Scaling Your Business With Funding - Par...

Are you wondering how you can grow and scale your business?

Well, if you’re like many investors, perhaps you began investing through wholesaling. That’s definitely a great way to get your feet wet in this industry. (More on that in a minute.)

But to really make bank and grow your business, rehabs are the way to go. And to do rehabs, you need funding, of course. So, in today’s lesson, I’m covering 3 ways to get funding to grow and scale your business.

Hi Moguls, Jamel Gibbs back with you again, and I’m first going to touch on wholesaling before we dive into the 3 funding sources.

Wholesaling works like this…

Wholesaling

So, you buy a property below market value. You get it under contract, and then sell the contract. This is called an “assignment of contract.” You turn around and sell that contract for a profit.

Let’s say the property is worth $100k. You’ve contracted it for $40k, and you now sell the contract for $50k. You’ve just earned a $10k wholesale fee. That, in essence is how wholesaling works.

It’s quick and fairly easy. No closing costs, and you can get in and out quickly. Wholesaling is great because it allows you to bring capital into your business. It allows you to pay your bills and keep moving your business forward.

And, when you’re ready to scale up to another level – and if you want bigger checks and to get those bigger checks more often (who doesn’t?!), then you’ll have to do something other than wholesaling.

In order to do this, you’ll need funding.

This is the thing that slows down most investors. There are many who are ready to expand their business, but they simply don’t have the capital to make it happen.

So, let’s look at the different types of lenders and you’ll see what I mean.

Private Money Lender

A private money lender is a person who has access to capital that they could lend to you for your investments.

Let’s say you have a deal where the house is worth $250k. You need $125k in order to close the deal, then you need another $30k to rehab the project and cash for closing costs.

The private money lender is willing to lend not only the money to close the deal, but also the cash for rehabbing and closing costs. That’s been my experience.

Hard Money Lender

The hard money lender is in the business of making loans.

money This person is more interested in the strength of the deal than your credit worthiness. They won’t care how much, or how little, capital you have.

On the strength of the deal, they’ll loan a percentage of what you need. This is usually.70¢ on the dollar minus the repairs.

But that being said, you still need more cash to close the deal. Most hard money lenders want you to bring some of your own money to the table. Even if it was a 100% loan, they’d still want you to bring points in.

When I first started with hard money lenders here in my state of North Carolina, they required 5% plus closing costs. So, if it was a loan for $100k, I’d have to have about $5k in order to get the loan.

Some hard money lenders will loan 90% of what you need. This means you’re paying 10% plus the closing costs. Now you need even more money in order to make the deal work.

Look, I’ve been doing real estate investing since 2002. I’ve done hundreds and hundreds of deals—and I’m still doing deals today. It’s my opinion that wholesaling is a great start; it’s a great way to build your capital. But even if you have capital (which I do), I still don’t want to use my own money in the deal.

So, you want to start rehabbing houses, but you have no capital...

What should you do if you want to fill that void? It’s called a gap lender.

Gap Lender

A gap lender is something that each of you has access to and you don’t even know it! It could be a co-worker. Or a neighbor. Or a relative. They have extra capital, but they don’t have enough to fund an entire deal.

In Part 2 of Scaling Your Business with Funding, I’ll continue with this discussion of funding and especially that of gap lender.

Stay tuned.