Forgot your password?

How To Raise Money for Real Estate Investing

By Edited Apr 24, 2014 1 1

If you are attracted to properties as a way to get a return on your investment, and are sure you could handle the responsibilities, such as lawyer, insurance, renovations, finding good tenants, then you may want to know how to raise money for Real estate investing.

How to Raise Money - First Step

If you are looking for your very first real estate investment, then you first need to gather and organize your own finances. You need to see where you are right at this very moment, so that you could approach a bank or lender, and not be guessing as to your monthly bills or what your income is.

Find your last years income tax return, and the assessment the government sent back to you. Banks like this bit of paper, since it proves without a doubt, what you made last year. Now find any pay stubs or statement of what you are making this year, and then find all the latest statements for any bills, such as car payment, car insurance, rent (if you are renting right now) and credit card balances. This is a great exercise for you as well, since you will be totally up to date on your finances, and will be able to answer any questions, and know just where you stand. Banks like that.

Raising MoneyFor Real Estate - Get Educated on Prices

But this is also a good time for you to see just how much you have saved or not. If you are trying to raise money for your first real estate investment, then start looking in the area you want to be, and get a feel for the prices. Check will online listings as well, and you can see how different parts of the city or town can vary in prices. Do this homework, until you are feeling comfortable with prices and then you can figure out just how much you are going to need to raise.

Next try finding a home for yourself, that has the potential to rent part out. For example a house that you can rent the basement out, or an upper floor. You will need to check with the town on the rulings for rentals in houses. If you are serious about getting into real estate investing, and you need to raise money for this venture, then try and find a house that has an extra rental space, that would be able to help pay the mortgage. For example, if you find a house with a separate apartment in the basement, and your mortgage is going to be 1200/month and the renters are paying 1000/month, then your expense on the mortgage is only going to be 200/month. This way the renter is paying most of the mortgage.

Most banks want at least 10% down payment for your house, and if it a second house, such as for real estate investing, they most likely will want 20% (They do in Canada right now). But if you can find a house that already has a tenant in it, that has a lease and is willing to stay on and is a good tenant, a bank will consider their rent as income and you may be able to get away with a much smaller down payment.

Of course, unless you are living somewhere free right now, the best way to raise money for real estate investing, is to cut back on your expenses, and live in the same house as well. So, finding a house with a basement apartment already setup or a upper floor apartment already set up, or one that would not take to much to split into separate residences (remember check with the bylaws of the town first) is a great way to get your foot in the door, and is a bonus if there is already a good paying tenant in one of them.

In this case some lenders will let you put down 5% . But if you have no money then that is still 5% too much right?

Raising Money for Real Estate Investing - Private Money

If you treat this as a business, and draw up a good business plan, then approach family this is another good way to raise money. You have to tread carefully here, as you do not want to cause family grief. But if you have it laid out on paper and your plan, and a reasonable payback time and interest rate, and show them just how you would be able to pay them back on paper, with lists of income/expenses, they may be interested in your venture.

You could even offer to have a lawyer draw up the agreement to make it more of a legal business venture, rather than just begging mom and dad for a loan!

Once you have generated interest, you need to find that right property, so next ask these same family members, if they can recommend a good real estate agent. A good real estate agent is one that works full time, and knows just what you are looking for, and will scour listings many times before you even find out about them. You give this agent exactly what you are looking for. It will be unique as you need a first house that is also able to rent out part of it for extra income.

Once he or she has found that house, then take your family members and involve them in the idea of your business. If they agree with the idea, then hopefully they will give you the right percentage to act as your down payment, and now you can go to the bank and apply for the mortgage on this property. This way you have effectively raised cash for rental investing.

Raising Money for Real Estate Investing - Second House

Fast forward a few years or so, and you have successfully fixed up and rented out a real estate investment house, now you would like to try another one, but you are low on funds just right now due to fixing up the present rental. Get it appraised by a good reputable real estate agent, hopefully that is the same one that helped you buy it in the first place.

Example: We have a semi-detached that was built in 1972, we purchased it for 180,000 we spent 15,000 on renovations top to bottom with the idea or renting to a young family as there was a school at the end of the street. As soon as we were done (3 months later) I got the agent back in to give me a written appraisal for my records, plus I wanted to see just what effect the renovations had.

He came back with 225,000. When we purchased this house we put 20% down payment on it, leaving us with a mortgage of 144,000, after having it valued we now have equity of 81,000.

We then went to the bank, and were wanting to get pre-approved for another rental, we had some cash but not the 20% they would like to see for an real estate investment, as we wanted to hold some back for fix ups, but were told we could leverage the equity in the first rental house as the equity had increased.

Many banks or lenders will want to do their own appraisals, but will consider a long time registered real estate agent from the area, and use their appraisal instead.

So, if you get creative and really treat this as the business it is, then you can raise money for real estate investing. Most banks do not like to lend money for house flipping. The above ideas are for hanging onto a house for a long time.

If you fix up a rental house as if you would live in it, and attract the right tenants, (family neighborhood for families or high rise condo for executives) and you spend some time on maintenance each year to keep it up, you could use rental housing as part or all of your pension plan, or replace your job right now.

If this is your dream, then raising money for real estate investing, starts with:

1. A plan on paper

2. Figure out your own finances

3. Make your present home into a business with rental income (we rent out our second floor of our present house)

4. Approach a bank or family with this plan and explain how this is a great plan and show your figures, such as rental income versus mortgage, taxes, insurance etc.

5. Do, the math and make sure it will be a profitable experience. That way you can raise money for rental property and be able to pay it back.



Oct 1, 2010 11:28pm
Great ideas for raising money to invest in real estate.
Add a new comment - No HTML
You must be logged in and verified to post a comment. Please log in or sign up to comment.

Explore InfoBarrel

Auto Business & Money Entertainment Environment Health History Home & Garden InfoBarrel University Lifestyle Sports Technology Travel & Places
© Copyright 2008 - 2016 by Hinzie Media Inc. Terms of Service Privacy Policy XML Sitemap

Follow IB Business & Money