How did you pay for your first few investment properties?

32 Replies

I've been reading for a while and am fascinated at how some people have the cash on hand to buy:

-Properties out right with cash

-Multiple properties with 20% down payment

Yes I understand there's many ways to finance but these seem to be the most common for starter investors.

Yes I also understand its sort of like a self perpetuating process that builds on itself but that takes so much time and I see so many young people in the game.

My question is how did you pay for your first few properties and what do you do for a living to support that? Did you get help from family or saved up?

Both my and my wife are doctors with little expenditurrs  and even for us it takes a good while to save for a down payment.

Hi Alex, 

The way I started was by utilizing an "first time buyer" FHA loan (very little down, I believe 10k on a 170k home) to purchase a (2) family house. It wasn't the prettiest and 1 unit was in better condition than the other. I immediately found a tenant for the nicer unit while I lived in and worked on the other unit. His monthly rent check almost completely paid for my monthly mortgage, insurance, and property taxes. This free'd up the money I typically paid for housing to save for my next investment property. I believe the BP creators refer to this as "house hacking".

I never asked family for money (that can get hairy). I simply found ways to cut costs, short term discomfort. It's now a mind set, I'm able to save almost 40% of what I make a year now. 

I hope this helps Alex. I've heard Austin is an exciting market. Best of luck!

Line of credit, partners and some own cash

Hi Alex. Similar to Joey Palmer my fiancé and I used FHA for our first property. We did not find a multi that worked for us, but found a really cheap home in a transitional neighborhood. Moved in and rehabbed it - I believe it is called a live in flip. We bought at $67 with 3.5% down and a $4k seller assist. It's now worth around $180-200 a year later. Since then I tried another FHA (under my name) but it fell through and I "lucked" into a private lender who loaned to me at a good rate. We bought that in December for $66. Put around $15k in and rented it in June for $1200 a month. My private lender and kept talking and we now have an LLC. I've got two more properties under contract and will be closing in two weeks. As I mentioned this arrangement to some family and friends, they got interested and I also have one more LLC in the formation. I hope to keep finding finance partners to buy properties, but as I am quickly learning, what you set out to do in these early stages often turns into something completely different. I think the most important thing is to just jump in. Some of the best advice I got on BP was to just pull the trigger once I found a deal - I as originally holding out to find a multi, but I just could not find it. I forget who said just buy a single family to me, but I decide to listen and it has now grown into a great partnership with more properties in the works. Good luck. With good incomes, you guys should be able to find multiple paths to getting started.
Still trying to figure that one out. Just missed at 26k deal worth 80k with 5k rehab. Can't find anyone who is not afraid of real estate and in a position to loan me 25 grand. I even offered 10k in interest. I could be a millionaire right now if I could have taken advantage of all the deals I saw over the last five years but could not afford
John P. I'm not anywhere near an expert, so take what I say with a grain of salt, but I've heard a lot of folks on BP say if you have a great deal to get it under contract. If it is really a great deal, you should be able to find the partners/ private lenders. If you don't already have the phone numbers for some in your area, going to your local REIAs should be a good place to connect you with local hard money lenders.

welcome to bp @Alex Hoang

Look for creative deals,you can do a lot more with much less out of pocket

Owner finance,sub2,lease option,anything creative 

Good luck

Private money leander and some of my own cash.

The first rental house I bought was owned by Freddie Mac.  I borrowed all of the cash from a private lender.  He acted like the bank and I paid him 4% amortized over 30 years.  I used my money (17K) to make the needed repairs.  After I was done rehabbing it, I refinanced it through a traditional lender.  My private lender made the interest on his investment for 6 months and then I paid him off when I refinanced it.  It worked for him and for me.  I refinanced the house for the total investment, so he had his money back and so did I.  We partnered up again on several more.  He fronted the cash buying price, I fronted the repair/rehab costs.  He received monthly payments and when it was complete I refinance throughout traditional lenders.  I have several properties now, and I do not have any of my money tied up in them.  If you can find a private lender, they will make more money with you than they will in CD's right now.  Loans amortized over 30 years are all front loaded with interest.  The quicker you get the property ready, the less you pay out.  I recovered the costs in the first year of rent.  I bought properties in transitional neighborhoods as well, and had enough income from my regular job to float the small loan payments (600 a month).  I was fortunate enough to start when the market was at rock bottom.  

Very 1st was Sub 2, home equity, then bank financing alot, equity line of credit, eventually, commercial bank financing, now on the cusp of a private lender.

Originally posted by Account Closed:
Still trying to figure that one out. Just missed at 26k deal worth 80k with 5k rehab. Can't find anyone who is not afraid of real estate and in a position to loan me 25 grand. I even offered 10k in interest. I could be a millionaire right now if I could have taken advantage of all the deals I saw over the last five years but could not afford

 JV with the Seller

Wholesaling is like ripping off the seller.

.7 x 80K - $5K - $5K wholesaling fee = $46K net to seller (maybe)

`````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````````

Instead JV with the seller

Work Backwards:

ARV 80K

Cost to sell -$8K

Rehab - $5K

Your JV fee -$10K

-----------------------

$57K to seller in a note-

Steps: 

1. Buy w 1st note and mortgage, no payments for 4 months, called a moratorium

2. Fix w $5K private money

3. Resell with great realtor

You Net $10K,

Seller gets $57K

No banks, you can have the worst credit, BK even.

Very 1st was Sub 2, home equity, then bank financing alot, equity line of credit,  eventually, commercial bank financing, now on the cusp of private lenders.  We both work full time.

@Alex Hoang

I have an engineering degree and I'm a six sigma master black belt. I worked an engineer for 10 years and then decided to become a global quality manager for another 5. While I did save a significant portion of my earning, especially when I was living overseas, the majority of my investment funding has come from previous deals. 

The first property I bought was a FHA Loan, the next couple were conventional, I paid cash for the next two and the last flip I FHA financed again, mostly because I didn't want to lay out $400k in cash for two years and they offered the best deal at the time. The last five rehab rentals I've purchased were all cash.

Wealth snowballs.

-Christopher 

Thanks everyone for your responses. Its very much helpful! 

Originally posted by @Mark Brogan :

welcome to bp @Alex Hoang

Look for creative deals,you can do a lot more with much less out of pocket

Owner finance,sub2,lease option,anything creative 

Good luck

 This is the first time I heard of sub2 and am about to do more research on it. Are these easy to come by or do you have to be connected in order to know about these sales?

Hi alex,

for my first property i partnered up with 2 friends and we split the cost of the purchase and renovation 2 ways, since then the 3 of us have purchased  many more houses together.

Hello Alex,

I bought my first property using a FHA loan on a $170k duplex (~$5000 down) plus an additional $20,000 for renovations. I had a college fund that I didn't use, so my parents "gifted" me the money! Looking back, I wish I would have gotten a 203K loan because I would have saved almost 20k in cash upfront, but I didn't know anything at all about real estate when I decided to buy a property.

Search "House Hacking" on BP. Great way to get into real estate with limited funds. Good luck

Cashed out my 401k with about $30k in it.  Paid a HUGE amount of taxes on it, but really did my homework, and turned it into something.  Market jumps like crazy, refinance, buy 2 more properties, sell the first property that I refinanced, and bought 4 more properties.  Went from $250 a month net profit to $2,000 a month net profit.  With that much cash flowing in, it becomes easier and easier to get your next deals.

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We bought our first house with a $5k loan down-payment from my uncle and a FHA loan. Rehabbed ourselves, nearly tripled our buy price. Next one, we put $100k down, again we rehabbed and nearly doubled sell price. One more rehab house in between and we had enough cash equity from our deals to buy our, ahem, "final" home outright in cash.

Add in a 25 year executive advertising career, with a passion to build things and the sweat equity to match and the cash will come. Have a plan, work hard, work smart and save your pennies. Now I only do cash deals to get the best deals and when I want them.

Good luck.

I put 25% down or $45,500 on my first property and bought it with conventional financing through a large bank. I saved for nearly 2 years to get enough. 

The second property I bought with 3.5% down or $5320 and an FHA loan through the same large bank as the first one.

The third property I am putting 20% down or $34,000. I am purchasing it through owner financing.

@Brian Gibbons , did I read your post correctly, that wholesaling is ripping off the seller? Maybe I read your post too quickly. In your example, did you post that the seller would receive $47K in cash if the wholesaler structured the deal, and the seller would receive a note for $57K if he JV'd with the seller?

What if the seller wanted cash, instead of a note (an IOU, a promise to pay over time)? The time value of cash is greater now than the promise of a note, paid over time.  (most) wholesalers provide a valuable service for people needing to sell their houses.

If I am reading your comments inaccurately, please educate me.

@Alex Hoang

I invested in my first few properties using retirement funds.

We bought our first two rental houses at a deep discount (around 50% of ARV), and financed the acquisition and rehab with hard money. We managed the rehab projects, and by the grace of God, refinanced them both with conventional financing. We hold both houses still, and have equity in each property. The story of this experience would make a great post some day...

I took out a loan against my 401K and made monthly payments directly out of my paycheck; the 4.25% interest rate was paid to myself and put back into the 401K.  Now that the loan is paid off I plan on taking out another to do a couple of flips to generate enough capital to buy a rental property and the next flip so I can continue the process.  I figure two to three flips should get me one rental and the next flip.

That's the plan anyway.

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