1. Seek local lenders (banks or mortgage brokers) to secure a loan.
A good rule of thumb is this: if you’re financing anything under $1 million, seek local lenders—banks, friends, family, relatives, etc.—but for anything over $1 million, seek a secured loan like a commercial mortgage-backed securities (CMBS) loan or some kind of government-backed loan through entities like Fanny Mae or Freddy Mac. Avoid private money unless the interest rates and terms are on par with banking institutions.
2. Ask the seller to be the "bank"
I always does this, because at least on smaller deals I deal with, the owner owns the property outright with no mortgage on it. This is great because it opens up unique conversations. So when you’re having a candid conversation with the seller, you can say, “What will the owner do when they sell?”
You want to ask this because it’s a pain to try to buy real estate or try and invest and find a comfortable and good return on your money. You’ll sell a mobile home park, for example, worth $2 million, then you realize you’re not making any money with the funds just sitting in a bank account. Sometimes, a seller wants to sell, then invest it somewhere. What better offer than to have them invest right back into the property they just sold! It’s a familiar property and they may give you a lower rate than anywhere else. Plus, using their financial backing saves you tons of time finding someone else.
So once I ask that question—What are they doing when they sell?—I then ask, “Would they finance this property?” If interested, I’ll offer them three to five percent financing on the property. The great win here is that they usually don’t require a credit check and it doesn’t go on your background. It’s not tied to your credit or your personal debt cover ratio (DCR). This is a great way to add value to the seller and to your investment enterprise, just by getting a little creative.
Also, make sure to ask for seller financing.
3. Lease the asset for a defined period of time.
If you don’t want the liability of owning real estate or you’re not able to secure financing right away, you can lease the asset for a while to test drive it. Then, you can have the option to buy it from the leaser at the end of the period of time. This gives you an opportunity to operate it for a while and see if it’s going to be profitable for you. Although I’ve never done this, I’ve pitched it on every deal I’ve done.
4. Your last resort is to seek outside financing.
If you seek outside financing, be wary because interest rates and terms are significantly less attractive. Securing this type of financing is typically less arduous than going to a bank.