{"id":113653,"date":"2019-07-29T12:00:04","date_gmt":"2019-07-29T18:00:04","guid":{"rendered":"https:\/\/www.biggerpockets.com\/blog\/?p=113653"},"modified":"2024-02-24T12:04:18","modified_gmt":"2024-02-24T19:04:18","slug":"real-estate-large-down-payment-not-necessary","status":"publish","type":"post","link":"https:\/\/www.biggerpockets.com\/blog\/real-estate-large-down-payment-not-necessary","title":{"rendered":"Stop! Before Making a Large Down Payment, Read This"},"content":{"rendered":"

We run a family company, buying and selling homes on terms only\u2014no banks, little to none of our capital (or anyone\u2019s capital!), and never signing personally on loans. Between our own properties and our partners, we handle six to 12 transactions every month.<\/p>\n

I want to discuss an issue that I’ve been asked for advice about several times: “I ran out of down payment money after my first few deals. What now?”<\/p>\n

How to Stretch $2,500 to Create Amazing Cash Flow & Wealth<\/h2>\n

On a monthly basis, I would say that during at least one or two of the 20 or so strategy calls we have with our partners, someone brings up the fact that they bought property and used their funds for a down payment. Now they have no more resources to buy that way.<\/p>\n

Buying conventionally with 20 percent down (or even 5 or 10 percent) is just not necessary. Frankly, it’s a poor way to utilize your hard-earned money.<\/p>\n

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It is very typical for me to visit our partners in their market to work on their business, go on appointments, and strategize. A few months ago, I was in Arkansas with Jen, and we were driving to and from different properties. She was asking me all kinds of great questions. One of them was, “So if you had $20,000 right now, how would you utilize that?”<\/p>\n

I said, “I definitely wouldn\u2019t utilize it all!”<\/p>\n

Confused a bit and a little frustrated, Jen looked at me and said, “Alright. Now I\u2019m curious.”<\/p>\n

As I mentioned initially, my company and I buy everything on terms. For us, that means lease purchase, owner financing, or subject to existing loans.<\/a> Our custom contracts have a $10 deposit built into them.<\/p>\n

I told her, “Because you\u2019ll probably react with, ‘That\u2019s not possible,’ for the sake of this discussion, let\u2019s use $100 as a standard deposit. Sometimes when investing in our self-directed IRA or 401(k), we do use $100 instead of $10.”<\/p>\n

I told her she\u2019ll need $2,500 to create approximately $600,000 in income, and she could do that over the next 12 months by securing 12 properties, which is only one per month. If she wanted to be more aggressive, she could hustle and get it done in six to eight months. But either way, that $600,000 would start coming back to her within 90 days and would continue on for 24 to 48 months.<\/p>\n

If I have your attention, keep reading.<\/p>\n

Related: <\/em><\/strong>You Don\u2019t Need to Sell a Mansion for a 6-Figure Return\u2014Here\u2019s Proof<\/a><\/em><\/p>\n

How to Buy or Sell on Terms<\/h2>\n

When buying or controlling property (we\u2019ll use single families here but you can apply it to any property or asset), we exit\/sell them via rent-to-own to buyers who need time. They typically need that time in order to repair or enhance credit<\/a> or to save more for a down payment needed to buy a house<\/a>. When doing such, we create three paydays per deal. Those three paydays for us average $75,000 per deal, and for our students around the country, average a low of $45,000 and a high of $125,000.<\/p>\n

For the sake of this article and the summary of my discussion with Jen, I am using $50,000. (We were driving, and I was doing quick math for her. My brain doesn\u2019t do complex math too easily without a calculator.) First, let me briefly explain the three paydays. As either a new investor or seasoned investor, you can benefit immensely from these paydays.<\/p>\n