Creative Ways to come up with a downpayment

19 Replies

We recently ran into a great opportunity!  Because of our success with our first Direct Marketing Campaign, we decided to target another area and last week was our first week to hit the new area.  We had a great response rate and many good leads.  One of the opportunities we are pursuing is on two properties that we did not target.  We received a call from a investor/contractor who received our letter on a property he was not interested in selling but had two other properties he wanted to package and sell.  They are both turn key rental properties.  One is currently in the middle of a 1 year lease and the other is waiting for the new tennant to move in as a section 8 rental.  We walked through both last night and they are in a quiet area and need zero work to rent.  The specifications of each house are:

2/1 600 sqft  renting for 600 to section 8

3/1 855 sqft  currently rented for 600 but we could get 700

The investor wants 50k for the package deal. We offered 45k and are waiting to hear his response.  We have a banker who will finance us with a 20% down payment.  We do have the money in our bank account to pay the down payment but we would like no out of pocket money invested if possible to keep the money we have to invest in flip opportunities.  What are some creative solutions to our problem?  Thanks in advance!!  

Do you have any lines of credit that you could use? HELOC you another rental property or your primary residence? Friends or family that would want to invest? You could offer them 8% interest, paid monthly with their principle re-paid at the end of 3 or 5 years.

Another option that we have used is to take a loan against your 401k.  We can take out up to $50k for a 5 year term and use it for anything.  Both you and your spouse can do one independantly if you both have 401k's which can give you up to $100k of funding options.  It gets paid back directly out of our paychecks and all of the interest that we pay goes straight back into the 401k so you are basically paying yourself back interest.  Once you pay off the loan you can turn around and do it again.

An additional benefit is that it does not go on your credit as a loan since it is to yourself. The only downside is that IRA's do not permit it, only 401k's as far as I know.

The only downside is that the payment is pretty large each month (think a high end car payment for a $50k loan) but if you already have the cash in hand and want to save it for a rainy day this is a good option.  If you only borrow $10k the payment is pretty small and easy to pay pack quickly.

@Jesse Waters    We currently do not have any properties with equity to borrow.  The private investor option would be a great idea!

@Christopher Gilbert    The 401k option is a great idea!  We do have one and would consider borrowing money from it.  I will have to look into the interest rates that they offer.

Just remember when you take out a loan on your 401K you are locked into that job until the loan is paid back. Also remember you will be repaying pretax money with after tax money. (I think)

20% of $45k is "cash advance on a credit card" territory if it comes to that.

@Richard C.    I keep a 0 balance on my credit cards by paying the balance every month.  But I do have one with a 11k limit.  That is another possibility.

This question may have an obvious answer, but if you are using private money, how can you use that for a down payment on a mortgage? Don't lenders require verification of all big deposits into an account? There is no way to verify that as "income" is there?

Originally posted by @Rodney Kuhl:

This question may have an obvious answer, but if you are using private money, how can you use that for a down payment on a mortgage? Don't lenders require verification of all big deposits into an account? There is no way to verify that as "income" is there?

 Well, he says he actually has the money.  So he'd basically be backfilling.

We are always looking to keep the capital free for other opportunities to create more capital.  We don't like to be house poor.  The goal is to get into this opportunity with no out of pocket expenses so we can have cash on cash infinite.

So we came to an agreement for the two properties at 46,000.  We will need to come up with 9200 plus closing cost.  We have 45 days to close.  Exciting!!!!

get a signature loan from the bank for 50k and secure it with assets you already have

@Walker Seid  

 Another good idea!  Wonder what the interest would be..  We have a good banker who will loan us any amount we need at a very low rate but requires 20% down payment.

My interest rate for a 48 month signature loan was 3.42%. I took it this month

@Walker Seid  Wow that is a great rate!  I will definitely have to check with my banker!

We also have a coworker who is interested in loaning us the cash for a 10% return.

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@Walker Seid  How's the investing out in Alaska? I have a friend out there and it looks absolutely beautiful! Do you plan on just doing a cash out refi to pay it back? 

Alaska is beautiful! My property is in Idaho which is also beautiful. Home prices are very high in Sitka and rent doesn't seem to keep up in terms of ROI. I plan to cash out part of an old 401k to pay back my loan.

@Ryan Billingsley   Awesome work on finding your next deal!  It's good to see the progress you're making, and it's very inspiring!  Keep up the amazing deal flow man!

@Joshua Nudell  

 Thanks for the kind words!  We have been very fortunate that things are going well.  We have many more leads that we are working now as well for wholesale opportunities to build capital.  It has been a exciting journey so far in just a few months.

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