Real Estate Funding risk and rewards analysis

Getting properties funded is easy if you have plenty of cash in the bank and a stellar credit score.

It becomes a bit trickier if you need a funding partner. Using someone else's money for your investments is a great solution to a cash and credit problem, but obviously a smart funding partner wants the least amount of risk. Plus, ultimately they have the final say on what their money is spent on.

Top ten things to know about using funding partners

1. It's all about timing

Timing is by far the most frustrating aspect to professional Real Estate investors, regardless of where you get your funds. Successful investors will tell you it's easy to find great deals, it's hard to make all the pieces come together in time. More people involved means more time is needed for everyone to do due diligence. Besides doing his/her own online research your funding partner will involve multiple members on his wealth team. These could include an accountant, attorney, investment advisor, bank, business partners, and Real Estate advisors.

Take processing times into account as well. You are working with a team and there are some obvious logistics involved, such as two business days to reply to emails. Professional investors are used to this after dealing with banks and various other lenders. Novice investors sometimes struggle with these types of inevitable delays.

Avoid getting frustrated with your partners. You will need them for your next deal.

2. The difference between an ok deal, a good deal, a great deal and a golden deal

Your margins must be higher

Because you have more people involved the deal will need much better margins. Real Estate investors who use their own money can take deals with "ok" and "good" margins. When you have funding partners you will need "great" to "golden" deals.

3. Risk assessment

After a while you will know what your funding partners are looking for. While this isn't an exact science, a little common sense will go a long way.

Some guidelines to evaluate a property:

  • The smaller your ARV (After Repair Value) the higher the risk. Small properties (roughly anything under $200k) have small margins. Let's say you have $40k estimated profit, and something large suddenly pops up like a cracked foundation or leaky roof. If repairs cost you $15-20k your overall split profit would go down from $20k to less than $10k. It's not worth it to wait 3 to 6 months for your fixed up property to sell and only make $10k each, right?
  • The larger your ARV the higher the risk. This one is simple. Beyond the problem I just described, big properties sit on the market longer. This means higher cost of money which means more risk. Besides that dollars are bigger, everything takes more time which complicates getting a deal structured, evaluated and closed.
  • Get the right comps. It never ceases to amaze me how often this simple calculation is done wrong.
  • Get real contractor bids. Your funding partners will need a number of quotes and are experts at evaluating repair costs. They will be careful not to undereste repair costs. Even top investors will still have 8 out of 10 properties come out higher in repair costs than initially quoted.

4. We should be one of your options, not your only option

Have multiple funding options

Funding is the great challenge of beginner as well as experienced investors. As such, experienced investors have multiple (think a dozen, not two) options. We realize that some of our clients are just starting on their first properties and don't have many options, but avoid leaning on your only option or you might sour the relationship.

5. "Personal" properties

When you are personally involved with a property, risks for your partners go up. Your ability to assess margins will be biased, and conversations often become heated. They will not fund properties if:

  • You are living on the premises.
  • The property is a pet project. If you joined the program with a specific property in mind you joined for the wrong reasons. The program is created for people who are interested in flipping multiple properties a year and who are constantly looking for opportunities.

6. Using the MLS and Realtors

Avoid your competition

Of the dozens of ways to find properties, you are least likely to find great deals on the MLS and by using Realtors.

  • MLS - The likelihood that you are the first person to look at a property in this massive, nationwide database is small. Other investors, professionals with armies of assistants, have most likely already checked out the property you "found" and clearly rejected it. Don't assume all of them missed a "great" to "golden" deal.
  • Realtors - First of all, some are investors as well so they are in essence your competition. Secondly, their fees can quickly kill your margins. On a $300k property your 6% realtor fee will be $18,000! If you used the $50,000 profit margin rule, you just increased that to $68,000. Finally, realtors - especially selling agents - prefer working with people who have their own funds. Suddenly you will find that your POF doesn't meet requirements, or proof is needed, or many other sorts of resistance.

7. The cost of Money

There are costs to money. If you use your own money the cost is that your money isn't working for you anymore in other areas. If you use other people's money costs are calculated based on risk. The riskier the property the higher the costs to money.

Does this mean we automatically reject all properties with higher than normal risk? No! We will discuss these, explain why it's risky and together decide if we want to move forward. The split will obviously be different as our costs are higher but at least you will have a shot at some money instead of none. At least this gives you a voice in the process.

Risk management

What are examples of risk factors?

  • Size of profits - small deals might eat into profits if something unexpected crops up
  • Length it will take to sell the property. Bigger homes take more time to sell.
  • Health of the market. This can differ from neighborhood to neighborhood.
  • Your level of expertise. We count on you being our eyes and ears, and helping us manage several aspects of the deal including keeping an eye on contractors. If you have never done RE or have only done a dozen or so deals, your inexperience is a risk factor. And don't worry, we will compensate for it on our side:)
  • Time available to make decision on a property. The less time we have to higher the risk we overlook something.
  • Learning how your partners evaluate deals. This will take time. If you don't know how we have helped our clients make lots of money, the risk is that you might get frustrated.
The more you know, the less the risk

A side note on money:

  • We are not a bank, and that's a good thing. Banks prefer funding primary residences. Not investments, and certainly not multiple per year. Also, banks require good credit scores.
  • We are not hard money lenders. One, we don't actually lend you the money. We invest it directly in the property. Two, we typically fund 100% including down payments and closing costs where hard money lenders often require you to pay a substantial amount of the property.

8. If your property was already rejected for funding

The likelihood of getting funding if others have already rejected the deal is small, regardless of the reason. Perhaps the property was rejected because of your credit score where we don't look at that. Or perhaps you couldn't come up with repair costs or a down payment, neither of which we require. Still, it's smart not to set yourself up for disappointment. Find another deal!

9. Great deals aren't found, they are made

You are the x-factor in this funding - sweat equity relationship. Your experience, or lack thereof, is a factor that will determine how much work needs to be done on our side to ensure that a deal won't go south. Using the following will speed up the approval process:

  • Study your welcome email
  • Attend the "Welcome and start-up call"
  • Log into your member center and start learning
  • Attend the weekly live "Q&A with special topic and bonus handout". These are not recorded and the bonus material is only for those who attend.

10. Be the partner you want us to be

This goes beyond being professional and courteous. You also expect us to be knowledgeable, and timely, and involved. Some of us have earned millions of dollars in Real Estate. And some started with less than what this program offers. There is NO reason why you can't earn the same. The properties are out there. The tools are provided. Money is available. We have done this successfully across the country with all kinds of people, living in all kinds of areas. You have no excuse to not succeed. We are your greatest fans. Let's do this!

We are ready to go! The rest is up to you

Important information:

Emails*:

  • ReDeals@keystonefundingnetwork.com for property submissions
  • QandA@keystonefundingnetwork.com for all questions
  • Support@keystonefundingnetwork.com for technical issues

*allow up to two business days for a response

Phone:

  • 888-994-2783 - to get scheduled with program specialist (NOT Real Estate Specialists). They can enroll you in the program, and can help with Entity and Tax structures.
  • 8xx-xxx-0004 - to get to your Real Estate specialists. This number is not available if your program stipulates email access only.

Live events:

  • Welcome and Getting Started. This live webinar is every Tuesday at 6pm MST. You will get an invitation with your membership enrollment, and even though it's the same material that is covered you are welcome to attend this as often as you like.
  • Q&A with Special Topic and Bonus Material. This webinar is every Thursday at 6pm MST. You can submit your questions to the email listed above, as well as during the webinar and perhaps yours will be picked to be discussed live. Topics will come around only once every 6 months so it is essential that you don't miss these webinars.

Credits:

Created with images by MikeBird - "door knocker wooden" • moonlightbulb - "Cary clock" • PublicDomainPictures - "achievement bar business" • Pexels - "bicycle bike close-up" • Realtor Action Center - "David Watts is the Realtor Party" • kyz - "Risk Factory" • geralt - "learn note sign" • hang_in_there - "rejected" • Aldaron - "You" • Got Credit - "Success Key" • TeroVesalainen - "handshake hand give" • FredCintra - "Control is an Option to Command" • PublicDomainPictures - "call calling cell" • jules:stonesoup - "webinar"

Report Abuse

If you feel that this video content violates the Adobe Terms of Use, you may report this content by filling out this quick form.

To report a Copyright Violation, please follow Section 17 in the Terms of Use.