How to Get Funding For A Commercial Real Estate Deal

You might look at the investors and think that they have a lot of disposable cash yet that is not the case. Most of the new investors face it hard trying to save the money needed to build such property since they look at the ever-increasing value, and compare it with the amount they are saving, and see that they probably need close to thirty years for them to raise any significant amount of money. So what should they do? Should they shelve their dream of being a real estate investor https://3cre.com and look into other ventures?

Luckily, you do not need to have a multimillion dollar reservoir somewhere for you to invest in real estate. Actually, most of these investors did not begin with a lot of money. There are several real estate investment financing options you can pursue today and get the money to raise the down payment or even the whole amount needed to purchase a property. In this piece, we have combined some feasible ways one could raise the money needed to fund a real estate investment, and you need to analyze them before deciding the best one for you.

Private Investors

In the real estate field, you should learn how to raise capital. This is because your own money can never be sufficient, and it is the best way to make use of your limited funds to pull more prominent deals. You might see a fancy building being put up somewhere and imagine that the owner is some billionaire. Most of these buildings are built by a group of small investors like you who pulled their resources together and used them to finance such a vast project. You need to place yourself in a position where you call the shots in such a group.

You might sit and wonder how you pull a deal with such investors? Well, if you know of two or three people who are willing to invest in something and you want to take an active role, you could structure it as a simple LLC. This is one of the simplest ways you can do it, and you will establish yourself as the leader and have them receive clearly defined roles with titles. For you to attract investors, you should come up with a good deal which should not be overpriced, scalable and have a good cash return. Lastly, you should have a robust exit strategy that will refund the investors their money and the interests gained.

Traditional Bank Financing

This is one of the most commonly used ways to finance real estate investments. However, banks are starting to avoid giving out these loans due to the strict regulations by the natural regulator. However, you will be required to pay the down payment using your cash which is usually twenty of twenty-five percent of the listing price and then your bank will pay the rest. This option offers the best interest rates typically, but it is tough to qualify for. A bank or credit union will give you a lot of money in this case, and you should have a reliable and stable income, have very little debt and possess an impressive credit score. Lastly, you should have the perseverance required to undergo all the paperwork needed to get you the money.

High Ratio Financing

This is an excellent option for investors who want to move into a property. Well, we are talking about commercial real estate investment but using this option can get you the required amount of money. Taking an example, you could spot a home with a suite that you would wish to rent out. If you go to the bank as a new investor, they will request you to place a much less down payment for a residential property since the bank considers it to be less risky than the commercial real estate property. This way, you could be asked to place a down payment of between five and fifteen percent and then go ahead to rent out the suite. In a few years after you clear out the loan, you could move out and keep this piece of property as an investment. It is important to note that the rules regarding the high ratio financing are changing and you need to talk to your broker and see what the current statutes say.

Third Party Informal Financing

This is a very unorthodox method of financing, but it may work for you if you are lucky to be in such a situation. Do you have a relative who has a stash of money in the accounts that earn negligible interest rates? Well, you could talk to them and have them loan you some money to finance a real estate project. You could compel them by offering a good return on their money and the fact that the building acts as collateral for the loan.

Crowdfunding

We live in a digital age, and you could use the power of the internet to get money for your real estate investment. Crowdfunding is a way of raising capital through the collective efforts of people on the web. This method reaches out to a larger pool of people on the internet and compels them to collect the money needed to fund a specific deal. You can gain access to several crowdfunding websites online, and your deal should be very compelling for it to get approved. Once it is approved, the platform administrators will forward it to a group of willing investors who will fund your deal, and you will get the full amount right away. Keep in mind that you should have an excellent reputation and track record for your deal to be approved for crowdfunding, and you should probably look at other options if you are still a beginner.

You are not limited to any option when trying to raise money for your real estate investment. The mentioned options are just a few, and there are more of them out there. While these options vary in how best they are, no set one will work well for everyone. People have different situations, and you need to analyze them before deciding the best one for you.