5 Secrets to finding money to buy Investment Real Estate
Without a shadow of a doubt the number one ‘excuse’ I when I talk about investing in real estate is ‘I don’t have the money’ or variants of that phrase. If this is the only reason you feel you are not able to invest in rental property and start your own real estate investment empire then I am here to help you squash that myth and start you on the path to financial freedom. (If that truly is your only excuse)
Below I give you some off the avenues available to EVERYONE, regardless of your credit score or you debt to service, if you have been bankrupt, all of these are more excuses that if you apply below you can invest in Real Estate and start to change your financial future. Now you can learn a lot more about each one of these into a lot more depth than I am going to mention here in fact each section could be a whole weekend course by itself so this is to give you and insight as to what ‘IS’ possible, regardless of what other people may tell you. So without too much fluff lets get into the meat and potatoes.
1. Equity in your home/parents home/grandparents home.
Your parents and grandparents (and in fact this could be any adult you know who has been on this earth for a few decades), have most likely followed the old age model of go to school, get a job, buy a house, pay down your mortgage and work towards retirement while saving a little nest egg for the golden years. While this may have been good advice a generation or two ago it does not relate to the world we live in today and in all honesty most homeowners are looking to downsize or take something like a reverse mortgage to survive in the life they want to lead till they die. This is where you come in, Imagine if (let’s just say mom & dad for simplicity) have a house where they have around $300k-$400K in equity in their home, that is money that is doing NOTHING for them. IN fact it costs them money because they pay taxes on that money, now if they partnered with you and used some of this equity for either a deposit or to buy outright and then renovate a rental home, now you are potentially reducing their tax liability and the taxes they have to pay (again speak to a professional accountant about this as I am not one, merely speaking from my opinion of dealing with rentals and accountants for 10+ years). Now in the new rental you do some work, increase the value of the property then instead of selling and flipping you rent it out and use the income to qualify for a mortgage on the rental paying bank of mom and dad back so they can have the equity back in their home (and piece of mind because the first time you do this they will be stressed and unsure) and when you pay them back you pay them an interest rate, usually this will end up being between 8-12% over a 6-12 month period depending on renovations and a few other factors. Now you have a rental, everyone has their money back, and if you did it right they may even want to do it again with you. How many times can you duplicate this scenario? Asa many times as you like as long as everyone gets paid back each time.
2. RRSP’s yours and other peoples
What most people do not know is you can use your RRSP’s to invest in real estate (Canada). Most people simply put their money into an RRSP account each month with one of the top 5 banks or a ‘Financial adviser’ (who is really just a salesman of financial products should be a better title) and we trust them to ask us a few questions, like how long, high risk or low risk or somewhere in between or a mix of all, because that way it’s ‘diversified’. That’s the usual talk or something like that, now I’m not against financial salespeople but it should be more open, in my opinion if the person opposite you is on commission or salary, most banks don’t tell you their financial planners are on commissions only! Needless to say we entrust out money to them and hope in 20/40/50 years its wroth enough that when we convert to an income fund we have enough to live on, or die young, Well there is another choice, and you do not hear much about them because the commission people do not typically get paid commissions from this, you can use your RRSP’s and the RRSP’s of anyone you know who has them to invest in real estate. There are a few ways you can do this and again each way requires you to do your diligence about each to make sure it is right for you. You can put your RRSP’s in a ‘self-direct RRSP account’ (Same for LIRA, TFSA, RESP etc.) Then from your self direct account you can choose what to invest it in. You can give people mortgages secured against their homes, they pay you a mortgage payment every month and if they fail to pay you, you end up foreclosing and owning their house (pretty secure right). You can also pool your money together and provide syndicated mortgages (where a few of you pool together to provide a mortgage because you may not have enough in your RRSP’s alone. The RRSPs can also be self direct into investments called exempt market investments which means they are not dealt on the stock market and typically this is into larger investments, you have to qualify personally, by net worth income etc and be an accredited investor for these, however they allow you to typically take your money and invest in multi million dollar projects for usually as little as $5k per share in some cases.
3. Private money, sometimes called hard money
This involves building a relationship, getting to know the person if you don’t already and then helping to provide a better positive financial future for them and you. Lots of people have money and they just want their money to be making a better return than sitting in the bank and many people do not like the volatility of the stock market, especially since the recent crashes where people lost 30-40% and some more of their lifetime off savings in a matter of months, and if everyone selling these market products is so in tune with what is happening how come hardly anybody saw it coming and if they did why did they not do anything about it? Regardless off theories, because of this event, there are now more people willing to lend you there money privately, some for as little as 3% and into larger commercial 10% and upwards. If you connect with these people they are usually happy to lend the money, get it back with interest then lend it to you again, and keep it going over and over as long as you deliver on what you say you will. The beauty of private money again is they are not looking at your credit or debt service but the investment they are lending against, and you, they are seeing if you are trustworthy enough which is why it is important to build relationships with your private money lenders if you do not know them already. I personally find most of my private money lenders are in their 50’s, they do not want to experience another crash so close to retiring and want to have reasonable liquidity to access their money and we have ways that can ensure they do.
4. Joint Ventures – using another persons ability to lend and borrow.
This is my favourite, my absolute favourite, why? Because when joint ventures are done right, (and they should always be) then you really start to change the lives of the people you joint venture with, beyond what they thought was possible. Imagine you have the knowledge and possibly even the experience and your friend, lets call him Martin has neither, but, he does have the ability to borrow money and qualify for a mortgage, or may even have some money to contribute. You step in they sign a few bits of paper hardly disturbs their busy lifestyle, then a few months or even a year later you start handing them cheques for thousands of dollars, and they didn’t put any time or possibly even money into it. And to top it off as the houses get paid down and/or increase in value you also start to increase their net worth and improve their financial future? This is where people start to notice what you do, I handed a cheque to one of my joint venture partners and we were aiming for around 18% ROI (return on investment) and he was amazed when we didn’t get that, we got 62% instead! (That is annual return on investment as well not total). Are all going to be like that, no they are not, but any return where they have not had to put time and or money in is bonus money to them. Re-invest that into property and before long your joint venture partners and you have your financial futures and lives tied together. Why would I not want my friends and family to share the fruits of my work and be able to the things I want to with me? Joint ventures when done right, are in my opinion, the best way to accelerate your real estate investing portfolio.
5. Finding the right opportunity
This may seem a silly title for a way to raise money to invest in real estate yet its crucial to attracting the capital to do the deals. A mentor once said to me “Gary, you cant say the wrong thing to the right person and if the opportunity is good enough the money will find you.” At the time I didn’t really understand the full concept of what he was teaching me in that moment until a short while later a fantastic opportunity came along and before it hit the market someone offered it to me over a coffee. I said yes and had no idea how I would do it. I knew the numbers made sense and the possibility for growth if renovated correctly and rental income if managed correctly was huge. I wrote down the plan and some of the numbers on a piece of paper then I started asking people, “hey are you interested in rental property and if so does this interest you?” within 5 days and the first 4 people I spoke to I had three investors who were all savvy investors and owned other property, jump onboard, without even a clear vision as I have today when analyzing property correctly I had three investors. Not because my experience was there as it was almost non-existent, not because my sales presentation was off the hook because I didn’t really have one of them, but because they property was a home run and anyone with a bit of common sense and an understanding could see this just by the numbers and their own knowledge. So what about the 4th person that said no? That was a family member I wanted to help but they are fear based, don’t really know about real estate investing and were scared. They would have made an annual return of nearly 26% a year over 4 years and still own the property today cash flowing with no money invested. Even now despite the years of experience, a proven track record where we have never lost a single penny of anyone’s money, have an average return rate higher than most people would believe, this family member still says its not possible. So just like you can never say the wrong thing to the right person, you can never say the right thing to t