How the heck do you guys get all this money for multiple houses?!

37 Replies

After doing some digging around and speaking with several lenders, it seems that the normal guidelines for banks to fund an investment buy and hold property is a 25% down payment, plus 6 months worth of mortgage payments saved up for each financed property. I am just so confused how all of you are able to save this much money for multiple properties!! Do you guys all have 6 figure jobs or something??? I am starting to get very discouraged with this.

The way I did it is pay for the first couple with cash. My first two were 20k and 10k and they both needed a little work which I did myself for the most part. I was able to borrow 41k against the one that was 10k and 25k against the one that was 20k using HELOCs. I also moved a few times and was able to get owner occupant equity loans and a conventional loan.  Now if I need to borrow, I take out a commercial mortgage against a rental and they don't really care so much about reserves.  I'm at 15 now and 10 have a mortgage against them.  I actually never did a 25% down loan because of the reserve requirement. There is typically no such requirement for a equity line/loan on your primary or with some commercial loan departments.

There are lots of ways to do this. One standard model is to daisy-chain properties using capital from one to buy another. (BRRRR)

Say you put down $25k to buy a $100k house. The house appreciates in value, either because you bought it under value or the market grows. When it hits $135k, you can refi to get your original $25k out, rinse and repeat.

There are a lot of variants and wrinkles in the model. Also a lot of other models. This is a good one to start with.

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Don't get discouraged, just keep digging.  You will find someone who will be a perfect match for you.  You may need to build a relationship with someone and do some repeat business to prove yourself to them and they may go easier on you with their terms.  Just know that they will ALL require you to have some skin in the game, some more than others, that's just based on how much risk each one is willing to take.  

Search biggerpockets, craigslist, and TALK.  You may have some private lenders right in your phone that believe in you and are willing to be your first lender for your first project, and they may not require the terms you just mentioned.  

As far as how we are able to do multiple properties.....we have built our way to multiple properties but I can assure you each of us started off with one, built some capital, maybe did just one again, built some more capital, and then moved on to a few at a time. It doesn't happen overnight. Don't get discouraged and definitely don't give up.  

Getting the first property is the biggest hurdle and yes saving up the DP yourself is the most common route to take. Don't get discouraged just dig in and modify your life style to save more money. Live more cheaply, save every penny, don't party with friends that are wasting money etc.

Everyone in todays world lives a wasteful lifestyle. The smart ones, realise it, tap into that waste,  and make saving their only priority. 

Creativity, good credit and hard work. Some buy as an owner occupant and use FHA at 3.5% down, borrow from 401k, find properties with owner financing, borrow from family/friends, syndication, partnerships, hard money lenders, wholesaling, etc. You are just scratching the surface looking at traditional financing. Start with reading up on no money down strategies and other literature on getting started in real estate investing. I flipped a house to get started and used a 1st and 2nd mortgage, 401k loan and credit cards and it created capital from there to continue flipping...there are many other strategies. Don't get discouraged at the first step...there will be significantly more discouraging steps after that. In all seriousness, good luck.

Thank you for the advice guys! What if I were to just keep moving into each rental property I plan to purchase? If it is owner occupied, doesn't that typically lower the down payment amount or is that only for VA/FHA loans, not conventional?

Both conventional and VA/FHA will have lower down payment amounts if you intend to occupy the property (5% or less typically). Reserve requirements are typically the same though.

My first investment property was a small office building I needed for a business that I owned. I quickly realized that equity was soon to be my best friend. I refinanced this property three different times to buy three different buildings over a ten-year period. Brrrr

Originally posted by @Jassem A. :

Both conventional and VA/FHA will have lower down payment amounts if you intend to occupy the property (5% or less typically). Reserve requirements are typically the same though.

Wow that is good to know! I was just under the impression that was for FHA and VA loans.

Originally posted by @Account Closed :

Thank you for the advice guys! What if I were to just keep moving into each rental property I plan to purchase? If it is owner occupied, doesn't that typically lower the down payment amount or is that only for VA/FHA loans, not conventional?

Yes, owner occupant financing has favorable loan terms.  I was a renter when I started and used owner occupant loans on my first few flips.

Originally posted by @Account Closed :

Thank you for the advice guys! What if I were to just keep moving into each rental property I plan to purchase? If it is owner occupied, doesn't that typically lower the down payment amount or is that only for VA/FHA loans, not conventional?

 Not a bad way to proceed if you're not trying to settle down right now.  You've probably heard a little about buy right and the rest works easier, not perfect but easier.  Grin.  Your total Debt to Income will come in as you move to your second and third property.
Personal education is important.  Not the single answer in a discussion or one page web answers, but in depth knowledge.  You want a good source on a lifetime personal budget model you might like to check out "The Richest Man in Babylon" by George S. Clason.

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Hey Nick

Well your fortunate to not be in a White hot sellers market. I flipped a house in Springfield OH from Wa state. Big thing is to know your areas. Out here in greater Seattle area there is a one month supply of houses on the mls.

You might look at foreclosures. Getting loan caught up and taking property subject to existing financing.

Chuck

@Account Closed ,

Like most budding investors, maybe you think that the money for your deals has to be either a bank's money or your money.

Learn how to find and partner with private lenders.

There is a whole forum on the topic of private money and self-directed retirement accounts.

Also, check my profile - you'll find that I am connected to some on-line education where you can learn about this topic and eight others without having to shell out the price of a new car. Take classes on-line at your convenience and have access to them and all updates / new classes for life.

Connect with me and we can discuss it privately.

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict

Today I've been in contact with several different loan officers. I asked them all if I planned on buying a 4 plex and living at the property, what my down payment would be. Two of the bankers said that it would be 15% down and two other bankers said it would still be 25% down. If the guidelines are set by Fannie Mae/Freddie Mac, then why am I getting different answers from these loan officers and also seeing here that people were able to get 5% down? I don't get it.....

Originally posted by @David Dachtera :

@Nick Armstrong,

Like most budding investors, maybe you think that the money for your deals has to be either a bank's money or your money.

Learn how to find and partner with private lenders.

There is a whole forum on the topic of private money and self-directed retirement accounts.

Also, check my profile - you'll find that I am connected to some on-line education where you can learn about this topic and eight others without having to shell out the price of a new car. Take classes on-line at your convenience and have access to them and all updates / new classes for life.

Connect with me and we can discuss it privately.

David J Dachtera

"Success is not a destination. Failure is not an event. Success is a process, failure is a choice."
- DJ Benedict

 But how is private/hard money even feasible for buy and hold investments with such short loan terms and high interest rates???

Leasing-to-own is an option. If you're looking to flip, then a hard money lender is another option, although I would suggest that you have experience flipping before you do that. Starting with a fixer upper in a decent neighborhood seems to be the norm. I am only speeking from what I've learned from other investors, though I've purchased a home and getting ready to lease-to-own a property to rent out my current one. Apparently there are many ways to do it, and figuring it out is half of the fun. 

@Nick - hard money could be feasible if the target property is distressed and need to be rehabbed - you can use hard money to buy & rehab - then use a conventional loan to refinance it. At this point you can either sell it or keep it - just remember that your cash flow will affected by the refi so be sure that before you start the project  that it will cash flow after the repairs and refinancing.  It can still be a buy and hold situation if you picked it up at the right price to begin with. You might even be able to refi and take some cash out for your pocket and STILL cash flow each month. 

Truth is, @Account Closed , you need some money at first. People all over the internet (here included) will tell you, "you too can do it with "NO MONEY DOWN" 

but..

1.) If you don't have skin in the game (your $ at risk too), no one is going to let you 'risk' their capital. Most people (banks) won't lend you money either. It would even be hard to get someone to go in on a JV (joint venture) with you. Think about it, would you lend me $5k? You don't know me.. how does the bank/ lender /partner on the other side of your potential deal feel about lending his/her money.. You have to offer something too.. even if its just the hard work to rehab a place, you have to offer something. If a potential partner has the cash, and you can do the rehab.. that's a JV waiting to happen.

2.) You can get a FHA loan at 3 1/2%, but that cuts in to your cashflow for any property. Take that in to account when running your numbers. A FHA loan may allow you to buy a property, but that doesn't make it a deal or profitable..

3.) Going from nothing to RE investment based retirement takes years..  decades actually. This isn't a get rich quick scheme. It takes hard work, sweat, tears and I assume everything in between. No one has a magic solution to make it easy..   As Euclid said, "There is no royal road to geometry.”  ..but in this case, Real Estate Investing.

This is a great place to start learning the basics of RE finance and figuring out what you need to do to get moving!  Don't get discouraged. Read, learn, plan and execute.

I purchased my first rental property many years ago with no money down. Then I was able to use conventional financing for others with 10% down and PMI. Those days are gone and for conventional financing. I am told I need 25% down and 6 months of payments for EACH property I have financed. It seems crazy to me that after all the years I have been in this business, they are holding me to a higher standard today than when I started. The likelihood of me have 6 months vacancy on all my properties at the same time is near zero. That would signal a catastrophic situation. Bad news for the bank because if something that horrible happened, I would just stop paying and let them take the properties. Lending policies have over-corrected.

Some people talk about things they did years ago that are not possible today. Others have creative ways to structure deals. Either way, you definitely need to hustle more today than 10 years ago, that is for sure.

As mentioned in previous responses, I believe the best way to get started is buy your first investment as a primary residents and use the FHA or Conventional lending programs to minimize your down payment (cash out of pocket). You will need to live in the property for at least 6 months, but can then transition in into a rental and move somewhere else. Generally these types of programs allow you to put only 3-5% down. This is how may people get started.

Secondly, I would recommend looking into a portfolio lender ( a local bank in your area). These type of lenders often do not require the same strict guidelines as a national mortgage lender would. For example, I know that most local banks do not require you to have 6 moths reserves in order to buy your rental property. The other real advantage is that national lending companies will not give you credit for the rental income (towards your qualifying income to buy the property) unless it has been on your tax returns for 2 years or more. Local Banks will often allow you to use 75% of projected rents towards your qualifying income. 

Originally posted by @Matt Rosenbohm :

As mentioned in previous responses, I believe the best way to get started is buy your first investment as a primary residents and use the FHA or Conventional lending programs to minimize your down payment (cash out of pocket). You will need to live in the property for at least 6 months, but can then transition in into a rental and move somewhere else. Generally these types of programs allow you to put only 3-5% down. This is how may people get started.

Secondly, I would recommend looking into a portfolio lender ( a local bank in your area). These type of lenders often do not require the same strict guidelines as a national mortgage lender would. For example, I know that most local banks do not require you to have 6 moths reserves in order to buy your rental property. The other real advantage is that national lending companies will not give you credit for the rental income (towards your qualifying income to buy the property) unless it has been on your tax returns for 2 years or more. Local Banks will often allow you to use 75% of projected rents towards your qualifying income. 

 Matt, great post.  My daughter bought knowing she might move and rent later.  She checked and the enforcement method seems to be different from place to place.  Maybe less in some and more in others, some say a year.  What was consistent, you do have to move in and show an intent to stay.
She went in with the 5% down which went down to 3% just a little later, same source.  Her closing attorney took her through the loan and showed her the language or lack there of when she asked at closing.  Moving in, change of address cards, driver's license for sure, he showed her the time frame was not so well defined.
She ended up staying longer, 18 months so didn't test it.