6 Smart Real Estate Financing Hacks
Lekki, one of the most developed places in the country, still has a retinue of juicy properties. But most people are turned off easily because of the price.
For instance, the median price of a 4 bedroom house stands at NGN 55,000,000. Buyers will think twice before making such a purchase. Meanwhile, some of the properties have been hijacked by wise investors who got funds and turned them to profitable money-making machines.
Perhaps, you have seen the opportunities there too, but you don’t have the courage to take a mortgage. In the same vein, you are in Nigeria where banks aren’t encouraging mortgages.
If I tell you today that you can start investing in real estate without almost nothing, will you believe?
I hope you do because, in this post, I would be sharing with you how you can finance real estate property, with little or nothing.
What is Real Estate Finance, and Why Does it Matter?
In simple terms, Real Estate Financing is the method an investor uses to obtain funds for property investment. However, there are several definitions of real estate finance. Look up LexisNexis definition.
The age-old myth of having large cash in your bank before being able to get a property or more is dispelled with Real estate finance. Today, it is as easy as it goes; get a loan, fund your investment, and let the property do the payment over an agreed period of time.
Isn’t this sweet?
You don’t need a goliath sum of money for making quality investments. You just need the right sources.
Smart Real Estate Financing Hacks
Use Cash Financing
One of the very sure ways to finance a property investment is paying cash. Very reasonable right?
Of course, yes.
However, you must note that financing a real estate investment with cash, has its own pros and cons. Paying cash saves your neck off mortgage debts. On the other hand, this can almost empty your cash reserves. Except you are Dangote or Otedola, you wouldn’t feel it yea? (just kidding).
But seriously speaking, depending on the type of property, cash investments may not be safe, especially if you are just beginning. See TheBalance’s article.
Try Private money lenders
If you are after quick real estate finance, then this is a fantastic option. Private money lenders won’t put you through a long process. They are ever willing to do business. Yet, you mustn’t be carried away. For “all, they say, that glitters, is not gold.”
Private money lenders can be very demanding when it comes to their return on investment. If your property of choice is one that will take a long time to deliver, then you may want to avoid this lane.
On the other hand, however, according to this post on Medium, it is easier to do business with them.
Get Bridge Loans
Popularly known as hard money loans, If you don’t want the bank breathing down your neck, this option should work.
Bridge loans are short term loans from private individuals or businesses. This means you don’t have the privilege of an outstretched repayment timeline. On the other hand, there are benefits. With this kind of real estate finance, funds are easier to get. However, the problem is in the fact that interest rates are high and a slew of other fees are made part of the deal. According to a post on Investopedia, repayment can sometimes be twice the interest rate of a mortgage.
Bottom line is, this is a great option if you are wealthy. If the property won’t deliver in time, you are likely to be in trouble with the investors. Albeit they don’t usually fund 100% of the investment.
Crowdfunding can serve as a way out. But like the others, there are pros and cons. While you can get funding from investors like you easily, it can be very risky.
How, you imagine?
When real estate crowdfunding is done, a single property is what is given attention to. If the deal doesn’t pull through within the expected time, there may be an uproar among the funders. Hence, it makes it difficult to sell the property at a profit.
Propose Seller Financing
Seller financing can be a pretty cool option.
The seller of the investment eliminates the third party in the payment process. For instance, if you took a mortgage for rent payments, the owner of the property can finance and clear your mortgage. Meanwhile, the person you begin to pay to is the seller.
The benefit of this kind of real estate finance is that you can easily have your loans financed by the seller, but there’s usually a high-interest rate for such financing. Check out this article from Forbes.
Nevertheless, this option can be favorable if you can pay the short time loan back to the seller.
Experiment with Self Directed Pension Funds
Controlled funds from your individual Retirement pension Account can be a resort if you are above 60. If not, you’d be penalized.
Pension funds are free from a tax deduction. You can easily use this method of real estate financing. But, If you are younger, simply jump and pass.
The issue with this option is the number of fees you get to pay and the strong restrictions guarding the account. Albeit, this is a very safe account for real estate finance.
There you have it, how you can finance a real estate investment, using the above real estate options.
Again, depending on the size of your pocket, each of the discussed options is helpful, depending on several factors. The type of property, the location of the property, the parties involved, and more.
While cash funding is nice, the after effect may be bitter if an emergency comes upon you. Hard money dudes are cool too, but you must be ready to part with double the money you’d pay a mortgage as interest. Although, private money lenders are quite similar to the above, yet getting funds are quite easier. And you lose the fear of an overstretched mortgage debt.
Nevertheless, Seller financing and Self-directed Pension Funds aren’t harmful. Whatever works for you. You can try combining one or two if renovating and house flipping is what you’re into.