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If you’re an experienced real estate investor, then you know there are several different ways to fund a deal. You’ve probably had to consider and/or use several different funding sources at one point. However, if you’re just starting out in the real estate business, you may still be confused as to what types of funding real estate investors need for different types of deals. Regardless of your experience, you need to fully understand the different types of funding available to you in today’s market and when to use them.

Here’s a list of the top six ways most investor’s fund their deals:

  • Your own cash
  • Banks
  • Transactional funding
  • Hard money
  • Taking over the seller’s mortgage
  • Private lenders

The type of funding you choose for your deal depends on the type of deal you are doing.  Make sure you know which type of funding is most suitable for each deal you do.

Funding Your Own Deals

Most investors do not have the resources to pay all cash for a property. Even if you do, you shouldn’t use it unless you are planning to sell quickly or refinance immediately. You don’t want your liquidity tied up for a long period of time for obvious reasons. Be smart before investing your own money. Think of it this way, if you empty your account on one or a few properties, you could miss out on other potential deals while waiting to make back your investment.

Bank Funding

A bank is a great choice if you wish to spend your time getting tormented and answering in depth questions just to find out they won’t lend to you anyway. The interrogation and embarrassment they put you through, especially if you are self-employed, will make you feel almost guilty for some crime you didn’t commit. It’s a horrible feeling and not worth it, even more so if you are in desperate need of the money.  If you choose to use a bank, and can get them to actually loan you money, you would be wise to use it on deals you plan to hold for a longer period of time. It’s an incredible pain for you to use bank funding to flip a house. Most banks find funding those kinds of deals to be tedious and won’t even consider funding them.

Transactional Funding

This type of funding is the best type of funding for deals where you are buying and selling quickly to a cash buyer of some sort; like a cash paying investor, landlord, or rehabber. These types of deals do not involve any repairs and can close within a matter of days or in some cases on the date of purchase.

Hard Money Lenders

You’ll only want to use this type of funding for rehab deals. It’s extremely expensive, and you will need to have near perfect credit. In most cases, you’ll have to put 10%-20% into the deal, too. If you don’t have enough cash on hand or don’t have the credit to get considered by a hard money lender, then this type of funding isn’t for you. It’s a risk you may need to take, but more than likely will be a waste of time. They don’t call it “hard” money for no reason.

Taking over a Seller’s Mortgage

This type of funding is also known as “subject to.” The seller has to have equity that they are willing to let go of completely, and they must also allow you to take over their mortgage. Note, you will not be assuming their mortgage; you will simply be taking it over. Both of these conditions need to be met in order for this type of funding to beneficial to both parties. Although it is rare for the circumstances to be met, if you do take over a seller’s mortgage, it is best to either hold or flip the property.

Private Money Lenders

Private lenders can be, by far, the best means of funding for real estate investors. These lenders give money for all kinds of deals, both commercial and residential. You can use private money for anything from rehabs to property flips. These loans are reasonable, negotiable, flexible, and usually non-dependent upon your credit score. In many cases, if you have a good deal, you can get 100% funding from a lender. In some circumstances, a private lender will lend more than the purchase price.

The only really difficult thing about private lenders is being able to find them. Don’t get me wrong; there are private lenders everywhere! It’s just not easy to locate them. These are actual people that you are going to have to search for, which is very time consuming. One of the best tools out there for finding private lenders is Private Lender Data Feed. You can search through a database of private lenders in a matter of minutes instead of spending hours at the county building looking through real estate transactions. Private lenders are a very valuable part of your real estate business and can be used for any deal, so make sure you spend some time acquiring and contacting ones in your area.

Finding the means to fund your real estate deals is one of the most important aspects of your business. There are different types of funding available, but not every kind is suitable for every deal. To get the best use out of your time and the biggest pay check, make sure you use an appropriate funding source for your deals.