First Real Estate Investment

This article also originally appears on ratebuddy.com

 

It doesn’t take much to get started on real estate investing. You don’t need a huge fortune to fund your first acquisition. However, you will need a private real estate lender in most situations. In fact, savvy investors pick up properties by financing the entire acquisition and not having to use any money of their own. You can build a healthy profit as well with minor spending charges even if you have little or no credit or cash.

 

1. FHA Loans

 

One of the best ways to make your first real estate investment without having to rope in a private real estate lender is by getting your mortgage insured by the FHA (Federal Housing Administration). You can easily pick up a multi-family property with a down payment of 3.5%. You could live in a unit while renting out the rest.

 

You get to own a property while enjoying rental income. With the right investment you could build a nice little nest egg for yourself which will just appreciate over time.

 

2. Nonbank (Online) Mortgage Lending

 

Nonbank lenders, such as LendingHome and SoFi are coming up in a big way. They are taking away a huge mortgage share from traditional bankers by offering solutions to the difficulties in qualifying for loans. You can easily apply for a loan with non bank lenders in a little under 20 minutes without having to show your tax returns, FICO scores, or income.

 

An online private real estate lender would typically close the deal in two weeks as compared to the 45-60 days it takes with a bank. In few cases, their generous offers would fund up to 100% of your purchase.

 

3. Hard Money Loans

 

Hard money loans may have a higher interest rate, but they offer a flexible approach. Sometimes, with real estate deals you need to strike the hammer while the iron is still hot. You cannot wait 45-60 days until it takes traditional banks to clear a mortgage.

 

Hard money loans are not sustainable long-term options. But, they are a valuable resource when you need money quickly for purchasing a property. You can use these as a bridge till you qualify for low-interest traditional financing.

 

4. Borrowing from Friends and Family

 

Many people including Larry Silverstein (World Trade Center developer) and controversial Warren Buffett financed their first deals through friends and family. You don’t need to come up with any start-up capital if you go along with this approach.

 

You can partner with other family members and use an FHA loan to pick up a multifamily property as well. It would take 10 family members and each would have to pay less than $1,000.

 

If you want you can clean up the property, refinance it, and pay back the investors with profit. You could use additional money to purchase another property and create wealth the same way.

 

5. Trust Deed Investing

 

You can use a pool of private lenders (can be friends and family) to take up a mortgage. You would need to provide them with the trust deed as collateral for the property. This way you raise the funds you need while the private lenders enjoy the safety of collateral. The only drawback to this funding is that they can foreclose on the property, like a bank, if you don’t meet the lending terms.