20% down AND reserves, where to get it when starting out?

4 Replies

Hello!

the old adage, "you need money to make money" is coming true as I am gearing up to look at properties and begin my investment journey. My strategy is buy and hold for longterm SFR rentals. I currently have one that was owner occupied turned rental. So now I want to get another but I am faced with this WALL of cash reserves that I just don't have.

20% down for a conventional mortgage plus I need 6 months reserve for my existing rental and the one I want to buy. Is this really a case of wait and save? or are there ways to go around these requirements or meet them in some other fashion? My current rental has AT LEAST 30% equity in it but I've got it on a 12 year loan so they payment isn't too much lower than the rent I am getting.

any advice, ideas, are appreciated!

Thanks

_Carrie Westover

I'm in the same boat as you. Interested to see what others suggest. Perhaps you could find some limited partners to invest.

To help with this issue we buy as many "personal" properties as possible. They have lower downpayment/reserve requirements and interest rates.

A friend found another way to get around "reserve" requirements. He had a family member who kept a large amount of cash in their accounts. They were willing to add him as an authorized user. The mortgage company accepted this with a letter that said he was able to use this money. You only had to be on teh accounts for 30 days. So after the transaction was done they removed him.

To help with this issue we buy as many "personal" properties as possible. They have lower downpayment/reserve requirements and interest rates.

That works, but is slow. Can't do it more than about once a year. And you have to be willing to move.

Unless you mean claim its an OO loan and then rent it right away. That's fraud. Don't do that!

A friend found another way to get around "reserve" requirements. He had a family member who kept a large amount of cash in their accounts. They were willing to add him as an authorized user. The mortgage company accepted this with a letter that said he was able to use this money. You only had to be on teh accounts for 30 days. So after the transaction was done they removed him.

Definitely fraud.

You can use retirement accounts for the reserves. They will discount those to account for the taxes and penalties you would have to pay to get the cash, though.

These reserve requirements are in place for a reason. Buying rentals without having cash in the bank is a recipe for disaster.

30% equity in an existing property isn't enough to get any cash out with a LOC or refi, unless its your primary. And then you're risking your residence to make investments.

You might try to find sellers who will finance you.

Sell stuff.

Get a second job.

Sell other investments and move the money into real estate.

Look into FHA loans to decrease you down payment. You will have to be an owner occupier though.

Wellsfargo told me I do not need cash reserves until I got to loan number 5.

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