In many businesses, the ability to save cash is very important to the success of the business. Investing in real estate is one of those businesses. The less cash that you tie up in a real estate investment, the easier it is to make money later on. The question for real estate investors is how they get the properties they want without tying up their cash.
One way to do this is through the use of a down payment bond. These bonds can replace the cash that an investor typically has to put up when they work to buy, build or renovate a property. It is an efficient and safe way for investors to work with real estate.
What is it?
Payment bonds have been used in the past by contractors to guarantee the payments to subcontractors and the suppliers of material on a construction project. The money from this bond will pay these groups if the investor is unable to make good on the project. A down payment bond is used to secure funds that are needed for the deposit that is required to buy a property.
Instead of putting up 20% in cash as a down payment for a property or instead of using the cash on hand to pay subcontractors and suppliers of material, the payment bond can be substituted. The cost of the payment bond is much lower which means that less cash for the investor is tied up in the property. These bonds are typically repaid within between 3 and 36 months. The investor that uses these bonds will pay an upfront fee. This fee is usually much lower than traditional short term financing options that carry a higher interest rate.
Why use it?
Some people might question the effectiveness of these down payment bonds. The bonds are good for both the buyer and the seller. The seller of a property will know that the investor has the down payment they need before they actually close the sale of the property. One of the reasons that many sales fall through is due to the lack of financing. This bond is a good sign that the buyer will be able to get the financing.
Investors benefit from these in several ways. They do not have to tie up any of their cash in a property that they will not get a quick return on. They will be able to get the cash they need for the property at a much lower cost than other short term financing options. The fact that a buyer can put up 20% as a down payment makes them more attractive to sellers. The4y can get properties at a lower price because of the payment bond.
Where can you get them?
Down payment bonds have been used in New Zealand and Australia for over 10 years. The United States is now seeing more investors turn to these bonds. The bonds are offered by companies that specialize in these types of products. They require the individual to fill out an application form in order to get the bond. The down payment bonds are typically insured.
In the United States the idea of using a payment bond is not new. Contractors have used this tool for many years to make sure that everyone that works on a project is paid for what they did. It can help when trying to find subcontractors or when searching for a supplier of materials to have these bonds. They benefit both the buyer and the seller of things.
The fact that people are using the idea of payment bonds for down payments on properties is new. It is also something that could grow quickly in the United States. If investors can get the property they want without having to tie up their cash, they will take advantage of it. This is what will drive the increase in the use of down payme