New Investor Looking for Lending Advice

Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes

Hi Everyone,

I am doing some research and planning on buying a rental property next year (I am currently saving for my wedding). My husband and I have a house with no mortgage and great credit, but no cash to invest right now. What is your advice on investing without putting a lot of money down?

[email protected]412-804-1171

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Adam Zach

Rental Property Investor · Fargo, ND · Member since 2016 · 136 posts · 112 votes

lots of good books out there on this but I personally boil things down into the following 6 categories.
1. seller finance

2. Big banks

3. Local banks

4. Hard Money

5. Private Money

6. Partnerships
I would suggest 1, 5, or 6

Note this table is from 2022 so rates are up a little higher...

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Adam Zach
Rental Property Investor · Fargo, ND · Member since 2016 · 136 posts · 112 votes
3y
lots of good books out there on this but I personally boil things down into the following 6 categories.
1. seller finance
2. Big banks
3. Local banks
4. Hard Money
5. Private Money
6. Partnerships
I would suggest 1, 5, or 6

Note this table is from 2022 so rates are up a little higher...
4 Reply
Myeasha Jones
Property Manager · San Francisco, CA · Member since 2020 · 53 posts · 17 votes
3y
I would look for programs like NACA
1 Reply
Doug SmithPro Member
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
3y
I can only speak from a lender's perspective, but we're going to want to see some "skin in the game" from the borrower. Stuy after study has shown that the less a person injects into a deal, the less likely they are to pay the deal back. In addition, the lender is going to incur costs including losses do to the time value of money if you stop paying and they have to take the property back. They are going to want to see some cushion and they will prefer that some of it comes from you personally. You might get a gift of seller concession, but putting money into the deal is pretty important to most lenders. Now, if you do decide to pull money from your current home, most lenders would prefer to see some "seasoning" of funds in your bank account. They'll ask for the last 2 months worth of bank statements and they usually won't want to see a large deposit in there coming from borrowed funds. If, however, that is part of the beginning balance of the earliest bank statement, then they will consider that "seasoned" usually and it likely won't be considered borrowed funds. I do hope that helps.
3 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
@Doug Smith that does help, thank you!! I work on commission only, and my bank deposits are irregular. Does that matter?
[email protected]412-804-1171
0 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
Quote from @Myeasha Jones:

I would look for programs like NACA

Can you tell me more about that program?
[email protected]412-804-1171
0 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
Quote from @Adam Zach:

lots of good books out there on this but I personally boil things down into the following 6 categories.
1. seller finance
2. Big banks
3. Local banks
4. Hard Money
5. Private Money
6. Partnerships
I would suggest 1, 5, or 6

Note this table is from 2022 so rates are up a little higher...

Thanks for the info @Adam Zach! Can you tell me more about partnerships?

[email protected]412-804-1171
0 Reply
Doug SmithPro Member
Lender · Tampa, FL · Member since 2013 · 2k+ posts · 2k+ votes
3y
Quote from @Alex Hileman:

@Doug Smith that does help, thank you!! I work on commission only, and my bank deposits are irregular. Does that matter?
For your investment property, it won't matter. With investment property we primarily look at the amount your injecting into the deal, your personal credit, and the property. We typically don't cash-flow you personally. With your primary residence, however, that will matter with most programs (there are a handful of programs that might work to bleed equity out of a primary residence, but they are more pricey than conventional financing).

1 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
@Doug Smith thanks for the info!
[email protected]412-804-1171
0 Reply
Adam Zach
Rental Property Investor · Fargo, ND · Member since 2016 · 136 posts · 112 votes
3y
Quote from @Alex Hileman:

Quote from @Adam Zach:

lots of good books out there on this but I personally boil things down into the following 6 categories.
1. seller finance
2. Big banks
3. Local banks
4. Hard Money
5. Private Money
6. Partnerships
I would suggest 1, 5, or 6

Note this table is from 2022 so rates are up a little higher...

Thanks for the info @Adam Zach! Can you tell me more about partnerships?

What would you like to know? I typically use the following language
1. Dating - more of a get to know you and sharing information, maybe work with each other or watch what they are doing
2. Getting Engaged - do a joint venture on ONE SINGLE deal and see how much you like each other
3. Get (business) married - form an LLC for long-term partnerships.

there are various blends of this
2 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
Quote from @Adam Zach:

Quote from @Alex Hileman:

Quote from @Adam Zach:

lots of good books out there on this but I personally boil things down into the following 6 categories.
1. seller finance
2. Big banks
3. Local banks
4. Hard Money
5. Private Money
6. Partnerships
I would suggest 1, 5, or 6

Note this table is from 2022 so rates are up a little higher...

Thanks for the info @Adam Zach! Can you tell me more about partnerships?

What would you like to know? I typically use the following language
1. Dating - more of a get to know you and sharing information, maybe work with each other or watch what they are doing
2. Getting Engaged - do a joint venture on ONE SINGLE deal and see how much you like each other
3. Get (business) married - form an LLC for long-term partnerships.

there are various blends of this
Do you ever see partnerships where 1 person finds the deal, contractors, etc. and the other person finances it?
[email protected]412-804-1171
0 Reply
Adam Zach
Rental Property Investor · Fargo, ND · Member since 2016 · 136 posts · 112 votes
3y
Quote from @Alex Hileman:

Quote from @Adam Zach:

Quote from @Alex Hileman:

Quote from @Adam Zach:

lots of good books out there on this but I personally boil things down into the following 6 categories.
1. seller finance
2. Big banks
3. Local banks
4. Hard Money
5. Private Money
6. Partnerships
I would suggest 1, 5, or 6

Note this table is from 2022 so rates are up a little higher...

Thanks for the info @Adam Zach! Can you tell me more about partnerships?

What would you like to know? I typically use the following language
1. Dating - more of a get to know you and sharing information, maybe work with each other or watch what they are doing
2. Getting Engaged - do a joint venture on ONE SINGLE deal and see how much you like each other
3. Get (business) married - form an LLC for long-term partnerships.

there are various blends of this
Do you ever see partnerships where 1 person finds the deal, contractors, etc. and the other person finances it?

Yep. I do this all the time. In fact, it's the only way I do deals.
0 Reply
Kelvin Urena
Rental Property Investor · Austin, TX · Member since 2018 · 37 posts · 11 votes
3y
One piece of advice I would have would be to consider utilizing HELOCs against the property's value. It would - as suggested below - give lenders some insight into your "skin in the game", but also gives you leverage. However, we can also play with this in a creative way. Many are concerned about downpayments (as you mentioned), yet why not get your preapproval and ask the seller if he/she is comfortable with Seller Financing the Downpayment? If the deal makes sense, you could even offer slightly more on the backend because you'd be paying them directly for the downpayment
Example: If you're looking at a $250,000 SFR, and the Downpayment is $12,500 (5%, for the sake of simplicity), you could ask the seller if they're willing to agree to Seller Financing if you raise it by $2,500 (to $15,000).
While the obvious caveat to this is a slightly higher purchase price (if you choose to do so), there are a variety of benefits to this strategy as well, such as:
- The idea of getting a Lump Sum Payday (from the bank) AND a steady stream of Passive Income from you as an investor for the downpayment is incentivizing to most.
- If the seller is desperate to close (due to health issues, family problems, liens, etc.), they may agree to Seller Finance the small amount in order to ensure the deal makes it to the closing table.
- You're minimizing how much is coming out of pocket when closing arrives.
Worst case scenario, you can also offer to pay half of their closing costs in order to incentivize them to accept your offer, as well. In conclusion, there is NO LIMIT to how creative one can become with financing deals.
1 Reply
Macen DiPaolo
Realtor · Cranberry Township · Member since 2018 · 18 posts · 10 votes
3y
I can attest to these methods first hand. Purchased my first Rental in Pittsburgh utilizing a Private Money Lender, Partner, Subject To and Seller Financing. Stacking these 4 will make it VERY easy for you to have zero cash liability. Also, if you have a partner(s), get a good operating agreement that outlines financial liabilities to limit your personal cash input. Granted you will need to provide value for partners to agree. If the seller cant get a new loan because of their debt ratio from seller financing or subject to, do a mirror wrap so their DTI can get serviced at least at 70%. Look forward to reading what you two end up investing in!
All the best,
Macen
1 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
Quote from @Kelvin Urena:

One piece of advice I would have would be to consider utilizing HELOCs against the property's value. It would - as suggested below - give lenders some insight into your "skin in the game", but also gives you leverage. However, we can also play with this in a creative way. Many are concerned about downpayments (as you mentioned), yet why not get your preapproval and ask the seller if he/she is comfortable with Seller Financing the Downpayment? If the deal makes sense, you could even offer slightly more on the backend because you'd be paying them directly for the downpayment
Example: If you're looking at a $250,000 SFR, and the Downpayment is $12,500 (5%, for the sake of simplicity), you could ask the seller if they're willing to agree to Seller Financing if you raise it by $2,500 (to $15,000).
While the obvious caveat to this is a slightly higher purchase price (if you choose to do so), there are a variety of benefits to this strategy as well, such as:
- The idea of getting a Lump Sum Payday (from the bank) AND a steady stream of Passive Income from you as an investor for the downpayment is incentivizing to most.
- If the seller is desperate to close (due to health issues, family problems, liens, etc.), they may agree to Seller Finance the small amount in order to ensure the deal makes it to the closing table.
- You're minimizing how much is coming out of pocket when closing arrives.
Worst case scenario, you can also offer to pay half of their closing costs in order to incentivize them to accept your offer, as well. In conclusion, there is NO LIMIT to how creative one can become with financing deals.
I love this idea! Thank you for the insight.
[email protected]412-804-1171
0 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
Quote from @Macen DiPaolo:

I can attest to these methods first hand. Purchased my first Rental in Pittsburgh utilizing a Private Money Lender, Partner, Subject To and Seller Financing. Stacking these 4 will make it VERY easy for you to have zero cash liability. Also, if you have a partner(s), get a good operating agreement that outlines financial liabilities to limit your personal cash input. Granted you will need to provide value for partners to agree. If the seller cant get a new loan because of their debt ratio from seller financing or subject to, do a mirror wrap so their DTI can get serviced at least at 70%. Look forward to reading what you two end up investing in!
All the best,
Macen

Thank you for the insight! Looks like I need to find some investment partners.
[email protected]412-804-1171
0 Reply
Kelvin Urena
Rental Property Investor · Austin, TX · Member since 2018 · 37 posts · 11 votes
3y
Quote from @Alex Hileman:

Quote from @Kelvin Urena:

One piece of advice I would have would be to consider utilizing HELOCs against the property's value. It would - as suggested below - give lenders some insight into your "skin in the game", but also gives you leverage. However, we can also play with this in a creative way. Many are concerned about downpayments (as you mentioned), yet why not get your preapproval and ask the seller if he/she is comfortable with Seller Financing the Downpayment? If the deal makes sense, you could even offer slightly more on the backend because you'd be paying them directly for the downpayment
Example: If you're looking at a $250,000 SFR, and the Downpayment is $12,500 (5%, for the sake of simplicity), you could ask the seller if they're willing to agree to Seller Financing if you raise it by $2,500 (to $15,000).
While the obvious caveat to this is a slightly higher purchase price (if you choose to do so), there are a variety of benefits to this strategy as well, such as:
- The idea of getting a Lump Sum Payday (from the bank) AND a steady stream of Passive Income from you as an investor for the downpayment is incentivizing to most.
- If the seller is desperate to close (due to health issues, family problems, liens, etc.), they may agree to Seller Finance the small amount in order to ensure the deal makes it to the closing table.
- You're minimizing how much is coming out of pocket when closing arrives.
Worst case scenario, you can also offer to pay half of their closing costs in order to incentivize them to accept your offer, as well. In conclusion, there is NO LIMIT to how creative one can become with financing deals.
I love this idea! Thank you for the insight.

Absolutely! If you wanted to talk more about what's available, message me directly and we can carve out some time to speak more.
0 Reply
David M.
Morris County, NJ · Member since 2020 · 5k+ posts · 2k+ votes
3y
@Alex Hileman
These are all great ideas for what they are calling "creative financing." Just realize that it requires many specific conditions to be met, and has much greater risk elements that you need to be prepared to potentially go wrong.
0 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
Quote from @David M.:

@Alex Hileman
These are all great ideas for what they are calling "creative financing." Just realize that it requires many specific conditions to be met, and has much greater risk elements that you need to be prepared to potentially go wrong.

What are the biggest risks, other than the seller not accepting the terms? I am exploring all options right now!
[email protected]412-804-1171
0 Reply
Dan H.Pro Member
Investor · Poway, CA · Member since 2015 · 7k+ posts · 8k+ votes
3y
Quote from @Alex Hileman:

Hi Everyone,
I am doing some research and planning on buying a rental property next year (I am currently saving for my wedding). My husband and I have a house with no mortgage and great credit, but no cash to invest right now. What is your advice on investing without putting a lot of money down?

>I am currently saving for my wedding). My husband and I have a house …
Does your husband know you are getting married? Does your fiancé know you have a husband? JK
0 Reply
Charlotte Torres
Rental Property Investor · Charlotte · Member since 2019 · 22 posts · 3 votes
3y
I think Mofin is an amazing private lender you should consider. They are really good and once/twice even suggested finance vehicles I had not considered that saved me money. Highly recommend.
2 Reply
Konstantin GinzburgPro Member
Member since 2021 · 376 posts · 242 votes
3y
@Alex Hileman
Most financing packages for investment properties do require between 20 and 25% deposits. You could look into getting a HELOC loan to convert some of the equity from your house into a deposit for the next house. If you are open to the idea of renting out your current house and moving somewhere else, then you can look into primary residence financing such as FHA loans which allow for 3.5% down payment options. Another option you may consider if non-conventional financing such as seller financing if you find a motivated seller willing to offer that. Someone who is willing to seller finance may be willing to offer terms for a low down payment option but that will come down to negotiations since there are no standard rules for seller financing.
1 Reply
Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
3y
naca you can google to see if they operate in your market.

its a heavily subsidized program basically for first time home buyers and those who qualify income wise ( income lower than the average income of the area you can make too much money and not qualify.) B of A heavily sponsor the loans. And there are strict loan covenants that require doing on going work with Naca deed restrictions on when you can sell etc etc. they normally look at the seller to give a lot of seller credits and the home has to pass their fairly rigid inspection criteria.. they dont want first time homeowners in homes that are in need of a lot of repair or deferred maintenance.

the program basically is for those with poor credit and little to no money but can toe the line and get into home ownership.. I have sold 3 props to naca buyers so got pretty familiar with the program and the buyer profile.
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2 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
Quote from @Dan H.:

Quote from @Alex Hileman:

Hi Everyone,
I am doing some research and planning on buying a rental property next year (I am currently saving for my wedding). My husband and I have a house with no mortgage and great credit, but no cash to invest right now. What is your advice on investing without putting a lot of money down?

>I am currently saving for my wedding). My husband and I have a house …
Does your husband know you are getting married? Does your fiancé know you have a husband? JK

LOL they are one and the same man and they are well aware they are marrying me!
[email protected]412-804-1171
0 Reply
Alex HilemanPro Member
OP
Real Estate Agent · Pittsburgh, PA · Member since 2023 · 225 posts · 147 votes
3y
Quote from @Jay Hinrichs:

naca you can google to see if they operate in your market.

its a heavily subsidized program basically for first time home buyers and those who qualify income wise ( income lower than the average income of the area you can make too much money and not qualify.) B of A heavily sponsor the loans. And there are strict loan covenants that require doing on going work with Naca deed restrictions on when you can sell etc etc. they normally look at the seller to give a lot of seller credits and the home has to pass their fairly rigid inspection criteria.. they dont want first time homeowners in homes that are in need of a lot of repair or deferred maintenance.

the program basically is for those with poor credit and little to no money but can toe the line and get into home ownership.. I have sold 3 props to naca buyers so got pretty familiar with the program and the buyer profile.

that's super helpful, I will look into it!
[email protected]412-804-1171
0 Reply
Myeasha Jones
Property Manager · San Francisco, CA · Member since 2020 · 53 posts · 17 votes
2y
Quote from @Doug Smith:

I can only speak from a lender's perspective, but we're going to want to see some "skin in the game" from the borrower. Stuy after study has shown that the less a person injects into a deal, the less likely they are to pay the deal back. In addition, the lender is going to incur costs including losses do to the time value of money if you stop paying and they have to take the property back. They are going to want to see some cushion and they will prefer that some of it comes from you personally. You might get a gift of seller concession, but putting money into the deal is pretty important to most lenders. Now, if you do decide to pull money from your current home, most lenders would prefer to see some "seasoning" of funds in your bank account. They'll ask for the last 2 months worth of bank statements and they usually won't want to see a large deposit in there coming from borrowed funds. If, however, that is part of the beginning balance of the earliest bank statement, then they will consider that "seasoned" usually and it likely won't be considered borrowed funds. I do hope that helps.
What does the less a person injects into the deal mean?
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