If you’re looking at financing options for your next real estate project, it might be that a traditional loan from a bank isn’t the right fit. Or, your financial history or credit score may mean that bank loans aren’t an option even if you wanted them to be.
How can you finance a property investment without a bank loan? In this option, we’re walking you through all the alternative options—many of which are generally better suited to real estate investing anyway.
1. Get a Hard Money Loan
A hard money loan is one of the first alternative financing options that real estate investors typically look at if they can’t (or don’t want to) get a bank loan.
These loans are awarded based on the value of the property you’re investing in, so if your income or credit score are affecting your ability to get traditional financing, you can still consider hard money. Hard money lenders approve loans much quicker than banks, usually within a matter of days, but the loan terms are much shorter and the interest rates are higher.
2. Arrange For Private Lending
If you have a personal connection with someone who’s known to offer private lending for investment purposes, this is another financing option to consider outside of traditional bank loans.
Private lenders may be other investors in your circle, family members, friends, or professionals who have cash to spare and are willing to lend you what you need—with interest, of course. Given that these loans are more personal, the exact terms will vary depending on the lender’s own risk tolerance and your relationship with them. You’ll still need to show the lender how they’re protected if your project falls through.
3. Consider a Business Line of Credit
If you’ve set up an LLC for your investing, you might be able to get a business line of credit from a lender. These are usually based on either your revenue or cash flow, so again, your personal finances won’t come into it.
A lot of investors choose to use business lines of credit to cover the cost of a renovation or to make a down payment, but they’re not an option for everyone. Usually, you’ll need to be able to show that you have a solid business history, or, at least, some existing assets in your company.
4. Use Your Own Property’s Equity
Finally, if none of these other funding options are suitable for you, you might choose to tap into the equity in another property you own.
There are a couple of ways to free up money for your next deal with your existing property, including a home equity line of credit (HELOC) or a cash-out refinancing. Again, these aren’t for everyone, but they’re fast and relatively cheap.
Takeaway
Getting a loan from a bank isn’t always the best move for real estate projects anyway, so don’t be too disheartened if you don’t qualify for traditional lending.
The more you learn about all the creative financing options available for property investing, the easier it’ll be to secure the cash you need. And that’s the secret to successful investing: staying flexible and considering all your options to get the most profitable outcome.
