A big misconception with real estate investing is that it requires a lot of money to secure any type of deal. Fortunately for anyone interested, real estate can be extremely accessible, and a variety of tools can be used to purchase investment properties. Through the power of creative financing, investing in real estate can be within your reach. Here are the top 10 types of creative financing.

Rent To Own

A popular creative financing option for many interested home buyers is rent to own. Essentially, rent to own is where you and the seller agree to a deal where you commit to renting a property for a specific period of time, with the option of buying it before the lease runs out. In some cases, you can form an agreement with the seller that all rental payments go towards the purchase of the home.

Seller Financing

Although not a common form of financing, if found, can be very useful when purchasing a home. Instead of financing through a mortgage broker or bank, the seller becomes the bank and you can agree to finance the deal directly through them. The seller has a lot to gain through this approach. As an educated buyer, it is important to let the potential seller know that they can achieve a higher price on their home without triggering higher taxes and can retain cash flow without maintenance and responsibility.

Lease Option

In real estate, a lease option is basically an agreement that gives a renter a choice to purchase the rented property during or at the end of the rental period. It also prevents the owner from offering the property for sale to anyone else. This is very similar to rent to own however, the lease option does prevent the owner from selling to anyone else while rent to own does not.

Land Contracts

This form of creative financing is similar to rent to own but enables buyers to steadily pay down the amount owed until they own the property. Essentially each payment goes towards the purchase of the home. The title does not change hands until the final payment.

Assume Payments

Some sellers may be interested in getting out of their deal. With the assume payment option, you can take over the seller’s payments and help them get out of the deal. Often this doesn’t require even a down payment. 

Retirement Accounts

Did you know you can tap your retirement account to purchase real estate? Most retirement accounts will allow you to borrow from yourself. Sometimes, you may even get a low-interest rate. 

The laws get pretty complex in this area, but you can check with a tax attorney to see how you might borrow from your retirement account to finance real estate investments

Family and Friends

Sometimes, it is easier to approach family and friends that may have liquid capital available to invest. As long as you are accountable for the money and can demonstrate that you can invest in safe real estate investments, then this may be a good option if you have the opportunity. 

Keep it all business, if you use this source, make sure you know that loaning you money at 7% isn’t a gift if their money would be getting 2% in the bank. Make sure the deal is rational.

Hard Money Lenders

There are many companies and individual investors that specialize in loaning money on what some may call the grey market. Instead of going directly to the bank, hard money lenders can provide cash or a line of credit for real estate investors to purchase deals with. However, oftentimes the terms are shorter and there are higher interest rates. 

You can find hard money lenders by searching for your local area. They specialize in short-term loans at high interest. You typically use this type of financing for a “fix and flip.” You can often get the money fast, and if you make $30,000 on a project, who cares if you paid $10,000 interest in six months.

Home Equity Line Of Credit

Own a home already? Then you can start putting some of that equity to work. By securing a HELOC on your home, you can create a line of credit that can be used to purchase other real estate deals. 

Personal Loan

In some markets, housing is extremely cheap and can be purchased outright with a small personal loan. If you have a credit score and live in a market that supports cheaper housing, then this may be a smart move to take advantage of as interest rates are near a historical low.

No-doc and low-doc loans

No (or low) documentation of your income or credit required. Again, you can find banks that do these online now. The catch is that you will only be able to borrow up to 80% of the purchase price or property value. If you have 10% in cash, you might be able to borrow the other 10% from a friend or the seller.

Seller-carried second mortgages.

Sometimes a bank will loan you 90%, and allow the seller to take back a second mortgage from you for 5%, this method will leave you needing only 5% for a downpayment.

Land contract

Often referred to as “contract for sale.”  This just means the seller lets you make payments, and delivers the title upon payment in full. I’ve previously sold a rental using this method for $1,000 down because I wanted the 9% interest, which I was able to obtain a higher price.

Credit cards

If a seller will take $10,000 down on a fixer-upper that you expect to make $20,000 on, why not use credit cards? This is a true 0-down deal for you, and if you turn the project in six months, you will have paid $900 in interest on an 18% credit card. Don’t let $900 get in the way of making $20,000.

Note buyers

The seller needs cash. He raises the price, and sells to you for $100,000 with no money down, taking back two mortgages from you for $90,000 and $10,000. You or that person arranged for a note buyer to pay him $80,000 cash for the first mortgage at closing, getting him the cash he wanted. You pay two payments now, one to each note holder.

Get a loan on other properties

Interestingly, if you take out a home equity loan for a vacation, and then forget to use it for that, you can use it for a downpayment on an investment property without violating the rules of the bank that provided the primary mortgage. In other words, you got in with no cash of your own.

Partnerships

For bigger projects, you can arrange for five investors to each put money into a partnership, with your share being the management responsibility instead of cash..