Access to Very Cheap Money

14 Replies

I'm 27 and I wanted to get a few rentals under my belt before approaching my Dad about him funding a rental purchase.  I used traditional financing on the first two purchases and they have turned out quite nicely.  I put 25% down on each and cash flowing $300/m on each with 15 yr mortgages.  These are 3 bedroom homes in prime areas.  

I'm under contract to buy my 3rd rental with traditional financing.  I'm doing a 30 yr mortgage on that one and expect to cash flow $580/m.  It's also in a prime area.  

I called up my Dad and mentioned my recent deals and asked if he knows any people around his age that have made a substantial amount of money in real estate in hopes I could meet with them about getting some private money.  He mentioned two names but then also mentioned his connection with his bank.  

You see my dad has been a rice and crawfish farmer for over 40 years and within that time he has taken out multiple million dollar crop loans and successfully paid them back.  Needless to say he has a great relationship with this bank.  Most of his land is paid off so it is very easy for him to make a quick phone call and get a line of credit to purchase real estate for cash.  

The lender at the bank said we could get max $300,000 at 7% for up to a year whenever we want.  No origination and no points.  I was ecstatic to say the least.  

My plan is to purchase properties at 70-80% off and then refi either in my personal name after 6 months of seasoning or with a different local bank right after purchase that offers 20 year amortizations.  I feel like I won't ever have to pass up any more good deals and the sky is the limit.  Only thing I'm missing is a good deal!  

I started making calls to local wholesalers and will start making low offers on MLS properties this week. I'm 27 now and my goal is to have 30 SFR's before the age of 30. Let me know your thoughts and experiences with this strategy.


relationships with lenders so important!! In this low interest rate environment 7% from a bank sounds high though. But sure beats hard money!! Seems like a sound strategy to me. However Will u have sufficient equity after 6 months of seasoning to get traditional financing? If not will u have the cash a lender may ask u to put in? 

@Stephen Hundley sounds like the strategy will work out great for you. Just keep hitting the streets looking for deals. Put the word out to anyone & everyone that you buy houses. That along with searching the MLS daily the deals should pop up.

Originally posted by @Stephen Hundley:

@James Wise  Thank you for your reply!  It feels like a breakthrough moment for me so I'm really pumped!

Hey no problem. It was a refreshing post to say the least. Many people make similar post but with pie in the sky scenarios & it's no fun to explain why that particular plan would never work.

Glad your a man with a solid plan that will lead to a profitable future. Good luck. I hope to read about you on the real estate success forums soon.

@James Wise   I definitely felt like one of those pie in the sky people when I first got into real estate at 22.  All of the concepts sounded great but the actual money seemed so far away.  I'm so happy I took action and bought my first property 2 years ago.  So many things I would never learn in a book; only in the school of real life.  

@Stephen Hundley

First congrats for this great opportunity. It seems as though you are following your dad as being a  successful business man. 

The only thing I see to keep an eye on are these items:

1. To refi and cashout you must keep high credit, good w2s, good tax returns, etc 

2. How many cash outs or refis will the banks give you?

3. Make sure you keep a lot of cash reserves when you are playing the refinance game in REI. Things can go south quickly and sometimes it wont even be your fault.

So keep your cash reserves strong, and by that, I don't mean the 300k from the bank I mean cash reserves in your account. I would dare say 1,000s of investors were doing exactly what you are talking about right before the last bubble and many many of them went bankrupt or belly up. 

Leveraging is great an powerful, but can also be deadly and dangerous.

Lastly, Please understand I am NOT against your plan, I actually love your plan. Just giving a little caution.

Good Luck


PS You may want to consider keeping 100k or so out of that 300k and do a couple flips each year and make some nice chunks of cash as well. You maybe able to flip 2 or 3 houses and make 50k or so total a year. That could be cash to live off of or it could be to pay down rentals or even buy more rentals.

@Andrew. Great pts about using some of the bank'a cash to do a couple of flips a yr...and then paying down the rentals w the profit. IMHO buying more rentals using leverage to purchase more props in a "crazy" aka bubble? mkt is unwise.  The wisest words I ever overheard was an intelligent person tell an investor was DO NOT OVER LEVERAGE.  When I got into investing I put those words into practice and  as a newbie watched in wonder/horror as apt investors w decades of experience lost their props when the mkt popped. Many markets are sizzling. Int rates are next to nothing!! It's never "different this time". Stay sensible and happy investing!! 

@Andrew Cordle  

Thank you for the detailed response!  I really appreciate your insight!  

1. My credit score hovers around 770 and I structure my tax returns so it allows me to buy property every year.  

2. I haven't talked specifics with the local bank on the refi side but if it's kept in-house then he said there is no seasoning.  If I refi in my personal name then I know the lender will want to see a lot of reserves.  How much I'm not sure yet.  I do have $90k in reserves at the moment and plan to stay around that number at all times.  I'm a little more conservative than most.  

3. I do fairly well selling real estate as a Realtor and we save 30% of every commission check.  I do 30% savings, 30% taxes and live off and run my business on the other 40%.  

I really appreciate you critiquing the plan and giving advice.  This is exactly what I was hoping to get from more experienced posters.  

great on having reserves!! However leverage the same whether talking SFRs or apts. the reason I mentioned the apt owners is they had a ton of experience and still some lost their props...

@Andrew Sterling   I don't use Hard Money lenders.  This local bank is acting as a Hard Money Lender but the reason they are willing to lend at such low rates is the collateral my father is willing to put up.  I'm not a first time buyer with no experience.  I've been in Real Estate for 5 years and been investing for 3 yrs and own 3 rentals already.  

Okay ... I understand now ... they're using asset based lending. It just sounded really risky for an investor not to do its due diligence with a deal that's potentially could be a negative income situation. When you get to investment properties lender like to a see a DSCR of 1.25%.

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here