@Paul Caporali For this kind of situation, you would want to pick up a property that needs work. Ideally undervalued by 20% or more. Make the repairs using a hard money loan. After 6 months, get a new appraisal and refinance the property. If you bought right and only made the necessary repairs, you should be able to pull out all or most of your money. Now you have a rental with no money invested and you are ready to move on to another. Check with your lenders about how long they need a property to "season" before you can refinance. Make sure you have something lined up before you jump into a property with this plan. You don't need pre-approval or anything that formal but at least know that they will refi the property given an appraisal.
For further research, read up on the BRRRR strategy (Buy Rehab Rent Refi Repeat). There are tons of videos and posts about this on Bigger Pockets.
Besides a cash-out refinance as mentioned above another option is to tap into the equity via a HELOC.
I agree with @Brian Garrett in regards to a HELOC. However to go a step further, look to acquire foreclosed properties at a discount, rehab and once a tenant is placed, refinance cash out based on fair market value. With this strategy, you may be able to cash out your original down payment funds to recycle into the next project. This is a key strategy to growing your portfolio at a reasonably fast pace. If you continue to buy at retail pricing you will eventually run out of money and be stuck in a holding pattern as there is no way to get your down payment funds back out of a property with little or no equity.
Real estate investing will not be like what Bill Gates accomplished with MicroSoft. It should not be viewed as a get rich quick scheme, it is not. There is a lot of hard work involved in building up assets and cash wealth plus also great credit that can be used to position you to be able to make investments with OPM (other people's money) i,e. banks, and other lenders like private and hard money lenders.
For most people the ascent with be a gradual one and as you gain experience you will also gain momentum but like anything else you have to become a good manager of your business and need to make wise decision. Certainly gaining related education will help.
Different people possess a different set of skills and opportunity will not smile equally on everyone, certainly not at the same time.
@Brian Garrett I like the idea of a HELOC, but you need to know your state's rules on non-owner occupied HELOCs. They vary. In Texas, prior to this year, you could only get a line of credit for up to 50% of the appraised value if it was not owner occupied. It is now 80% I believe but other states may still have other limitations.
@Paul Caporali Just do your research and talk with some banks. Go in to a smaller local bank and ask. Let them know exactly what you are doing and ask what loan/refi options do they offer, seasoning period for refi, etc. They will help you out. Their job is to finance and close loans.
Originally posted by @Paul Caporali :
Lets say I spend all my money on the down payment for a multifamily rental home. How would I afford another down payment for when I buy another multifamily? Would I save up my income from tenants? That would take YEARS to be able to afford another piece of property. Any advice would be great thanks!
I have several methods.
- I have taken 3 loans from my TSP (401K)
- I cashed out my Roth IRA, twice
- I bought three homes using low down payment mortgages and lived in them as my primary residence (FHA 3.5% and 2X Conventional 5%)
- I used the BRRRR method and did a cash out refinance to buy another property
- I saved every extra penny for years for down payments
- I took out a HELOC
I have experienced considerable appreciation in some of my earlier purchases and I am looking at doing a 1031 exchange.
At the end of the day, I found out that I wasn't nearly as limited as I originally believed. There are alternative methods as well to acquire properties such as lease options and seller financing, but I have no experience with those methods.
Another avenue to consider would be to use a self-directed IRA to purchase the property. The property would then be owned by the IRA and all expenses would be paid from the IRA; all income generated would return to the IRA. There are a couple rules with transactions like this, such as you can't live in the property and you can't physically work on the property.
1. Save cashflow from first investment plus personal income and buy or
2. Buy at a good price and cash out refinance and buy or
3. Partner with someone and buy or
4. Flip for capital and buy or
5. Probably many others but I'm runnign out of thoughts haha
I agree though about saving and buying. I once reverse engineered my goals and realized traditional saving 20% down and purchasing was not going to cut it...at least at the pace I wanted (and frankly and probably not at all).
So I started thinking about what I was going to need to do to get the ball rolling faster. I ended up selling my original property in a 1031 exchange after getting almost everything fixed up. I never actually wanted to sell them, but if I wanted to grow faster I needed to.
Used that money to buy my current investments. I found, what I consider, a really good deal. Made some repairs and now think I can do a cash out refinance to pull out all/most of my money to make another purchase. I'm still in discussions with banks about that, so not certain, but I feel confident in it. With a little luck, I hope I can do the same with my next purchase.
If I can do that, doors should start opening for me I would have never expected had I held on to that first purchase. That's the hope/goal anyway. But the point is that there are several ways to grow!
@Paul Caporali A 1031 does has the power to help you broaden your real estate investing. Letting your property appreciate like @Anthony Gayden said will give you more capital to toy around with. With a 1031 exchange you could sell that property if appropriate and use the proceeds as 2 down payments. Not the best option if you love the current property. But it is a cheaper way than a refi and lets you unlock all the appreciation without having to think about leverage margins. And with a 1031 exchange, all your proceeds will be tax-deferred, freeing up your investing. With a "like kind" exchange you are free to exchange your original property for multiple new properties of any type. They can be properties of any kind; industrial, commercial, residential etc. You are limited only by your imagination.
@Paul Caporali you have a few options. Some of the most common are real estate syndication and partnering up. You could find another guy who has some capital and you could come along side him/her and use your sweat equity to get into the deal. The other is syndication, find a deal and pool together limited partners. By partnering you will be able to go further faster and help others by investing along side you and your hard work.
Once you have a successful multifamily deal under your belt (and by successful, the deal meets or exceeds your return projections), you improve your ability to raise money for your next deal. Leverage the success of your first deal to raise money from family, friends, and others you have an existing relationship with. Then, once you've shown that you can meet or exceed return projections to family and friends, you can attract additional capital from passive investors.
Regardless, real estate is a long-term game, so any strategy you use will likely take years to get off the ground. Patience and consistency is key.
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