Investing in deeply discounted properties can yield substantial financial rewards, including a good ROI, major tax benefits, equity, and appreciation. Investment properties can further provide you with an excellent hedge against inflation, funding leverage, passive income, and cash flow. Many top financial planners emphasize real estate investment for portfolio diversification in wealth building. Here is the basic roadmap to bypass avoidable obstacles to profitability and succeed in financing discounted properties:

How to Finance Discounted Properties

About 40% of real estate purchases in the US are financed through banks. The other 60% are through other traditional financing sources, like mortgage companies, other institutional lenders, or the $1.7 trillion Private Lenders industry (almost all of which goes to real estate investors). 

Financing through a bank requires a long process of fulfilling (often archaic) institutional protocols. Private lending enables real estate investors to avoid that lengthy bombardment. Private Lenders can provide this streamlined process:  

Complete Your Due Diligence

Gather as much information as possible about the property you’re interested in buying. Look for title company findings, detailed inspection reports, previous listings, recorded deeds, tax records, variances, and other relevant documentation. And, learn what you can about the sellers.

Complete the Prequalification Requisites

Provide proof of available funds for an all-cash purchase or a financing letter from your Private Lender’s firm. Also, apply for acceptance and register as a new member of your chosen property investment group.

Obtain the Purchase Contract

Download or obtain a hard copy of the purchase contract for the property you want to buy. Read all the terms and conditions in the Purchase Agreement.

Email or Deliver Your Bid by Other Accepted Means

An efficient private lending firm should respond promptly to your offer (ideally within 24 hours). Then, you should receive an invitation to a group walkthrough of the property. The lender will set a short-offer deadline for offers. Your bid is confidential information. Escalation of bids is not allowed. After the deadline, the best offer is accepted.

Submit Your Earnest Money

Deposit the stipulated earnest money, which will be applied to the purchase if your offer is accepted. The minimum amount may vary between Private Lenders (probably $5,000 cash or more if you’re financing the earnest money or the property value is high). The lender will provide you with an acknowledgment of your purchase. 

Complete Your Real Estate Transaction

After your earnest money is deposited and the sales contract is executed, your property investment group’s lawyer, escrow company, or title company will schedule the closing with you. Normally, the buyer’s funds for the real estate purchase must be received by the designated settlement agent at least 24 hours prior to the closing. 

How Your ROI in Real Estate is Realized with Private Lending

After closing, the basic process outlined below is activated and can be expected to generate your return on investment in your real estate purchase:

1. Your funds are deposited into an escrow account.
2. Your private lender/property investment manager pays the agreed closing costs on your behalf, including the finalization of documentation.
3. You will receive a copy of your original promissory note, mortgage contract, proof of mortgage insurance, and other relevant policies.
4. The deed, mortgage documents, and even the promissory note may be recorded at the county courthouse, per jurisdictional requirements in your area.
5. Your property investment firm may deposit the periodic returns from rental property investment into your bank account or mail checks to you.

For Your Protection

Make sure you are provided with a Title Insurance Policy, a copy of your Promissory Note, your Mortgage contract, a Hazard Insurance Policy, and the property owner’s Liability Insurance Policy. 

Why Use Private Money Lending for Discount Property Purchases?

Most successful real estate investors have worked with private money lenders due to their greater speed and efficiency than banks and other conventional mortgage lending institutions. Banks also tend to have inflexible mortgage funding policies with excessive requirements. Banks are also notorious for contracts bloated with junk fees.

Sellers of discounted properties often seek to close quickly. So, cash is a very powerful tool in discount real estate investing. Banks typically take up to 45 days to close mortgage loans. During this lengthy, burdensome process, Purchase Agreements often end up falling through. Faster access to cash empowers investors to negotiate significant price reductions and close faster, reducing their risk.

Expert Investing in Discounted Properties

The above information has been provided by Ben Grise, Owner and Operations Manager at Invest with Ben. Grise is well recognized as one of Indiana’s foremost investment real estate industry experts. His organization serves many of Indianapolis’s most experienced real estate investors.

For more information about discounted property investment, call (317) 978-4469 or visit InvestWithBen.com or BenBuysIndyHouses.com.