Want to Successfully Raise Capital for Real Estate? Here are 7 Proven Ways
Investing in real estate can be a profitable endeavor.
It can provide you with future equity, cash flow, property appreciation, high ROI, and financial freedom. But before you can become a successful real estate investor, you need capital.
Fortunately, raising capital for real estate projects is straightforward. Whether you’re planning on investing in your first piece of property or you’re a seasoned real estate veteran hoping to optimize your strategies, you’ll find multiple solutions in this guide.
What is Investment Capital?
In a nutshell, investment capital is funding for real estate. Funds should cover costs associated with purchasing a property, making renovations, and other related expenses. You can use your savings to acquire property, or you can use “other people’s money” (OPM).
Real estate development often requires outside financing. To attract investors, you must find those interested in funding your ventures. That involves convincing individuals or institutions that you’re worth their time and money – and that you can provide them with a solid return on investment.
Here’s how to raise capital for real estate, including both conventional and outside-the-box strategies.
7 Proven Ways to Raise Capital for Real Estate
- Conventional bank loans
- Hard money lenders
- Private money lenders
- FHA investment loans
- Wholesaling
- Peer-to-peer loans
- Crowdfunding
1. Conventional Bank Loans
Taking out a mortgage from the bank is one of the most popular methods for raising capital for real estate. If you choose to go the traditional route, your financial institution will likely examine your credit history, debt-to-income ratio, and assets. A lender may ask to see bank statements, pay stubs, and tax returns. If you have a stable income, little debt, and a high credit score, your lender will likely accept you.
2. Hard Money Lenders
Hard money lenders are private lenders officially licensed to offer loans. They usually require high-interest rates and an upfront fee.
One advantage to going with a hard money lender is the processing speed. Rather than taking months to release funds to borrowers (like financial institutions may), these lenders can give you almost immediate access to the money you need.
If you’re looking to flip a house quickly or need a short-term loan until you can secure more long-term financing, working with a hard money lender could be a good option.
3. Private Money Lenders
A private money lender is someone with capital to invest. Rather than working through a financial institution, they work with borrowers directly. Private lenders can be family members, friends, business colleagues, or acquaintances interested in making some money off the interest.
The approval process with private money lenders can be fast and painless since they’re not required to follow specific rules like banks and other traditional lenders. Consider working with a private lender to refinance a property you purchased using a conventional loan. You can also use private money to buy new property.
4. FHA Investment Loans
A Federal Housing Administration (FHA) investment loan may require less from you than a traditional mortgage, including a lower down payment.
You do, however, need a credit score of 580 or higher to qualify and may be limited to purchasing a multifamily property or other owner-occupied property. At the very least, the property must serve as your primary address. For example, if you’re hoping to buy an apartment building and live in one apartment while you rent the others out, an FHA loan might be a viable option.
5. Wholesaling
Wholesaling real estate is an exciting option for savvy investors. It offers you the opportunity to make money almost immediately, without having to invest a dime of your own money. In short, it involves acting as an intermediary to connect a seller to a buyer.
Here’s how it works:
- Find a seller, and then contract the property.
- Find another interested buyer.
- Turn around and assign the contract to the interested buyer for a higher cost – before it lapses with the original owner.
- Use the profit as capital for your next project.
6. Peer-to-Peer Loans
To secure peer-to-peer lending, post your project to a designated P2P platform like Upstart or Peerform to get matched with an investor. If you find a trustworthy investor, they can provide you with a loan if you agree to pay it back with interest.
Just make sure you read plenty of reviews about your potential lender, always read the fine print in the loan terms, and ensure the platform you’re using is secure.
7. Crowdfunding
We’ve all seen friends, family members, or charities using GoFundMe to raise money for specific campaigns or causes. In real estate, crowdfunding is a method of raising capital for real estate that takes a similar approach.
Pitch a project on one of the various crowdfunding platforms, like EquityMultiple or CrowdStreet, and see who’s interested in investing. You could find multiple investors willing to share the burden in exchange for a share of your property (and profits).
Securing Real Estate Capital
You have options when it comes to securing the money you need to invest in new property. To find the right loan or investor, you just need to look in the right places and win over interested prospects with a solid pitch.
Gaining experience and establishing credibility can help you build trust with lenders and give them the peace of mind they need to take a chance on you.
If you’re new to this, ensure you do your research to build up confidence and enthusiasm that others can bank on.
