As an experienced real estate investor and now also a private lender, I often get asked the question: "If I am a newbie and lenders don't want to lend to newbies, how can I get money for my first deal?"
Looking back over my 10 years of experience and knowing what I know now, here's how I would get money for my first deal.
1) I would focus on finding good deals. If the deal is good, the money follows. I would make a lot of offers and put out a massive direct mail campaign to out of state owners of vacant properties.
2) I would work with rehabbers & landlords and tell them I am their "great deal finder machine." How will I find these rehabbers & landlords? I will spend the majority of my time networking online (BP, Meetup, LinkedIn) and offline (REIA's, Landlord associations, live meet ups, cashflow 101 groups, Rotary club, Chamber of commerce, etc). Instead of me borrowing money without any experience, I will first focus on "gaining" the experience by working with rehabbers & landlords. Wholesaling a couple of deals first will help me gain experience and be familiar with property values in my area.
I met one of my private lenders because I spoke in front of a REIA meeting and I told everyone I have 11 wholesale deals. I never rehabbed a house before but the private lender I met viewed me as experienced because I have a lot of wholesale deals and every time there's a REIA meeting, I always get off my chair and speak in front of the group about the deals I am getting.
3) Talk excitedly about real estate investing to everyone in your network. I talked with my family, relatives, friends, colleagues at work and even strangers I met. My very first investors were my colleagues at work who wanted to get into the action because they got swept by my excitement and energy level. Of course, I put their money into good deals (again, see #1 above).
4) Only after you have a couple of deals, then that's the time you will approach hard money lenders or the banks. These institutions want to see you have experience and skin in the game. As a lender, I want my borrowers to have 10% or more skin in the game and I only lend money to investors who can show they have done at least 3 or more deals.
5) Lastly, have organized financial records (Income Statement and Balance Sheet). I was able to borrow $5M from a bank for a 100+ unit apartment building because I operated as a business and not as a "real estate hobbyist". Obviously, you can't borrow $5M for your first deal from a bank but starting right now, even if you have not done a single deal yet, learn how to be organized in your financial records already. It will impress on your prospective private lenders that you know how to handle money and it will make them feel at ease about lending you money.
So, the above 5 things are what I would do...knowing what I know now...if I am a newbie and I want to get money for my first deal.
What about the other experienced real estate investors out there? How did you get money for your first deal?
Thank you for posting this advice and sharing some of your experience. It defiantly helps put us newbies in the right direction.
Hi @Wendell De Guzman Great post!
I have another suggestion that gets overlooked. How about saving part of your income to invest?
After I got my first job, I made sure to save a % of my income. That's how I got started in RE.
Very good post @Wendell De Guzman . I am a newbie and that was very informative.
Wow! Great post. I was literally going to pose this question to the board when I got so time this afternoon. Very timely...thank you.
Great post!. As a newbie investor, these tips are very good.
I agree with you @Sharad M. . I saved money to be able to buy bandit signs and post newspaper ads which in turned help me to wholesale properties. I did not have to save money for a downpayment when I learned about how to buy properties with no money down.
You're very welcome @Laura Moore , @Tyler Hunter , @Kay Lee ! I understand how hard it is for newbies to get money for their first deal. When I was just starting out, I got turned down when I tried to borrow a mere $10,000 from a private lender! But I did not give up. A few years after that, I was able to borrow $5 MILLION from a bank. How cool is that! You guys can do this too.
Specially now, you have BIGGER POCKETS to educate you and help you network. Thanks @Joshua Dorkin for founding this awesome real estate community!
Don't overlook partnering though. As a rehabber, if someone finds a great deal and doesn't have the cash for it, they *could* wholesale it to me, or they could come to me and say, "I have a great deal and I'm looking to partner -- you bring the cash and the experience, I'll bring the deal and some hard work."
I'll often give them a reasonable percentage of the profits (as much as they'd have made if they had wholesaled it to me), but in return for doing some work, I'd mentor them through the deal as well. Win/win for a new investor...
By the way @Sharad M. , where are you based in Chicago? I am also in the Chicago area.
Awesome @J Scott . I wish there are more of you in the business! I agree: partnering with an experienced real estate investor is a great way for a newbie to get started. Come to think of it...I was able to buy my 100+ unit building when I partnered with an experienced apartment investor...
You're very welcome @Bill Welker !
Originally posted by @Wendell De Guzman :
By the way @Sharad M. , where are you based in Chicago? I am also in the Chicago area.
I live in S Loop, but invest in NW Indiana.
Thanks for the awesome post , definitely is going to help us newbies .
BTW i am doing my first Rehab project By partnering with a friend that has the money but not the time , i do the work and take care of the project while he funds the deal .
Great posts @Wendell De Guzman and @J Scott!
These are key concepts that every new RE investor should know and get a handle on. @J Scott , I liked what you said about partnering up with an experienced rehabber, that is a great way for both parties to benefit and gain something out of the deal. I just wish there were more investors like yourself, as Wendell stated.
Thanks a lot of your advice. Very helpful for a newbie like me.
This might be a stupid question but when you mentioned that you were able to borrow $5 Million from the bank, did your credit get factored into their decision as well? Or do you just show them your plan and financials?
Good info from all!
Don't forget, if you still have a W2 job and decent credit, most banks will give you a signature line of credit. This may only be $5k for starters but you can take it out every month for a couple days and put it back in [the interest will only a be a few dollars]. Then after 4-6 months ask for an increase. Your good history should make the bank comfortable in approving the increase. Keep doing this for a year or so & you can easily have $20k-$30k available. This is how I bought my first rental.
Also, when you get those credit card offers to give you a zero percent balance transfer, you can simply write yourself [or LLC] a check for the full amount of the line available on the card and use that money for free during the promotion period [usually 12-24 months]. NOTE: this takes self control, do NOT go to vegas or shopping with the cash!
I bought my second rental like this. I used the CC money for the down payment on a duplex with seller financing. I had enough left to complete the rehab as well.
@Jillian Wong : my credit is not that important for the $5M deal. They still checked my credit but my Income Statement and Balance Sheet are more important to them.
@Shawn Holsapple : you're one smart dude. Using one's good credit and W2 income to get bank's unsecured credit lines is cool but as you said, treat it with discipline and with caution. Thanks!
Wow. I love these threads, you can learn from each person and it starts with a great post for newbies like me. Thank You Everyone.
Greatness Posted Again!!
@Wendell De Guzman l
Do you wholesale apartments? This would be a goal for me to reach one day!!
@Tom Keith , you're very welcome. BP is awesome because you get some experienced real estate investors like @J Scott generously sharing information that will help newbie & experienced investors alike.
@Barry M. , yes. I have wholesaled 2 apartments so far. One a 24-unit and a 156-unit. Wholesaling apartments is possible and you can make more money than wholesaling houses but there are fewer of them. I love wholesaling & rehabbing houses but I love apartment buildings for their cashflow (the right apartment buildings are worth keeping for the long term).
Great post! As a newbie this is exactly the approach I've taken. I thought I was the odd man out taking such a conservative approach to prove myself 1st before reaching out to the "big dogs".
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