Low Down Payment Option?

Question

Hello all!

I just purchased my first fourplex and I've learned a TON! We've set up an awesome little pipeline where we already want to go get a second!

THE ONLY PROBLEM...

My partner and I just don't have the capital to fork out another 25% for a down payment. Do you all know of any lenders, loopholes, or programs that can keep us in the 10% down range?

If it helps, our niche is affordable housing, so maybe there's a play there?

Regardless, thank you all in advance for your help!

- Stetson T. Stallworth

Lucas Miles · Answer

@Stetson T. Stallworth if seller is motivated seller financing is an option. Contract for deed, seller holds 90% you come up with the remaining 10%. Seller holds a loan in second position, bank gives you 80%, seller holds 10%, you come up with 10% (ask you lender if they are okay with this setup). With both options refinance with bank lending down the road. For this to work it has to be an awesome deal! Will be hard to make the numbers work on a marginal deal.

Stetson T. Stallworth · Answer

Thank you, @Denver McClure!

In our position, it's probably not something we can explore right now. But you definitely learned me something! And if it ever seems like the right move, you bet I'm calling Denver from Dallas!

Thank you again!

Stetson T. Stallworth · Answer

Oh, you've got that right! Vegas never ceases to amaze!

We actually work with a non-profit in town that provides transitional housing, career services, financial counseling, etc. Tenants will definitely be hard on the properties, but we're doing everything we can to mitigate the damage (high reserves, double deposit, etc.).

Thank you, sir!

Rob Kishi · Answer

Equity/financing partners, seller financing, or live in the property to qualify for primary residence financing.

Bob E. · Answer

@Stetson T. Stallworth  also keep in mind that there are a lot of people out there with money in their self directed IRA's that will be willing to fund deals.

Stetson T. Stallworth · Answer

Wow @Bob E. THANK YOU!

First of all, BIG Dave Ramsey guy here (I think he gets a bad wrap in our world), so thank you for reminding me of his debt snowball.

Second, these are all awesome! In our situation, it seems like the most realistic options to explore first are #'s 1 and 4. Great ideas and simple concepts that still don't leave us over-leveraged.

Thank you!!!

Denver McClure · Answer

All great points @Bob E.! @Stetson T. Stallworth, just want to comment on Bob's 6th recommendation.

Margin Rates have become very competitive over the last few years. A good comparison can be found here on current rates. I personally use Interactive Brokers myself and for my investment clients who are looking to purchase properties or complete renovations and need access to low cost capital. Happy to help explain this further if needed!

Bob E. · Answer

@Stetson T. Stallworth  I feel your pain.  Some things we did when we were starting out that helped.  These are expensive money but we used all of these methods and then latter did a Dave Ramsey Debt Snowball.

1)  Get a business Line of credit for your LLC you can use as needed and pull money for down payments or rehab.

2)  Get a credit card for your LLC, auto bill your insurance and other monthly expenses,  You can then make minimum payments this "saving" the difference as cash for other things.

3)  Get a Prosper or similar loan.  They are a PITA about not taking auto pay from a business account but they lend.

4)  Get a private loan as a second.  Our typical private loan is 30k at 10% for 7 years with a payment of $498.04.  If you keep the maturity short you will, in a couple of years, have loans paying off and increased cashflow.  We have a string of these with one a year paying off starting in 2024 - 2030 so every year we get a $500 a month raise.  Also we usually borrow on a property we already own then go shopping, that prevents issues with the private lender becoming a lot minus problem.  We have loans with family and friends and are happy to pay them a good rate of return.

5)  Convert your IRA to a Self Directed IRA.  You can borrow in and IRA but you will probably need 65% LTV non recourse loans.  If you do borrow money you will need to file a for 990T.  We use MidAtlantic IRA and request them to do the paperwork every year for a modest fee.  Not a big deal but I see people talk about this like it is the end of the world.

6)  Set up a margin account with your stock broker, you can usually borrow up to 50% of the value of the current value of your stocks.  Be careful because if they value of your portfolio drops the amount they will lend drops and you may a a call to pay back a portion of your loan.  Note our account with TD Ameritrade had really low rate 3-4% last year, not sure what that is now but it is variable.

7)  Get a cash advance credit card, with 0% intro APR and roll over your more expensive debt.

At one point early on we had a Prosper loan, Chase card, US Bank Card, Wells LOC and Wells Card that were all close t their limit.  Then we paid them off with the Dave Ramsey Debt snowball.

Stetson T. Stallworth · Answer

These are great! Thank you, sir!

You're right - the seller will have to be fairly motivated for these to work which, unfortunately, is going to be hard to come by in today's market. But no doubt we'll keep these in our back pocket.

Stetson T. Stallworth · Answer

You're absolutely right. We're considering bringing on another silent partner but will definitely have to find 'home run deals' for it to work.

But why not!?!

Thank you!

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