Money For Your Real Estate Deals

So you need money for deals. You have no money.

Where do you start?

Let's start with 3 basic ways of getting money: - Save It! - Borrow It! - Trade It!

I will expand on each of the above.

1) Save It: This is NOT my favorite way, but many people save money by living frugally and/or making more money. Once you have saved enough, you can start investing. Like I said, this is NOT my favorite way.

2) Borrow It: This is one way to get money. You have to make sure you match the investment to the method of paying the money back. For example, borrowing money for a long term, no cash flow investment is not a good idea. Borrowing money against a cash-flowing investment might be a better idea. Here is an example: If you have a building that cash flows, then borrowing against it is a good idea. This is basic "arbitrage." Just make sure that your cash flow coming in is HIGHER than what you are paying.

3) Trade It: You can raise money by selling shares in your company. So the investor becomes an EQUITY investor. Anytime you are thinking of doing this, make sure you talk to an SEC attorney to walk you through all SEC compliance. But essentially you can trade ownership in your entity for money. This is good for long term investments. I use this method for my various companies.

There are "hybrid" methods of the last 2 (debt and equity) which I will not cover here. Now, which method is best for you? I gave you some examples.

But let me say this, you need to consider the downside as well. For example, if you borrowed money to buy an asset, and things went south, what happens then? You are liable.

But what happens if things went south and your investor has ownership? Well, assuming you worked with an SEC attorney, disclosed risks, and there was no fraud involved, you are fine! So always consider upside and downside of dealing with other people's money.

In general, here are my 2 cents for NEW businesses: "Trade It" when you are a new business, "Borrow It" if you are an established business with revenues to cover loan payments. There are exceptions of course.

Keep in mind when you buy real estate with existing cash flow, you are buying an "established" business. Just make sure the cash flow can cover the loan payments if you used the "Borrow It" method.

Copyright (c) 2009 George Antone

By: George Antone

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