What are Your Financial Resources for Real Estate Investing?

When you attended your first real estate event, it was probably expressed to you that you don’t need a ton of money to begin investing; and that is true. However, having even a bit of money can help speed up the process quite a bit. It is also true that properties can be bought with little or no money down, but what happens if you have to carry a particular property for a couple of months, or if a major item like a furnace or hot water heater breaks down?

A smart investor will constantly re-evaluate what finances they currently have at their disposal. That way if something does come up, you know where to find the money. This also gives you a great sense of peace and security.

So what are some of the financial resources you may have at hand but you aren’t aware of? Please note that there may be some repercussions of doing this and we highly suggest you speak to a trusted advisor such as your real estate mentor before doing this.

Here is a list:

• Cash in Bank Checking or Savings. Do you have some money set aside and available for a rainy day? This doesn’t include money that you need to pay current bills or an amount set aside in your savings for short term emergencies such as home or auto repairs, etc.
• Savings or Money Market. Do you have some money in one of these that isn’t performing very well? If so, then it might be a useful tool in getting your budding real estate business off of the ground. Please note that there may be some penalties and possible tax consequences if you withdraw these.
• CDs, Annuities, Bonds or other Convertibles. Once again, it might make sense to use one of these resources if you think that you could use them to make more money. An example might be a CD earning 1-2 % where if you cashed it in you could make 3 or 4 times as much. Be sure to calculate the cost of cashing in the resource.
• Home Equity Line of Credit. Also known as a HELOC, this type of resource is using the equity left in your personal or even an investment property’s equity. This can be a great way to invest; if you calculate the numbers correctly. It is also great to have this even if you don’t use it much because most HELOCs you don’t pay for unless you use the available funds.
• Personal or Business Line of Credit. Lines of credit can be very helpful because just like a HELOC, you normally don’t pay for it unless you utilize it. It is a good idea to try and increase the amount of credit you have available (but don’t use) while you are still working a regular job because once you are self-employed it becomes a bit more difficult.
• Credit Cards. When speaking to folks when I was new to the game, I would caution them to never use a credit card to fund real estate purchases. However, as I have gained experience, I have found that they can be useful for things such as a short term business purchase or even funding the final part of a rehab project when cash flow isn’t what you anticipated at that time. Remember that this type of resource is best used for a short term crisis or purchase when you have a plan in mind to pay it back quickly.
• IRA or 401K. Once again, if your 401K or IRA isn’t earning much, there are several ways of using these to invest in real estate. There are several rules and regulations, so make sure you talk with an attorney or accountant familiar with proper use of these or you might find yourself paying some fines and/or penalties.
• Potential Partners. Is there someone that might be a good potential partner? Be sure to choose carefully! Family and friends can be a source but also can be a two-edged sword. Whoever you consider, make sure that the money they provide is not the last of their savings, otherwise, if they have an emergency such as medical bills or auto repairs they will be looking to you to pay them back right away. Other real estate investors can be a great choice because they tend to understand the realities of the real estate game a bit better. Real estate networking events such as real estate clubs, real estate courses, etc. can be a good way to meet these folks. Make sure that whatever you do, you spell it out in writing so that all understand the positives and downside of doing this.
• Things I can Sell to Generate Cash. It’s amazing to me that some folks have a garage or basement full of toys (snowmobiles, boats, motorcycles, jewelry, etc.) sitting around and not being used that might provide a few grand to use for investing. Take stock of what you have; you might not have to look far to find some much-needed funds.

Then add it all up. Then take stock of what you have available to invest. Remember not to totally deplete your resources as you should leave yourself a buffer for personal situations. Be sure to consult with someone that is an expert in utilizing some of these resources such as IRA’s mutual funds, etc. to make sure that the penalties and taxes don’t outweigh the advantages. (A mentor can be invaluable in helping guide you through this process) Look at and analyze the numbers. You have to be able to pay back and make a profit on using these resources and not drive yourself further into debt.

For a My Financial Resources sheet to help you track your resources please Click Here