Top 3 Methods Commonly Used to Raise Capital for Real Estate Investments

The recession currently prevailing in the global market has affected almost all industries and businesses. The real estate market is no different, in fact it can even be said that the real estate market is one of the most affected due to the large amount of cash that is needed for down payments and advances. Now, due to the recession, most people are unable to raise such large amounts of cash for down payments and therefore turn to other sources to acquire the financing they need. The following are some of the most common methods through which people finance their real estate investments.

Bank loans

This is the most used method to obtain financing throughout the world. In this method, you apply for a loan from a financial institution, such as a bank, the applicant must submit their income and expenses, as well as their credit rating. The bank then decides whether or not the applicant qualifies before approving their application and then the bank lends them the money. Financial details like interest rate and repayment period are also worked out between the two parties. This is the most used method of obtaining financing, but in recent years, due to the recession, many banks have tightened their credit policies and it has become increasingly difficult for people to obtain loans.

associations

In order to raise funds, more and more people are turning to associations, these partners are usually family and close friends or other people you can trust. This way of obtaining financing is becoming more and more popular as not everyone has a good credit rating and therefore cannot borrow from the bank. A lawyer draws up the legal document between the two parties involved, this document is very important as it outlines the terms of the partnership, for example who will pay the taxes, how repairs and the sale of the property will be shared with the consent of the other partner. Company laws differ from state to state, so it’s a good idea to find out the company law in your state first to avoid the risk of fraud or any other miscommunication in the future.

government loans

The government also provides loans to the public who are interested in buying their houses. Technically though it is not really a loan and rather a government guarantee to the institution you are borrowing from that it will not default. This is known as the Federal Housing Administration loan; Usually this type of loan has a lower interest rate and a more relaxed payment plan than traditional loans. You can take advantage of this loan service even if you don’t have the best credit rating, in most cases only a 3 percent down payment is required, and in some cases you may qualify for a no down payment plan, which means you don’t you have to put down a large amount of cash as a down payment and you only need to pay the amount of interest for the fixed time.