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Where Can I Find Money To Invest In Real Estate?

The truth is not everyone has tens or hundreds of thousands of dollars in their bank account waiting to invest in properties. When I first started out, I didn’t have much money to invest. Other than my principal residence, some money sitting in an RSP account earning meager returns, and a bit of liquid cash for daily use, I really had no spare money to invest in stocks or mutual funds, let alone real estate. However, once I understood the power of leverage, a whole new world suddenly opened up and real estate investing all of a sudden became more of a reality than an elusive dream.

So exactly, where do I find money?

If you have full-time employment, you are in luck. The banks love to lend money to people with full-time jobs. Here are some products you can consider:

1.  Line of credit (LOC) – secured or unsecured

Depending on your employment income and debt level, the bank will determine the maximum amount they are comfortable with lending to you via a LOC. Remember: it is the amount the banks feels safe in lending, not how much you want them to lend. A secured LOC will require that your personal assets be the collateral. Typically a secured LOC has lower borrowing costs.  An unsecured LOC doesn’t require that your personal assets serve as collateral but the borrowing costs are usually 1-2% higher than that of a secured LOC. In addition, typically, the banks will lend a lower amount with an unsecured LOC compared to a secured LOC.

2.  Home equity line of credit (HELOC)

For those of us who own a home (whether it’s a house or condo) and have a healthy level of equity in the home, you can access the equity through a home equity line of credit (HELOC). For most of us, our biggest “savings account” resides with our home. So why not tap into that “savings account” if you are comfortable that you can service the borrowing costs? Leverage it to make solid investments that can generate enough income to pay for the cost of borrowing and still leave some money in your pocket.

One product that I particularly love is the Manulife One product. By the way, I don’t get a commission from Manulife for mentioning their product. I’ve been using the Manulife One product since 2006 and have never regretted the move from a traditional mortgage to their new concept of borrowing. I love the flexibility of not having to renew mortgages ever as long as I own my home. It is basically a giant line of credit on your home for the amount you borrow from Manulife Bank. It is pretty awesome and makes financial sense. You can check it out here.

 3.  Funds from family/friends

You need to consider this option carefully. Unless you are absolutely comfortable with the person who provides you with the money and there is a very deep level of trust, I would recommend not doing this.  Albeit this avenue can be very helpful in getting you started in investing in real estate.

For example, you may have a rich aunt or uncle who is currently earning just 2% via a GIC. If you borrow their funds at 5% and earn 8% from your property, you will be ahead by 3%. Your rich aunt or uncle will thank you too because they will earn an additional 3% by lending their money to you. Alternatively, you can enter into a joint venture with them by investing in a cash-flow positive property together which will allow you all to benefit.  That’s what I call win-win!

4.  Be the bank

You can actually act like a bank and lend money out to people who need to borrow in order to purchase a property. This is called private lending. This is a very popular way to gain a very decent return.

For those who don’t have full-time jobs (like me),  joint venture is a very powerful way to invest in properties. It is one of the efficient ways to expand your real estate investment business. As I always say, there are essentially two elements in every successful business or investment opportunity: capital and knowledge. Without either one of them, the business can’t sustain. That’s why it is ultra-important to have both of them. However, as we live in an imperfect world, we most likely have either capital or knowledge.  If you don’t have capital, you better have a tremendous amount of knowledge in real estate investing to make up for lack of capital. For those with capital, you should be extremely selective in finding the right partner. I would select someone who is trustworthy and honest, who has demonstrated a tremendous amount of knowledge in real estate investing and, who already owns properties with his/her own money, among others.  Money is easier to lost than earn. I would rather forgo the seemingly enticing opportunity with a high risk profile than losing my hard-earned money.

Remember, most sources of funds are in a form of debt. With any debt, you need to pay back the loan and borrowing costs. That’s why it is very crucial for you to assess your risk tolerance and the strength of the investment you will putting the money into. Never attempt to invest in real estate blindly without education. If you do, you could pay dearly and painfully.

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