need some creative financing help?

16 Replies

Hello everyone,

I am a brand new investor and I have been in the real estate business for just about five months.  I am looking to buy my first few properties.  I have lived in southern California for the past six years, and before that I spent the last twenty years in Kansas City. I have been looking at turnkey properties for buy/hold in the KC area since I am very familiar with the areas and it is only what I can afford at this point.  I have a few issues. I need money for the down payments for the properties.  I have the money, but I wanted to ask for advice on what is the best way to attain it.  Here is my financial situation:

- I own my my house with no mortgage.  I paid cash for my $739,000 home and my dad helped me out by giving me $150,000 towards the home in an irrevocable trust for my 3 yr daughter.  The rest was my hard earned savings.  I have been trying to get a heloc, but know one will approve one with a irrevocable trust on the property.  Some banks say I can see if my dad will lift the trust and then I can get a heloc and then he can put the money back in the irrevocable trust.    

- I have about $100,000 in a etf fund in the stock market that yields about 9% and I get a dividend every month which I then use for our property tax payment every year.  I was thinking I could cash it out and just pay the property taxes in whole next year and just use the rest of the money for my investment property.  

- my wife and I both work and I am a new real estate agent and I work all day everyday and then I work at a restaurant five nights a week.  I am just trying to find the best way to make use of my finances so I can start investing.  Our income together - we do not produce a lot of savings yet - as my real estate career is new - and living in Cali is not cheap!

I would just like some advice.  I would ask my dad about lifting the trust but I was burned about 15 years ago when my grandmother gave me about $90,000 to buy a house which I did in Kansas City.  It was my very first house.  Well about 3 years later I had a "good" friend of mine talk me into buying some real estate in Miami, Fl.  It all sounded good, but long story short, he had no skin in the game, and I lost it all.  My dad has yet to look past that.  I have learned so much in five months just by reading, listening, talking, networking, that I am ready to take another leap of faith.  Any advice would be helpful.  

Thank you for your time.

Scott Winnie

Here is one option:

You get a money partner who will front you the down payment.  That person will have to put the funds into your bank account and it will have to season for the next 60 days or the next 2 monthly statements that show the money in your account. 

There has to be a lit of trust in this type of deal between you and the money partner. 

Once seasoned you can then purchase the home by yourself and then once closed you can quit claim the home into an LLC that you and the money partner have created. You will surely have to work out some type of arrangement on how the money partner will recoup their down payment funds.

Good luck

@curtdavis. Thanks so much for the advice! I truly appreciate it!  

When you have identified a house ,you can do a cash out refi with a private lender/portfolio lender. These types of lenders will not be as strict as conventional lenders when it comes to vesting of the house. You will not get the super low rates of conventional lenders but you will get the money.

You can then buy houses at a discount for cash, do some remodeling. get it appraised at the higher value then do a cash out refi with a conventional loan to get your cash back. You can then do it all over again.

Originally posted by @Gordon Cuffe:

When you have identified a house ,you can do a cash out refi with a private lender/portfolio lender. These types of lenders will not be as strict as conventional lenders when it comes to vesting of the house. You will not get the super low rates of conventional lenders but you will get the money.

You can then buy houses at a discount for cash, do some remodeling. get it appraised at the higher value then do a cash out refi with a conventional loan to get your cash back. You can then do it all over again.

 So Gordon - if I was wanting to buy turnkey homes that don't need a lot work - would this system still work or  would I have to focus on buying homes that need a little bit of a remodel? Thanks for the advice. I appreciate it! 

@Scott Winnie It would work if your just buying a turnkey house. You could use a lower amount of cash as the 20% down payment to buy the house with a conventional loan.

I just wanted to give you an idea on buying a house for a discount so that you have equity and cash flow at the time you close escrow.

I like the Kansas city market also because a person can buy a house and use the rents to pay off a mortgage in ten years. You cant do that in CA.

I would be a private lender, own notes not rentals.

Lend to rehabbers, 80% total LTV.

10% rate of return to you in 3 months

Use a self directed IRA

see video

Disclosure: I have no affiliation with trustetc.com

@Brian Eastman

@Dmitriy Fomichenko

@Gordon Cuffehey Gordon - thanks for the advice - any chance I could speak with you on the phone and discuss this a little more thoroughly.  I want to make sure I understand what you are saying.  Thanks!

You can get a secured line of credit against your savings and any investment funds you have with your bank.

I currently have a secured LOC through Wells Fargo, getting an interest rate of 6.5%. Their rates range from 6-9%. The only down side is that you can't utilize the funds tied to the LOC but you can always request to reduce or raise the amount the LOC is tied to if you need to use some of the savings or add more.

Huge benefit of being able to pay cash for a property, or for the down payment. Only problem is if you use it for your down payment, you need to make sure the property cash flows enough to cover the mortgage payment AND the debt payment for the LOC, however the payment on the LOC will be interest only.

Hi @Scott Winnie ...living in Miami, I'll say don't let the bad experiences of the past sour your desire to invest here again...tell your Dad that too! The market is great here, and appreciating as each day goes by...that said, I agree with what other posts have said and you should consider a JV (Joint Venture), or consider taking our an equity line of credit with a private lender/hard money lender. Sure, rates may be higher than what you'd get from a traditional bank, but you'd close quickly, avoid the red tape of a bank, and they won't care about your daughter's trust. In fact, you could use the funds you get from the loan to pay off your dad and just have the trust removed entirely. That way, this won't prevent you from collateralizing this property with a traditional bank in the future (i.e. having them refinance you out of your private loan, which may/may not balloon). I think the key is you have to look outside the box, knowing that working with any traditional service probably won't be a match. Partnering with someone or hard money would seem to be the best bet. And you have a very crucial asset already at your disposal-your free and clear home.

Hello Scott,

I assume you lost the money initially because you did not know too much about real estate investing. So my first suggestion would be to learn how to be an effective landlord if that is the chosen plan. My second suggestion would be to market to existing landlords to see if they would be willing to sell you their rentals with the tenants in them. I would suggest you structure seller financing with Deed of Trust on the property as the collateral. I would only use my money to make improvements to the property so I can raise the rent. I purchased a number of properties from tired landlords with good tenants in them. The old landlords like receiving monthly income with reasonable interest without the hassles of tenants and it costs me little out of pocket money.

Scott Winnie I'm a rookie investors myself living in LA. Here's what I did. I met a few reputable rehabbers and did a few loans to them. One was debt and the other JV. Both have worked very well however I had some major stumbling blocks and my first "deal" I lost 100k. The person I was involved with is facing prison so I understand losing 90k. I personally am not a fan of turnkey however you have an advantage due to the fact you know the Kc market. I would first identity what your goals are. My goal is to create wealth in the shortest time possible with safe and profitable investments. Therefore out of state rentals won't get me there. However if your goal is cash flow Kc may get you there. One thing I would do prior to investing is have at least at 3 months in savings. It seems like if anything unexpected comes up it would hurt you with paying your bills. And if anything is certain it's investing in real estate things can and will go wrong. Good luck

1. Cash out Refinance your house for about 250,000 cash out.  Keep your equity high and also your payment manageable.  Perhaps use 150k to pay off your dad and remove the lien on the house from the trust.  Use 100k for war chest.

2. As mentioned above, move your existing ETF (don't liquidate it) to a bank with in-house wealth management/brokerage and get a line of credit with the security as collateral (I have one of these with Arvest Bank). Use the LOC as needed for cash purchases or down payments depending on which strategy you seek.

Regarding strategy, you will have lower returns with turnkey vs finding your own houses to buy but it makes it easier and faster to invest. The most time consuming and involved acquisition strategy of buying distressed, fixing up, and getting rented to tenant has the highest return. In second place for return is buying rent-ready properties retail off MLS and then putting PM in place (or finding tenant). Finally is buying turnkey, which requires less time and decisions (risk) on your part but also has lower return. IMO.

@Scott Winnie What amount do you need for the downpayment and what is your middle Fico score? 

@Scott Winnie Is there a reason that it has to be an irrevocable living trust? A bank will lend if it's in a revocable living trust. You might want to check that out.

Mike - I just need to suck it up and talk to my dad about lifting the trust and letting me get to my money! I will have this figured out very soon and I will be contacting you to buy some Kc properties sooner than later!!

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