The Cash Objective
Listen up everyone, because a lot of people get this mixed up. Real estate investing is NOT the endgame. Your goal is not to get success in real estate for the sake of that success. While improving your investment portfolio and cash flow is great, it should be goal-oriented toward what you really want to do: start or grow your dream business. Investing is the vehicle by which you pursue your dreams. Once you’ve acquired real estate assets, you can borrow against them through refinancing or a first mortgage. The money you borrow can be used for those dreams or to expand your real estate empire if your dreams are bigger than what you can currently borrow.
The point is that borrowing from yourself is how you want to propel your dreams skyward, but borrowing is something you want to wean off of when it comes to actually investing. Cold, hard cash is the way to go when buying real estate. Getting to that point is the hard part. If you, like many people, simply don’t have the cash on hand to start investing, you’ll have to borrow at the beginning. As I said, this shouldn’t be your long-term solution. This is a jumpstart to your investing. But where do you get the cash?
Now is the time to take a look into all of the different institutions and options for borrowing money. The general categories are national or “big” banks, regional banks, subregional banks, community banks, and credit unions. What are the differences? Let’s see.
Where You’re Getting Your Money
Big banks are your first category. This is where companies like Chase, Citibank, Wells Fargo, US Bank, and PNC Bank fall. Unless you’re doing large, multimillion-dollar transactions, avoid big banks. They tie up transactions, change terms, and sell mortgages through mutual funds and other avenues. Smaller banks are portfolio lenders; they give out a loan and handle it in-house without lending to anyone else.
Regional banks also tend to be a bit too large and too much of a hassle to deal with, so I would avoid those if you can. Subregional banks are the level you want to start at. These banks keep more of their loans in-house rather than reselling their mortgages. Community banks are even better. You probably know the bankers because they’re dedicated to serving your community. Their kids play soccer with your kids. They’re your neighbors down the street. You can trust these people
These banks are creative, flexible, and dedicated. They are directly responsible for loan portfolios. I’ve had great success investing in properties of varying sizes through community banks. I’ve had similar success using credit unions. These are local, nonprofit organizations where you are a member of the union. Credit unions function similarly to community banks but are generally better for smaller investments. Big investments are possible with big credit unions, but I’ve seen my greatest triumphs using credit unions for small, residential properties.
There’s one option I didn’t mention above: private lenders. These are high-income individuals lending out money in much the same way a bank does. These individuals can be easier to deal with, and shopping around might net you better loan terms than if you used a traditional bank. You can visit these people at their houses; I know I have. Just avoid hard money lenders; they tend to have very strict terms and high interest rates. They will NOT give you any room for error.
This is a brief overview of the best places to borrow to jump into investing until you can pay in cash. I’ll go over more in future posts. Until then, good luck, happy investing, and Godspeed!