As a real estate investor, you likely rely on traditional bank lending to finance your deals. However, when those options fall short or don’t meet your needs, it helps to know there are alternatives.
In this article, we walk through four other sources you can tap into for funding real estate investments beyond conventional loans. Understanding these additional financing methods will equip you to fund more deals and grow your portfolio over time. We’ll explore how each works, learn about key benefits and drawbacks, and the best uses so you know how to leverage them.
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Page Contents
#1 Sell Mortgage Notes
When you hold a mortgage note from financing someone else’s real estate purchase, you have a regular stream of principal and interest payments owed to you as the note holder. If you need money to fund a new real estate venture or project, one alternative to traditional loans is selling part or all of a performing note to a mortgage note buyer.
These investors will purchase the rights to the note payments at a small discount, providing you with an immediate lump sum to reinvest in your next deal. This allows you to access capital tied up in existing mortgage notes and raise funds without relying solely on banks and conventional loans.
The tradeoff is forfeiting future cash flow and some profit from that note. But it can strategically free up capital for new real estate acquisitions.
Some key advantages of this approach include:
- Unlocking tied-up capital quickly
- Sourcing funds from existing assets, not new debt
- Diversifying funding sources beyond traditional lenders
The cons are losing some control of the note and potential future earnings. But for immediate funding needs, it puts money in your hands to deploy into new real estate investments.
#2 Hard Money Loans
Hard money loans are a financing option for real estate investors who need funds quickly for a project and don’t have time to wait on traditional bank financing. These short-term loans come from private lenders, or companies focused on the real estate as collateral rather than the borrower’s credit or financial profile.
Some key advantages of hard money loans include:
- Speed: You can get funding in days or weeks rather than months
- Flexibility: Loan terms are structured around the project, not the borrower
- Asset-based: The property is the primary consideration, not your credit
However, hard money comes at a price that traditional lending does not:
- Higher fees: Expect to pay 3-5 origination points upfront
- Higher rates: Interest rates averaging 10-15%
- Short terms: Loans may have just a 6-18 month maturation
The tradeoffs make hard money loans best suited for distressed asset plays, quick flips, and cases where access to fast capital makes the most difference. They allow you to pounce on real estate projects when timing is critical.
#3 CrowdFund Your Real Estate Deals
Real estate crowdfunding allows you to leverage online platforms to source funding from multiple backers. Instead of taking out one large institutional loan, you can pool small investments from a wider community to raise capital for your larger projects.
Rather than relying solely on banks and mortgage lenders, you can fund deals through numerous micro-loans from peers, friends and family, fans of your work, and cause-driven donors who want to support you.
Some potential benefits for you include:
- Expanding your investor base beyond traditional sources
- Increased flexibility in the types and terms of capital
- Community ownership and support rallying around you
You also take on several challenges with crowdfunded real estate:
- Platform fees: Most charge for access to their donor networks
- Investor management: Communicating progress and reporting to many stakeholders
- Disclosures: Requiring transparency to attract and keep funders
If you have a compelling vision and public persona, crowdfunding offers new doors when other financing falls through. The crowd helps collectively boost your projects.
#4 Scale through Partnerships
As a real estate investor, partnering strategically with others allows you to take on more and larger deals without carrying all the financial load alone.
Whether you primarily contribute capital or source opportunities for potential partnerships, aligning with the right partners can accelerate your investing. There are a few common structures to consider:
General Partnerships
In a basic GP, you and other partners share equally in management, profits, losses, and liability exposure. Because all GPs participate in running the business and are personally responsible for each other’s actions, liability risk is quite significant in this structure.
Limited Partnerships
An LP maintains a separation between control and liability. As a general partner, you would handle all investment decisions and operations. Limited partners simply contribute capital as passive investors, like silent money partners. They are shielded from losses and legal exposure beyond their invested capital.
Joint Ventures
A JV allows you to collaborate with others for a specific project while maintaining separate business entities. For clear sailing, JV partners explicitly assign duties, decision authorities, capital contributions, and distribution of returns.
The best option comes down to your risk tolerance, access to capital, timeframe horizon, and desire for decision-making control in partnerships aimed at cooperation over competition.
Conclusion
Pursuing alternative funding empowers your real estate investing. Whether tapping hard money speed, crowdfunding’s community, or partnerships’ synergy, you can fuel deals and expand possibilities beyond conventional loans. Evaluating options aligned with your risk appetite and deal flow goals equips you to strategically diversify financing sources to match each acquisition’s unique capital needs.
