If you are a real estate investor, you must deal with banks to finance your purchases whether you like it or not. Do you know that there is a way to purchase properties without asking for money from banks? It is called creative financing and it gives you the freedom to arrange money without being at the mercy of banks.
Many investors got a rude shock when the great recession of 2008 hit the American economy. Prices of properties came crashing down after the recession and the investors who had availed mortgages through banks found they had negative equity in the properties. Realizing the difficulties inherent with traditional banks, some investors started to use creative financing for their purchases of properties.
- Financing by the owners There are many ways of securing financing for the purchase of properties and one of them is seller financing. This is a technique where the owner of the property signs the mortgage agreement with the buyer who pays him in installments. Repayment schedule and the interest rate is finalized through mutual understanding. There is no bank involved in this process of financing. The owner of the property wants to get rid of the property at any cost but he cannot sell it through traditional route using services of a realtor. In many instances, seller financing is resorted to when there are tenants living inside the property and the owner wants them evicted from his property. As an investor, you can negotiate with the terms of mortgage with the owner just like you do with banks in traditional financing. You can negotiate on the duration of the mortgage as well as interest rate to arrive at mutually agreed terms. This is a wonderful arrangement where you don’t have to worry about monthly repayments to your bank.
- Private lender financing Another method of creative financing is to use services of private lenders. These are generally individuals who hate keeping their money in banks because of the minuscule amount of interest provided by them. An offer of 7-8% interest per annul is lapped up by these folks as they usually get less than half of this interest from banks. Private lenders have the money, but they do not want to own the responsibilities of a landlord. That is why they are happy just to get attractive returns on their investments. As an investor, you must be honest and fulfill your commitments to your lenders if you want to success with this method of creative financing. These private lenders agree to even lower rate of interest if the money is used for shorter duration's.
- Buying mortgages of owners under distress This is yet another way of financing where you buy the property along with the outstanding amount owed to a lender. You also need to carry out the necessary repairs to make the property desirable for tenants. Banks usually do not object to such an arrangement as they continue to get their installments. As far as the owner is concerned, he is happy that he is not made to face foreclosure proceedings because of a default. He also benefits by improvement in his credit as his installments are made on time to the lender.
In addition to these three financing techniques, there are many other ways to avoid banks to secure financing for your purchase of properties. You must be creative and can think out of the box to find financing solutions for real estate investment. You must be ready with customized solutions to solve the problems of others when securing financing for real estate.
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