Keeping up with down payments?

Question

I am curious how guys and gals that want to have a long career with real estate investing can perpetuate their capital.

Here is my question:

Let's say that you have $50,000 capital to start with.

You buy a $100,000 property and put $10,000 down.

At this rate you can only buy 4 or 5 before your initial nut is spent.

How do investors continue to come up with down payment money in order to perpetuate buying on a long term schedule?

I would like to buy and hold for long term rental income, not flip. Is this possible?

Thanks for taking the time to give me your ideas!

Account Closed · Answer

Nick, it is simple.

If you can buy 4-5 properties, designate 1 of those to sell for profit.

Buy right. You should be buying all of them for a cheap bargain price. Fix them up, keep 3-4 of them, and the last one fix up better to re-sell. Take your equity out that way. Then you can 1031 that profit into 3 new houses.

Work the same a few times and you should be able to work your way up to the point where you are paying cash for your keepers, if you want to. (great cash flow when there is no mortgage)

Peter Giardini · Answer

I have to comment on the 10 property limit.

The 10 property limit is only if you are going for conventional financing.  You know the stuff that is underwritten by Fannie or Freddie and requires a proctology exam (on you) to get through underwriting.

The other approach is to tap into small local banks who routinely lend money for real estate investments.  And... yes they are out there.

I learned very early that if I couldn't crack this financing nut my business plan would be stopped at 10 loans.

Unacceptable to me... and it should be to you as well.

Learn to deal with small local banks... and the sky is the limit!

Steve L. · Answer

You're not going to be able to work with banks after 10 properties for the most part anyways, so basically you have some options:

1. Other Revenue Sources.
2. Seller Financing.
3. Put a 2nd on the Properties.
4. Partner with Money.
5. Find Private Money at 100% Cost (IRA investors).

I think it's hard road to be a long-term investor ONLY investor with no other source of income (job, flipping, etc), unless you are independently wealthy to start.

Nick Connor · Answer

I don't have the flashy advice as some of these seasoned vets on this forum, but I'd say the key to acquiring more properties is LEVERAGING.  You need to know how to leverage your assests.

If you have these 4-5 properties you speak of and generate cash flow and have a decent amount of equity in each property, you can than start leveraging these properties to secure future investments.

Most if not all private lenders are going to secure the loan with something anyways.  Equity and Cash Flow is very appealing to a PL.

Jon Zorrer · Answer

Real Estate Investors who operate there company like a business have to use many different creative ways to purchase real estate. You always only have so much money liquid and you can only buy a limited amount of properties with your credit.

Here are some many different ways that you can purchase real estate using other peoples money.

Private lenders. I love private lenders! Right now we are typically paying our private lenders a 6% to  8% rate. You can find them anywhere. I tell everyone I meet that I invest other peoples money in real estate. It is always the person you would least expect that has the most money. Be sure to read the rules on private lending for your state.

Equity Partners - you may find people who have money but want more of a return than private lenders. Do an equity partnership. They can bring the money for the deal and you can split the profits/cash flow. You negotiate the terms. An equity partner would take on some of the risk though. Meaning if the deal goes sour they are stuck with no recourse to you.

Credit Partner - Maybe you find someone with great credit and a little down payment. You can partner up with them to buy houses or to refiance you out of rental properties. My friend Missy specializes in buying houses cash, fixing them up, selling them to an investor with great credit, and then lease optioning the property back. With negotiated terms when the property is sold.

Seller Financing  or taking over exsisting fiancing subject to - So you can buy a house and have the seller take back a note and mortgage if there is equity in the property. Then they become the bank. Or if there is exsisting financing in place then you can take that over.

The list can go on and on but I hope this gives you some ideas.

Nick Johnson · Answer

Tons of advice! Thanks so much for taking the time and keeping the thread on track!

I like the ideas and feel that there are a few that I think would meet my objectives.

I am always looking for new ideas and better information, so if it's out there, please send it.

I just want to have a plan on paper before I make the first purchase. Better to have a plan ahead of time than to be stuck in a situation and can't meet my long term goals.

Thanks again guys/glas!

Jon Zorrer · Answer

Fannie Mae sets that guideline that you can only qualify for 10 conventional loans on your personal credit. If your LLC can obtain credit you can buy as many properties as you can.

Mike D. · Answer

Is this a 10 property limit per person? What if you were to set up llc's and get loans through them?

Peter Giardini · Answer

Two Nick Johnson's... this is going to be challenging!

I still like the approach where you buy it with private money, and then refinance it to take out the private money... rinse and repeat often.

The biggest hurdle for most investors is that they just don't know how to create relationships with the right kind of banks to get that purchase money out of the property, via a refi, as quickly as possible.

And for those of you who are saying that no one is lending for buy and hold...

My response is...

You just haven't kissed enough frogs yet to find that one prince of a lender who knows what you are doing, understands it, and will support it through loans.

To read more about how to create these relationships check out the blog I posted a while back addressing the issue... http://www.biggerpockets.com/blogs/585/blog_posts/3040-mastering-the-money-game-

Vikram C. · Answer

Nick from CA, I am not sure that it will be easy to get private money for a buy-and-hold strategy.  I, for example, will fund flips but not buy-and hold.

So you have a couple of options, I think.  One is to think of doing flips to generate cash for future buy-and-hold investments.

The other is to be patient.  With the leverage you are assuming, you should be able to generate a good return on investment, albeit at a high risk.  If things go well, you will be able to grow your $50,000 into a good amount of money over a couple od decades.  If you are young enough, that might be what you need.

Keeping up with down payments?

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