Buy and Hold Financing

Buy Hold Financing

Owning real estate has probably been the best route to wealth throughout history and is likely to be for generations to come. Unfortunately, buying real estate and holding it requires money and if you don’t start with any that can be a great challenge. Luckily there are many methods to overcome such a challenge. However, first it’s important to understand the most important principle of buy and hold..

But how do you start? Here are some proven methods:

FHA Loans

FHA loans are a great place to begin, although you will need a job to get one. FHA will finance 96.5% at low interest for a homeowner’s property. The great part is that you can finance up to a fourplex. So why not buy a fourplex, live in one unit and rent out the others?

Save, Buy and Hold

People with good jobs that also want to invest can simply live below their means and invest their savings in real estate. The advantage to this is it’s easier to get bank loans with a 9 to 5 job. However, it’s also more challenging to find good deals and manage property with a job.

Flip and Hold

This is probably the safest, most effective way to get into buy and hold. For investors who are flipping, try to live off the bare minimum and hold every 2nd or 3rd flip. Use the profit from the first flip to live off of and the profit from the second flip for the down payment on a property to hold. And then do it again and again and so on.

Creative Financing

When a seller is motivated there is sometimes an opportunity to get into a property for little to no money down. One method would beowner financingor a land sales contract. If the seller has some equity, then they can loan you the money to buy their house from them. Or perhaps they can loan a second to you behind a bank loan to cover the down payment.

Another option is to buy the property is a subject to. This transfers the deed to you, but leaves the seller on the original mortgage. It will take a motivated seller and a lot of rapport to convince a seller to do these types of deals, but they’re done all the time. I should note that this type of deal wouldn’t cover any repairs.

Private Lenders

Bank loans won’t cover the full cost of the property and hard money loans are far too costly for buy and hold, but there is a third way. The method I’ve most often used is to fully finance properties with a trust deed from private lenders at around 7% to 10% interest. These people can be anyone with some money to invest, which is another reason networking is so important.

Properties won’t cash flow in all markets at 7-10%, but in some lower middle class and working class areas, especially in the Midwest and South, as well as small towns, they often can. It will take a lot of rapport building. Write a short pitch, practice it and say it to people whenever your business comes up (just don’t be pushy).

If they show interest, invite them to lunch or a casual meeting. Make a business plan and a packet of case studies to show them. I guarantee the interest rates you can offer will beat what they’re getting in a CD. If you are buying at the same discounts you would when flipping, you should be able to refinance the whole loan, or at least most of it, with a bank in a year or so.

Partners

If instead of finding several private lenders, you can find one person with a lot of money, this can be a great, straightforward way to get into buy and hold. In that case, partnering makes perfect sense. They bring the money, you do the work and you split the equity 50/50 or something like that (the equity above what the money partner has into the property that is). This is one of the most effective ways to buy and hold, although these are not easy people to find.

Whatever method you choose, buy and hold can grow your wealth, so getting started as soon as possible is the most important thing.

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