Trouble funding my first deal

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

Thank you! I appreciate your suggestion and will truly look into that.

What do you think would be the best way to tap into the equity of my house? Seems like this might be a faster way to get this money and start.

Jon KellyPro Member

Investor · Bethlehem, PA · Member since 2016 · 929 posts · 951 votes

3y

@Michael Lonsdale who told you you need 10% down for a BRRRR and how will you fund the rehab?

What's the value of properties you are looking at? $100k, $200k, $300k? So you only need $10-30k?

If your W2 if $120k can you save $5-10k per month? If not, why are your expenses so high?

If BRRRRing is truly what you want to do I would try A, B and D. Call any/all local banks.

If you don't have the funds yourself your best bet is to network and partner with others. Can you go to a local meetup and find a hard money lender? Can you ask family, friends, etc?

You've been reading for a few years. It's time to get started.

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

@Jon Kelly Thanks for your post Jon! I appreciate your insight.

'Who told you you need 10% down for a BRRRR'- My harder money lender that I'll be using. Do you have another or lower % down for a hard money loan that would be suitable for BRRR? 10% down for a hard money loan seemed good to me, but I'm not an expert here.

And how will you fund the rehab? The above loan is meant for buying and fixing distressed properties.

As for saving money- Good point and thank you. I started my job recently. I will have these funds in the next few months. But if I can tap into the equity of my house in the next few weeks... I'd like to do that. Having this lump sum of money also gives me some breathing room in case I mess anything up.

"You've been reading for a few years. It's time to get started" Yup... this is why I am posting to the forum, looking for some help.

Thanks again!

Nicholas Coulter

Real Estate Agent · Southern California · Member since 2019 · 681 posts · 281 votes

3y

@Michael Lonsdale what area are you looking to try this in?

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

Hello @Nicholas Coulter I messaged you on the specific location.

Thanks for reaching out

Bob S.

Real Estate Consultant · Cleveland · Member since 2020 · 6k+ posts · 3k+ votes

3y

Quote from @Michael Lonsdale:

Dear BP Community :),

LONG Time reader, First time posting! I've read, listened to, watched, and soaked up as much info as I can from this site over the last few years. Incredibly grateful for the people responsible for this site.

I'm having trouble funding my first deal. (Well, not really my first deal, I've owned one rental before)

Background- I own a primary residence that is worth just over 500K. I have about 120K in equity in the house. I have a 720 credit score. My W2 pays me over 120K a year. My rate is in the low 3s. My job is new so I hardly have any money saved up.

Problem- I want to start BRRRing but I don't have that initial 10% down to obtain a hard money loan. Obviously, I need that bit of seed money to start.

Where I'm at- The last few months I've been working to obtain a HELOC on my primary residence as the seed money. Then I'll work to get a hard money loans, so I can start BRRRing. But I can't get a HELOC to close. I'm told my equity is just not enough yet or that I need to show two years at this job. I've gotten tripped up during final underwriting 3 times now.

What should I do to get my initial money so I can start BRRRing and be able to put 10% down?

A. Continue to pursue a HELOC. (If so, recommend someone for me to talk to)

B. Obtain a personal loan and use that money to get a hard money loan and start the BRRR process. (Recently leaning towards this, any suggestions on where to look?)

C. Sell my house and use that money to start investing. (I've owned the house for 13 months)

D. I was considering a cash-out refi but my rate would almost double. So I'm not sure that makes sense.

E. Something else, please let me know what I am missing!

How can I get this initial seed money to then get hard money loans?

Please let me know what my next move should be. Thanks in advance to anyone who provides suggestions.

Respectfully,

Mike

If you do not have any money nor experience your ONLY option is to connect with someone doing deals. They will teach you how to find them and pay you a fee. Learn, save, then go on your own

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

Thank you @Bob S. I appreciate your input

Sara Aviles

Investor · Los Angeles · Member since 2019 · 22 posts · 10 votes

3y

Depending on what area you are looking at you can use some creative financing solutions. I was able to purchase a triplex for $50K in Indiana all cash by using credit cards with 12 months of no interest instead of using a hard money lender. It is now worth double that and I can pull all my money out. There are always creative solutions out there depending on your market and risk tolerance.

William LokarBusiness Member

Realtor · Northeast TN and Central VA · Member since 2021 · 52 posts · 38 votes

3y

Is C really an option? If you are willing to move I would not sell (of course I'm not familiar with your current market), hold your current house as the investment with your favorable loan terms. Buy a new primary residence that will allow you much more favorable loan terms (i.e. FHA loan). You can even seek owners that may be willing to finance the down payment (conventional loan) or ask for seller concessions that will allow you to buy down your rate.

Leo R.

Investor · Member since 2021 · 591 posts · 695 votes

3y

@Michael Lonsdale I'd say go with option F: forget BRRR'ing for now (it's pretty risky given the current market, and even experienced pros are failing to hit their ARVs), and instead buy a new primary that you'll house hack (if you want, you can do a live-in BRRR). You'll get much better financing terms, it will greatly increase the number of properties available to you that pencil out, and it's lower risk than BRRR'ing (esp. BRRR'ing on hard money). Plus, when done correctly, a house hack will lower your expenses while increasing your income in a single step--the fundamental key to building wealth.

Good luck out there!

4 Reply

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

Wonderful insight! Thanks, @Leo R. I appreciate your viewpoint!

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

@William Lokar Yes, C really is an option. After reading your response and Leo's response it seems like buying a new primary residence would be the first thing to do. Thanks for your opinion and insight!

Sara Aviles

Investor · Los Angeles · Member since 2019 · 22 posts · 10 votes

3y

I agree with Leo, that's how I initially made all my equity to start investing. I bought a house and moved out in a year to buy me second one and rented out my first. After that in a few years I sold both and traded up to an apartment complex.

Leo R.

Investor · Member since 2021 · 591 posts · 695 votes

3y

Quote from @Sara Aviles:

I agree with Leo, that's how I initially made all my equity to start investing. I bought a house and moved out in a year to buy me second one and rented out my first. After that in a few years I sold both and traded up to an apartment complex.

100%

Repetitive house hacking is one of the most efficient, simplest ways to build wealth.

Folks often lament that "it takes work to move every year" ...true...

But, y'know what takes a LOT more work? Rehabbing a house. :)

William LokarBusiness Member

Realtor · Northeast TN and Central VA · Member since 2021 · 52 posts · 38 votes

3y

@Michael Lonsdale My first investment was a home that we bought, renovated, and lived in for a year. It can be a great way to get started!!

Ryan ThomsonBusiness Member

Real Estate Agent · Colorado Springs, CO · Member since 2018 · 1k+ posts · 1k+ votes

3y

What if you buy the next fixer upper with a 203(k) loan. You intend to move into the house and wrap the rehab costs into the construction loan? Turn your current primary into a rental. Great way to scale and only need 3-5% down.

Also if you are making 120k/year and don't have enough for a downpayment it's time to think about renting out rooms in your house or cutting down on expenses. I don't know your situation, but I would think you could save the downpayment pretty quickly.

The Assumable Guy544 Reviews

Website View Page

Alli Breighner

Lender · San Diego, CA · Member since 2022 · 587 posts · 298 votes

3y

Hi Michael-

I would love to get you started. I just sent you a DM.

Would love to connect and get the ball rolling.

Nicholas L.Pro Member

Flipper/Rehabber · Pittsburgh · Member since 2018 · 6k+ posts · 5k+ votes

3y

@Michael Lonsdale

without cash, there is no BRRRR. BRRRR deals are tough to find, hard money loans are expensive, and contractors are booked up.

sounds like you have a great job and are well positioned for the future.

so - option E: wait, save.

tough to hear when it seems like everyone on BP is just buying.

[email protected]832-889-5607

Jay ThomasPro Member

Real Estate Agent · Houston, TX · Member since 2021 · 1k+ posts · 715 votes

3y

One of the best ways to begin getting into real estate is by forging a partnership with someone who already has experience in flipping houses. If you know anyone that fits this description, you could offer them a share of potential profits or a finders fee in exchange for your assistance on the project. This will not only bring in some income but also provide invaluable learning opportunities and insights into the world of real estate investing.

If that isn't an option for you, think about other assets you can use as collateral to get started. Even if it's before the cash comes rolling in, there are bound to be resources at your disposal that can help make real estate investments more accessible. With patience and focus, success in real estate investing is achievable!

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

Quote from @Ryan Thomson:

What if you buy the next fixer upper with a 203(k) loan. You intend to move into the house and wrap the rehab costs into the construction loan? Turn your current primary into a rental. Great way to scale and only need 3-5% down.

Also if you are making 120k/year and don't have enough for a downpayment it's time to think about renting out rooms in your house or cutting down on expenses. I don't know your situation, but I would think you could save the downpayment pretty quickly.

Thanks! I have not heard of a 203(K) loan, but I will look into it.

As for saving money, my job is new and I absolutely will be doing this, my expenses are low. They should take a few months. But I'm trying to tap into the equity of my house in the meantime through a HELOC.

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

Quote from @Nicholas L.:

@Michael Lonsdale

without cash, there is no BRRRR. BRRRR deals are tough to find, hard money loans are expensive, and contractors are booked up.

sounds like you have a great job and are well positioned for the future.

so - option E: wait, save.

tough to hear when it seems like everyone on BP is just buying.

I appreciate your Post Nicholas!

As I wait and save, I'd like to tap into my 100K+ equity in my house. I'm having trouble closing a HELOC but I'm still working on it.

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

Quote from @William Lokar:

@Michael Lonsdale My first investment was a home that we bought, renovated, and lived in for a year. It can be a great way to get started!!

Thanks for the insight!

Dave Skow

Lender · Seattle, WA · Member since 2014 · 2k+ posts · 899 votes

3y

@Michael Lonsdale - thanks ...1) you dont mention the places you tried to get a HELOC ...but I would suggest continue this effort ......some lenders should have flexibility to approve a heloc based on your job and work history ( assuming you have 2 yrs history ??) ...when will you have 2 yrs on present job ? Try the bank you bank with ....try the lender that has your 1st mtg .....try the smaller credit unions and banks in your local area

2) a 90% heloc lender will give you about 70K ....an 85% cltv HELOC will give you approx 45K ...how much are you looking for ?

3) try using a combination of sources to raise the funds needed ...do not do a cash out refinance or sell your home ( unless you plan to sell the home anyways ) ......

OP

Investor · Inland Empire/Palm Springs · Member since 2020 · 14 posts · 7 votes

3y

Quote from @Dave Skow:

@Michael Lonsdale - thanks ...1) you dont mention the places you tried to get a HELOC ...but I would suggest continue this effort ......some lenders should have flexibility to approve a heloc based on your job and work history ( assuming you have 2 yrs history ??) ...when will you have 2 yrs on present job ? Try the bank you bank with ....try the lender that has your 1st mtg .....try the smaller credit unions and banks in your local area

2) a 90% heloc lender will give you about 70K ....an 85% cltv HELOC will give you approx 45K ...how much are you looking for ?

3) try using a combination of sources to raise the funds needed ...do not do a cash out refinance or sell your home ( unless you plan to sell the home anyways ) ......

Great thoughts here Dave!

I don't have two year history at the job, that actually has been one of the reasons the HELOC has fallen through.

I have tried a few different lenders all with LOW flexibility and they weren't able to make anything work. I realized recently that I need to be working with a broker who has more flexibility and options in the different products they offer. My bank, Ally, doesn't do HELOCS. I am now working with the company that originated my loan. Fingers crossed this gets done. I should have started with this broker sooner.

2) I'm looking to take out as much as possible. Most lenders can only do 75 or 80%. Again, I recently realized I need a broker, not a traditional lender. This was kind of stupid of me.

3) Agreed I shouldn't sell and rates jumping means a refi is off the table. I like the idea of combinations of funding. Hopefully, a HELOC works, @Sara Aviles also gave me some really good insight on other methods of funding.

I really appreciate your input! Very valuable perspective.