Liquidity is essential for those that plan to go big and bold in the field of real estate investing. You can essentially start out with nothing, or several million, but at some point there can be big advantages to additional funding. With the right funding partner, you can capitalize on more opportunities and increase returns.
There are several types of funding sources that real estate investing pros can turn to for additional capital. However, before rushing in, it is wise to first define what characteristics are desirable in a finance partner. Familiarize yourself with the full spectrum of options that may be available to you.
Types of Funding Options for Real Estate Investing
It is entirely possible to get started in real estate investing with little more than a penny to your name. Even if you are a millionaire, before entering the fray, liquidity can quickly become a challenge. It is common that those with access to more cash are able to realize the best returns, and seize on the most appealing opportunities. This applies to all real estate investment strategies; from simply diving into real estate stocks to mortgage debt investing, wholesaling, flipping houses and buy and hold rentals.
However, the type of capital you might need is dependent on the following factors:
- A consistent loan source for short term funding or long term financing
- Seed funding to get a real estate startup launched
- Ongoing working capital for opportunistic investing and expanding operations
- Long term business partners with bigger pockets
Before rushing off to pitch investors, create an executive summary or fill out volumes of loan applications. Note that it pays to take a moment to consider what’s most important.
What to Look for in a Good Funding Partner
Most “green” real estate investors and entrepreneurs consider how much money they can get and what rates they are going to be charged. This is extremely short sighted.
Many serial entrepreneurs and CEOs that have recently led incredible businesses say that one of their biggest mistakes was accepting any money that came their way. Ultimately, accepting money without consideration forced them to lose control and make crippling decisions that they wouldn’t have otherwise.
5 things that may be more important than dollar figures may be:
- Retaining full control and freedom in decision making
- Reliability and consistency of funding
- Preserving important personal relationships
- Finding a partnership in which your goals are aligned
- A partner that brings something to the table which is even more important and rare than money (that you don’t already have)
This last point could be a variety of things that range from tech know how to influence and a large pool of contacts, owning a media company, or even more expertise in the real estate industry.
5 Potential Funding Solutions for Real Estate Investors
1. Mortgage Lenders
There are a wide variety of creative mortgage lenders eager to work with investors today. This includes transactional lenders, commercial loan brokers, note buyers and more.
2. Business Loan Specialists
Business loan brokers, bank managers, and others offering business lines of credit can be invaluable for providing extra working capital.
3. Venture Capital Firms
Despite how hard reality TV shows can make it appear to attract venture capital investments, there are actually huge numbers of these groups eagerly looking to fund investments. It can take some work, but can pay off big. Just don’t let this become a distraction from real money making activities.
4. Private Funding & Angel Investors
Private individuals can make some of the best lenders and funding partners. They need what you have and can be among the easiest to work with.
5. Friends & Family
It can be even easier to work with friends and family at the start, but these partnerships can also turn the ugliest when things don’t go as planned.