5 Real Estate Investment Financing Alternatives to Bank Loans

June 11, 2018 by Dominique Ingram
Real Estate Investment Loan Options

When it comes to financing your investments, whether it be your real estate projects or your other business investments, your options are growing by the day. Business owners and project sponsors are no longer tied to the bank loan. In fact, with the number of marketplace lenders on the rise, there are plenty of real estate investment financing alternatives. Here are five that are easier to obtain, often present better terms for the borrower, and are effective in bettering your financial position.

5 Real Estate Investment Financing Alternatives to Bank Loans

  1. Cash out refinance – If you own real estate properties now, instead of taking out a bank loan for your next investment property, take one or more of your existing properties and refinance them, extracting any built up equity you have in those properties. This can be beneficial in a number of ways. For starters, you may be able to refinance at a lower rate, especially if you are combining to two existing mortgages into one. Secondly, you can take your equity from existing properties and acquire your new one, or lower your financing by using your equity as down payment on a new project.
  2. Hard money – Hard money lenders have their own criteria, but these make great loans for short-term projects. They are often high interest, so make sure you pay them back on time, but the benefit is you can fund a project using hard money, then refinance the project and pay your hard money loan back upon completion of the project. Hard money lenders usually fund projects they believe in without making the borrower jump through a lot of hoops.
  3. Get a partner – If you get the right partner, you get a lot more benefit than funding for your real estate project. You could get a valuable partner with experience that you don’t have. A mentor who believes in your project and comes to the table with capital to see the project through the completion is a real estate investor’s dream, but it’s not just a dream. It does happen. Tap into your network.
  4. 1031 exchange – A 1031 exchange allows you to sell one property and purchase another one of equal or greater value as long as you follow a few simple rules. The big benefit to these exchanges is you can defer your capital gains on the sale of your investment property. Then you can take those gains and buy a bigger property that will provide you with bigger returns. This is a great option to bank lending if you are a rental property investor who wants to grow a portfolio while increasing passive income.
  5. Marketplace lending – Marketplace lending is another option. With this funding vehicle, you list your real estate project on a platform that allows individual and institutional investors an opportunity to invest in it. There are two types of investments that make this option good for the both the capital seeker and the funder. Equity-based investment allow real estate project sponsors an opportunity to fund a project while giving up some of the equity in that project to the investors. The benefit is you do not have to pay back a loan in the event your project does not succeed. Debt-based investments mean that investors lend you the money and you pay back the loan over time, which means you get to keep all the returns on the back end of the deal.

There are plenty of ways to finance a real estate deal in today’s fast-moving market. Be sure to perform your due diligence on any lenders, funders, or platforms you intend to work with.