Whether you’re boot-strapping a business or looking to buy another rental property, making sure you can get your hands on cash quickly will increase your chance of success. Banks can offer terrific value, but they generally do not move quickly. To get the best deals, you need to be able to make an offer and close within a short amount of time.
1. Bring In a Partner
If you find a terrific business opportunity but don’t have the cash, it may make sense to bring in a silent partner. You could arrange a payout schedule for them, understanding that they will receive a percentage of ownership as well.
Partners may want to participate in the business with you. In such cases, it’s important to sit down and have a serious conversation about
- decision-making power
- future investments in the business
- percentage of ownership
- steps to buy one another out
Partnering with someone you respect and can work with offers a much better chance of success than partnering with someone you are close to. In other words, don’t partner with family. If the relationship goes sour, damage to the family can be extreme.
2. Check the Equity on Your Current Properties
If you have rental properties financed through a bank, it’s time to check how much equity you have in each property. Whether you finance them all separately or have a business loan like Power Forward Small Business Grant that incorporates all your properties, knowing how much equity you have in place and how quickly you can draw on it can make your search for the next property much simpler.
Of course, the end goal is not to put your own money into your business but to borrow, earn, cover the debt, and re-invest the profits. However, having ready access to a large stash of cash that you can invest and recoup, paying yourself back, can be quite beneficial in a time crunch.
3. Apply For a Bridge Loan Before You Need It
When it comes to asking yourself, “What are multifamily bridge loans?”, Nelsonfunding.com says that lenders can “…base your financing on the business plan you have for your prospective property. This type of increased flexibility has the potential to make a noticeable impact on your long-term plans.”
With a traditional loan, you must prove to the lender that
- the property is worth the size of the loan
- you can pay the debt back on a monthly basis
- your debt-to-income ratio is not too high
When you’re first starting out and investing in property, your debt-to-income ratio may be quite high. You may be updating properties and renting them out or selling them as you get them done. While this can look rather grim on paper, if you have a plan in place you can quickly improve your situation. By doing the work to get a multifamily bridge loan before you find one, you can act quickly and add another building to your portfolio, increasing your worth.
4. Locate and Cultivate Hard Money Lenders
Money parked in the bank is money that is shrinking by the day. Many folks with savings are scared of the stock market and interested in other ways to earn more on their cash.
With care, you may be able to reach out to an older family member and make such an arrangement. Make sure to write up an agreement; for example, you could offer to borrow $10,000 at prime, which is 7.5% in January 2023. Arrange a payment schedule and, if you can swing it, leave the first payment with them before you walk away with their check.
Having access to this type of emergency funding can be extremely helpful when managing your business. It can mean the difference between covering payroll or not. But there are some extremely important things to note when it comes to reviewing the pros and cons of borrowing hard money.
5. Draw on Your Personal Credit
Early in your business, it may make sense to draw on your personal credit. To that end, do your best to
- build savings
- maintain a healthy credit score
- live below your means
Personal credit cards, especially those that offer 0% APR periods, can be the earliest building blocks of your business, no matter what industry you plan to go into.
The early days of your business building can be quite lonely; you may be working very hard but putting little into your pocket during these times. Keep going. Working for yourself can be one of the most rewarding careers you ever enjoy, and it can be a terrific way to build wealth for your children and future generations.
Jeena Alfredo is a passionate digital marketer at The Business Goals. She is working with other companies to help them manage the relationship with The Business Goals for the publications.
