| Financing plays a vital role in real estate investing -- | | | | Can you say 16, 18, 20 percent? |
| and this includes buying foreclosed homes. While it's | | | | Cons of Using Your Own Money |
| practically a mantra to "use other people's money," | | | | Probably the number one reason you shouldn't use |
| keep in mind different investments will usually require a | | | | your own money to invest in a foreclosure is that it |
| different strategy. A financing option that worked | | | | may limit your ability to act on another investment |
| wonders in one real estate deal can easily fall flat in | | | | opportunity. It's what savvy investors call leverage. In a |
| another. Following is a quick look at some of the pros | | | | real estate market that is appreciating, the less money |
| and cons of using your own money to buy a | | | | you put into the deal to acquire the property, the more |
| foreclosure property. | | | | profitable it is. For example, let's say you have $100k in |
| Pros of Using Your Own Money | | | | the bank for investing, and you buy a foreclosure |
| One of the best reasons to use your own money to | | | | valued at $130k for that $100k. You've used up your |
| buy a foreclosed home is rate and terms -- there | | | | investment money. What if the following week you |
| aren't any. Since you are using your own money, you | | | | could have bought a foreclosure valued at $150k for |
| don't have to pay any points, origination fees, and a | | | | $90k. You're out of luck. |
| host of other garbage fees (often adding up to three | | | | Another reason using your own money may be a bad |
| to five percent). When buying a foreclosure it's | | | | idea is if it would leave you short on funds. For |
| important to closely watch the transaction costs. After | | | | example, you suddenly need a new furnace in the |
| all, what's the point of buying a foreclosure at a great | | | | middle of winter but don't have the $5k to do it. Or |
| price only to have your profits eaten away by | | | | your renter leaves the state and now you have a |
| excessive loan fees? | | | | vacant home on your hands. Or the city passes a |
| Another good reason to use your own money to | | | | new ordinance that requires you to pay a huge tax |
| purchase a foreclosed property is your ability to act | | | | assessment for new street and sewer. You never |
| quickly and without needing the nod of your lender -- | | | | know? |
| or real estate partner. If you have your own money, | | | | In conclusion, there is no one-size-fits-all solution. |
| you have complete control and have the ability to | | | | Obviously, an investor who wants to quickly rehab a |
| make deals that other investors who rely on | | | | foreclosure and flip it has different financing needs than |
| conventional financing can't do. | | | | an investor who want to buy it and rent it out long |
| If you have less than stellar credit, using your own | | | | term. And, of course, there's tax consequences - so |
| money is probably the best option. With today's tight | | | | be sure to consult with your tax advisor. It's essential |
| lending requirements, it may be difficult to get a | | | | to do your research, analyze your options and choose |
| conventional loan. And unless you're already rich, | | | | the financing solution that solves your problems -- and |
| getting a hard money loan can really get expensive. | | | | makes your investment profitable. |