Amount Of Free Cash Flow Needed For Home Purchase Commercial Real Estate Investing – Where To Get Money For Your Down Payment

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Commercial Real Estate Investing – Where To Get Money For Your Down Payment

In this article, I want to review some of the best ways to get the down payment money you need to buy your first (or next) investment property.

First, multi-family and commercial real estate assets – purchased correctly – are strong places to invest even in a down economy. I would go further and say that investors can do well whether the economy is going up, down or sideways.

I’ve mentioned this before, but it’s worth reviewing again. The real beauty of investment property is that there are many ways to make money:

1) Cash flow (monthly rent received)

2) Principal Reduction (tenant paying your mortgage)

3) Appreciation of assets (through proper management, asset improvements and only over time)

4) Tax savings (through depreciation and tax-deferred exchanges)

Of course I can’t go into the details of all of these, but investors can have great success no matter what the market is doing.

Okay, let’s talk about financing in today’s market.

Let’s face it. Lenders are very desperate today.

Gone are the days of low down payments required by lenders.

On a conventionally financed multi-family or commercial real estate project, you’ll see a 20 percent down payment required by the lender. On some projects that can be 25 percent and even higher, based on the bank or credit union’s perceived risk for the project.

So, where do you get a down payment?

Of course this could easily be a 50-page manual, but let me focus on some of my popular spots:

1) Other investors or partners

One of the most reliable places you can get the down payment needed for a property is from other investors or partners. Many investors start out in partnership with family members, friends or business associates.

2) 401(k) loan

Many people have 401(k) accounts built up over time. If your plan allows it, a 401(k) loan can be an easy place to get money for a down payment. I would caution, as many advisors will, that you should consider all of these aspects – including the potential impact on your retirement funds.

3) Self-directed IRA accounts

As with 401(k) accounts, most people have taken a hit on their retirement funds in recent years. There may be some reluctance to put that money down, but some of it could go a long way toward your next real estate project, especially if you don’t plan to touch the money for several years. A few years ago, this was not a well-known opportunity, but recently it is becoming more popular.

4) Existing investment property

If you already own an apartment property or a piece of commercial real estate, you can tap into some of the equity you’ve built up over time. Talk to your lender and be aware of how this affects cash flow on your existing assets. The great thing about this is that it really is part of the overall model and benefits of investing in commercial real estate. This can be a great way to invest in your next property.

5) Home equity loan

Lenders today aren’t as quick to offer large home equity loans as they were 5 years ago, but this can be another way to increase the down payment for your next investment property. Again, look at how this affects your personal cash flow and if possible, take a look at this option.

These are some of the ideas that have been successfully used by investors across the country.

My opinion: If your project is very good in terms of opportunity, you want to contract the project first, and find the money later. Not the other way around. If the project is good then you should have no problem getting down payment for it. In today’s world it might take you a little longer – so plan ahead.

Again, whether the market is going up, down or sideways, investors can and will find some great opportunities. In fact, many people have built substantial real estate businesses because of the down market.

Here are some ways to raise money for your down payment. Again, be sure to carefully review how each of these may affect your existing personal or business financial statements and make sure everything makes sense when looking at the new property you’re buying.

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