Ways I have found money for investing!

Ways I have found money for investing!

Contractor · 08234 · Member since 2016 · 253 posts · 178 votes

Hi Everyone,

One of the key parts of investing is obviously finding the financing for the deals after you find it. It can be one of the easiest parts but you need to know what to look for. So many investors will tell new investors to not worry about the money and it will come when you have a deal but they forget to tell the new investor where to get it from when the time comes. I want to compile a list of places to find the money. So below are places that I have got money from, places I know other investors have achieved financing, and I would like everyone to add the ways they have raised funds for their properties.

-Hard money brokers- this one is pretty easy to find by asking another investor or looking up online. the key is to do your due diligence and find out exactly all their costs and rules. I have been caught up on a rule before that wasn't disclosed before and it killed my deal. This money is good for getting started because it TENDS to be easier to borrow. 

-Private Money- this one is borrowing money from a private individual. It can either be someone you know like a relative or friend, It could also be someone you find that has money they are looking to lend, Doctor, lawyer, dentist, contractor, etc. It is very important to make sure everything about the deal is very clear in this type of lending so no one can say something was missed. Benefits here can be that you can negotiate a good deal on the lending, from interest to no payment and splits of profits, the creativity is only limited by you imagination. 

-401k- people can lend money out of their 401k (it is a particular one that I myself am not positive of which) this is a great way for lender to make more money in their 401k and get good tax benefits on lending the money. An accountant would be a good person to ask about more particulars on this one.

-Traditional banks- smaller banks are lending money in a few ways. They are doing a flip loan much like hard money lenders but with better rates, they are doing lines of credit to experienced investors, they are creating "Lines of credit" that are treated as mortgages but because they are "lines of credit" they are already approved and can be closed quicker. The longer you use a bank the more money they will give you. 

-Transactional funding- this is a lender that is lending you money for a wholesale or a deal where you need to buy it then you can get a bank loan on the property. they only will lend the money for 30 days at most usually and expect a fixed money back on the money usually. You can look up some of these lenders online or ask other wholesaler investors. 

-FHA 203k loan- ask mortgage brokers about these, they are very involved but can be a great start for a new investor. it takes a lot less down to get the loan and can be very helpful in protecting you on your first deal because of all the requirements needed to settle the loan. these are most common for house hacks. I know a lot of these loans require some sort of owner occupation, But I believe a few don't (mortgage brokers please clarify for us)

Crowd Funding- This is easy enough to find online, their are many websites now offering it. It is useful to use if you have little or no funds for a particular deal. I would recommend reading more online and maybe finding and investor who has done it before to find out more. 

Creative-  This is the number one thing to be when it comes to funding your deal. I know some Investors who have funded deals by doing a partnership with the current owners, ex relative dies and the family decides to finance deal for investor who gets deal done and then everyone splits profit. There are so many ways to complete a deal that it only takes a knowledge of your costs and how real estate is bought and sold to figure out new ways to get it done. 

I ask everyone to add their experiences and knowledge to this discussion so we can all have a great resource of what's possible when it comes to getting the deal together and completed.


Thanks!

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Investor · Youngstown, OH · Member since 2017 · 2k+ posts · 2k+ votes
6y

@Steve M. It's a numbers game. Say it's Jan. 1, and you have a $100k CC limit that's 0 interest for 18 months. You find a $20k house that needs $15k in repairs. You pull cash from the card for those transactions and have the repairs done by June 30th. You get a tenant in there and refinance it on December 31st, and it's appraised at $60k. The bank is willing to loan you 70% of the appraised value, so they give you $45k. You pay off the cards, get $10k in gold coins, and dive through them like Scrooge McDuck. 

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  • Rental Property Investor · Allentown PA, United States · Member since 2016 · 567 posts · 442 votes
    6y
    Originally posted by @Ankush Ratwani:

    @Bill Goodland

    I got 40k, with decent to good credit so I’m sure you can get that or more. I didn’t ask for more but I don’t see the downside of trying. It comes down to the monthly payment with higher loan amounts which can be a lot. My lesson learned was taking one out and not having a property secured. Still in the process of putting in offers while my monthly payment is going.

    Ah I see. I got pre-approved for 50k but it seems to be just a personal loan. I'd be looking for a LOC to only draw from when I actually pull the trigger on a place.

  • Real Estate Agent · Menomonee Falls, WI · Member since 2016 · 54 posts · 45 votes
    6y

    Thank you William. A very helpful list. I will try to condense this for a cheat sheet for my investors if you don't mind. Super appreciative!

  • Rental Property Investor · USA · Member since 2019 · 8 posts · 6 votes
    6y

    The credit card thing didn't work for me. Tried buying a tri-plex, used a card with a 18 month 0% interest for down payment, put the money into the bank ($51,500), for two months! Bank would not accept it as legit. Told me that I cannot use borrowed money to borrow more money.

  • Contractor · 08234 · Member since 2016 · 253 posts · 178 votes
    6y

    @Rob McAllister

    Glad it was helpful! Definitely put a list together I learned some more about financing myself as well!

    @Jay Anderson

    The money when you take it out can be hard to shift around if I remember correctly. It is probably the bank more than the card money though, or the way you took it out maybe? I’m sure one of the previous people in this post would know better.

  • Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
    6y

    @Jay Anderson banks typically have seasoning periods for unsecured funds not obtained as part of a verifiable income source. It may be possible to use those funds after say 6-12 months. Others may be fine with it so long as it doesn't significantly impact your credit score or DTI ratio AND you already had a sufficient amount of cash or liquid assets to begin with. If the bank requires 6-12 months seasoning on the cash but only 6 months seasoning on the refinance it may still be a workable option so long as you get your numbers right.

  • Real Estate Agent · Torrance, CA · Member since 2018 · 33 posts · 27 votes
    6y

    I asked my wife if we could start investing in real estate and she said, "You can get a side job and invest the money you earn in real estate." So, I became a real estate agent and it's working out so far. I'm in the process of wrapping up my fourth transaction for the year. I have to disclose all my clients were close family and friends.   

  • Investor · Cleveland, OH · Member since 2019 · 103 posts · 22 votes
    6y

    @Nicole Heasley

    Hey Nicole, can I PM you to discuss further?

    Thanks

  • Member since 2019 · 6 posts · 1 vote
    6y

    @William Lees To purchase my first home, I rolled my 401k (former employer) into an IRA. Took the cash out penalty free (paid taxes) for the down payment

  • Rental Property Investor · 60657 · Member since 2019 · 8 posts · 7 votes
    6y

    @Michael Weiss

    Why was it penalty free? I believe there is still a penalty on cashing out the IRA too early

  • Member since 2019 · 6 posts · 1 vote
    6y

    @Geoffrey Klein if it is taken out for a first time home buyer, it can be used penalty free. Sorry, I should have mentioned!

  • Contractor · 08234 · Member since 2016 · 253 posts · 178 votes
    6y

    @Michael Weiss

    That's awesome! I have a double chin was with using 401(k) or iras Could you tell me more about how that process worked for you? What kind of 401(k) or IRA did you need, what were some of the guidelines, some of the hurdles, etc.?

  • Contractor · 08234 · Member since 2016 · 253 posts · 178 votes
    6y

    @Michael Weiss

    Edit for that last one being not “double chin” lol but never used a 401k

  • Member since 2019 · 6 posts · 1 vote
    6y

    @William Lees it was a 401k I rolled into a normal IRA after I left my old job. I found out that I was able to use my IRA to pay for the down payment as a FTHB. If you have a ROTH IRA, I believe it must be open for a minimum of 5 years before being penalty free

  • Central Arkanas · Member since 2019 · 9 posts · 8 votes
    6y

    @Jon Cooney that's very interesting, i have been looking into using a 203k loan with my wife and purchasing our first multifamily. Congrats man!

  • Investor · Lees Summit, MO · Member since 2019 · 20 posts · 7 votes
    6y

    @William Lees great post! I first paid off all of our consumer debt, then started putting my debt snowball money into my wealth snowball money and putting it back into savings. Between car loans, student loans and daycare (my son aged out of the system finally..lol) I realized I had a few grand “extra” now per month that was freed up. So I saved a few months of that, and took a small loan against my 401k for the remainder of our down payment, which I’ve already paid back. Worked with local lender to finance. For our second, we used the one year of rent that our first tenant paid up front for the down payment and then used the same local lender.

    I wanted to add my story since it's more about getting creative about designing a lifestyle of delayed gratification, living well below means, and reallocation of your own W2 earnings from liabilities to assets. For my next one, I am planning to possibly partner with someone and use a hard money lender and go after a BRRRR. Here's to success to us all in getting creative to get in the game or stay in the game. 😊

  • Phoenix, AZ · Member since 2017 · 135 posts · 294 votes
    6y

    @Jay Anderson You are correct, banks don't want you to borrow money to use as the down payment.  That is why if you go this route you forgo the bank entirely.  Either by buying a home entirely with credit cards and then refinancing before your grace period wears off and you need to start paying interest on those cards.  Or you can buy a fixer upper home that is still in good enough shape to qualify for traditional financing, and finance the home the regular way, and use credit cards to fund the rehab portion of it.  

    A few words of caution however, is that poor planning leads to devastating results with this method so you need to know what you're doing prior to starting.  If for whatever reason you get stuck paying full CC interest rates then it will destroy any deal.  Also while you have the money on your cards, your credit score will plummet as your utilization rate on those cards skyrockets (utilization rate comprises 30% of your total credit score).  This means your credit score could very well drop by 100-200 points while you are doing this.  The good news is that when you refinance and remove the debt from your cards, your score will return to its normal levels fairly quickly.  

  • TX · Member since 2019 · 35 posts · 13 votes
    6y

    @William Lees so you're telling me i can use my wife's capital one credit card to help with down payments or closing costs?

  • Rental Property Investor · Charlotte, NC · Member since 2017 · 298 posts · 232 votes
    6y

    @Samuel J Gonzales IV haha. Not so fast. You still have to show where the money originated from if you are taking a loan and it hasn’t seasoned. Also, some states do not allow only one party in a marriage to be on a loan so you better check that if it’s not a commercial loan.

  • TX · Member since 2019 · 35 posts · 13 votes
    6y

    @Jeshua Patrick lol ok too good to be true.

    Thanks for your input.

  • Flipper/Rehabber · New Orleans, LA · Member since 2015 · 36 posts · 22 votes
    6y

    @William Lees, great post. I've used 203k. Yes it's only for owner occupants. You must live on property for at least 1 year before selling. Live on property for 2 years to not pay taxes on the gain.

  • Flipper/Rehabber · New Orleans, LA · Member since 2015 · 36 posts · 22 votes
    6y

    I've used 203k. It's only for owner occupants. You must live in home for at least a year. Purchased price $86,400. Remodeled at $45k. Real estate agent believes it can sell for $172k. Of course I'm selling then taking profits to reinvest in another property.

  • Contractor · 08234 · Member since 2016 · 253 posts · 178 votes
    6y

    @Michael Weiss

    Thanks for the info, It is definitely a great way to use money for an investment!

    @Mindy Templeton

    That is a great use of discipline and initiative. It' was a great way to build a rock solid foundation! Thanks for sharing! The creative part is so important in financing. Same to you with great success!

    @Samuel J Gonzales IV

    @Jeshua Patrick is right about the cc money. It is a viable option but you need to get it off the card as cash to be able to use it and then need to make sure it is usable for that particular loan. Hard money and private lenders won't care as much as a bank may. So using a different loan in-conjunction with the card would potentially work. A few people above have posted different ideas as well and definitely know more about it then i do. 

    @Nicole Parnell

    Thanks! It definitely went better than I thought. Thanks for going over the time limits for the FHA 203k as well. I didn't know you could avoid the tax on profit by waiting an extra year! good to know thanks!

  • Rental Property Investor · Bakersfield, CA · Member since 2019 · 21 posts · 10 votes
    6y
    One question I have is, are there any government loans for multi-family units?

    Originally posted by @Jon Cooney:

    @William Lees

    I have borrowed on a 203k steamline loan twice. Both as owner occupant (house hack). It went great. As owner occupant buying a foreclosure it has some definite advantages...

    1. HUD likes to sell to owner occupants over investors.

    2. The only people you are competing with are the non-preferred cash buyers and those with a Construction loan because no bank will loan on a dilapidated property. The 203k includes a promise to the bank you will make the property “insureable” by completing the work.

    If you put in the sweat equity it works great. Dealing with contractors is a whole nutha level of paperwork from FHA.(hopefully your uncle is a contractor, wink)

    My first deal was a perfect storm. I bought a 2/1 on a busy street,30k, rehab was 25k. All in for 55k and it appraised for 90k when finished. The city pulled an eminent domain to turn the road into a parkway and bought my house . The whole process was about a year closed at 126k and I walked away with 76k in my pocket. This started my adventures in real estate. When they adversely posses your primary residence they have to pay 25 percent premium one top. And if you have to move a business, I have two, they pay 3k for moving the business. ( this education is not provided by the city).

    The second one I 203k loaned on was 102k with 9k to fix it. Appraised at 145k. I say if you are starting out, put yourself in the best deal you can get in a B neighborhood and fix it up with OPM. Then you just pay your mortgage and you can use your equity to leverage a deal. And oh yes, work,work,work. Also you get to enjoy living in the place.

    I just want to share that story because it’s a unique experience.

    I’ve also used discover home equity after paying cash (24k) for a house and racking up credit cards. They don’t do a walk thru appraisal just a drive by. Let’s just say the landscaping looked better then the interior of the house.

  • Flipper/Rehabber · Liberty, MO · Member since 2016 · 2 posts · 18 votes
    6y

    As far as multi family my understanding is 1-4 units are considered "single family" and is all considered the same by FHA/HUD. So 203k is no problem. More units than that I believe you would have to go with a commercial loan which I am not as familiar with.

  • Rental Property Investor · Member since 2018 · 483 posts · 956 votes
    6y

    A lot of great information here on credit card usage so I will add more because when I was building my first portfolio I used credit cards to buy and rehab homes. 

    1. When you have great credit and lots of income you can definitely get $100k cards. We currently have over $250k of available card credit. 

    2. How do you get the money off credit card? Once again when you have great credit and high available credit limits you will receive blank checks in the mail. We get at least 5 a week... they really want us to use the offers they send. 

    3. Yes! You will pay a transaction fee, anywhere from 0% to 3% with excellent credit. However I understand it can be higher for folks with not so good credit. 

    4. I have received offers from 6 to 18 months.  Actually just got 2 in the mail today from USAA 0% for 15 months with a 3% transaction fee on 2 different cards.

    5. Best cards offers we get are Discover cards,  Citi bank and USAA in that order.  Discover usually offers 0% for 18 months and 0% transaction fee.  

    6. We no longer use cards to buy houses because we are strictly A&B properties now. However we do still use them for rehab funds.  It's hard to turn down free money and with 18 months to refinance a rehab it's little risk. 

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