I’ve found the hardest part of investing is finding the money to buy. The cheapest property in my area is over $50,000, and many areas are far more expensive. It’s takes time to save up the money to buy an investment worth tens of thousands of dollars, so I’ve used lots of creative financing strategies to purchase my investments. Most of these involve taking on debt.
The opinions are split regarding whether using debt to invest is a good idea.
There is one thing we can all agree on, though.
Debt makes your successful investments MORE successful, and it makes your failed investments MORE devastating. For the savvy investor, using debt can take you to wealth faster, and for the uninformed investor, it can plunge you into bankruptcy.
Not every form of financing investments involves debt, but most do. So let’s unpack my financing tool belt.
25 Types Of Financing To Research
I’m splitting this article in two. This first part is 25 types of financing. Every way I’ve every gotten the money to invest is on the list, and there are many more as well.
The second part is another list of 25 action steps you can take to make the financing actually happen.
1. Pay in cash
The easiest and most convenient way to invest is by using money you already have saved up. I think every investment I’ve ever made required SOME money up front.
The stock market, collectibles and precious metals are good examples of investments that generally requires you to put up 100% of the funds. Real estate and businesses can be bought with loans, but in almost all scenarios you’ll still have to bring some of your own money to the deal.
My thinking is that you only ever need about 3 months worth of expenses saved, and the rest of your money should be invested.
And if you’re short on cash then start hustling. Sell things you own, find odd jobs or side hustles.
2. Traditional mortgage
We’re starting this list with all the financing options you already know about. I currently own four properties and three of them were bought using a traditional mortgage. You get a traditional mortgage from a bank.
I believe that if you qualify, a traditional mortgage is the way to go for purchasing real estate. Why?
Because banks have better loan terms than most other lenders. You can usually get 5-6% interest, 20-30 year term and a 15-25% down payment. There are some other loans on our list that can match these terms, but none can beat them.
One caveat of the traditional mortgage is that the property being purchased must pass a home inspection. This means you’ll need some other way to buy homes that need renovations.
3. Commercial/Construction loan
Many banks also have commercial lenders. I told your three out of my four properties were bought with a traditional mortgage, and the fourth was financed with a commercial loan.
This house had some serious issues. There were cockroaches visible in the house when we walked in. Carpets had been pulled up. There was a huge spot on the kitchen floor with significant water damage. Windows that didn’t close and no hot water.
A traditional mortgage simply won’t work for a house that requires tens of thousands of dollars in renovations to become livable. That’s why we went with a commercial loan.
The loan we got for this property allowed us to bundle together the cost of purchasing the house with the cost of renovating it. We took out a loan for the cost of purchase plus the estimated cost of renovation.
As we spent money on the renovation of the house we would send our receipts to the bank and they would deposit money in our bank account to reimburse those purchases. It was a bit tedious to track all those expenses, but now we’re making money on that property every month.
4. SBA loan
One of the big reasons I’m writing this article is because I want to purchase a profitable website. The SBA Loan and the next several items on my list are the primary options I’m looking at to finance that purchase.
An SBA Loan isn’t actually a loan. It’s a program run by the Small Business Administration that helps entrepreneurs get loans from banks, credit unions and other lenders.
Rather than actually signing the check to disburse your money, the Small Business Administration guarantees a portion of the loan the bank gives you. That makes the bank more than happy to sign that check, because they know if you ever default on the loan, the Small Business Administration will write them a check for the portion that they guaranteed.
5. Lend yourself money from your 401k
Lots of Americans have already invested in the stock market with a 401k or another retirement account. When a more attractive investment comes along (like purchasing a business/website/property), you can give yourself a loan.
There are a few great things about 401k loans.
- You automatically qualify
- The funds are disbursed quickly
- Interest rates are usually below 5%
You can borrow up to 50% of your vested balance in your 401k. Articles I read online talk about how this technique will decrease the returns you realize in your 401k. This is true, but if you invest that money into something that gets better returns than the stock market, then overall you’re better off than if you’d kept your money in your retirement fund.
6. Home equity loan
There are a handful of ways to leverage the equity you have in the property you own. The first of these is a home equity loan.
This is something you get through a bank. Lots of lenders will analyze your personal financial statement and your debt to income ratio (including the bank). But loans that are taken against the equity in your home can usually sidestep those requirements.
Often, the only requirements are that you don’t have loans greater than 80% of the value of the property.
Let’s say you have a home that is currently worth $200,000 and the balance of the mortgage on that home is $70,000. You are able to borrow up to $90,000 more on top of your $70,000 mortgage balance. This is because 80% of $200,000 is $160,000 and $90,000 + $70,000 = $160,000.
Getting a home equity loan on that $200,000 property, you’d end up with a $70,000 mortgage and (up to) a $90,000 home equity loan.
7. Home equity line of credit
A home equity line of credit is similar to a home equity loan in that it uses the equity in your home as collateral. The difference is that the line of credit acts like a credit card (with much better terms) rather than a big up front payment that you slowly pay off.
You can make charges to your line of credit and pay down the balance over time. Then you can make more charges again later.
Lines of credit are great for ongoing expenses like the costs associated with a renovation project. A home equity loan is probably a better fit for the purchase of a business or property.
8. Cash out refinance of property
A Cash out refinance behaves very similarly to a home equity loan. With a home equity loan you end up with two loans, your mortgage and a home equity loan. With a cash out refinance you end up with only one loan.
When you cash out, you take on a new bigger loan, then pay off your current mortgage and walk out with the rest of the money.
Let’s revisit the example of a $200,000 home with a $70,000 mortgage. You’d still be able to borrow up to 80% of the value of the home. However, with a cash out refinance you would take our a loan for $160,000, then from that $160,000 you would pay off you $70,000 mortgage and the remaining $90,000 would go straight to you.
Instead of a $70,000 mortgage and a $90,000 home equity loan, you end up with one $160,000 loan.
And don’t worry, the money you get from a cash out refinance is free of tax.
9. Peer to peer loan
If you don’t have the money to purchase that investment, maybe you have a friend, family member or acquaintance who does have the money.
Kate and I have gotten some small loans from family members to get us up to the full amount we needed to purchase a property. If we had $16,000 and needed $20,000 to buy the property, we’ve borrowed the extra $4,000 from family.
Of course it’s important to know the risks associated with borrowing from friends and family. In order to make this work, they may have to sign paperwork that says the money is a gift (meaning you don’t lawfully have to pay it back). It may not be worth it to take advantage of the generosity of friends and family if you’re not sure you can pay them back.
Then again, with the right people, you can seriously speed up your investing progress while benefiting your lender at the same time. The right peer lender relationship can be a huge boost for an investor.
10. Seller financing
If the seller of a business or piece of real estate owns their asset outright, then they may be willing to become the lender. Instead of selling their company for it’s value, they accept a down payment and then agree to loan terms for the payment of the rest of the asset.
Here’s my seller financing story (spoiler: it didn’t quite work out).
Kate and I have been interested in commercial real estate the last 2 years or so. The problem is, commercial real estate in our city is generally well over a million dollars and with our current financial situation we can’t qualify for a loan that big.
Kate came across a building down town that was for sale by the owner. So I called up the owner and we started talking. I asked if they were open to seller financing and they said yes, so we met them and walked through the property.
We were very honest with them and told them that we wouldn’t be able to secure a traditional loan for the value of their property, but since they owned the building free and clear, they were willing to become the lender. We spent about 9 months negotiating, providing financial documentation, getting inspections and estimating renovation costs. In the end we couldn’t arrive on deal terms that were agreeable for everyone, but we were very close to buying a property worth over $1.6 million for about $40,000 down (that’s 2.5% down)!
This is the power of seller financing. Sellers don’t have the restrictions of a traditional lender. They can accept lower down payments and creative terms. They have the flexibility to give you access to deals that you would otherwise be unable to do.
Don’t underestimate seller financing.
11. Partner with other investors
Sometimes you can buy an expensive investment, not by borrowing the money, but by pooling together the money of other investors and offering part ownership in the investment.
Here’s another real life example:
A few months back I found a website on Empire Flippers that seemed like a great investment opportunity. I thought it was a good business as it stood, but I also saw a lot of potential to grow the business after purchasing. The problem was I didn’t have all the money to buy it.
I could scrape together about 50% of the purchase price, but needed more. So I brought the deal to the investors in my mastermind group. We meet every two weeks to discuss investing and look at deals together. I was able to get a few of them on board with the deal. The only kicker was that they wanted part ownership of the business.
Let’s say the business was worth $100,000. I put in $50,000 for 51% ownership, a second investor puts in $20,000 for 19.5% ownership and a third investor puts in $30,000 for 29.5% ownership.
We all benefit when the business succeeds, we all suffer when the business struggles, and none of us take on any additional debt.
The purchase of this website ended up falling through because the sellers wanted more for their website than we were willing to spend, but still it showed me that partnering with other investors opens up more opportunities for me.
12. Hard money loan
Hard money lenders are professional lenders that give money to investors that have a hard time qualifying for traditional loans. The cost of using hard money is higher interest rates (often 10% and higher) and overall worse terms for you.
Hard money can be difficult to get into. I contacted my first hard money lender before I had done any real estate investing. They often want to see a history of success before they lend you any money.
I’m sure you can find some that are willing to work with new investors, but in my opinion, hard money’s strength is the bank’s weakness.
Banks stop wanting to lend you money as your debt to income ratio decreases. This typically happens as you acquire more cash flowing investments. You’re making more money, but your debt payments are making up a larger percentage of your expenses. Hard money lenders can step in when this happens. You have a history of successful investments and when banks start to back away, hard money lenders are ready for you.
13. Personal loan
Your loan doesn’t actually need a named purpose. If you have a good credit score and a low debt to income ratio, lenders WANT to loan you money. They’ll give you money to buy a jet ski, or to go on vacation. They’ll do this because they have a high confidence that you can and will pay back the money.
There are several places to apply for personal loans online:
And there are plenty more that can easily be discovered.
14. Traditional business loan
We talked about how the Small Business Administration will guarantee a portion of a loan for existing and aspiring business owners. You can also go straight to the lenders to ask for a loan.
Get in touch with your local banks and credit unions directly and ask for a loan. This process will be very similar to a commercial loan for real estate. Commercial lenders often have more flexibility than the lenders that approve traditional mortgages.
15. Rollover for business startups (ROBS)
ROBS is an arrangement that allows you to use your retirement accounts to pay for the costs of a new startup company.
In practice, you will roll over the funds in your existing retirement account, tax free, into another account that is used to purchase the stock of the new business.
ROBS can be used to aid an existing business, so I would imagine you could use this to buy a business with your retirement funds tax free. But the rules around this process are out of my expertise, so don’t quote me on that.
16. Assumption of debt
Assumption of Debt in a business transaction is where the seller of the business passes on all the debt currently held by the business to the seller. Using this technique may allow you to buy a business that is actually worth more.
Think about this.
There is a business making $100,000 in profit each year. If the business has no debt you might buy it for $300,000.
But if the same business has $100,000 in debt, you could do one of two things:
- Buy the business for $300,000 and the seller uses the $300,000 to pay off the $100,000 in debt.
- Buy the business for $200,000 and take on the $100,000 in debt that the business currently holds.
If you have $200,000 in cash, then the second option is very easy for you to work.
But let’s say you only have $40,000 in cash. You can probably qualify for a $160,000 loan a lot easier than you can qualify for a $260,000 loan. The assumption of the company’s debt could allow you to purchase the business when otherwise you wouldn’t be able to.
17. Cash advance on credit cards
Using a cash advance on your credit cards could be a way to scrape together the last few thousand dollars needed to get a deal done.
I don’t generally advocate for using cash advances on credit, but under the right circumstances it could definitely make sense for an investment.
18. Leveraged buyout
Often when you get a loan, the lender will require some form of collateral to help protect themselves against a default. Often this collateral is real estate that you own, but there are other things that can serve as collateral, like expensive equipment.
A leveraged buyout is a way of buying a business where you use the assets of the company you’re buying as collateral for your loan to purchase that company.
This is another way to increase your buying power from your traditional methods. On your own, you may only qualify for a $100,000 loan, but if you want to buy a business that has $500,000 worth of real assets, you may be able to find a lender willing to use those assets as collateral for a loan well beyond the $100,000 you naturally qualify for.
19. Fix and flip loan
A fix and flip loan is one that is specific to real estate. They have unique terms that cater to the process of a fix and flip.
When you fix and flip a house, you will buy the home, spend (hopefully) less than 1 year increasing its value through renovations, then you will sell the home.
When you think about this process, a 30 year loan makes no sense. Even a 5 year loan seems like overkill.
So a fix and flip loan will often have interest only payments for 6-24 months, then a balloon payment at the end. For an investment you intend to hold forever, you want to avoid balloon payments when possible, but it fits a fix and flip perfectly.
20. VA home loan – for veterans
While VA home loans can only be used to purchase a home you plan to live in, that doesn’t mean you can’t use it to make you richer.
Kate and I are “house hackers,” which just means we use our primary residence as an investment. We live on one floor and list the other floor on Airbnb.
VA loan terms are usually better than traditional mortgages because the VA guarantees a portion of the loan (just like the SBA loan). That means lower interest rates and down payments for you!
Use your VA loan to house hack. There are two main ways to house hack.
- Rent out a portion of your home
- Fix up your home and flip it for a profit (you’ll have to live there for at least 1 year)
I prefer the rental option, because I like cash flow, but fixing a flipping is also a viable strategy.
21. Minority loans
Some minority groups also have special programs that will loan money for investing. I found a great article about various places to get minority loans.
I’ve spent the last few hours looking through grants.gov and some local grant websites for my area. I’ll be honest, I think the stars may have to align to actually get a grant to purchase a business or some property.
But what does seem possible is to get a grant for a business you already own. Most of the grants that have been dispersed recently appear to be for small projects taken on by existing companies.
Regardless, if you’re really at a loss for money, you may want to do some homework on receiving grants. It’s literally free money, just with some stipulations about how you use the money.
23. Company match on retirement accounts
I’m not big on traditional retirement accounts (I think they’re an admission that I’m not retiring early), but this article is about getting money to invest.
Lots of employers offer programs where they will match their employees contributions into their retirement accounts. That’s an immediate 100% return, which is hard to come by.
24. Stock leveraged accounts
You can’t go to your banker and get a sizable loan to invest in the stock market. You could get a personal loan and invest the money in the stock market, but you can’t get a bank to give you money you wouldn’t otherwise qualify for to put in the stock market.
It’s easier to get lending for real estate because if you default on the loan the bank takes ownership of the real estate and sells it to get their money back.
When you invest in stocks, you typically do so through a broker, like TD Ameritrade. Some of these brokers will give you small loans to invest.
If you have $100,000 in the brokerage account, you might be able to get an extra $25,000 to invest. It’s not much, but it can speed up your wealth generation.
25. Forex leveraged accounts
There is, however, one trading market that allows its investors to highly leverage their money: the foreign exchange currency market, also called forex.
In real estate, you often leverage your money 4 to 1. You put 1 dollar in and the lender puts 4 dollars in. With forex, you can leverage your money much higher than that, up to 100 to 1 and sometimes even higher.
Depending on the circumstances this can make or lose you a lot of money. The benefit of leverage is that it amplifies the success of our investments, but the pitfall is that it also amplifies our failures as well. Either way, forex offers the highest leverage I’m aware of in the investing world.
25 Actions To Take To Actually Get Financing
It’s great to know about what kinds of options are available to you, but that knowledge won’t actually get you the money to purchase your next investment.
Here are 25 actions you can take to get closer to actually getting your investment financing.
You’ll find a common theme of talking to the people who can loan you money. Talking to potential lenders is hugely helpful because you get a view into how they make their decisions and you create a relationship with them that increases your odds of getting approved for a loan.
1. Meet with bankers
Meeting with bankers is not only first on this list, it is my number one action step for any investor to take.
Here’s what Kate and I did.
After making an offer on a house and having the financing fall through, we had to back out of the deal. It was embarrassing. So we called up 10 banks in our area and asked if we could schedule a meeting with a lender.
We came to those meetings with information on exactly what our investment plans were. After 10 meetings, we had 3 banks that were good candidates for a loan.
We asked for their pre-approval paperwork and filled them all out. In less than a month we knew exactly how much we qualified for and we were ready to make our next offer.
2. Start a mastermind group
Another step Kate and I took was starting a mastermind group. We reached out to people in our circles that we knew took money and investing seriously and we began meeting regularly.
This of course turned into a learning tool, but what we didn’t expect was for it to turn into a group of people that we could go to for financing.
We’ve had other members of the group offer their personal money to go in on investment deals with us.
It turns out that knowing people with money can help you generate capital for investing.
Bankers have money to give out to investors (not personally). Wealthy people have money that they are probably investing regularly. Trust me, the rich are not keeping their wealth in a checking account. So they are always looking for places to invest their extra cash. You could help them find a place to invest and benefit yourself as well.
You need cash up front in order to get financing in (almost) every case. You need money for a down payment.
Saving is not just an action step you CAN take to invest, it is a step you MUST take.
5. Review your real assets
Many funding options rely on the value of your real assets to protect the lender.
If you own a portion of your primary residence then you will likely qualify for a home equity loan or cash out refinance. If you own investment properties then you can use them in the same way.
If you own a business and it has expensive equipment or other real assets with significant value, you can qualify for loans based on the amount you own.
The real assets you own can help direct the type of financing you qualify for.
6. Create goals
I like to physically and mentally put myself in situations that force my hand. Creating goals is one way to put pressure on yourself.
I believe it’s Napoleon Hill that said to put yourself in positions where you must “succeed or perish.” Creating goals doesn’t quite accomplish the perish side of that, but it definitely helps change your mindset.
If you’re on track to have a $1 million dollar net worth in 20 years, you should set a goal to have a $1 million dollar net worth in 8 years. When you do this your brain starts to work on that problem, and you’re much more likely to get there.
7. Make an offer
You’re never going to have everything perfectly figured out. I’ve found the best way to learn is to jump into the deep end and then figure out how to swim.
If you go through the process of making an offer on a home or business, at some point you’ll have to figure out the financing. Maybe that first deal slips through your fingers because you weren’t fully prepared.
But guess what?
You’ll be ready the next time.
8. Search for/apply for grants
Writing this article has opened my eyes to the possibilities of grant money. I want to spend time looking at what’s out there and how it can speed up my investing progress. I mean, grants are free money, and your financial state has nothing to do with getting that money. Pretty sweet deal, right?
I’m starting with grants.gov and then I’ll start looking at grants provided by local organizations in my area.
9. Get approved for a personal loan
Just google “personal loan,” click on a few links and fill out the forms. Don’t do too many at first because every lender will do a credit check on you and that can potentially affect your credit score.
10. Write down affirmations
It’s great to have ambitious investing goals, but sometimes it’s hard to believe you will actually achieve them. That’s why I use affirmations.
These are one line confidence boosters where I tell myself out loud that I will achieve my goals.
“I will create $2,000 in cash flow this year.”
“I will find the financing for this $400,000 property.”
If you set the goal and convince yourself you will achieve it through affirmations, your chances of success increase even more.
11. Get pre-approved for a mortgage
Even if you’re not up for talking to local bankers, at some point you’ll need to get approval for your home loan. You can get that pre-approval online as well.
The only problem with going online is you’ll end up dealing with bigger banks that have less flexibility in their loan terms.
12. Talk about financing with a friend
I know I’m a person who increases comprehension by talking about things. Sometimes, talking is all I need to figure out what my next step is.
You know the saying “two heads are better than one”? Well I think that’s often true. Sometimes another person has a solution to the problem you’re trying to solve that you hadn’t thought of.
13. Talk to friends and family about peer to peer loans
Unless you have some pretty wealthy friends and family, you won’t be able to finance an entire deal with peer to peer loans. However, you can get that extra push you need to reach your purchase price.
Some family and friends will be very opposed to lending you money because they don’t want to endanger your relationship. That’s totally understandable. But you might find some who have the money and are open to benefiting from your investments.
14. Sign up for SBA.gov
After filling out the form, they send your loan request to potential lenders and they will get in touch with you.
15. Find property for sale by owner
Seller financing is one of the more powerful tools in an investor’s tool box. Like we discussed, sellers can be way more flexible than traditional lenders. The thing is, it’s not always easy to find investments that will have seller financing as an option.
In my experience, your best bet for seller financing is to find businesses and real estate for sale by the owner.
16. Talk to the owner of the asset
If you need your investment purchase to have non-traditional financing like seller financing or assumption of debt, you’ll need to talk to the owner.
Usually the best way to do this is to be up front about your needs and to literally ask if you can speak with the owner. If a realtor is listing a property you have interest in, but you know you’ll need seller financing to make it happen, call the realtor and tell them the situation.
“I’m an investor and I’m very interested in property XYZ you have listed. Do you think the owner’s would be open to seller financing? Would you mind asking them for me? I’d love to talk to them about purchasing their home.”
Getting a dialogue going with the owner is essential for creative financing options.
17. Search for/apply for minority loans
The institutions that sponsor minority loans and grants often have very different requirement from traditional lenders. Again here’s the awesome article I found, each option on their list has a link you can click that will help you get started.
18. Find and contact a hard money lender
Bigger Pockets has a tool to help you find hard money lenders.
If you’re at a point where banks are starting to give you the cold shoulder, it’s probably time to make some contacts in the hard money world.
19. Create daily habits
Daily habits can be powerful.
I’m sure you’ve heard the stories of what happens when someone plants one tree a day. You can apply this same principle to your investing.
That’s what I do for this blog. I make sure I write every single day, no matter what. That doesn’t mean I publish an article every day, but it does mean I sit down at my computer, do research, and type.
If you can find one or two things that, if done daily, will consistently take you closer to your goals, then start right now! And don’t let anything…not vacations, not sickness, not inconvenience, not sleep…keep you from doing your daily task.
20. Review your retirement accounts
There are a lot of fancy things you can do to use the balance in your retirement accounts today. And many of those things are tax free.
So open up your 401ks, 403bs, IRAs and HSAs and start figuring out how you can use that money to invest today.
21. Increase your maximum purchase amount
After you get a quote on a personal loan, triple that number and start brainstorming how you can borrow that amount.
Say you visit lendingclub.com and they say you can borrow up to $45,000 for a personal loan. Well how could you go about borrowing $135,000?
Could you use the equity in your home? Or borrow from your 401k? Could you get the seller of a business to finance your purchase? Could you ask a family member to loan you $5,000?
This is another exercise in the powerful “How?” mindset. Don’t ask yourself IF it can be done, ask yourself HOW it can be done.
22. Open a margin account
Some stock brokers offer margin accounts which are stock investing accounts that offer the option to borrow cash to invest in stocks. The borrowed money of course has interest, but if your stocks outperform the interest on the loans, then you’ll make money!
I haven’t tried this method yet, but I know TD Ameritrade has margin accounts.
23. Contribute to your retirement account
If your employer has a company match on contributions to your retirement account, you can double your money by contributing up to the company match limit.
24. Make more money/look for a better job
In the eyes of the bank, the more W-2 money you make, the more they can lend you. If you need to borrow more than the bank is willing to give you, then one way to persuade them is to start making more money, perhaps from a new job or side hustle.
25. Open a forex account
Like I said, forex trading offers the highest leverage of any investing I’m aware of. I’m not a forex investor, but I do know it’s possible to make huge returns using extreme leverage.
A quick google search of “leverage brokerage accounts” pops up a long list of forex brokers. Don’t forget that leverage amplifies your success AND your failures.
The most powerful tool to increase your returns and speed up your investing progress is leverage, otherwise know as debt. The two most reliable high yielding investments are real estate and business. And because these assets are expensive, you’ll generally need a loan in order to own them.
Hopefully, my two lists will give you some inspiration and motivation to finance these types of cash flowing investments.
I’ve used many of these suggestions myself, and a few of the items in my future are hard money loans, grants, and a focus on flexible financing by starting open dialogues with sellers.
I hope you have some new ammunition to take towards your next venture.