How to Raise Capital For Your Latest Real Estate Investment

This article explores how to secure funding for your first real estate investment beyond traditional loans. It suggests diverse strategies like delayed financing, using self-directed IRAs, borrowing against life insurance policies, house hacking, real estate syndication, and crowdfunding. Each method is explained with its pros and cons, enabling readers to choose based on their situation. Ultimately, the key to a successful start in real estate investing lies in accessing capital strategically and aligning it with personal investment goals.

The Delayed Financing Option

One way to begin your real estate investing career is to pay cash for your property purchase. You can use your savings to buy the property and remodel it to add value to the home’s market value. By financing the home later, you can recover the cash you spent, but talk to a lender about your plans in advance. You’ll want to make sure you can recover everything you spend.

Use a Self-Directed IRA

This option can help you add diversity to your retirement investments, while helping you explore real estate investing. An added advantage is that the property you buy will provide you with an additional source of income in your retirement. Tax laws are a bigger concern with this option, so, if you choose this option, it may be beneficial to work with professional organizations, such as a real estate investment firm.

Borrow Against Your Life Insurance Policy

If you have a whole life insurance policy, you can borrow against the policy and receive approval easier than you would with a traditional lender. Since you’re borrowing against yourself, you’ll also pay a lower interest rate. These types of loans often won’t show up on your credit report and many companies won’t do a credit check. Talk to your insurance provider to learn specific terms for borrowing against your policy.

House Hacking

The term is new, but the practice is something that has been done for years. It involves buying a multifamily home and living in one unit, while renting out the other units. In a single family home, you can rent out individual bedrooms and share the rest of the house with your tenants. In either case, a traditional home loan can get you started. If your credit isn’t the best or you don’t have the standard 20% down payment, you can even apply for government-sponsored programs, such as FHA or VA loans.

Real Estate Syndication

Real estate syndication is when you raise capital from private individuals – usually the best route is starting with friends and family who are accredited investors and not investing their life savings. At Point Acquistions we find investors to allocate their capital together to invest in larger commercial or multi family properties. Real estate syndication allows you to close on more deals because it allows you to leverage your capital together with passive investors and their financial resources.  

Be sure to contact your attorney or counsel prior to raising capital through a real estate syndication as their are many legal and SEC considerations. The last thing you want to happen is to be the news for something if your deal goes south and you did not properly structure your investment.

Crowdfunding

Depending on your marketing talents, this can be a great way to raise capital without borrowing. There is a fee associated with the process, which the website deducts automatically from donations, but it’s still less than you would pay in interest on a mortgage. Crowdfunding is typically used as you advance into a more intermediate level of investing as companies such as RealtyMogul and CrowdStreet will require a successful track record prior to offering your deal on their site.  Another advantage here is that you can receive funding in a relatively short time, but, again, that will depend on your ability to attract donors.

Getting your start in real estate investing and becoming an impact player depends on your ability to raise capital and many other important things to consider. Whether you borrow or look for alternative ways to pay for your first investment will depend on your situation. Once you know how you’ll fund your investment, you may choose to work with a real estate  investment company to help you identify the best properties for your investment.