Hey, this is Steve Rozenberg with Empire Property Management. Today we’re going to talk about what are the five best ways to borrow money to get involved in investing.
Well, the first one we all know about, you just get a loan. You get what’s called a conventional loan. You go to Chase or Bank of America, one of these banks; and you go ahead and get a regular loan. You put maybe 20% down, and that’s a very standard conservative way. Some people say they don’t have the money to buy a property and put 20% down. That may be an indication that maybe you shouldn’t be buying a rental property if you don’t have the money to put down because the capital that you’re going to need down the road is what’s important.
The next way is you can get an equity line. Let’s say, you have your own personal residence; and you can take a loan against your own personal residence, and you can get money on it. It’s a revolving line of credit so basically you can keep borrowing. For example: when I buy a rental property, I just borrow off my credit line, go pay cash and then I’ll refinance that into a regular loan down the road.
Next way is what’s called a hard money loan. Hard money loans are you’re going to buy the house for this much, but it’s worth this much. When it’s done, it will be worth this much. You’re borrowing this, and you’re putting in what’s going to be needed to get the property ready and fixed, they’re loaning you that much; and then you get a regular conventional loan after that. Hard money loans are a little bit higher percentage rates, but they’re giving you the ability to buy a house quickly, get it fixed with all the funds, so basically you can buy a house with no money out of your pocket, as long as you know what you’re doing; which is the key.
The other way that you can do is you can borrow from family. A lot of times, family are willing to back you if you know what you’re doing and you’ve got the right business plan. If you’re kind of a dumb ass and you don’t know what you’re doing, then probably not the person that should be borrowing money.
Last way is a partner. You can get partners in a deal. Maybe you do the sweat equity and you do the work; and the other people give you the money. The only challenge of partnerships is if you don’t know that person when it starts getting into money, things get funky. The best way I could explain it is it’s like you’re dating someone for three days. You decide to be partners. You go into the deal so it’s now like you’re married; and you find out the person you married is crazy, because the expectations of that partnership changed. If you’re going to do a partnership, make sure you have clear expectations and a good operating agreement.