Alternative Real Estate Financing

Lets face it,  not everyone can obtain convention real estate financing.  Here are the most common ways real estate investors successfully obtain real estate financing without a bank or traditional lender.  

Alternative Real Estate Financing

Some of the Most Creative Deals are put together using Alternative Financing Methods

Real Estate Investors are creative, and constantly looking for new innovative ways to finance real estate acquisitions.  The top 3 non conventional ways to obtain real estate financing are:

Personal loans

A secured personal loan is a type of loan that’s typically available to real estate investors. Although it has lower interest rates, it’s still higher than other types of loans. One of the main reasons why it takes longer to close a secured loan than an unsecured one is due to the property appraisal.

Financing from the Seller

Instead of going through a traditional lender, a seller financing arrangement allows the buyer to finance the purchase of a property without going through the traditional process. Unlike a traditional loan, a seller financing arrangement allows the borrower to pay the seller back with a monthly payment. This eliminates the need for a lengthy approval process and allows investors to get their deals done quickly.

Get a Business Line of Credit

An enterprise line of credit, also known as a business loan, is a type that lets borrowers draw funds as needed up to a certain limit. It’s a convenient and flexible option for investors looking to finance their fix and flip projects, as it doesn’t require them to apply for a loan every time they need to borrow money.

Typically, real estate investors who have a successful track record are only eligible for revolving credit lines. This type of line of credit makes it an ideal choice for seasoned individuals who require working capital to be spread over a longer period.

Home Equity Line of Credit (HECL) or (HELOC)

Consider using a Home Equity Line of Credit(HELOC) to finance your flips.

An equity line of credit or home equity loan involves using the equity in your property as collateral. A lump sum of money is typically provided upfront, and the interest rate is usually fixed.

A HELOC is similar to a credit card in that it provides a revolving line of credit, which can be used on a as-needed basis throughout the draw period. It can also be used to finance multiple transactions, such as multiple flips.

A HELOC typically has very competitive loan terms.  You can generally borrow up to 90% of the value of your home (minus your existing mortgage amount).  The loan payments are generally interest only payments with competitive rates that generally are floating near the wall street journal prime lending rate. 

401K Lending

A 401(k) loan is a type of loan that involves taking out a loan against your retirement savings account’s balance. These loans are essentially borrowing from yourself since you are the account holder.

The typical payback period for a 401(k) loan is five years. Compared to other types of loans, the interest rates on these loans are lower. Also, the approval process is fast and easy with a 401(k) loan.

If you fail to make your 401(k) loan payments on time, you could end up owing taxes and penalties. Only consider this type of loan if you’re a seasoned real estate investor and can comfortably pay it off.

Personal Loans to Buy Real Estate

A secured personal loan is a type of loan that’s typically available to real estate investors. Although it has lower interest rates, it’s still higher than other types of loans. One of the main reasons why it takes longer to close a secured loan than an unsecured one is due to the property appraisal.