Pathways to Funding Real Estate Transactions

​Real estate transactions require upfront capital investments, including those from equity investment partners. Investors can secure financing in several ways, starting with conventional banking loans.

While traditional financial institutions often offer the lowest interest rates and best terms, they also have strict lending standards focused on existing assets, collateral, and debt-to-income ratios. The standards may preclude more speculative ventures from receiving financing. Therefore, some turn to alternative options, such as private hard money lenders.

Private hard money lenders have a faster and more flexible loan evaluation and disbursement process. It allows investors to take advantage of market-dependent opportunities within short timeframes. They are ideal for short-term scenarios, such as property flips and purchasing distressed holdings only on offer for a limited period. However, the funding has more substantial interest rates and fees with short maturity timeframes. 

Nonetheless, many investors prefer to turn to private lending, which eases institutional and regulatory hurdles to accessing capital. Sometimes, investment partners include friends, family members, and other business professionals, forming real estate syndicates. They pool resources from various investors into a unified, project—or segment-specific entity.

Alternately, the investor base may include those with self-directed IRAs and other investment-focused savings vehicles with dormant funds that do not require immediate disbursement.

Allen Boerner

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