Starting out with $40k cash, NO CREDIT, what's the best strategy?

16 Replies

Hi All,

Newbie finally getting ready to pull the trigger, I have 40k cash to start out with BUT NO CREDIT + no income, meaning unable to get any conventional/bank loan. Need advice on where/how to start my RE journey.  

*"Where" because I am ready to move to any market in the country that could make it work for me. Where I'm at now in Las Vegas & Southern Cali, 40k seems to be hard/impossible to do any deal in RE without getting any loan - something not possible at this moment. 

** Can get licensed as a RE Salesperson/Agent anytime - completed course & test, just not licensed with any brokerage yet, could easily get licensed in any state if moving out out NV or CA.

*** Handy and can DIY small flip projects, demo, flooring, kitchen/bath remodel, paint, walls, ceiling etc.

Hopefully can get some tips from all the experienced investors here. Any advice/comments welcomed :)

Hey Jonathan,

What are your overall goals? Can you outline where you would like to be in 3 to 5 years? I would say let your goals dictate your day. I started out wanting  $3000/month cash flow in 3 years. I found an area near me that could produce $150/unit within my price range. I estimated I needed about 20 doors to give myself a bit of a buffer in reaching my goals.

Try to lay out some numbers that you can shoot for. Then, look around your area and see if that's feasible. Then, address your weaknesses with others people through networking and build a solid team to reach your goal. You have some good strengths to get started with. I would say investigate your area and make a determination if you have everything there to reach your goal.

Hope that helps.

Rafael

908-419-3665

Relocate to Michigan Indiana or Ohio

My recommendation is get a job. I know that sounds like an awful thing when your dream is probably to become a real estate investment mogul, but you're probably going to burn through your 40k pretty quick without any income.

With that said, make it an educational job for where you want to be in life. Work for a bank to learn the lending side. Become a Real Estate Agent assistant to learn the basics. Most definitely get your license since you have already done the coursework. These jobs will not only be educational, but it will provide income to supplement your living and investments, and most importantly, make it easier to get financing.

Colin Smith, Real Estate Agent in CO (#ER.100052152)
719-232-6709

hi jonathan. these two ideas are good on the merits, but your situation goes a little deeper than what they are recommending. sure, banks will not give you a loan without credit and a job, thats simple enough. you can just get a job, but you cannot just get good credit. i would recommend moving to another area. $40k will not get you very far in las vegas or any place west. here in buffalo, we have a good market. the prices stay pretty level for the most part. the killer is the taxes. then again, we have the winter issues too. not only does it get very cold which makes it hard to work on a place, but we have winter about 6 months out of the year.....lol. as far as your credit, pick up a part time job in a field that you have been in before. then, the job is a lateral move, not starting a new job in which you would have to wait 2 years before you could get a loan. second, take $1000 of that $40k and put it into a bank. after a month, go get a $1000 signature loan from that same bank, using the $1000 you have in the bank as collateral. state that it is a short term loan that you intend on paying back in 6 months. then, take that borrowed $1000 and go to another bank and deposit it. after a month, borrow another $1000 from the second bank, again using the deposited $1000 as collateral. continue this with as many banks as you can. when the first note comes due, use borrowed money to pay it off and continue as such with each bank. what you are doing is establishing credit with these banks and soon you will be able to go into any one of those banks and borrow money because you have good credit with them. 

Congrats on getting started. I would like to say do not really use any of your money yet on "buying" Have you tried wholesaling? There is some great stuff on here about wholesaling and you can do it virtually if you think your market is to expensive.

I would also recommend looking into becoming a transactional funder. Have your money make money for you. Start at your local REIA and some funders are on this site as well.

Good luck in your endeavors. No matter what do not give up.

I agree with the comments thus far. My father always said investing is great, but you need a foundation. So I would say a job is definitely a good idea.  

I'm not a fan of wholesaling.  That is me personally. I just don't have the time for it, but if you work it right, I'm sure you can become quite profitable. 

I love low income rentals.  A lot of investors will disagree with me, but for me, I can find fantastic cash flow, and if you're a handy dude you can get into a house pretty cheap with a decent return.  If this is something you're interested in, I recommend checking out the Section 8 Bible by Michael McLean.  It gives you the no BS low down on investing in these kinds of properties.  As always you can PM me to talk a little more. 

There's also flipping.  Though with 40K you're looking at a hard money route which can be a tough angle to work... not impossible, just tough. 

Good luck!

-Drew

Thanks all for the great tips and suggestions!

@Rafael Norat

To be honest, my future goal (and I guess any RE investors too) is maximum return and financial independence, a good balance of both cash flow and equity. While I understand it helps to have a set goal, the reason I'm asking in general without a set goal is because I'm trying to see what creative ways are out there to generate maximum return. 

I could safely set a goal of $3k net cash flow in 3-5 years but why set a limit if there are ways to bring in 5k or 10k? I'm sure there are experienced investors here in BP that have personally done better with maybe less amount than what I have to invest, so it will be helpful for others to learn from these great tips/experience.

@Colin Smith

Getting a job in a RE related field and/or become licensed is definitely part of my plan :)

@Laurie Johnson

Not really looking at wholesaling because as I learn more, it seems to be hard for a newbie to find a really good deal with profit to wholesale to another seasoned investor. Just my personal view though, I could be wrong. 

Becoming private lender sounds like a good idea, will look into that and keep options open.

@Richard Dunlop

@Mark Elliott

@Andrew Martel

As I look at the property median price map for the country, I'm really seriously thinking of moving to the East because it seems like there are more options available with lower starting price. The problem I have is I grew up in a tropical country, even after 10 years in California & Vegas, I have not lived through any winter/snow. And I'm sure the winter weather plays a big part be it rental property or flip projects. Any of you mind to share in detail what do I have to look out for/worry about in regards to winter weather?

Getting a job/income and building credit is definitely the priority but as for the 40k to invest in, here's roughly what I have in mind, please correct me/suggest if it is workable - 

*Disclaimer :)  I do have source of income for all expenses, just not verifiable for loan application, so the $40k I mentioned is budgeted solely for RE investment, no worries about daily expenses. PLUS I could get "in-law" loan of 20k-30k @ 0% for short term use if needed but I really don't want to unless forced to)

Plan A, the flip & hold hybrid:

Move to the East and find low price market in the 30k-40k range and start flipping 1 property at a time (all own cash + "in-law" loan if needed), hopefully I could do 3-5 in the first year with 10-15k profit each. Save the profit gathered to buy a duplex/triplex/fourplex (all-cash) in the low price market to start building cash flow. 

With the remaining/initial cash, continue flipping in the low end market for another year or two and by end of year 2, hopefully credit (and verifiable income) is in place and then move on to more conventional way of leveraging with loan. 

Concerns:

1) How sellable are the low price properties in the flip market?

2) How difficult is it to work on a flip project in the winter?

Plan B, buy & hold only:

Move to the East and get a fourplex in the 60-80k range (pay cash, with "in-law" loan) and use monthly cash flow to pay off "in-law" loan first, when loan paid off in 12-18 months, save up the monthly cash flow for next acquisition. And by year 2 or 3, with 1 paid off fourplex & credit in place, acquire next fourplex and start leveraging with loan for acquisition. 

Concerns:

1) Responsibility/additional cost/liability of a being a landlord with winter weather in play?

You could put down 20k on a turnkey triplex that costs 100k and probably cashflow about $800 a month off of it in cheaper markets, you'd just have to study a certain area, like somewhere in tennessee, ohio, indiana, north carolina. Maybe consider reaching out to someone on BP who invests from coast to coast, there's many of them on here. But in your market it should be enough for a duplex downpayment if you can house hack, depending on prices. But if it's under 300k you'd probably be fine.

I like fixing up houses, but did not have enough capitol to make it a full time thing yet, so I got a job at my hard money lender!

Going through 200+ rehabs a year will certainly teach you a thing or two.

Call some, and see if they need inspectors, or draw administration help.

I am getting paid to look at a ton of rehabs in Chicago.  I really like Brandon Turner's advice about getting a job in the field you want to work in.

312-543-2481

Start building credit right away.  It is a great tool that you can use in the RE industry and it is the cheapest money you will ever get.  Having to use Hard Money Etc will always be more expensive. 

You mean you can't just roll into town on your last tank of gas and become a highroller with the TV show and the fastest-growing real estate company in the state, like Armando LOL

@Jonathan C.

With no credit and no income (do you mean income that can be documented) then you really shouldn't be investing $40k in a rental.  You might consider investing in private lending and easily get 8-12% on your money very passively, build up your reserves, and get that RE license, and learn RE while you earn income.

Larry Fried, Real Estate Agent in OR (#201211636)
Originally posted by @Mark Elliott :

hi jonathan. these two ideas are good on the merits, but your situation goes a little deeper than what they are recommending. sure, banks will not give you a loan without credit and a job, thats simple enough. you can just get a job, but you cannot just get good credit. i would recommend moving to another area. $40k will not get you very far in las vegas or any place west. here in buffalo, we have a good market. the prices stay pretty level for the most part. the killer is the taxes. then again, we have the winter issues too. not only does it get very cold which makes it hard to work on a place, but we have winter about 6 months out of the year.....lol. as far as your credit, pick up a part time job in a field that you have been in before. then, the job is a lateral move, not starting a new job in which you would have to wait 2 years before you could get a loan. second, take $1000 of that $40k and put it into a bank. after a month, go get a $1000 signature loan from that same bank, using the $1000 you have in the bank as collateral. state that it is a short term loan that you intend on paying back in 6 months. then, take that borrowed $1000 and go to another bank and deposit it. after a month, borrow another $1000 from the second bank, again using the deposited $1000 as collateral. continue this with as many banks as you can. when the first note comes due, use borrowed money to pay it off and continue as such with each bank. what you are doing is establishing credit with these banks and soon you will be able to go into any one of those banks and borrow money because you have good credit with them. 

 Awesome advice....I used this to rebuild my credit. The banks love it

We should partner Johnathan! I'm in the same boat..except I have established credit and it's pretty good. It's just that my income is from self employment and kinda hard to convince banks to lend me hundreds of thousands of dollars :(

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