Starting with little downpayment cash.

34 Replies

Hello everyone, 

I have been scavenging through the forums lately looking for some advice on this and listening to a Podcast right now. Question is how does an eager hopefully soon to be investor get into the game with little for an downpayment? I see that investors have to put down 20-25% on an investment property. Which for me would be quite I big chunk of money. I know there is the VA loan for military members which I could use but I have to stay in the home for "x" amount of time. I also have heard about FHA loans but I'm not sure of the ins and outs of this loan.

Are there any other outlets out there in which I have not stated? The last option I know is getting a personal loan from a coworker, family or friend.  Do I know any of those mentioned that could give me say 20k I honestly don't know.  I maybe rambling a bit right now but I'm typing my thoughts down as they come.  

Also is there anyone out there in my local area that could possibly show me the ins and outs of how they go about their business?  I have networked with a few awesome people in my area just wondering if there are others out there. If there are other investors close I am willing to help out with whatever I can. Thanks everyone!

Is it possible for you to live in the house and rent out rooms? That would give you give your foot in the door with you low downpayment. If you do the VA loan it is 0 down. Than you could save up for your next rental at 0% down. That is how we started only add in a repair :)

Originally posted by @Elizabeth Colegrove:

Is it possible for you to live in the house and rent out rooms? That would give you give your foot in the door with you low downpayment. If you do the VA loan it is 0 down. Than you could save up for your next rental at 0% down. That is how we started only add in a repair :)

 I actually have a growing family (child #3 on the way), renting out rooms wouldn't really be an option for me sadly.

@Brandon Proctor  

I've also been aggressively persuing investing with little money down.  Depending on what you're interested in doing specifically with investing, there are different options I've read about.  I'll list a few below with a few comments:

1: FHA - requires you to live in the residence (at least one year by contract), lower interest rate, but required mortgage insurance, 3.5% down, very strict appraisal and inspection FHA requirements, you can only have one FHA loan (within a certain distance of each other). There are different FHA loans to accomodate structural or cosmetic fix-ups if needed.

2:  Do you have a Key Bank in your area?  They do "community loans"... same sort of story where you need to live there for at least a year.  Don't know much more about it other than lower interest rate.  If you don't have a Key Bank, you can always check around your local banks/credit unions to see if they have something similar.

3:  Hard money lender - you can google search or search bigger pockets for more information.  Sometimes they will lend 100% of what you need but with the trade-off of charging you a very high interest rate (10-18%).  Typically lending options last up to one year before you need to refinance or use your exit strategy.  I believe this type of lending is best for doing flips.  

4:  Does your job have a benefit/discount on loan information/closing costs/etc?

5:  Owner financing - You can easily find properties that owners are willing to finance and be your "lender".  I find them often on Craigslist.org in the real estate section.

6:  Lease Option/Lease Purchase:  Like a taste-test, you can "rent" for however long the lease lasts, then purchase using some of the "rent" you paid as toward your down on that property.  

I've been studying lots of financing and am always hungry for more information.  Much of this information is referenced from bigger pockets and from a book I read on lending, "Mortgage Secrets All Borrowers Must Learn - But Lenders Don't Tell" Gary W. Eldred, PhD.  It might be sort of dry, but extremely informative about your buying options.  

I hope this helps!

@Brandon Proctor  

I forgot one very cool option! You can find duplexes/triplexes to live in that are near the price of a regular SFR. The bonus here is that the banks will account for the fact that you will have the other unit(s) rented out and may approve you for more money. The rent coming from the other units will undoubtedly ease your financial burden on the mortgage payment every month. This is a great option if you're ok living with common walls. You can also use FHA loans on 2-4plexes as long as you intend on living in a unit for at least 1 year - just like a SFR

Originally posted by @Kyle Denmark :

@Brandon Proctor 

I've also been aggressively persuing investing with little money down.  Depending on what you're interested in doing specifically with investing, there are different options I've read about.  I'll list a few below with a few comments:

1: FHA - requires you to live in the residence (at least one year by contract), lower interest rate, but required mortgage insurance, 3.5% down, very strict appraisal and inspection FHA requirements, you can only have one FHA loan (within a certain distance of each other). There are different FHA loans to accomodate structural or cosmetic fix-ups if needed.

2:  Do you have a Key Bank in your area?  They do "community loans"... same sort of story where you need to live there for at least a year.  Don't know much more about it other than lower interest rate.  If you don't have a Key Bank, you can always check around your local banks/credit unions to see if they have something similar.

3:  Hard money lender - you can google search or search bigger pockets for more information.  Sometimes they will lend 100% of what you need but with the trade-off of charging you a very high interest rate (10-18%).  Typically lending options last up to one year before you need to refinance or use your exit strategy.  I believe this type of lending is best for doing flips.  

4:  Does your job have a benefit/discount on loan information/closing costs/etc?

5:  Owner financing - You can easily find properties that owners are willing to finance and be your "lender".  I find them often on Craigslist.org in the real estate section.

6:  Lease Option/Lease Purchase:  Like a taste-test, you can "rent" for however long the lease lasts, then purchase using some of the "rent" you paid as toward your down on that property.  

I've been studying lots of financing and am always hungry for more information.  Much of this information is referenced from bigger pockets and from a book I read on lending, "Mortgage Secrets All Borrowers Must Learn - But Lenders Don't Tell" Gary W. Eldred, PhD.  It might be sort of dry, but extremely informative about your buying options.  

I hope this helps!

 Thanks Kyle for all the information!  It seems like my best option right now is living in the home for a year or so.  Which isn't a terrible thing but I was really hoping to get into a positive cash flow before then.  Not trying to seem like I'm trying to rush into something.

You helped a ton!

Sorry to post yet again @Brandon Proctor  , If you have a retirement account, you can check with that account manager to see what your options are about borrowing against yourself.  For example, if you have a tax-sheltered annuity with $40,000 in it, you can borrow up to $20,000.  You'd have to pay it back with minimum interest.  The bonus here is that the interest you pay is actually going into your account - not a lender.

@Brandon Proctor  

buy a 4plex with va loan if you have enough income.    be path of least resistance imo. . might wait til next assignment. 

Originally posted by @Kyle Denmark :

@Brandon Proctor 

I forgot one very cool option! You can find duplexes/triplexes to live in that are near the price of a regular SFR. The bonus here is that the banks will account for the fact that you will have the other unit(s) rented out and may approve you for more money. The rent coming from the other units will undoubtedly ease your financial burden on the mortgage payment every month. This is a great option if you're ok living with common walls. You can also use FHA loans on 2-4plexes as long as you intend on living in a unit for at least 1 year - just like a SFR

 Funny that you mentioned that because that was my number one plan, only down is that the duplexes/triplexes in the area aren't very appealing.  There are nice multifamily homes in the area but I have yet to find one for sale, not sure if I have been looking in the right places.

As an "investor" with my first rental just purchased and undergoing rehab right now, I just managed to solve that equation (for one property - I'm sure I will have to figure it out again soon for the next). I originally was going to go the FHA route - as that required only 3.5% down, but due to seller issues I ended up fortuitously stumbling across a private lender who was willing to finance 100% of the property - with the expectation/requirement that I build equity in the next two months through improving the property. This was definitely a non-standard approach through an acquaintance, but from what I am gathering, non-standard approaches are fairly frequent in this industry. Good luck figuring it out - I'm a firm believer that if you just focus on educating yourself, while at the same time taking action (even if you don't yet know how to do it properly) results will happen. Definitely look more at FHA - even FHA 203k. 2-4 unit MF properties, living in one and renting the other seem to be a proven strategy for a low-cost entry into this business.

Originally posted by @Kyle Denmark :

Sorry to post yet again @Brandon Proctor , If you have a retirement account, you can check with that account manager to see what your options are about borrowing against yourself.  For example, if you have a tax-sheltered annuity with $40,000 in it, you can borrow up to $20,000.  You'd have to pay it back with minimum interest.  The bonus here is that the interest you pay is actually going into your account - not a lender.

 I actually don't have a retirement account right now, so sad to say thats not an option right now. I must say thank you for all the options you have given me in which I haven't even heard of.

Originally posted by @Alex M. :

As an "investor" with my first rental just purchased and undergoing rehab right now, I just managed to solve that equation (for one property - I'm sure I will have to figure it out again soon for the next). I originally was going to go the FHA route - as that required only 3.5% down, but due to seller issues I ended up fortuitously stumbling across a private lender who was willing to finance 100% of the property - with the expectation/requirement that I build equity in the next two months through improving the property. This was definitely a non-standard approach through an acquaintance, but from what I am gathering, non-standard approaches are fairly frequent in this industry. Good luck figuring it out - I'm a firm believer that if you just focus on educating yourself, while at the same time taking action (even if you don't yet know how to do it properly) results will happen. Definitely look more at FHA - even FHA 203k. 2-4 unit MF properties, living in one and renting the other seem to be a proven strategy for a low-cost entry into this business.

 Thanks Alex for your input, private lenders really scare me because of those expectations and requirements. The building equity with improving the property does sound like a good idea since I was thinking about doing light renovation on any property that I would buy.  I would definitely look into MF homes if there were more in my area.

1 - Hard money lender

2 - Doing a sandwich lease option

3 - Doing a few Wholesale deals to build up your cash

4 - Partner up with another investor

5 - Look for houses where your cash position will work.

Originally posted by @Joe Villeneuve :

1 - Hard money lender

2 - Doing a sandwich lease option

3 - Doing a few Wholesale deals to build up your cash

4 - Partner up with another investor

5 - Look for houses where your cash position will work.

 Hard money lenders kind of scare me because of the high interest and special requirments from what I hear.  Could you elaborate on how a sandwich lease option works?

I have considered wholesaling but not sure how well it would work in my market.

@Brandon Proctor  

1 - Hard Money: Don't think of a HML as a loan. Think of it as an expense...like the floors, the paint, the kitchen, etc... The total cost of the hard money is the Cash from the HML itself plus the fees and interest. It's a total cost that you have to count in your rehab cost...and pay back with your exit strategy. Here's the kicker. You must include the cost of the Cash, the fees and interest, as an added cost of rehab. So, if you anticipate a 3 month rehab, your cost of money for rehab (interest on your HML/Cash) is based on those 3 months and is a set amount. If you take longer than 3 months, the added interest is a cost overrun on your rehab. Just like finding out you have a furnace that won't light (after you bought the property), and you have to fix/replace it. HML isn't anything to be afraid of...but it should be respected.

2 - Sandwich L/O: Not enough space here. If you are interested you can contact me privately and I'll be happy to explain how it works.

3 - Wholesaling:  This works everywhere...if you have a plan....but not all areas are equal.

Originally posted by @Joe Villeneuve :

@Brandon Proctor 

1 - Hard Money: Don't think of a HML as a loan. Think of it as an expense...like the floors, the paint, the kitchen, etc... The total cost of the hard money is the Cash from the HML itself plus the fees and interest. It's a total cost that you have to count in your rehab cost...and pay back with your exit strategy. Here's the kicker. You must include the cost of the Cash, the fees and interest, as an added cost of rehab. So, if you anticipate a 3 month rehab, your cost of money for rehab (interest on your HML/Cash) is based on those 3 months and is a set amount. If you take longer than 3 months, the added interest is a cost overrun on your rehab. Just like finding out you have a furnace that won't light (after you bought the property), and you have to fix/replace it. HML isn't anything to be afraid of...but it should be respected.

2 - Sandwich L/O: Not enough space here. If you are interested you can contact me privately and I'll be happy to explain how it works.

3 - Wholesaling:  This works everywhere...if you have a plan....but not all areas are equal.

 Thanks you cleared up that up for me by me now looking at is as an exposes versus a loan.  I will send you a PM In just a minute. 

Hey @Brandon Proctor  

I'm an Air Force guy myself that just started investing about 8 months ago. I've done nothing but conventional loans so far, so sadly I can't be of much assistance to you. However, @Brandon Turner  wrote a great book on precisely this topic. 

The Book on Investing in Real Estate with No and Low Money Down

The title pretty much says it all ey?

Best of luck and let me know if there is anything I can do to help.

Medium regular logo   png file   quick print for sticker web  etcTyler Flagg MBA, Ragnar Realty, LLC | [email protected] | 405‑320‑9880 | http://www.ragnarrealty.com

Originally posted by @Tyler Flagg :

Hey @Brandon Proctor 

I'm an Air Force guy myself that just started investing about 8 months ago. I've done nothing but conventional loans so far, so sadly I can't be of much assistance to you. However, @Brandon Turner  wrote a great book on precisely this topic. 

The Book on Investing in Real Estate with No and Low Money Down

The title pretty much says it all ey?

Best of luck and let me know if there is anything I can do to help.

Thanks Tyler, I have listened to the Podcast with @Brandon Turner talking about the subject. I'm sure the book goes into more depth about it as well. Question on your conventional loan, what percentage did you have to put down for your property? Also have you ever used your VA loan?

Brandon,

I had to put down 20% on all of them. Luckily for me, my properties have been between 45k-75k...so the downpayment's have been reasonable.

I haven't done a VA loan yet, but I plan on getting a multi-family using the VA loan when I move to a new base soon.

Medium regular logo   png file   quick print for sticker web  etcTyler Flagg MBA, Ragnar Realty, LLC | [email protected] | 405‑320‑9880 | http://www.ragnarrealty.com

@Brandon Proctor  I would definitely save up until you can start with a conventional loan. What I like most about putting 20-25% down is that you mortgage payment is lower so if the economy slows down you have a margin of safety to lower rents without taking an operating loss.

Originally posted by @Tyler Flagg :

Brandon,

I had to put down 20% on all of them. Luckily for me, my properties have been between 45k-75k...so the downpayment's have been reasonable.

I haven't done a VA loan yet, but I plan on getting a multi-family using the VA loan when I move to a new base soon.

 Oh ok thats the price range I am wanting to invest in, once I get started.  Purchase at a relatively low price and renovated it to be above the competition.

I would use my VA loan for a MF home but the ones in my area aren't that great.

The VA loan is an unbelievable advantage every military investor should be using, IMO. You can do 100% financing and can acquire small MFR, so long as you occupy one unit. I literally think it's the best loan product in the entire country.

And, forgive me if I'm overstepping, but I wanted to make a comment on your mindset. I saw a few "I can't" "Well, yeah, but..." "That doesn't really seem to be available where I live". Personally, I'd like to challenge you to eliminate those from your internal dialogue. Instead of saying why things won't work for you, try to brainstorm ways you could make them work, even if it's just an intellectual exercise.

If renting rooms isn't a good fit since you're a family man, how about buying a single family home with an accessory dwelling? Garage apt, finished walkout basement, finished attic with separate entrance? Don't see any listed, then start looking for a place where you can finish it. If you haven't seen any good MFR, figure out why not -- zoning issue, construction costs, population density?

Get your numbers down pat -- spend time on craigslist seeing how much houses rent for, and then go to realtor.com and figure out if any single families in your area will cashflow (not to buy, because you don't have the money down right now; just as an exercise to build your deal-recognition muscle).

When you find the MFR in your area, call the landlords and PMs and ask if you can take them for coffee. Learn about your market (demographics, property taxes, rehab/maintenance costs, pitfalls and code enforcement curiosities).

Good luck, and keep us posted!

Thanks for all the advice @Jordan Thibodeau  with the intellectual exercise I read about that in Rich dad poor dad as well.  It really does help get in the right mindset to solve problems and eliminate doubt.

About purchasing a home with a basement and renting it out I'm not 100% sure my wife will come on board with that plan. Being that we have 2 small children but I will bring it up to my wife.

MFRs in my area, or at least the ones I see for rent are run down and they aren't in the best neighborhoods. I have seen many duplexes in my area though that are really nice just haven't been able to find one for sale. Not sure if I'm not looking in the right places or not.

@Brandon Proctor   often you can find a property with an additional rental in it, like a rented basement or an extra mother-in-law house on it.  While rare you can find them.  You might consider one of those.  Good luck.

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