Best take to buy a home

4 Replies

I’ve read about several strategies many investors have taken to buy a home and from those strategies, the one that stood out to me the most was one where you use other people’s money to pay it off. Getting a bank loan, finding an investor to lend you money needed to pay off the rest of the purchase price of the home, then rent the home and use the rent money to pay off your monthly payment from your bank loan and the investors loan. Then the net operating income would be split in an agreed percentage between the investor and myself as the finder of the deal. This will provide a cash flow for both. The next step would be to refinance the property and pay off the bank loan and investors loan and then repeat this concept but now with another property. What do you guys think about this? Pros and cons of this strategy?

Also, keep in mind that I am new to this business and this is something I am looking to use for the purchase of my first property. Any tips and advice are welcomed. Thank you.

You have to be careful with how you structure to do what you're describing - many banks frown on you using borrowed money for a down payment, and will ask you explicitly on your mortgage application about it. They view 100% leverage as too risky. So you'd need to structure it such that your partner was a co-signer on the loan, or you had a business entity together that was applying for the loan, and the partner was bringing the money.

You also need to find a great deal for what you're describing to work. In most markets, it's difficult to cash flow with 100% leverage if you're buying anywhere close to retail. That is, your rental income now has to cover two mortgage payments (plus expenses).

@Gilberto Sotelo the answer depends on the situation. I have 50+ units. Some private money, some flips I converted to notes I hold but most started from the strategy of “other people’s money” / getting a house for free. Since you are new I’ll illustrate an example that aligns more and more possible,

2008 friend and I bought a home together for 200k. 2011 he decided to leave and the pmt of 1390 I could not afford alone and house would maybe fetch same price, resulting in paying to sell. So I decided to take responsibility and rent out. Although I was losing 140 month on rent I considered it a "savings plan" investment as principal reduction was similar and would increase and hopes for appreciation. As years passed and between tenants I also "slow flipped" by adding upgrades along way. As time goes by pretty fast, fast fwd 2019 I decided to sell and have under contract for 240k. Although not home run, by just being middle man (yes shelling out some expenses or vacancies here and there) but now principal only 150k.

I’m going to receive 70k lump sum for just being basically a prop mngr.

This particular one loan was in my name however 20 other some odd props I've accumulated in same way of someone upside down. After analyzing their interest rate, seasoning of their loan, I've taken over houses that are upside down because of those variables. Low rate, can flip on higher rate more w spread, or if prin dropping fast.

I figured prop mngr would take if rent was 1200 and make 120 on it, why would I not acquire the same responsibilities, but own an asset where other people pay down, AND HAVE THE appreciation factor. If can make a cash flow out of it too, bonus. However most important thing is control of a 200k asset with no credit tie up/risk so really it’s “infinity” return if no $invested but control an asset with several exit strategies.

If 200 asset at 5%now only owe 190 few years later, rates increase owner finance at 220 10k in pocket and have 210 at 7 over 190 at 5. Not only making 7% on equity, but 2% on 190 which is bank money. Will only increase over time.

Not homerun, it apply same numbers to 20/30 props basically increasing networth 4/5k a month for doing same job of shiffling few papers and role of prop mngr.

Also now having a “portfolio” even not tons of equity, creates opportunities to create own opportunities and make own deals whenever need to.

X tenant has 20k and wants to own, got this one over here. Someone wants to own in near future, create lease option with terms like 400 or less of repairs is theirs to reduce landlord responsibility and create more pride of ownership/skin in game.

And so on and so forth as now most of my deals are just me cross mkting with my own database and in control of deals and getting more referrals from creating win/win/win deals.

Hope this helps

I'd suggest 2 things:

1) Make sure you educate yourself on various ways to structure deals - start with Brandon Turner's "No and Low Money Down" book or the "Book on Rental Property Investing", both in the BP store.

2) Figure out where you're going to find a house at below market value - low-ball offers on the MLS? Wholesaling? Driving for Dollars? Direct Mail? There's no right answer, but if you're planning to "use other people's money," figuring out where the deals are is the first and most important step.

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