4 Money Buckets to Fund Your Real Estate Investments
Categories: Blog Posts
Need funding for your investments? Here are 4 money buckets to use.
There are 4 buckets of money you can dip into for your “capital stack”:
- Secured lines of credit
- Secured gap funding
- Unsecured lines of credit
- OPM
In this post, we’ll give an overview of each type.
Word of Warning Using Credit Money Buckets
Before we get into these 4 money buckets, we want to make one thing clear about financing: You have to pay credit sources back.
Treat your lines of credit like lenders. Treat your business like a business. What’s left over after you pay off your credit is the profit you get to keep for your project.
If you turn the financing for real estate into a personal piggy bank, these sources will only drain your bucket instead of filling it. Poor credit management will tank your investment business.
1. Secured Lines of Credit
Firstly, in volatile markets, the most common starting place to complete your capital stack is secured lines of credit.
The most common secured line of credit is a HELOC. You can take out a HELOC on your personal home, or any of your investment properties.
A HELOC just takes good credit, good income, and owning a piece of real estate. If you meet these criteria, then you can take money from this credit line and drop it into the money bucket for your current project.
2. Secured Gap Funding
Another important bucket for financing real estate is secured gap funding from a private money lender (like The Cash Flow Company).
This is a good option if you:
- Don’t have the income to qualify for a loan.
- Don’t have the equity to qualify for a HELOC.
- But do have a real estate property.
This funding can help cover the down payment, carry costs, or part of the rehab using another property to secure the loan.
3. Unsecured Lines of Credit
The appeal of a 0% line of credit is:
- You can use it for a down payment or rehab costs.
- Other types of credit can have rates up to 19-29%. Zero percent is a major advantage.
- The right credit cards are a great stepping stone to get your first few deals done so you can move on to better forms of financing.
The danger of unsecured credit is:
- The temptation to use it outside of business expenses.
- If you don’t pay them off at the end of the project, then you get into trouble fast.
4. The Best of the Money Buckets: Real OPM
Lastly, Other People’s Money is one of the most powerful ways to boost your real estate career.
OPM is money from ordinary people. The biggest real estate investors always have multiple regular people who loan them money for projects. Borrowing in this way is the fastest, easiest, and cheapest way to fill your money bucket.
It may seem impossible to find someone who wants to give you money. But the reality is: people who have cash aren’t getting good returns from banks; they’ll get higher secured returns lending to you.
Want to build your capital stack? Download our free resource on money buckets.
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