Investing in Real Estate Using Cash Financing and Lender Financing
A resident of Chicago, Illinois, David Trandel previously worked with Stonestreet Partners where he acquired and developed over $200 million worth of real estate assets. Currently the chief executive of real estate investment company Springbank Capital Advisors, LLC, based in Chicago, David Trandel oversees the company’s operations including real estate financing. There are numerous ways of financing real estate investments - two of them are cash financing and traditional lender financing. Cash financing is where investors transfer funds to the seller through a wire transfer or a banker’s check. This is a simple mode of financing, since the investor finances the acquisition independently, and does not have to undergo the restrictions and other requirements that come with lender financing. Lender financing is accomplished through mortgages. Conventional commercial mortgages typically require the borrower to finance at least 20 percent of the purchase price as a down payment before the lender provides the balance. Conventional mortgages are very popular, especially in times when interest rates are low. However, to qualify for a mortgage, an investor will need to have a good credit score and good income documentation. In some cases, however, traditional lenders do not finance the loans themselves. They borrow money from other institutions to lend real estate investors or they resell the mortgage loans to government-backed institutions like Freddie Mac and Fannie Mae so as to replenish their reserves. Such loans are replete with stringent and inflexible financing rules which can be burdensome to new businesses. It’s important to inquire whether a lender is a portfolio lender loaning out its own funds or whether it seeks out other institutions’ capital, as this will have a significant bearing on the terms of the loan.
