How to Invest in Real Estate With Private Money
Author: John Nocebr
Source: ezinearticles.combr
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I am not a real estate investing guru by any means. In fact, I only have 3 rental properties. The first one I bought with no money down. I used hard money to make the purchase and then traditional loans to refinance and pay back the hard money lender. The fees were very high so I would not recommend using hard money unless you are fixing up and reselling in a short period of time. The second and third properties I purchased together with just 10% down versus the traditional 20% or more required for investment property.
For my next property, I was determined to avoid using banks at all. I wanted to find a deal with either owner financing or private funding. Private funding is when an individual loans the investor the money to purchase the property. The investor/borrower then makes payments to the private lender just as they would to a bank in a traditional situation. Normally, you wont get the 15 yr or 30 yr terms you get with a bank, but you can get from 1 to 5 yrs and then refinance. You will also have to pay higher interest rates; such as 8-12% for first mortgage positions. If you want private money in a junior or second mortgage position, you will likely have to go as high as 15% due the greater risk involved for the lender.
Below, are my recommendations on buying a property using private money.
1. Find a wholesaler. These are the men and women that have the I Buy Homes ads, signs and sometimes commercials. These investors specialize in picking up properties at a discount. They usually dont want to be landlords. They like to get in and get out and make a quick buck. They purchase these properties for less than 70% of fair market value (FMV). They then turn around and sell to an investor for a small spread.
2. Get a property from the wholesaler that needs little work. Make sure you are at 70% of FMV or less. In the contract, make sure you use a weasel clause stating the deal is subject to you getting financing or subject to partner approval. The partner is this case is your private lender. This way, if you cant find financing, you can get out of the contract.
3. Once you have a property under contract, begin to assemble your property information package. This packet will consist of a cover page with a photo of the property and your contact information. The next page will be a 1 page Executive Summary detailing your goals, they types of properties you are interested and ideally, some examples of deals or experience you have that will help you do these deals. There are a ton of templates on the internet. Just search executive summary template. The 3rd page will be photos and features of the property. List the bedrooms, bathrooms and other selling points. The 4th page should be the county assessors page. Just go to your county website and enter the address. You will then be able to print out the assessors page with the square footage, yr. built, bedrooms, bathrooms, etc… All information you will need when you get insurance…but lets save that for later. The 5th page will be the Tax record page, showing the estimated taxes you will pay. Page 6 will be a printout from RealEstateABC.com. Just enter the property address and you will get a report showing the estimated value of the property along with a map of the location. Page 7 will come from Zillow.com. Enter the address and you will get another appraisal estimate along with comparable sales data. If possible, highlight comps that flatter your property and include photos. When you go out to take photos of the property, make sure you take photos of similar homes on the street. You can include these photos along with the zillow page and get some basic appraisal information.
4. Talk to everyone you know: Friends, family, co-workers. Go to real estate investing groups and speak to other investors. Someone should know someone that wants to make 8-12% on their money rather than the 2% they are getting at the bank.
5. When you find someone interested, take them to lunch and show them your packet. If its a good deal, the numbers should speak for themselves, but you may need to sell it a little. If you find a fellow investor, they should not need a lot of convincing.
6. Agree on the loan amount, the interest rate, the length of the loan and whether you are paying principal and interest or interest only payments.
7. Contact a Title Insurance company and give them the information. The seller/wholesaler will have sent a copy of the contract already most likely once you let them know where to send it. The closing attorney (usually the Title Insurance company works with one) can draw up the Promissory Note and the Mortgage paperwork. While you dont have to, its a good idea to request a lenders policy on the Title Insurance in addition to your policy. In the event the lender has to take over the property, he or she then has the title insurance. Banks require this and it really puts the lender at ease.
8. Contact an Insurance company for your fire/hazard policy. The loss payee will be your lenders information. This way, if the place burns down or the Earth swallows it up, the lender gets paid off first. Again, this really puts the lender at ease and more comfortable with the deal. When you mention the Loss Payee status and the Lenders Policy on Title Insurance, you will seem very knowledgeable and professional.
9. Lender will approve all documents and then Closing Date is set.
10. Go to closing and sign the paperwork. The lender need not be at closing, but make sure the money is there ahead of time.
Congratulations! You are a real estate investor and youve used private funding!
Naturally, there are entire books and seminars on this subject. Make sure to do your own due diligence. If you are not sure, ask a professional. Attorneys, other real estate investors, etc…
Happy Investing!
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pJohn Noce is a Real Estate Investor in Asheville, NC. As a member of the Carolina Real Estate Investors Association, John has served as club librarian, club secretary and most recently Webmaster and Internet Marketer for Club Activities. John is frequently a guest speaker at the clubs focus groups, main meetings and has presented a 1/2 day seminar on Internet Marketing for Real Estate Investors. John Noce has written several e-books and has created the Hotjohnnie Property Analyzer. As an Excel format, investors can enter in property data and verify if the numbers will work. If not, the analyzer calculates what offer to make./ppTo learn more about John Noce, go to a target=_new href=http://www.ibuycarolinahomes.com rel=nofollowhttp://www.ibuycarolinahomes.com/a./pbr
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