Having The Hardest Time Finding Money To Buy Good Apartment Deals?
If you are having trouble finding money to fund your deals, it is because of one, two, or all three of the following factors.
1) The deal you are trying to fund isn’t (very) profitable. The old truism of real estate investing bears repeating; when you have a deal that is hot, the money will find you. Money is always looking for a safe place to grow and multiply so when a hot deal appears in front of investment capital, the certainty of the return makes it highly attractive. If you have a hot deal, all you have to do is make it known you have a hot deal (to private money sources) and the money will be freely available.
Your problems arise when the deal you are trying to fund isn’t so hot (price too high, no value plays), the certainty of the money being returned comes into doubt, and investors have to start thinking about risk and weighing other factors. The deal can still be done, but you need to start contacting more money sources and start selling the merits of the deal to get investors interested. As a general rule though, if private lenders, bridge lenders, and other investors aren’t falling over themselves to fund or buy your deal, it is the quality of the deal itself that is the problem, and you should think twice about buying it.
2) The people you are asking to fund your deal aren’t interested in the deal you have. Depending on the specifics of your deal, there is a variety of lender who has risk capital available to fund it, but you must match the right lender with the part of your deal, or you will hear a lot of talk about ‘what can and cannot be funded’. People love to talk about themselves, and what a lender or investor means when they start telling you your deal can’t be funded is … they can’t fund it. They neglect to tell you that there is another investor out there with a taste for funding exactly the type of project you have, because they see the world through the lens of what is important to them in their own little world.
If you have an apartment building with 30% vacancy, there is a variety of lender who will not touch that with a barge pole, but enter the world bridge financing and there are lenders lining up to fund your deal. The same goes with properties needing extensive rehab, many banks want a heavily documented loan package and a balance sheet partner before considering the loan, yet private lenders who have experience of their own with turnarounds are quite willing to find projects that make sense.
Similarly with funding your down payments and the overall cash requirements of a deal that you have mortgage financing for. Forget any funding company, now you are in the realm of private money investors; private individuals placing their money with you to get above market returns. When looking for private lenders, people you know already and who trust you, will be your best prospects. Those who understand and have an interest in apartment investing or real estate in general would be your second best prospects. People who have money, but you don’t know them personally and don’t have any knowledge or interest in real estate are unlikely to be private lenders who fund your deals
3) You haven’t asked enough lenders or investors. Having a great deal and matching the right lender with the right part of your opportunity is the groundwork for getting funding, but in the end in comes down to how many contacts you make. Not every mortgage broker has a lender who can help, but asking for referrals as you go you will zero in on the exact right broker with the exact exact bank or investor for your deal. Similarly with private lenders. Networking groups and REIAs are tailor made for raising private money. Especially in today’s environment of sub 1% CD rates, the more contacts you make the sooner you encounter the private money lender who is a perfect fit and interested in investing with you.
Thanks to the Federal Reserve there has never been more private money (in 1% CD rates) desperate for high returns, so the supply of money should not be an obstacle to funding your deals. Make sure you buy right, match your funding opportunity with the right funding source, and start making contacts.