

A hard money loan is a short-term bridge loan that is secured by the value of the real estate property. These loans are distributed by hard money lenders, who are private companies or investors. Just like private money lenders, hard money lenders are not regulated by a bank, so they may also be able to move faster when approving your loan. Many times, these lenders will finance renovations monies in their loan.  When this is the case, they base the amount financed on the property’s after-renovation value (ARV).

Terms: 6-12 month term
Interest Rates: Typically 9-18% (plus 2-5% Origination fee)

Home Equity Loan

If you need a sum of cash for just one real estate investment, a home equity loan is another good source for your financing needs and can be attained through a mortgage lender. Your lender would provide you with cash up front and then just like your mortgage, you would pay off your home equity loan with equal monthly payments over a fixed term. Typically, these loans are on primary residences. Lenders do not generally offer financing less than $25,000 on this type of loan, so if your deal requires less than that amount, this type of loan isn’t your best option.

Terms: Usually range from 5-15 years
Interest Rates: 6-9%

HELOC (Home Equity Line of Credit)

A home equity line of credit (financed by a mortgage lender) uses the equity from your home as collateral. Your lender would distribute the money in small or large amounts throughout the life of your loan. Similar to credit cards, a HELOC is a revolving credit facility that allows you to control how you use your funds. During your draw period, you are able to access your credit freely. Once this period ends, you would be required to start repaying your loan, unless you ask for an extension. After your loan enters the repayment stage, you would no longer be able to access any additional funds.

Terms: Usually 25 years
Interest Rates: 6% – 9%

Investor Line of Credit

If you are an experienced investor who manages multiple real estate deals at a time but struggles to find financing for your investment properties, an investor line of credit will be the most best option for you. A line of credit differs from a HELOC in that it is specifically designed for real estate investment properties. This type of financing can be found through a private money lender, who takes your track record into consideration when approving you for a line of credit. You can usually be approved for a line of credit that ranges from $1 million to $50 million.

Terms: 1-2 years
Interest Rates: 7-12% (1-3% Origination)







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