When investing in real estate, financing is one of the biggest hurdles you’ll face. While traditional financing, such as conventional loans, can be a good option for some investors, they may not always be the quickest or most feasible method to secure a deal. That’s where alternative financing comes into play. Let’s explore what alternative financing is and how it can help you secure a real estate deal faster.
What is Alternative Financing?
Alternative financing refers to any loan or financing solution that falls outside of traditional financing channels. Alternative lending options include seller financing, hard money loans, and other private money loans. Alternative financing can be a good option for borrowers who have difficulty obtaining financing from traditional lenders due to factors outside of their control.
The Benefits of Alternative Financing for Real Estate Investing
Alternative financing offers a range of benefits for real estate investors, including:
1. Faster Approval Times
Traditional financing options typically have a longer approval process with lenders requiring extensive documentation and credit checks. Alternative lending can often offer faster approval times by providing more streamlined application processes.
2. More Flexibility
Alternative funding such as hard money loans often offers more flexibility than conventional loans. Hard money lenders may be more willing to work with borrowers who have unique financial situations or unconventional real estate deals.
3. Greater Financing Options
Alternative funding is more varied, and there are options to suit different financing needs. From bridge loans to owner financing to cash-out refinance, there’s an option for almost every type of real estate deal.
Alternative Financing Options for Real Estate Financing
Let’s take a closer look at some of the alternative financing options available for real estate investing:
1. Hard Money Loans
Hard money loans are short-term loans that are backed by the property being financed. These loans may offer higher interest rates and fees than traditional financing options but offer approval in as little as 24 hours, making them a good option for investors who need to secure a deal quickly.
2. Seller Financing
Seller financing is an arrangement in which the seller of a property finances the purchase for the buyer. This can be a good option for investors who may not qualify for traditional financing.
3. Business Loans
Business loans can be a good option for real estate investors who own businesses and need to secure financing for their real estate investments.
4. Land Contract
A land contract allows the buyer to make payments directly to the seller for a set period of time, after which time the buyer takes full possession of the property.
5. Private Money
Private money lenders are individuals or entities who offer loans to borrowers outside of traditional financing channels. This can be a good option for investors who require funds quickly.
Factors to Consider When Choosing Alternative Financing
We’ve discussed why alternative financing options can be a great way to secure a real estate deal quickly, but there are several factors to consider when choosing the best financing option for your specific needs. These include:
1. Loan Term
The length of the loan can impact your monthly payments and overall cash flow. Be sure to consider your expected return on investment when choosing a loan term.
2. Interest Rates and Fees
Alternative options can often come with higher interest rates and fees than traditional financing. Be sure to consider the total cost of the loan when deciding on a financing option.
3. Monthly Payment
Your monthly payment can impact your overall cash flow and ROI. Be sure to consider your expected profit and expenses when deciding on a monthly payment.
4. Financing Option
Not all options are created equal. Each one may have unique benefits and drawbacks, depending on your specific real estate deal. Consider what is best for your specific situation.
One West Can Help!
One West has extensive experience with real estate investment financing. We pride ourselves on building ongoing, mutually beneficial relationships with our borrowers.
If you are a real estate investor looking for alternative lending, contact One West today for a consultation.