Down payments and scaling

[Scott Duerk]

What are some of the better strategies to purchase properties and manage the 20-25% down payment per property? In other words, I'm using a HELOC for my down payment. I can only do one, maybe two deals at a time using the HELOC for my down payment. What other options are out there for scaling your business AND putting a significant chunk of cash down each time. Thanks in advance.

[Ross Denman]

@Scott Duerk I am investor and also a business developer for a property management company in Indianapolis. Most of our clients are out of state and many are investing with home equity vehicles, like your HELOC, or retirement vehicles, like self-directed IRA's. You have a few options with your HELOC that you can consider.

• You can use your HELOC to BRRRR homes for rentals. While many people feel that BRRRR means 100% financing, it doesn't have to. BRRRR strategies don't leave much for cash flow, so you have to have some cash set aside or a relatively liquid investment or asset to leverage as reserves. It's hard to do a $3,000 vacant unit turn when what little cash flow you are building up stops but the mortgage keeps coming due. Some deals are better off leave 5% or 10% in the deal. This will allow for better cash flow and you can use some of the cash flow to pay down the remainder of the open HELOC.
• You can use your HELOC for private money loans. If your HELOC is 6.25% annual interest, with interest only payments for a period, you could make private money loans from 12%-15%. Once the loan is paid off, the HELOC is paid down and you have a "free" 5-8% ROI by investing the banks money. No tenants, no trash, no toilets. Just asset backed financial instruments loaned to real estate professionals (hopefully)
• You can build working capital by flipping homes with your HELOC. I like the business model of flip 3 and keep the 4th or flip 4 and keep the 5th. It really depends on the profit margins and pricing as to when you can hold one... but you should be able to flip 3-6 annually once you have a good team, some systems in place, and some free capitol. I have some investors that have 2-4 flips going on at any given time, but it takes time to get there.
• You could do something like tax lien investing. I'm not sure where you are from or what your local property tax set up looks like, but in Indianapolis, we are a tax lien state. Purchasing tax liens and holding them for a year will average you 12%-16% ROI from penalties if the homes are redeemed during that year. If the owner does not redeem the property, you can gain title to the property via quiet title process. i know professional investors who purchase the liens for existing commercial buildings or nicer residential homes as these are the most likely ones to pay the penalties and these investors just want the ROI and not necessarily the property.

You can also research Air BNB models, Senior Assisted Living models, Note investing models, Syndicate and JV models, or a variety of other opportunities. I highly recommend reading everything you can find, visit some meet-ups and REIA's, network here and on other social media platforms, and find a mentor or do a joint-venture with a more seasoned investor. The first few are always valuable lessons and partnering with someone with experience can make a huge difference in the learning curve and overall profitability.