5 Creative Financing Ideas I Have Used

[Rudy Curtler]

5 Creative Financing Ideas

A common comment I hear from others when I talk about my real estate investments is, “I wish I was doing what you are doing.” While it’s up to each individual to decide their commitment level, their resources and how/where/when they’ll begin their real estate investments, finding financing for that first, second, third or more deal can be the difference maker for you.

Here are 5 Creative Financing Ideas that I have personally used:

1. I found a GREAT partner! First of all, getting a partner has some upsides and some downsides. Not everything is going to go perfectly and not everyone has the same goals. I have seen some people get burned by their partners because they clearly didn’t have the same goals and didn’t communicate well. That being said, having a partner is still a great way to divide the risk, multiply the ideas and split the workload. My partner happened to be a business savvy entrepreneur who I knew well: my wife’s brother. He also happened to live in a city with a large mix of college students, a good, stable business climate and ‘landlord-friendly’ state laws. Our partnership is divided 50/50 and I have been primarily the ‘money guy’ and he has been the ‘boots on the ground’. By us leveraging each other, we each brought something to the table: I have capital that I want to invest, but am time poor and don’t live in that city. He (at the time) was looking for another niche and wasn’t necessarily flush with cash, but had the capacity and capability to be the day to day manager of the business. Win-win.
2. Seller Financing. We used this process when we had tapped ourselves out with some other recent RE investments but had found a small mobile home park that we wanted. The park had been listed for a few months, we knew the area and knew it could generate some cash flow for us. We contacted the out of state seller (no agents involved, fortunately), talked to him about terms that would allow us to use as little capital up front but with more agreeable interest rate terms for him. He liked the interest rate, liked that he wouldn’t have to pay a lump sum tax bill and was happy to collect one check each month without worrying about being a landlord anymore. Win-win.
3. 401(k) loan. Most 401(k)s allow loans up to a certain amount. My 401(k) allowed a loan up to $50,000 as long as my balance was over a certain threshold. We used this method for one of our mobile home parks. The upsides: the application process was super simple, you are borrowing against your money and when you pay it back, it goes back into your 401(k). The downsides: I found that this extra burden on my monthly cashflow hadn’t been fully penciled out and I put alot of expenses on credit cards that I shouldn’t have. If I had left my employer at while I still had this loan, it would become immediately ‘callable’ and I would have had to pay it all back at once. Good lesson learned, but it’s still a good resource if you have it–just pay it off as fast as you can.
4. Loan from an insurance policy. I have used this a couple of times. It’s a super simple application process and easy to get to, but I don’t like the interest rates. I paid 8% to borrow against the cash value of an annuity. As long as I am paying the loan back relatively quickly, I don’t mind due to the simplicity of the process. Just make sure you pencil out the real costs.
5. I used the cash value of my insurance policies as collateral for a loan for a mobile home park. This was pretty clever. We found a local bank that understood that the cash value in an annuity is a stable asset and they liked mobile home park investors. They agreed to take first position on my cash value, but limited it to 60% of the face value, which was around $70,000 and they were willing to lend me $42,000. I used this as the majority of a down payment for my first mobile home park. The advantage of this over #4 is that the funds stay in the account and continue to accumulate as long as I don’t default on the loan, so the compounding effect in the account isn’t lost. Win-win-win.

These different approaches have allowed me to continue to purchase deals as I find them, even when I thought I was tapped out financially. These ideas might help you stay in the game or, better yet, get in the game. Remember, a little creativity might help you find your own win-win!