Real Estate Financing: 5 Ways to Raise Money for Your Deals

Real Estate Financing: 5 Ways to Raise Money for Your Deals

It may surprise you to learn that the median home price in Ohio is approximately $240,000 as of August 2023. This is on the lower end of the national average, and it's only a fraction of what you'll pay in places like California. Regardless, it can be difficult to raise money for your transaction.

This is especially true for those looking for commercial property. Regardless of what type of real estate you intend to buy, it's essential to understand real estate financing options. Listed below are five of the most notable.

1. Conventional Loans

This is the most common type of financing. It involves putting forth a down payment toward property and borrowing the rest of the money you need.

Depending on the lender you work with, your down payment will vary. It's best to shoot for 20% of the property's value so you can avoid paying private mortgage insurance (PMI). Conventional loans are great for a real estate investor who intends to hold properties long-term.

2. Private Lenders

As the name implies, this process involves borrowing money from a private individual instead of an organization. Common private lenders include friends, family, and professional contacts.

Private loans are often more flexible than conventional forms of financing. However, they are also typically more expensive.

The qualifications are generally relaxed compared to other loan types. Since you'll know the lender personally, they often won't require proof of income, bank statements, etc.

3. Hard Money Loans

These loans are similar to private loans, but they come from a lender instead of an individual. Hard money loans are backed by collateral, which is used to secure the loan.

For example, a hard money lender might require someone to put forth their car or similar asset as collateral. If the borrower doesn't adhere to the loan terms, the lender will have ownership of this property.

4. Crowdfunding

Although not as common as other real estate loans, crowdfunding is a viable method for raising capital for real estate investing.

The best way to get started is by using a crowdfunding platform. This can help connect you with thousands of potential investors.

Not all platforms are created equal, though. Do your research before choosing one so you can get the best terms.

5. Adjustable-Rate Mortgage (ARM) Loans

As the name implies, this is a mortgage loan that has a fluctuating interest rate. People gravitate toward these when interest rates are low and other forms of financing are difficult to achieve. However, it's important to understand that your interest rate could sharply increase later on.

In some situations, it could be impossible to afford your mortgage payments. It's not recommended to choose ARM loans unless you're financially prepared for a change in monthly payments.

Real Estate Financing Is Easier Than It Seems

The above information has everything you need to know to get started on the right track with real estate financing. From here, you can grow your portfolio and take your passive income to the next level.

Speak with a representative from PMI Columbus today to learn more. Our team of experts can provide you with the best solutions for your situation.