There are four things that hold you back from your first or next deal: fear, time, experience, and money. Let’s focus on the last one.
Where can you find some money if you don’t have a wad of cash under your mattress and have already rifled through the couch cushions? There are many ways to purchase property that don’t require you to have cold hard cash saved up.
Other People’s Money
Let’s start with OPM, other people’s money.
You can take on a partner who supplies the money for the deal. As part of the partnership, you may find the deal, manage the deal, or provide the knowledge or experience. In return for equity, your partner puts in the money needed to purchase the deal.
This is a very common way to grow and scale without using your own money. The partnership can be structured in many different ways and there is not any right or wrong way to structure the equity (just make sure everything is legal).
Another option is using hard money or private money. Instead of giving the person equity in the deal, you are paying them interest on their money. This can be set up as interest-only with a balloon payment or as interest and principal payments. The interest rate, length of the loan, and amortization are agreed upon by the lender and borrower.
Again, there are no wrong or right terms to use when setting up this financing. All of the terms are negotiable, but make sure your numbers work! An interest rate or amortization term will affect your cash flow and/or your return on a property. Make sure it works.
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