Why Funding Is NOT Your #1 Problem

Finally… The Truth Is Revealed About Money For Real Estate Investors

The headline of this article is extremely ironic considering the real estate investing communities we run, with more than 250,000 subscribers, consistently indicates their number one business concern is
… You guessed it. Funding.
Today I am stating for the record my disagreement with this claim (sorta).
It’s not that funding is unimportant. Far from it.
To be extra clear, I don’t believe funding is or should be the #1 concern for NEW investors. Yet, that is, indeed, what most newer investors claim.
I will indeed reveal what I believe should be your #1 concern, but first some important distinctions about funding/financing.
Every real estate transaction requires financing. But not every deal requires cash from the actual buyer/investor (you, in this case).
In other words, outside of using your own cash to fund/finance an entire deal, you are going to be using other people’s money (OPM) in one way, shape or form.

Here are a few examples of funding/financing deals with OPM:

  1. Wholesaling: You are essentially “shopping” for other investors who are using cash
  2. Terms deals: You are getting the Seller to finance your purchase directly with them
  3. Rehabbing: You are coming up with your own cash, typically as a loan (from a private investor or institutional lenders)
Too many new investors, for some strange reason, think they need to start off flipping houses like they see on the reality TV shows — doing full rehab deals. Ugh. Are you kidding me?
They are often former or current contractors who know how to do the technical (construction) work of remodeling a house, but completely lack the business skills to consistently generate motivated seller leads, negotiate discounted or creative terms deals, and resell to an end-buyer.
Here’s a typical (and sad) scenario that is probably the main reason so many aspiring real estate investors FAIL to get funding, leading them to think that funding is their #1 problem, and ultimately quit the business before they get a single check…

Are you ready to hear this brutal truth??

John the aspiring real estate investor can swing a hammer as good as Bob Vila, but the only way he knows how to generate leads is to call unrealistic FSBOs and agents representing unmotivated sellers on the MLS.
Rather than learning and investing in generating off-market property leads, John thinks he can create a successful investing business from razor thin margins on barely discounted properties from the above-mentioned FSBOs and MLS listings.
When John finally gets a hold of one small-time hard money lender, or if he’s lucky, one potential private investor (a rich friend-of-a-friend), he quickly gets rejected because the deal is terrible. The bottom line is the deal has zero equity and is just too risky.
* Now, you may or may not relate with John. But even if you have developed skills and resources to generate off-market leads, you may be running into walls when it comes to getting funded for other reasons. If this is the case, skip ahead to Solutions #5 and #6.

So what’s the solution??

  1. John needs to start off by wholesaling those leads/deals to experienced rehab investors, which doesn’t require him getting approved by a lender.
  2. Once John has started generating cash flow from wholesaling (commissions of $2,500, $5,000, $10K+), and built up a nice little pool of money for marketing, earnest money deposits, down payments on loans, etc., he can turn his focus to…
  3. REHABBING (from which he can make $30k, $50k, even $100k+ per deal).
  4. Instead of submitting his deeply discounted, super appealing deals to just one measly hard money lender, John should leverage his time and get a multitude of lenders (private investors, hard money, and crowdfunding) to compete for his business and provide multiple pre-approval offers at one time. There is a new online lending portal that does just that, powered by LendingTree, presenting multiple loan offers within minutes. (If you have a potential deal, click HERE to submit it. It’s FREE to access, and not based on credit).
  5. While John is working with a variety of 3rd party lenders, he should learn how to raise private capital on his own, and get access to public data lists of private investors/lenders who are looking for good deals to fund as joint venture partners. (Click HERE to access a great free resource that can help you find your own private lenders)
So, to summarize, Funding is NOT the #1 problem for new and aspiring real estate investors because there are several other steps in the journey of a successful real estate investor. And, trying to fund low-margin deals from unmotivated leads is a quick way to frustrate yourself and your prospective lenders. Don’t skip ahead in the process!

SUMMARY OF BONUS RESOURCES

(feel free to claim one or all of them)
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Dan Kalis is the co-founder of Funding For Flipping and Flipping Awesome!