There are a lot of ways to make money in real estate investing, but if your goal is to build long-term wealth and cash flow and dump your job, it’s important to build a portfolio of cash flowing income properties. Traditional bank loans are often one of the best ways to finance 1-4 unit residential income properties long-term because of the low rates and long payment terms, but the downside is that banks typically require a 25-30% down payment.
Many real estate investors have built huge portfolios of income properties by meticulously saving up down payments and financing their deals with traditional bank loans, but if you have limited cash reserves or income, it could take many years for you to reach your goals this way.
The best way to build an income property portfolio despite limited cash or income is to seek value investments. You’re not looking for the rehabbed, ready-to-roll investment properties that need a bank loan and 30% down payment. You want to shop for properties like Warren Buffett shops for stocks: find ugly properties that have a strong upside and can be acquired for cheap. Ideally, you want to look for properties you can acquire, fix up, and finance for 70% of the after repair value (ARV) or less. Find deals like that and you’ll have hard money lenders practically lined up around the block to finance them – possibly with little or no money out of your pocket.
If you’ve structured your deal properly and have at least a 30% equity position in it once it’s fully rehabbed, it’s a matter of simply refinancing the hard money loan into a permanent bank loan. Now don’t get me wrong, an investment property bank loan isn’t just about a 30% equity position. Good credit, reserves, income, etc., all still play a part in getting you qualified. But if limited cash is your issue, buying value properties with built-in upside will help you overcome this issue and get your income property business off the ground.
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