Financing plays a vital role in real estate investing -- and this includes buying foreclosed homes. While it's practically a mantra to "use other people's money," keep in mind different investments will usually require a different strategy. A financing option that worked wonders in one real estate deal can easily fall flat in another. Following is a quick look at some of the pros and cons of using your own money to buy a foreclosure property.

Pros of Using Your Own Money

One of the best reasons to use your own money to buy a foreclosed home is rate and terms -- there aren't any. Since you are using your own money, you don't have to pay any points, origination fees, and a host of other garbage fees (often adding up to three to five percent). When buying a foreclosure it's important to closely watch the transaction costs. After all, what's the point of buying a foreclosure at a great price only to have your profits eaten away by excessive loan fees?
Another good reason to use your own money to purchase a foreclosed property is your ability to act quickly and without needing the nod of your lender -- or real estate partner. If you have your own money, you have complete control and have the ability to make deals that other investors who rely on conventional financing can't do.

If you have less than stellar credit, using your own money is probably the best option. With today's tight lending requirements, it may be difficult to get a conventional loan. And unless you're already rich, getting a hard money loan can really get expensive. Can you say 16, 18, 20 percent?

Cons of Using Your Own Money

Probably the number one reason you shouldn't use your own money to invest in a foreclosure is that it may limit your ability to act on another investment opportunity. It's what savvy investors call leverage. In a real estate market that is appreciating, the less money you put into the deal to acquire the property, the more profitable it is. For example, let's say you have $100k in the bank for investing, and you buy a foreclosure valued at $130k for that $100k. You've used up your investment money. What if the following week you could have bought a foreclosure valued at $150k for $90k. You're out of luck.

Another reason using your own money may be a bad idea is if it would leave you short on funds. For example, you suddenly need a new furnace in the middle of winter but don't have the $5k to do it. Or your renter leaves the state and now you have a vacant home on your hands. Or the city passes a new ordinance that requires you to pay a huge tax assessment for new street and sewer. You never know?
In conclusion, there is no one-size-fits-all solution. Obviously, an investor who wants to quickly rehab a foreclosure and flip it has different financing needs than an investor who want to buy it and rent it out long term. And, of course, there’s tax consequences – so be sure to consult with your tax advisor. It's essential to do your research, analyze your options and choose the financing solution that solves your problems -- and makes your investment profitable.

Author's Bio: 

David Lindahl, also known as the "Apartment King" has been successfully investing in single-family homes and apartments for the last 14 years and currently owns over 7,400 units around the US. David regularly shares his secrets and experience on the same stage as Tony Robbins, Robert Kiyosaki, and Donald Trump! To get your free report on HOW TO AVOID THE 23 MOST COSTLY MISTAKES THAT REAL ESTATE INVESTORS MAKE AND HOW TO AVOID THEM Click on http://www.ReMentor.com/report_23mistakes.shtml