Alternative Methods of Real Estate Financing for Investors

When the typical non-real estate investor thinks about real estate investing, this person most likely has a defined set of techniques that is considered to be investing. This involves finding a property to purchase, then securing financing from a lender. Of course, to secure this financing, a portion of the investor's own money must be used for the down payment. This method is the more traditional way of investing. There are some techniques that move outside these confines to garner a larger amount of profit or to allow the investor to move forward without spending any of his own money.

One real estate investing technique many investors start off with is what is known as bird dogging. This is not investing, per se, because the "investor" does not put in any of his time or money towards the deal. Simply, with this technique, the bird dog gets paid for referring deals to other investors. The only risk involved is the birddog getting the information to the investor before another investor finds out about the deal. The bird dog gets paid a fee once the deal closes.

The best non traditional real estate investing techniques are those in which the buyer manages to avoid putting any money towards the deal. One such technique involves using seller financing to purchase the home. In this case, the seller is the lender for the purchase. When the deal closes, the seller lends the equity of the home to the buyer and the two negotiate a payment plan. The terms of the payment can range anywhere from interest only, principal only, or some combination of the two. In this creative real estate investing technique, the investor usually positions himself so that he can use the equity he receives from the sale of the property to pay off the loan.

Another technique that takes advantage of seller financing allows the buyer to take over the loan that the seller currently has in place. This method of investing can be done in two ways. In the first method, the lender formally allows the buyer to take over the loan, better known as assumption. In some cases, the terms of the existing loan will be modified. In addition, the buyer's credit must be approved before the lender will allow the loan to be transferred.

The second method of a buyer taking over the seller's loan is known as "subject to". In this method, the buyer purchases the property without contacting the lender. There is a risk involved with this method, as some lenders include an acceleration clause that allows them to demand the loan be paid in full in the event that ownership of the property is transferred.

One of the most popular real estate investing techniques is known as flipping, which involves purchasing a property that is under priced. Once the property is purchased, it is quickly resold at market value, many times after the property has undergone significant repair work or upgrades.

While many people are comfortable securing traditional financing for real estate investing purposes, for the savvy investor, seeking alternative techniques, such as those listed above, can mean a substantial increase in the profits. These strategies are perhaps the best ways to make money in real estate investing.