Down Payment Struggles As A Newbie

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Down Payment Struggles As A Newbie

Dareen Allie
Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes

I’m looking to invest in a property in Arizona. This will be my first property ever bought or invested in. I have no down payment. I’m not sure if a loan, credit cards or my 401k would be a better option to use as my down payment. Some people also say do a couple of flips to build the capital but i need a down payment to even start a flip. And saving just seems like such a long process to me.

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Todd Powell
Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
5y

@Dareen Allie live below your means, take 2nd or part time job, liquidate belongings to turn into cash, ditch items that may have payments, (car payments) and you can make it happen.

I do not know the Arizona market but I know it takes work to save money. You can do it!

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  • Ronald Allen Barney
    Real Estate Agent · Tampa, FL · Member since 2020 · 411 posts · 373 votes
    5y

    Some form of a cash position will be required, and to get there you will have to save money from whatever income source you have. The most attainable down payment scenario starting out is first time home buyer as a primary residence, which doesn't sound like a rental but after you build equity in the home and also put away more savings to have a cash position for the next deal, you'll be ready to get the next door also as a primary residence, and then assign the first primary to your LLC and rent it out. Now you've got your first door with 3% down. Eventually at some point you'll have to shift toward making the 25%-ish down required for conventional commercial loans, but those first couple of doors can get you started, and cash flow can help shorten the runway to the next deal if you continue to live frugally.

    6Reply
  • Matthew CrivelliBusiness Member
    Lender · MA · Member since 2021 · 1k+ posts · 1k+ votes
    5y

    Could you find a partner and do a JV deal? Maxing out credit cards for the down payment is risky. What if you needed rehab money in excess from what was budgeted and the credit cards were already maxed out? You don't want to go in to a situation where you are already behind the 8 ball.

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    1Reply
  • Agus Hartono
    Lender · Sunnyvale, CA · Member since 2017 · 22 posts · 17 votes
    5y

    @Dareen Allie, credit card interest rate is very high, and it's not recommended to fund your deal with credit cards. Ideally you should save some money and have a spare savings for down payment and also have still extra cash to handle unexpected situations such as repairs or vacancies. Taking loans from 401K is still a better option as you're paying interest to your own retirement, and at worst you lose the opportunity from stock market growth from the amount you owe. The maximum amount that you may take as a 401(k) loan is generally 50% of your vested account balance, or $50,000, whichever is less.

    If this is your first deal, I would suggest to be more conservative with your cash. Sometimes RE investing is not as rosy as what you've read or heard. Therefore, having extra cushion of liquid cash to plan for some unexpected is a wise move. I hope this helps and good luck with your investment journey.

    3Reply
  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    5y

    @Dareen Allie live below your means, take 2nd or part time job, liquidate belongings to turn into cash, ditch items that may have payments, (car payments) and you can make it happen.

    I do not know the Arizona market but I know it takes work to save money. You can do it!

    9Reply
  • Bob Okenwa
    Real Estate Agent/Investor · Peoria, AZ · Member since 2016 · 2k+ posts · 2k+ votes
    5y

    @Dareen Allie

    Are you looking for a long term rental property? STR? You can do a house hack or look into no down payment programs or down payment assistance programs to help you get started.

    1Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Bob Okenwa i’m looking into long term rentals and small flips. thanks for the info! i will look into some of those programs, sounds like a great idea!

    0Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Todd Powell thanks for the encouragement! it’s difficult but you have to realize what you want the most and make it happen!

    1Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Agus Hartono thanks, that makes a lot of sense to have some capital present for emergencies. it seems the 401k may be the better option. my mom also has a HELOC i can use for a down payment.

    0Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Matthew Crivelli that makes a lot of sense, toooo risky! right now i'm thinking of using my mom's HELOC for a down payment. thanks for your wise words!

    1Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Ronald Allen Barney sounds like a great plan. thanks for the breakdown! i’d just have to make sure the first home is affordable enough for me to have extra to save up. sounds great!

    0Reply
  • Agus Hartono
    Lender · Sunnyvale, CA · Member since 2017 · 22 posts · 17 votes
    5y

    @Dareen Allie, as you've just mentioned about your mom, to qualify for a loan, you can also put your mom as a Co Borrower, that way it will lower Debt To Income (DTI) ratio to help you to qualify for loans.

    1Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    more gems @Agus Hartono thanks!

    0Reply
  • Alex Hart
    Portsmouth, OH · Member since 2009 · 198 posts · 54 votes
    5y

    @Dareen Allie

    Start a side hustle. You can flip cell phones, washer & dryers, and couches for profit. You can find all of those on Facebook and Craigslist. You'd be surprised at just how fast you can make $25k plus doing that. Good luck!

    0Reply
  • Dylan Eldred
    Real Estate Agent · Syracuse, NY · Member since 2020 · 137 posts · 107 votes
    5y

    @Dareen Allie I’d recommend starting with a househack if possible. My wife and I bought a large 4 bedroom/3.5 bath house and have been renting out the 3 bedrooms on Airbnb. Typically it covers our entire mortgage payment and sometimes extra cash on top of that. Doing something like that could help you get started with investing and save money at the same time. Plus you may only need a small down payment (3-5%). If you don’t want to share your space with others you could look for a duplex/triplex/fourplex instead. 

    2Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Alex Hart thanks for your suggestions!

    0Reply
  • Allie PfannenstielPro Member
    Real Estate Agent · Scottsdale, AZ · Member since 2017 · 159 posts · 59 votes
    5y

    @Dareen Allie I was right where you were 4.5 years ago. So, I started in wholesaling - finding deals off market and partnering with people who did have money. Learning to find a great deal is the most invaluable tool in the long run anyway. I recommend you start there. 

    1Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Allie Pfannenstiel thanks for your encouragement and kind suggestions! it’s always motivating to know and remind yourself that even some of the experienced investors had to start in the same place you are now!

    0Reply
  • David Johnson
    Fort Lauderdale · Member since 2021 · 27 posts · 22 votes
    5y

    @Allie Pfannenstiel echoing this, great advice!

    0Reply
  • Todd Powell
    Rental Property Investor · Corvallis, OR · Member since 2018 · 840 posts · 1k+ votes
    5y

    @Dareen Allie early on its more about sacrificing, but now at 54, there is way more freedom. You literally have to start somewhere and I did not come from wealth so I had to hustle and work hard my entire life. YOU can as well and build what you want.

    0Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Todd Powell thanks for the encouragement! I’m glad your hard work has paid off! I will be there soon!

    1Reply
  • Account Closed
    Investor · Chatham NJ · Member since 2021 · 54 posts · 29 votes
    5y

    1) Hard-money lender. There are a ton on Bigger Pockets.

    2) Family and friends

    3) Get creative. Start a kickstarter, post on Facebook, Instagram. 

    4) Just save the money. Eating out, alcohol, Starbucks, and long showers are all pleasures. If you REALLY want to buy a house, you're going to have to feel some pain for it.

    Finesse can be vital to get the finances to work sometimes. Remember that growth causes pain, and for that, you will be rewarded. So many people in this world are unwilling to do just that, and they will always be discontent. What path will you take?

    0Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Bill Conlan great advice!

    0Reply
  • Dareen Allie
    OP
    Rental Property Investor · Phoenix, AZ · Member since 2021 · 33 posts · 6 votes
    5y

    @Dylan Hogan thanks for the advice! are you guys based in Arizona?

    0Reply
  • Art ShalomovBusiness Member
    Lender · Scottsdale, AZ · Member since 2017 · 39 posts · 39 votes
    5y

    If you have enough for the down payment in your 401k, use it. If not, do a few wholesale deals to build some reserves. Wholesale can help you do that very quickly. 

    0Reply
  • Greg Parnell
    Member since 2020 · 7 posts · 3 votes
    5y

    Pulling the trigger on that first investment property can be scary.  My wife and I used the 401K loan option and it has worked out great for us.  Once you have that first property, your confidence changes pretty quickly.  That was a year and a half ago for us and we have since bought two more properties and looking at a fourth right now.  Best of luck! 

    0Reply
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