7 Alternative Rehab Project Financing Sources
Have you been wracking your brain trying to figure out a way to fund your latest real estate venture? Believe it or not, there is a ton of ways to finance your rehab project. To get some ideas, you could ask other real estate investors how they fund their deals. You could also do some online research and see that there are at least seven different ways that you could get the money you need to close your deal.
To begin with, you could ask your friends and relatives if they would be willing to become your partner in a real estate venture. You would show them the particulars of the deal and how much of a profit they would get if they supplied the money for the transaction. If that won’t work, you could use your IRA account to buy and sell, buy, hold or wholesale the rehab project. In order to do this, there are rules that have to be followed, and all of the money would have to go back into the IRA. You may be tempted to use some of that money for yourself; don’t do it. Another option would be to ask the owner to allow you to do repairs on the property and then, forego the down payment. This option is called “sweat equity”, and you would get a credit toward the purchase price for the work done.
You could also do something called “equity split”. It’s something like “sweat equity”, where you do all of the repair work, sell the property, and split the profit with the original property owner. For your rehab project, you could also borrow the broker’s commission. If the property is listed for sale with a real estate broker, they might be willing to let you “borrow” their real estate commission in order to speed up the sale. The broker would be motivated to do this since they don’t get paid until the sale closes. The payment, terms, and interest are items that you can negotiate with the broker. Other finance options to look into are “wrap-around mortgage”, “carry-back”, and many more.
The aforementioned financing sources are just a few of the alternatives that you have to help get your rehab project off of the ground. Be sure to talk with your lawyer about the right way to put the deal together for each option, since real estate transactions have rules that are different in each state. To persuade the property owner to work with you, you want to present a scenario that shows that they will benefit from your proposed arrangement. In these real estate deals, everyone can get what they want.