In Nigeria today, investors looking to finance real estate projects are havinga difficult time going through traditional banks. The restrictions on loans (repayment period and interest rates) have been tightened significantly for investors, and for many real estate developers, that route is just not an option. However, as many successful real estate developers have discovered, there are other ways to find the needed capital to finance a project. Looking outside of traditional channels can be a smart move, and technology is helping to create more approaches to financing than has ever been done before. Here are alternative funding options for real estate developers.
HARD MONEY LENDING
One alternative that’s been around for a while is what is known as hard money lending. This approach provides a specific type of asset-based loan financing through which a borrower receives funds secured by real property. Hard money loans are typically issued by private individuals or small companies.So the loan is based not on your credit score, but on the value of the property you’re buying.
These loans can charge rates that are twice those of regular mortgages or banks, but they are quicker to secure, require less red tape than traditional bank loans, and can often be secured for 100 percent of the purchase price.Note that hard money lenders are companies that have the money upfront and ready for you to borrow. This is usually a good alternative to traditional banks.
The reason this is true is regardless of credit score you can usually get money upfront and quick. Be aware, these lenders do not like to lend more than 65% of the fair market value of a property. This is a good incentive to find better deals on property, because; it will give you more options.Private Lenders are an even better alternative to getting a cash flow. This is because; you can often arrange the terms of repayment with a private party. They can also be anyone and everyone. Such as a friend or extended family. In this case, everyone wins. By offering a better rate of return than your lender can get on his or her savings or mutual funds. Not to mention there is security in the real estate property.
CROWD SOURCING LENDING
A source of financing that’s fairly new to the scene and rapidly gaining popularity is known as crowdsourcing, or peer-to-peer (P2P) lending. Increasingly, large pools of investors are given the opportunity to be part of real estate investment, with a low minimum investment. So a loan for N400million for example might involve investments from 40 or 400 investors.Real estate crowdfunding caters to investors of all types -commercial, retail, residential and include existing properties as well as development projects. With access to this sort of capital, and platforms that can fund projects in a matter of days, many investors are beginning to favor this alternative to the traditional bank. There are others, but by comparison they are piecemeal approaches.
FRIENDS AND FAMILY
It may also be possible to borrow money from friends or family members who have funds at their disposal. Some people approach the family doctor, lawyer or some other individual with cash to invest. This can work well in some cases, but the possible snags are obvious. Aside from possible damage to relationships should something go wrong, approaching people to ask for funds is very time-consuming. You may not get a “yes” right away.The best-case scenario for the friends and family approach is to establish a partnership with someone who is interested in being involved with projects going forward and has the money to invest. Whether you find that person by knocking on doors or through a crowdfunding site, the end result is basically the same.
PARTNERSHIPS OF JOINT VENTURES
Partnerships are a common way of obtaining financing for real estate. It is the way a lot of young real estate entrepreneurs go about financing their projects. By finding someone who can put the money up and split the profit fifty-fifty is ideal. This also limits your risk and makes the money go further. The clause about partnerships is that all roles and responsibilities of partners must be well spelt out. No stone must be left unturned. The sharing formula may not be based on fifty-fifty after all as this can be dependent on the contribution of partners.
WHOLESALING OR FLIPPING
Using the method of wholesaling or flipping you cut out the need for financing. You will begin by obtaining a property that needs fixing at a discount. Then fix it up and sell it to another buyer or investor for a quick profit margin. There is no need for an excessive amount of cash. You do not need to hassle with financing or credit either. This makes this an ideal way to make the most out of your investment. It gets rid of several headaches that surround your typical financing options. Plus it gives you the ability to make a cool quick profit.