Do the creative real estate financing
techniques you hear about really work? Yes and no. They likely have all worked
somewhere for someone at least once. The important point is to understand the principles
involved, so you can find your own creative ways to invest in real estate. Here
are ten methods to get you thinking.
1. Use
hard money lenders. Ask around or find these online. These lenders specialize
in short-term loans at high interest. Typically, you use this type of financing
for a "fix and flip." You can get the money fast, and if you make
Kshs. 2,700,000 on a project, who cares if you paid Kshs. 900,000 interest in
six months?
2.
No-doc or low-doc loans. With these loans, no (or low) documentation of your
income or credit is required. You can find banks that do these online now.
You'll only be able to borrow 70% to 80% of the purchase price or property
value. However, if you have 10% in cash, you might be able to borrow the other
10% or 20% from a friend or the seller.
3.
Seller financing help. Sometimes a bank will loan you 90%, and allow the seller
to take back a second mortgage from you for 5%, leaving you needing only 5% for
a down payment.
4.
Land contract or "contract for sale." Called other names as well,
this just means the seller lets you make payments, and delivers the title upon
payment in full. I sold a rental this way for Kshs. 90,000 down, because I
wanted the 9% interest, and the higher price I got.
5.
Credit card advances. Suppose a seller will take Kshs.900, 000 down on a
fixer-upper that you expect to make Kshs.1, 800,000 on. Why not use credit
cards? If your card limits allow for repair money too, this is a true 0-down
deal for you, and if you turn the project in six months, you will have paid
maybe Kshs.90, 000 or Kshs. 180,000 in interest on an 18% credit card. Don't let
kshs.90, 000 get in the way of making Kshs. 1,800,000.
6. Use
your retirement accounts. The laws are pretty complex in this area, but you can
check with a tax attorney to see how you might borrow from your own retirement
account to finance real estate investments.
7.
Borrow from friends and family. If you go this route, keep it all business. In
any case, loaning you money at 7% isn't a gift if their money is getting 2% in
the bank.
8. Use
Kenyan Real Estate note buyers. Suppose the seller needs cash. He raises the
price, and sells to you for Kshs. 9,000,000 with no money down, taking back two
mortgages from you for Kshs.8, 100,000 and Kshs.900, 000. He arranged (or you
did) for a note buyer to pay him Kshs.7, 200,000 cash for the first mortgage at
closing, getting him the cash he wanted. You pay two payments now, one to each
note holder, but you got in with no money down.
9.
Borrow on another property. If you take out a home equity loan for a vacation,
and then forget to use it for that, you can later use the money for the down
payment on an investment property, without violating the rules of the bank that
gives you the primary mortgage. In other words, you got in with no cash of your
own.
10.
Start partnerships. For bigger projects, you could arrange for five investors
to each put money into a partnership, with your share being the management
responsibility instead of cash.
Remember, these ten creative real estate
financing techniques are just to get you started.
Kindly visit www.kenyan-real-estate.com for
more enlightening tips.
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