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Real Estate Mortgage Alternatives – What is and How to Use Creative Financing?

Alternatives to conventional mortgage are what real estate investors are looking for in order to really take their investment strategy to the next level. With banks tightening up their requirements for lending, especially to investors, creative real estate financing is becoming a needed niche, more than just a curious or different way of doing business in real estate

For many years stating “creative financing” was like a forbidden statement, a real estate terminology to be used carefully, within a certain group of people. My opinion is and it always has been that it really depends how you approach it and structure it. It definitely can be done legally while still being creative.

In researching mortgage alternative, I came up with a list of the most popular, which I would like to share in this post:

1. Equity Line or Second Mortgage – to be used carefully, since primary residence or other property is going to be cross-collateralized.

2. Private Lenders – ready-cash investors, who have access to funds to purchase property with equity partnership or willing to loan other investors funds in return of interest payments or/and other financial incentives.

3. Seller Financing – many sellers, especially in this buyers’ market, are willing to take terms and negotiate a mutually beneficial deal, instead of losing the house to foreclosure or doing a short sale.

4. Rent to Own or Lease Option to Buy – same as seller financing, however less desirable for a potential buyer or investor, since the title and control of the property stays in the owner’s name. It is a good strategy though when establishing a possible long term relationship with the seller, which will lead to a seller financing scenario, where the title passes to the buyer or investor.

5. Real Estate Syndication – it is simply the pooling of funds from numerous investors and channeling those funds into real estate projects. Powerful strategy, where the limit to the funds available are dictated only to the assertiveness of the investor and availability of properties.

6. Self-directed IRA and Insurance Policy – many investors have funds tied in these accounts or know people who have funds sitting in these account. It would be a more beneficial policy in using these funds to back up mortgage securities for real estate investment purposes.

These are just some of the most popular mortgage alternatives. It comes down to thinking outside the box, since where there is a will, there is a way, and there are many willing sellers in the market nowadays, who are looking for able buyers. And the ability of the buyers/investors is limited only by the available funds.