Friday, December 11, 2015

6 Ways to Obtain Real Estate Project Financing

David Milberg - Real Estate Financing
Real estate is a sound investment and those wanting to venture into real estate development can achieve favorable returns. Here are some financing options you may have for your next real estate project.

1. Traditional Bank Financing - This is by far the most affordable option, but takes time and good credit. You may also run into snags if you need to purchase before you have a development plan, as traditional lenders don’t often speculate.

2. 203k loans Under the Federal Housing Administration Program - If you are purchasing a residential building that needs rehabilitation, a 203k loan is an option. It has a reasonable interest rate and low down payment. You can obtain a 203k loan for duplex, triplex or four-plex properties. The drawback is that it will only work if you live in a part of the property.

3. Seller Financing - Under this form of financing the seller of the property agrees to carry the note to purchase the property, with the intention of being paid off through another loan. This is a fast and flexible option. Additionally, if the seller owns the property free and clear they may be willing to defer all payments until the maturity of the loan.

4. Hard Money Loans - If you are financing a project with a short turnaround you might consider a hard money loan. Underwriting under hard money loans usually considers the property value only. They can fund quickly. High interest and fees can ruin your return, however, unless you can repay the loan quickly.

5. Home Equity Loans - If you have equity in your personal home, a home equity line of credit could be a flexible option for real estate project financing. Since the bank lends on the value in your home, you can purchase your investment on the same basis as cash. You may even get better terms since the purchase agreement will not be contingent on financing.

6. Private Investors - Private investors are individuals looking for a high return on their cash, either through interest or a percentage of profits. You can often structure a very creative financing solution but may need to share the profits.

Consider all your options before financing your next real estate development project as there are many factors to consider. By doing this, you can feel confident that you made the right financing choice for your project.

David Milberg is an investment banker and a financial expert from NYC.

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