Should You Use Only Your Own Money in Foreclosure Investing?
Additionally, by using all of their own cash, they gain no leverage at all. Wealth is made through leverage. The small amount of fund they have access to, restricts the type of property they can afford to invest, thus restricting the maximum amount of profit they can earn.As an effective investor, you should try to utilize as much of OPM (other people's money) as possible. Although, by dealing with your hard money lender, you need to pay more to secure the hard money loan; and perhaps you can convince the lender to fund the entire investment efforts (purchase price, renovation and repair costs, and holding costs), by assuming the lender is agree to accept the property future value as the loan collateral. Another way to get a sizable chunk of the funding you need is to convince the lender to put up the fund in one of the following methods:
- Instead of getting your own funding to purchase the property in pre-foreclosure, ask the financially distressed homeowner's lender if the mortgage loan can be transferred to you. In such a case, the mortgage monthly payments can be taken over by you, until you could renovate and sell the property and pay the mortgage balance completely.
- If you purchase REO properties from lenders, the lender may be willing to fund the property purchase and remove the bad loans off of its books. You can purchase many properties this way, frequently with no down-payment requirement! Of course, you can use your own fund, but as a foreclosure property investor, you need to do everything achievable to cover your assets while trying to extend your lead.