I'm sure you've heard at least some of the many stories about people who have gone from owning next to nothing one day to owning multiple investment properties the next. Traditional methods of financing do not allow this without putting a considerable amount of your money at risk. So, how do you go about it?
Increasing your property folio is not as onerous a task as is often believed. People with property are able to utilize methods known as "Creative financing". While these methods aren't as black and white as traditional financing strategies, you'll find yourself easily managing a portfolio once you've mastered them. Before starting it's always a good idea to get tips from people who have already used these techniques to purchase multiple properties - they'll be able to tell you what is effective, and what isn't.
Creative financing can refer to any non traditional method of financing, or techniques that most people don't use. However, the goal is usually to use as little of your own money as possible. This may also be called leveraging. There several different techniques - remember that none of them are "magic bullets" and they all have to be used in the right circumstances. Here are a few common methods.
Hard money loans: These are short term, high interest loans which can be used for fixing and flipping property offering quick, high returns. You should consider this technique when you're sure of making a good profit, because you'll need it to balance the high rate of interest.
Loans that require little or no documentation of your income and credit are also a method to get multiple properties quickly. It's possible to borrow only about eighty percent of the purchase price this way and a higher deposit or an additional loan is needed.
You also have the option of a second mortgage carried by the seller. If you can loan 90% of the purchase price from the bank, then the seller can take a second mortgage back from you for an additional 5%. This way, your down payment will be much less.
Contract for sale - in this case, you make payments to the seller, and the title is delivered once you've paid in full. Negative gearing is another useful method for investors in Australia - you can choose to borrow money to buy an asset when the income doesn't cover the interest on the loan. This should only be done if you're expecting to receive a very large profit upon selling the property or properties, and can cover the shortfall in the mean time. However, it can be useful in the right circumstances.
Using credit cards to borrow from accounts you've created for retirement, or informally borrowing money from friends is also an option. But be sure to check the appropriate legislation surrounding this and to keep dealings business like at all times.
In particular situations, money from a home equity loan can be used for the down payment on a property investment. It's essential to really know what you're doing. You could also form a partnership with others where you can combine your knowledge with their investment. You might have to invest less money if you take on the managerial duties of the deal.
Creative financing if used sensibly can help you acquire property much faster than conventional methods. But, this being a specialized field, it is advisable to enlist the help of consultants for important information and practical tips.