Financing deals with little money

[Jesse Rodriguez]

Bought my first property with my own money from W-2. I would like to buy more but using my own capital will take long! I know there are “creative financing” out there but I don’t completely understand them. For example, on BP a lot of people buy 12-20 within 1 year and that seems crazy to me. A lot say they put 0$ down into the deal. How is that possible? And what does the person get in return? If anyone has any experience they would like to share, that would be greatly appreciated.

[Michael Slockers]

@Jesse Rodriguez congrats on your first one!

As with many questions on the forums, the answer is probably, it depends. If you are looking at doing conventional financing and purchasing off the MLS, it is going to be hard to get around some down payment. Some options for zero down would be that you bring a deal and a partner brings the money. Or you bring a deal that's enough below market it has an LTV that allows it to be financed by a local bank or hard money lender or private lender with none of your money out of pocket. Those are just two of hundreds of scenarios.

I would challenge you to make sure you aren't thinking too much about NO money down. Instead think about how you can maximize your strengths. A lot of people focus on no money down and for me if I have $10,000 in a project that is Cash flowing well and has built-in equity, I'm sleeping pretty good at night.

[Joshua Janus]

I would focus more time on analyzing the market and finding deals, especially off market. If you can find a deal and present it in a professional way to serious investors you will find a partner and end up with the 12-20 units over time. 

[Michael Dumler]

@Jesse Rodriguez you bought your first property all cash? Yes, using your own capital will take long, this is precisely why investors leverage OPM. Personally, I would not get caught up in the story of hearing investors purchasing 10+ units a year with low and no money down. The stategy in of itself is fairly rare and attributes to investors working to bring deals to the table well below market value. If I was in your shoes, I would approach investing more conservatively in the sense that you should be focusing on a deal at a time. If you did indeed purchase your first property in cash, consider the options/strategies of pulling your money back out and utilizig the capital to purchase the next deal. I don't really care for when people try to encourage investors on the low and no money down strategy, with current market conditions, capital is needed to assimilate successful investments. Hope this makes sense and helps! 

[David M.]

@Jesse Rodriguez

Remember, real estate investment is pretty much the only investment where leverage, i.e. debt, is actually good.  You probably don't need to get "creative."  Perhaps start with financing your current property to get your cash out.  then, purchase your next property either with a mortgage or in cash with delayed financing to strengthen your offer.

VA and USDA loans are the only 0% down loan products. However, both require owner-occupation. Pretty much anything less than 20% down will require owner-occupation for a conforming residential loan.

The superfast scalers I think just have a lot of equity to deploy.  

I hope that really short brief helps.  Be happy to chat.  good luck.

[Andrew Postell]

@Jesse Rodriguez you've got some good comments above but I wanted to provide some math to see what everyone is referring to.

Let say that a Hard Money Lender (HML) would provide you with a loan of 75% of the After Repair Value (ARV). That means on a property with a value of $200,000 the HML would provide $150,000. So if you could BUY and REHAB (2 steps of the BRRRR method) at $150,000 then your downpayment is $0. You would only be coming out of pocket your closing costs.

So let's analyze a common scenario using that same ARV above - $200,000. A wholesale comes to you with a property with an ARV of $200k. They are asking $125,000 and the rehab is $30,000. That's a total amount of $155,000. So if the HML will only lend you $150k....now you 2 choices:

1. Either come out of pocket the $5,000 + closing costs...or....
2. Offer less.

And that 2nd one is the thing that a lot of beggining investors don't take into consideration.  It's not your fault that someone is asking too much for a property.  You are still going to make the offer...just make it at whatever amount you feel comfortable with coming out of pocket for.

Now, doing the BRRRR method you will need several things to successfully complete a BRRRR:

1. ARV - being able to calculate the Value on your own (meaning, without the wholesaler telling you the value) is really important.
2. Repairs - You will likely need to know how to budget the repairs as well. Getting a contractor can be extremely frustrating especially if you need to make an offer without even looking at the property. How do you calculate repairs without a contractor? You may need to lean on other local real estate investors in the beginning. Or maybe even just focus on properties with a very light rehab?
3. Lenders - You will need a lender on your BUY step and on your REFINANCE step. And I would HIGHLY recommend to read this article I wrote for Bigger Pockets on how to find good lenders that you can find HERE. If they are good, they should be absolutely definitive on rate, terms, costs, etc. Trust me, many lenders will tell you they can do this...but it's very rare to find. When I first started BRRRR'ing my properties lenders would tell me "That's illegal"....it's not, they just didn't know anything about it.
4. Finding Properties - and this is the absolute hardest step of anything right now. So network like crazy and find some good resources. It's going to be hard...but if it were easy then anyone could do it.

Hope all this makes sense.  Feel free to post anything else if you need.  Thanks!

[Jesse Rodriguez]

@Michael Slockers Thanks for the respaonse. I need to look more into hard money lenders or banks that will finance that like you mentioned.

[Jesse Rodriguez]

@Joshua Janus How do you find off market deals? Connections, Facebook marketplace?

[Jesse Rodriguez]

@Michael Dumler You have a good point. I know I need to focus on myself and not too much into others success. I was just curious how people accomplish this because one day I would like to be in the situation.

[Joshua Janus]

Wholesalers, finding them yourself, investor friendly realtors, other investors etc. 

[Eric James]

A lot of people are full of BS and just want to brag online. Like "I just bought 50 units." When they really have a 2% equity stake in units bought by someone else.

[Jesse Rodriguez]

@David M. yea, that was helpful. I think I might be thinking too ar ahead. I think that once I get this first property rolling, momentum will start to pick up.

[Jesse Rodriguez]

@Andrew Postell Super helpful! I was hoping to read something like this. Thanks for taking the time to explain this! I hope we can connect, I will be possibly moving to Texas soon.

[Jesse Rodriguez]

@Joshua Janus Thank you! Very helpful

[Jesse Rodriguez]

@Eric James Haha that’s what I was thinking too myself too. It just sounds too good be true. I’m glad someone brought this up.

[Bhekizwe M.]

Cost effectiveness:

Find inventory at wholesale prices.Negotiate

Utilise Private money /wholesale/ lease option 

Sweat Equity on rehab for enhanced profitability

Exit strategy-retail,hold as rental, after refinancing with long term cheaper financing