Top 8 Ways to Invest in Real Estate Using Other People’s Money
One of the attractive aspects of real estate investing is that you don’t necessarily have to have hundreds of thousands of dollars to get started. Unlike stocks, which you have to purchase 100 percent outright, real estate allows you to fund the investment in other creative ways.
In real estate, other people’s money (OPM) is a term that refers to using leverage to buy real estate.
In an article by Brian Kline at Realty Biz News, he outlined the top eight ways you can invest in real estate using other people’s money (OPM). Kline outlines the basics of each option.
Here are a few of the ways you can possibly invest in real estate using OPM:
Seller financing – Title to the property is transferred to the buyer along with a mortgage or deed of trust and a promissory note that outlines the terms and conditions of the loan the buyer now owes the seller. This strategy may be used instead of providing all the cash needed at closing.
Subject to existing financing – When the seller still owes money on the mortgage, the buyer can agree to continue making the seller’s mortgage payments in addition to a second payment to the seller in order to generate profit for the seller.
Using private money – This money can be raised from various sources instead of the traditional bank loan. Self-directed retirement accounts are a popular source used for private money in addition to wealthy investors and hedge funds.
Hard money – Generally used for short term loans and as a last resort. Hard money lenders typically charge higher interest rates and are often for periods of six months to a year. This is a popular strategy for properties that plan to be flipped in a short period of time.
Working with partners – You can find investors who are willing to put up the capital while you find the investment and handle the process. Terms of the loans must be negotiated with the silent partners.
Another funding source you might have overlooked: retirement accounts
It’s possible to use funds from an IRA or other account to fund a real estate investment. Self-directed IRAs offer a unique opportunity to lend and receive money in a tax-free or tax-deferred environment.
Whether you want to access more capital for yourself or make profits by helping out a friend, lending or borrowing money through self-directed investing is a possibility.
Partnering funding sources: Another option would be combining your IRA or other funding source with another IRA or funding source.
The following video explains the concept of partnering your self-directed IRA:
Can I co-invest other funds with my IRA to make an investment?
Yes, partnering your self-directed IRA or other retirement account with another funding source is possible. You can partner your IRA with your non-IRA money, your other retirement accounts, your spouse’s IRA, other people’s IRAs, another investor’s non-IRA money and your children/grandchildren’s CESAs, to name a few options.
2
Am I restricted to only purchasing residential property with my IRA?
You are not limited to residential real estate. Your IRA can hold various investment properties such as commercial buildings, vacant land, condominiums, mobile homes and apartment buildings, in addition to residential property.
3
How do I pay funds to the seller?
You must instruct Equity Trust where to send the funds from your account. You can do this online through myEQUITY’s Bill Pay system, or you can submit a form with the instructions. Typically, funding to purchase real estate is sent to a title company, attorney or escrow agent.
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