Few people are aware they can use private investors to finance their real estate investments. Of those that do, most think raising private money is a hard thing to do. Instead of going to adam-davis-ultimate-private-money through the steps to learn about private money – how to attract it, how to set up the deals – they take the same path that they always have – fill out a 1003 Uniform Residential Mortgage Application, wait for a long time and hope & pray the deal closes. More often than not, in the current mortgage market that deal is not going to close or there will be some unwanted twists.This can be deflating for real estate investors that are just starting out. Even for seasoned pro’s, it can be tough to play the mortgage or hard money roulette wheel. As much as you’d like, emotion comes into play – you’ve worked hard to find the deal, you have developed the knowledge to put things together and now you can’t close. Frustrating to say the least.It is best to be proactive. When it comes to private money, it’s simply a matter of gaining knowledge and then applying that knowledge. There are three critical factors that come into play when raising private money – keep them in mind and you’ll be a lot closer to achieving your real estate investing goals.People Do Want to Invest Money (with you)Despite what you are thinking in this crazy economic times we are in, people are always looking to put their money to work. They might be looking to ditch their financial planner or to put their dollars into something that won’t erode in the blink of an eye. It’s important to know that you are not barking up the wrong tree when you start marketing your private investment opportunity. There is a proven market demand for what you are offering.Confidence is KeyWould YOU invest money with YOU? The answer to this question should be an overwhelming “yes.” At all times you must exhibit confidence in yourself, your abilities, your project(s). Just put the shoe on the other foot for one minute: If the roles were reversed, and someone was coming to you for private money and they did not seem confident in what they were proposing, would you be inclined to write a check? Probably not. Same goes for the private money investors that you talk to.Have a planYou must have a business plan for private investors. Not just a ‘back of the napkin’ or ‘sketch in your mind’ plan, but a formal written business plan. The “shoe on the other foot” concept should be kept in mind here as well; how would you feel if a real estate investor approached YOU for private money and didn’t have any way to walk you through how they planned on making money with your money? Now, what if that real estate investor had a nice, written business plan. Simple to read and understand, you could see from A to B to C how that person was going to make money – how much capital they needed, what the time frame for investment was. You’d feel much better and be more inclined to invest, wouldn’t you? I thought so!
Be realistic. We all want things, I have looked at a 50 inch flat screen TV more than once, but I know I can’t afford it so I leave it. Being honest about what you can afford is vital when it comes to looking for houses.A mortgage is such a long term commitment that if you buy something that stretches your budget to much it is going to be doing so for a long long time. It makes for a much happier life if you are not worrying every single day about your mortgage payment.Just because you cut down on the amount of money you can spend it doesn’t mean that you wont be able to buy a house that is beautiful and makes a lovely home for you and your family.One: Expand you search areaWhile you may have a specific area in your mind for your next home, if you expand that area just a little you can bring a large number of extra houses into your search.Two: Decide what you need vs. what you wantMy brother in law always wanted a house with a shop, now he has one he never uses the shop. Be careful that you are not adding things to your wish list that you don’t really need and will never get the use from.Three: Get ready to sweatIf you are prepared to paint and do some basic repairs you will multiply the amount of homes in your range. A 3 bedroom house that needs some tender loving care may well be the same price as a 2 bedroom home that is spotless. While it may not be your idea of fun to have to paint and clean your new house if it allows you to get the extra bedroom that you need then it is worth it isn’t it?
Despite what many nay sayers may tell you, buying properties with your 401k is possible. It is not as easy as purchasing mutual funds or shares of stock but you can invest in properties with your retirement account. If you want invest in real estate you can purchase property in full or in part and these options have their own pros and cons.Buying real estate with your 401k can be difficult depending on the amount of liquid assets in your account. Regulations limit the amount of funds you can withdraw and it often comes with penalties, reducing the total amount further. While this amount can restrict your estate purchasing power, there are options. You can pool your resources with other investors, use the funds as collateral for a larger loan, or you can barter with the seller to lower the price. These options would allow you to purchase the property outright or have a large interest in a commercial venture. Besides the outright costs, another downside to this type of investing is that you also have a larger share in the headaches of property management, something some investors have little or no interest in.If you are not interested in investing that much time and money in properties you can become a partial investor in real estate. Real Estate Investment Trusts (REIT) are corporations that specialize in purchasing property and holding commercial mortgages. These corporations then sell shares of stock that investors purchase, thus enabling them to obtain estate with reduced cost and risk. While the rate of return is high for this type of investment, not all 401ks allow this type of investment. You will need to check with the manager of your 401k to find out if yours allows this type of non-standard investment.Buying properties with your 401k is possible, however it can be difficult. Depending on how much money you are looking to invest and how involved you want to be in real estate, your 401k may not be a viable option. Looking for other ways to invest in real estate or rolling your funds into an IRA may be better ways to increase your investment in the real estate venture. It all depends on your retirement goals and the advice of your financial advisor.