One barrier almost every newbie has with making it in the RE investing industry is financing. Unless you are lucky enough to have large cash reserves, rich friends, rich relatives, or rich partners, you are stuck with making no- or low-money down deals, using traditional financing. An alternative is to use a hard money lender or private money lender, which are God-sends at times, but can also eat into your end profit.
That's it!
Well, not quite.
Another alternative is to do what Shaun does and use the power of numbers to create your own cash lender. I can't go into detail about how to do this as, frankly, I'm trying to learn myself. But generally what occurs is you find several people who are willing to pool their money together. One person with $10,000 still has a lot of disadvantages financially. Five people with $10,000, who pool their money together, have a lot more leverage. Eight people with $10,000, who pool their money together, have even more leverage. Imagine finding a motivated seller and telling them you can buy their property, but it could take a few weeks, because you have to go the conventional financing route. Conversely, imagine if you had ready access to a pool of money, and could tell the seller you can close in a matter of days.
Again, I'm still learning this concept myself. I understand there are some 'gotchas' one has to be wary of (e.g., SEC regulations and what-not). As soon as I can find some willing investors, I'll contact a competant CPA who can guide us through this process. Of course, the downside with having several people involved in the pool of cash is that more hands need fed when the profits start rolling in. But I believe the advantages far outweigh the disadvantages in the long run.
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OPM (Other peoples money) is a great concept. I believe in it, I use it. Self 1000, privite investor 4000, Margin loan 5000 I'm trading 10,000. The last two days has me running to the brokerage with cash infusions. May the gods of the stock market smile this afternoon. I'm glad this isn't my entire portfolio. I still owe 9000 out there @ 7.45% on this deal alone. Leverage works if your deal appreciates. if it is in a holding pattern or pulls back. it is a rough ride.
Well, sad but true, I pulled a Carlton Sheets to get going at a faster pace. :-) I did have some cash in my accounts to lend to my REI business, but I had to supplement with low interest checks from my credit card. I haven't been paid back yet, since I'm (hopefully) about to close on two other properties, which used the full amount I made from the previous one. My partner will be forking over the cash to fix up these two properties. But, once one of those houses is rehabbed and reappraised, I'll be pulling out equity to pay myself back. I don't mind doing this, since I figure the risk is worth the gain. I want out of the day job desperately.
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