A major problem real estate investors are faced with is how to finance their real estate investment. Securing the ideal financing is a key factor in earning money in the business of real estate. An investor’s two most common methods to buy their first investment real estate or property are loans from a bank or cash transaction. Though these are acceptable means of financing the purchase of a property, not always the best and only options. 

The use of alternative solutions for securing finance can be a valuable way to quickly set up your real estate business and broaden your investment portfolio. This is why at Oakwood Heights Limited, we consider creative real estate financing methods when investing in real estate to enable our customers to secure deals that they otherwise may have missed out on.

So what is creative financing for real estate investment? This article will provide you with a guide to creative financing for real estate investments and share some unique, insightful, methods of financing real estate.

What Is Creative Financing for Real Estate?

Creative financing for real estate is a term that refers to all non-traditional ways of acquiring an investment property. There are various reasons why real estate investors might want to consider non-traditional ways of financing a property. A major reason is the lack of flexibility of typical loan terms and strict requirements that banks impose on borrowers. 

There are several types of creative financing methods for real estate. These techniques vary in terms of credit requirements, loan flexibility and processing speed. Below are the four (4) most effective creative financing methods.

  • Seller or Owner Financing

Seller financing is one of the simplest ways to acquire real estate without the assistance of a bank or lender. It is often used by real estate investors who do not qualify for lending by financial institutions. The investor and seller work out the cost price and terms of the financing agreement, and the investor agrees to pay the seller directly and in instalments until the purchase is complete.

  • Personal Loans

Due to strict credit requirements associated with obtaining loans from deposit-money banks, many people tend to ignore personal loans. In some situations, personal loans can be effective. For instance, investors with good credit scores and small or no equity should strongly consider this creative financing option. It offers a short term of repayment.

  • Lease Options

This is also referred to as rent-own purchase. It is also a simple method to invest in real estate without finance from any bank or lender. It is different from seller financing. In this case, the seller reserves ownership of the real estate and acts as the landlord, while the real estate investor will function as the leaseholder or tenant. The investor only holds an option to purchase the real estate as they are not obliged to purchase the property.

  • Short-Term, Asset-backed, Bridge Loans

This is also a creative means of financing the purchase of a real estate investment. It is asset-based and secured by a mortgage. An investor accesses this loan with the intent of closing the deal within one year. It is recommended for a fix-and-flip type of real estate investment. Here, an investor uses the loan to finance the purchase of the property and renovates the property with his fund. The investor pays off the loan when the property is sold. 

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