Yes, you can use OPM — “other people’s money” — for real estate investing. Without any hype, you can find funding sources for real estate investment. The funding resource will usually depend on the type of investing you’re doing. To start off on the right foot, if you don’t have a few hundred dollars for an earnest money deposit, get that first and then use these resources. Once you have that small amount of cash to get signatures on a contract, these are the ways you can fund your investing endeavors:
Rental Property Investing
The reason for starting with rental home buying is that you’ll be working with the more standard and widely used consumer financing sources: banks, mortgage brokers, credit unions, etc. You will need a down payment, typically at least 20%, so if you don’t have it, you can use the other investment types below to build cash to fund your first rental property deal.
Real Estate Wholesaling
Wholesaling is a short-term investment strategy that involves no repair or rehab work on the property. You’re merely using your talent and hard work to locate properties that other investors can’t or do not want to find. As a wholesaler, you can sell to a retail consumer buyer, but your average customers will be rental property buyers and fix-and-flip investors.
You will turn these deals in days to weeks to these investor buyers with your profit coming from your ability to locate a home and negotiate a price that leaves room for profit, even though you’re selling to an investor who wants a discounted deal. The rental investor wants a ready-to-rent home, while the fix-and-flip investor wants one that needs enough work to offer profits from the rehab as well as the sale.
The primary source for funding these deals will be hard money lenders specializing in working with real estate investors. “Hard money” has come to be the name for loans that require a hard asset for collateral — in this case, the value of the home. Also called “transaction lenders,” they will fund a specified percentage of the home’s value for two closings: your purchase and the sale to your investor buyer. That can be as brief as a few hours to days, but rarely longer. Fees are high, but you’ll know what they are going into the deal so you can factor them into the agreement. You won’t need any money other than the earnest money to sign the purchase contract with the seller.