Is There Such a Thing As Private Funding for Real Estate?
There are many different routes to fund investment, and funding & investors for real estate deals can vary greatly depending on the specific deal and the individual investor. A common route taken by many is to use a broker to help fund the deal. However, there are several benefits to sourcing the funds yourself. If you have the expertise and contacts then it can save you significant fees and can even be less complicated than using an agent. Here are a few of the key benefits of sourcing the funding on your own:
Time Save. As long as you have completed the due diligence and have the research completed it can take much less time to source the funding from private investors. This is especially true if you already have an investor lined up in the same field. If you aren’t as familiar with the process, then it can take longer to find a suitable partner, and therefore take longer to close the funding. When funding through an angel group, there is a faster and more efficient process due to the large number of leads already involved and most importantly, most groups require a minimum deposit of $3k to act as a guarantee for the funding.
Control and Leverage. Investors usually own a substantial portion of the real estate. In some cases, investors may control as much as 50% of the equity or more. This gives you more leeway when working with the funding process. You can determine exactly how much money you need to fund the deal, how fast you want to receive it, and control how you invest once the deal is in place. As well, with private funding, you will often only pay one fee per year rather than multiple fees for each deal.
Capital Gains Harvested. Most investors receive a portion of the sale price and capital gains tax when selling a property, but private funding only receives capital gains with the sale. This is very different than traditional financing. When funding & investors for real estate, you receive a lump sum of money when the deal closes, which you keep no matter what happens. With other financing, you have to pay taxes on any portion of your gain.
Limited Liability. Private funding limits the number of partners you can have on the transaction. In other words, you can’t manage yourself, get involved in other transactions, or hold other investing accounts with the company. For many real estate investors, limited liability is a significant advantage.
Is There a Better Way? There are several companies today that specialize in funding & investors in real estate. However, only a few offer both types of financing to their investors. There are several advantages to working with a company that specializes in both types of financing.