You can use your current portfolio or assets for creative financing. This means you are taking the risk of losing your current portfolio or assets but it can be worth it to take this risk if you come across a good deal.
There are different ways to use equity for creative financing:
- With proceeds from a refinance. This strategy works if you have equity in your home and are willing to refinance it. You can then use the money to purchase an investment property.
- This strategy works best if you were able to purchase your home below the market value and if the market values are currently high and the interest rates low.
- By borrowing against your family’s equity. Find a family member who is willing to help you by letting you refinance their home. Make sure you fill out a mortgage repayment plan or the IRS will look at the transaction as a gift.
- By investing through a self-directed IRA. If you have one of these retirement accounts, you can invest in property with it. Use the money you put away in your IRA to make a down payment and have the rent or sale money deposited in your IRA later. You can also do this with a self-directed 401K.
- By taking a loan against your 401K. The downside is that the money you borrow against your 401K will not be earning interests until you pay it back. If you lose your job, you will have to put the money back in the 401K within a short time-frame or face penalties.
- By taking a security-backed loan. If you have a portfolio of stocks and other financial products, you can borrow up to 80% of its value. The interest rate should not exceed 5%. The downside is that you cannot sell your portfolio until the loan is paid off but you will get your original portfolio back once you are done making payments.
“Real estate investing, even on a very small scale,
remains a tried and true means of building an individual’s cash flow and wealth.”