How to buy multiple properties with little cash

Question

Hey Everyone,

I'm pretty new to all of this still and have been listening/reading BP for about a month now. What I am a little confused about is how people with little cash can afford to buy and hold. If you spend a large percentage of your cash on a down payment for a buy and hold property that might cash flow $300/month, it could take years to save enough money to have a down payment for another buy and hold property? Am I missing something? Has this topic been covered in BP before?

Rory Cummins · Answer

Hi Mike,

I guess it'll really depend on the type properties you're looking to buy and at what amount down. If you hunt for them, you can find owner financed properties in which you can go in with say 5-10% down or perhaps some other type of creative way to finance with the seller, assuming they are able to owner finance and you can work it out with them. With banks, most are going to want 20% down. That said, if you're only buying properties around $30-50k, that really isn't much needed on a down payment.

For getting to your 2nd, 3rd, 4th property, etc., it's probably a lot easier and faster to just generate the money needed through your normal primary income sources instead of trying to only save the cash flow from your first rental. It'll help but you're right, $300/month will take you a while...

Another alternative is to partner with other investors (whether passive or active) to buy more RE. I've done this in the past where we've combined money together to go in 50/50 on a property including any fix up and down payment. It's a great way to leverage and also buy more, you just have to trust the person you're going in with as well as work out all the 'outs' for the short and long term. In other words, you would need to discuss, up front, what the exit strategies will be, etc. once you own the property and discuss 'what if' scenarios and put it to paper.

Overall, these are just a couple ideas but you'll find a whole host of more info as you delve more into the forums and podcast for additional ideas and strategies

Hope that helps!

Christopher Giannino · Answer

There's a couple of different ways investors do this..  I would say one of the more popular strategies is the BRRRR (buy, rehab, rent, refinance, repeat.)  Basically, the idea is that you buy a distressed property and rehab it.  After you rehab it, it should be worth more which would then allow you to refinance out of your first loan.  If done correctly, you'll be able to pull out all the money you put into the deal (rehab + original down payment + closing costs) because you "forced" equity from the rehab.  This strategy allows you to essentially have no money in the deal, instant 20+% of equity on the property and cash flow.

Another strategy investors use is house hacking. They buy a small multi-family (or SFH) with FHA financing which is 3.5% down. The rents from the other units (or bedrooms) cover their mortgage, taxes, insurance and PMI which then allows them to live for free and because of their lack of living expenses this allows for them to save money for future investments.

There are many of other creative ways but these seem to be the most popular especially for beginners.

Steve Kontos · Answer

@Mike Blais

This discussion would fall under the topic of Leverage.  There are various ways that you can leverage different tools (credit, retirement accounts, other people's resources, etc). In today's marketplace, funding is available through multiple different avenues.  It's just a matter of better understanding them.  I would research more on this topic.

Thomas S. · Answer

There are ways, as noted, but if you are simply buying and holding a existing rental "as is" you are correct in assuming your first will be your last for a extended period of time if the cash flow is your only source of generating your next DP.

There are no short cuts to investing. Only time and hard work will achieve your goals.

Wade Sikkink · Answer

I think you have just figured out that real estate is a get rich slowly game.

People selling seminars and books won't tell you that, but that's the reality for most people.

How to buy multiple properties with little cash

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