While banks continue to be a real estate investor’s prime source of OPM (Other Peoples’ Money), don’t forget that there are other options. Why wouldn’t you want to use a bank? One reason we can think of off the top of our head is the present state of down payments. It was only a few years ago an investor could walk into a mortgage and usually only have to pay about 5 percent down. Today? Forget about it. A generous banker will go for 20 percent but don’t be surprised if they ratchet that up to 25 percent.

We don’t hate banks but our profitability suffers when we have that much cash tied up in a loan. But if there’s one thing we can rely on in America, it’s the fact that a market demand will soon be filled. Enter the concept of borrowing private money. As a real estate investor, there are a variety of ways to tap OPM. One is to simply borrow it outright. The interest rate will probably be a bit higher than a bank but the down payment should be less.

Another strategy for the real estate investor is to structure a joint venture, perhaps even with a private lender via a self-directed IRA. Do you know anyone interested in real estate investing who has a chunk of change in an IRA? Recent regulatory changes have made it easier to invest in property. This article is too short to go into every detail, but here’s the big picture.

The private lender with the IRA funds the entire acquisition, closing costs, and repairs. Responsibilities related to the other side of the venture (yours) include finding the house, negotiating a price, completing repairs, and managing the house for the next 5 to 10 years. All net income and future upside equity will be split 50/50 between the joint venture partners. Say the monthly rent is $1,000 and half goes to taxes, insurance, and maintenance. That means there is $500 left to split between you and the lending IRA each month. If you decide to sell the house in five years, take out the original purchase price and split the remaining equity down the middle too.

That, friends, is how smart property investors like AIPIS founder Jason Hartman (and you hopefully) create wealth with real estate and leave the bank out of it Top image: Flickr | Digital Shotgun).

The AIPIS Team