While traditionally real estate investors have relied on banks to fund their empire, standard mortgages do come with a range of limitations. Whether it’s the bank-set lending requirements, limitations on LTV rates or a lack of flexibility in “special” purchases many real estate investors have to consider alternatives sooner or later. But what other options are there?
So-called “portfolio lenders” aim to cater specifically to property investors, offering a range of unique financial opportunities. Such lenders tend to have a better understanding of what investors require, and can offer greater flexibility in their lending policies. Two such examples include Rental Home Financing in the USA and Shawbrook in the UK.
Peer to Peer
Companies like Wellesley act as the conduit between individual investors with capital to spare, and experienced property investors seeking funding. Such peer-to-peer networks specialize in funding opportunities that other lenders might not, and agreement in principle can often be agreed in a matter of days. In many cases, you will end up with your account manager, which can speed up funding requests in the future as a relationship has been developed.
Depending on the property you are considering purchasing, of course, it may not be necessary to get any funding at all. Even today, if you’re willing to search hard enough, properties can be bought below market price – especially beneficial in areas where property prices are already below the national average. Companies like RW Invest, for example, specialize in buying direct from developers and selling these at a discount to investors.
While such situations are unusual, some property investors have done incredibly well from convincing the original owner of their real estate to fund the purchase. In essence, this acts like a “private mortgage” where full ownership of the property is only handed over upon successful repayment of the agreed sum. In such conditions a lawyer should always be used to draw up a contract, and so protect both parties involved.
As the name suggests, a syndicate pools the funds of multiple investors. This way the syndicate buys an investment property, and you own a proportion, relative to how much you invested. In such a way it can be possible to start investing in real estate without the need for any external funding. While there are a number of companies like Harmony that specialize in syndicates it is also possible to find more informal groups on sites like Bigger Pockets.
Equities & Funds
The last way to invest in property without worrying about bank funding is to put your money into a fund that invests into the shares of property companies. While the returns are unlikely to be as exciting as actually owning real estate, the risks are also frequently lower, as is the “buy in”.
In closing, it is important to highlight the importance of doing your research before investing your money into any scheme. We would caution you to seek qualified advice from both experienced real estate investors as well as a legal professional. Never invest money that you cannot afford to lose, and remember that it’s better to start slowly – and start right – than it is to jump in head first and regret your decision later.
You’ll find with just a little research that’s entirely possible to get started in real estate investing without the inherent difficulties some people find in traditional bank-provided mortgages.