Funding to purchase first investment property.....

21 Replies

Hello all! So recently i have decided to start my investment property business. I wanted to start with the fix/flip and in the future start with renting too. The problem is i am having trouble finding funding via banks. I am even having trouble with hard money. Anyone has any ideas they can share with me? Thank you.

Christie,

What is the trouble that you are running into? Poor credit? No history of credit?

TM

Christie,

It is not easy but you need hard facts and figures for an investor to look at. They need to see the profit for not only you but them. Timelines are critical because they are tying up money and expect a certain yield.

Don't give up!

Tom

Originally posted by @Tom Mendez :

Christie,

What is the trouble that you are running into? Poor credit? No history of credit?

TM

 I have okay credit and I am a full time mom. 

Christie, pending your answers to Tom's questions, you might also consider reaching out to family members and see if any of them would be willing to help you get going--that was how I got my start.  You just have to be careful, though, if it goes badly your relationships could suffer.

There are resources here on BP regarding investing with low or no money down (I'd link to them if I were any better with a computer--but I'm sure you can find them).  I recommend you spend some time exploring all the different options out there and BP is a fantastic starting point.

Above all--don't give up!  Treat all these obstacles as learning opportunities.

Best wishes,

Vincent

Originally posted by @Tom Kelly :

Christie,

It is not easy but you need hard facts and figures for an investor to look at. They need to see the profit for not only you but them. Timelines are critical because they are tying up money and expect a certain yield.

Don't give up!

Tom

I understand that which is why I have a business plan, a real estate license which gives me access to the MLS so I can have the recent sales at my disposal. Hoping that can work to my advantage.

Originally posted by @Account Closed :

Christie, pending your answers to Tom's questions, you might also consider reaching out to family members and see if any of them would be willing to help you get going--that was how I got my start.  You just have to be careful, though, if it goes badly your relationships could suffer.

There are resources here on BP regarding investing with low or no money down (I'd link to them if I were any better with a computer--but I'm sure you can find them).  I recommend you spend some time exploring all the different options out there and BP is a fantastic starting point.

Above all--don't give up!  Treat all these obstacles as learning opportunities.

Best wishes,

Vincent

 Reaching out to family members was the first thing I did. Sadly none are able to help. But I won't give up. I am just hoping something pans out soon.

Determination is a necessary trait in this and many other endeavors--sounds like you at least have that going for you.  Keep at it!

Usually when HM turns down a deal it **usually** means the deal was not as good as the potential investor thought it was. 

The first thing a HM lender needs is to ensure they get their money back and then they work on how much they can make on the deal.  So ask them what they need to approve a deal first then use that criteria to find the deal, if it fits that criteria it can then warrant further due diligence.

A good technique that I have used in the past was to ask why you were turned down, if you get honest feedback it will help you work on those areas they feel are deficient in the future.  The problem might not be your financial position but rather the deal itself or vice versa.

Good Luck!

Originally posted by @Frank Woodin :

Usually when HM turns down a deal it **usually** means the deal was not as good as the potential investor thought it was. 

The first thing a HM lender needs is to ensure they get their money back and then they work on how much they can make on the deal.  So ask them what they need to approve a deal first then use that criteria to find the deal, if it fits that criteria it can then warrant further due diligence.

A good technique that I have used in the past was to ask why you were turned down, if you get honest feedback it will help you work on those areas they feel are deficient in the future.  The problem might not be your financial position but rather the deal itself or vice versa.

Good Luck!

 But the thing is I have yet to discuss a particular deal with any lenders.

Keep at it, Christie. Don't give up. Read everything you can here on BiggerPockets. It's a great resource! I am very new as well, and have been working to close my first deal for the past month.  Keep reaching out to people; there are so many here that can help.

Good luck!

Hi Christie, I am a newbie to investing so take my advice with a grain of salt, but I learned from an REI meeting that you could try using crowdfunding (CrowdFunder, RealtyShares, etc.) to raise funds for your property. Good luck, please keep up posted and don't give up!

Originally posted by @Christie Chanterelle :

 But the thing is I have yet to discuss a particular deal with any lenders.

 If you haven't discussed specific deals with them then I think you have two options:

1.  Ask them about what information you have supplied them with that is giving them concern?

2. Ask them what they are looking for in a deal, usually they have specific guidelines for the investor (your credit, financial situation, cash on hand), and the project (LTV, Location, type of property) that they are looking for.

What kind of information have you supplied them with so far?

One more thing - it is awesome that you are asking these questions instead of quitting, most people would have already said "oh well I guess RE investing isn't for me", keep digging, it takes grit and determination to make it in RE and you are on the right path - don't take my questions as poking holes in your plan I am truly trying to give you the best advice possible!

Hi Christie, I'm a newbie as well. I'm currently looking for possible deals and analyzing them so that I may have a deal to present prior to getting pre-approved. It seems this is what's necessary, find the deal first then ask for the money. So now I'm stuck on analyzing and finding a good deal in my area for what I'm looking for. 

You have already invested in your business so I'm sure you won't give up. Now research, research and read some more. ( I love this site and will go pro once I find my first deal.)

Happy investing!

Hey Christie - From what is posted above I'm gathering the following info about your situation.

Overview of Situation

1.  You are a stay at home mom with no current income.  (My wife is a stay at home mom and it is a HARD job that I could not do, so kudos to you for doing this job.)

2. You are new to real estate investing and have not been involved in a house flip before.

3. The hard money lender you reached out to is not willing to lend to you.  He/she has not viewed any of your prospective deals just says no I don't want to lend to you.

Since you don't currently have a steady stream of income (preferably a W2 income) it is going to be almost impossible to get a bank loan on a fix and flip.  This leaves you with a hard money loan, loans from family, or some sort of partnership with someone willing to provide the money and you do the leg work.  My guess is the hard money lender is probably concerned that you are inexperienced and hedoesn't want to take the risk.

Potential Solution

If house flipping is something you are passionate about doing and are willing to invest the time and effort, my advice is to find someone who is successful and in your market and offer to work for them for free or a low rate just to gain some experience.  This will do 2 things; 

1) let you see the full picture of flipping houses and determine if it's something you really want to do. 

2) Give you lots of experience so that you understand what a good deal is.  Teach you how to deal with contractors. How to manage these projects.  Learn the big risks and common pitfalls in the business.  It will also give you a house flipping track record that a hard money lender can review to determine whether they want to lend to you.

Hope this helps.  Best of luck to you!

@Christie Chanterelle I would suggest that you get involved with your local REIAs or meetup groups and start networking.  Once you find someone you trust and have a good relationship with I would suggest partnering with them to where you put in the sweat equity in maybe project management.  This will give you the experience and also some income once the property is sold.  After you've had some "real world" education getting funding for a hard money loan shouldn't be an issue.  

My experience is that you are going to have a hard time finding anyone to lend unless you have substantial skin in the game yourself and have a track record of success. No one wants to be the first one all in. Most of the institutions I am aware of will only fund about 80% of the sales price on an investment property, so if you found a house you could buy for $100k you'd have to have $20k down plus your closing costs. 

If you don't have any funds of your own, and no one willing to shell out funds to start you off, perhaps you could take a part-time or side job and bank that money to help buy your first property. 

Originally posted by @Audrey H. :

Hi Christie, I am a newbie to investing so take my advice with a grain of salt, but I learned from an REI meeting that you could try using crowdfunding (CrowdFunder, RealtyShares, etc.) to raise funds for your property. Good luck, please keep up posted and don't give up!

While it is absolutely true that you can use crowdfunding to source loans for your flips or rehab investments, I think that you will find that raising money this way is super similar to raising debt via a traditional hard money lender. 

Companies like the ones you list make you go through many of the same steps as a hard money lender like submitting all the specs for your property, and charge points, fees and high interest, often at similar LTV (loan to value ratios) just like hard money lenders.

The big advantage to crowdfunding portals, as I understand it, is in volume - if you are doing 100 flips you'll want an infinite supply of money. If you are doing your first one ever, you may want an experienced local lender (perhaps an experienced or retired flipper) that can walk you through some of the challenges you'll face, and perhaps with better loan terms. It will all be in your personal preference.

Thank you everyone for the feedback. 

I just have one more question. Let me know if I am missing any professionals on this list. I need to make sure I have everything and everyone I need so when I do get a deal, I can move on it with no problems.

*business bank account, RE lawyer, home inspector, general contractor, interior designer, homeowner's insurance, accountant, property manager (for future rental properties). 

Please let me know if I am missing anything.

@Christie Chanterelle

Welcome to Bigger Pockets. Consider sending messages to other members for specific guidance.

Sounds like to me that all you are missing is a deal. 

Hi mister investor I have this idea about how I am going to earn money .......

Lenders will not want to hear your idea, they do not invest in ideas

Mr. Lender I have this deal and this is my exactly plan of action. I can get this done in 

______ many days. This is my price point, this is how much I need for improvements and this is my verified ARV. I can earn X amount of dollars of your or X % interest for you in the following time period. I have verified my figures in the following methods, My team is comprised of ___________ contractor, etc etc, . They have ________x number of years in the business . Here are some pictures of their past and recent projects. The projects my team have done involved ____ amount of dollars and they were started and completed within _________ days. My project is right in line with the proven experience my team has on record.

This is the manner in which I will minimize the risk of your money being lost or My team not being able to produce your required results. 

Now !! I need X amount of dollars for this project and here is my breakdown of the distribution of the funds and calculated time of return of your funds including ____ X percentage of interest or __X amount of dollars. 

My plan for making you money over the following year is _______________________. I intend to bring you more business and I am going to work hard, my entire team is going to work hard to earn your trust and deliver results to you etc, etc. 

I am ready to go. My whole team is ready to get started please tell me your terms. I want you to work with me and my team. How can we get started doing business?

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