New Investor With No Capital-Creative Financing Options?

Question

I'm living in LA, looking to invest in a triplex in Philadelphia along the path of progress, and I've been trying to determine my best financing option. I was looking into FHA loans until I realized that the property would have to be owner-occupied and it doesn't seem as though there's any way around that...and I don't see myself moving to Philadelphia anytime soon just to make that work!

I do have a good credit score, so I could potentially qualify for a conventional loan, but even then I just don't have any capital for a down payment and I'm feeling stuck.

If anyone has been in this position before, I'd love to know what creative ways people have overcome this kind of roadblock! I'm extremely eager to put in the work and take action so I can invest in a property within the next month or two, but the funding poses a problem at the moment. Any guidance would be much appreciated!

Marcin Skibicki · Answer

When you called lenders, did you present any options yourself, or just showed that you were willing to learn and work hard?

Seems like you really lucked out with a great and unique lender relationship. Were lenders willing to hear you out, and did you receive other similar offers for deals like that?

Isabel Ortiz-Gelder · Answer

This is something I never would've considered as an option! Awesome that you managed to work it out that way. I'll be sure to ask around and see what different lenders are offering. Thanks so much, David

David Edwards · Answer

TLDR: Call around to lenders and see if you can find one that will help you aquire a property without a down payment if your numbers come in under 75% of ARV.

I am just getting into the game myself and I lucked into a lender that is allowing me to work deals in the following way:

When I find a property at under 75% of ARV including aquisition / holding / rehab costs then they will fund the whole thing without any cash outlay from me.

What they do however is have their own appraiser give them valuation for the property as is and the anticipated ARV given the rehab that I will complete (they require details on exactly what I will do to rehab the property) as well as my costs for the rehab.

I do have to pay about $500 for this appraiser, this keeps me from having properties evaluated that have no real chance, I still have to do my own review of the numbers to make sure it is feasible.

I do need to have some funds available to cover possible overage against my estimates but this is less then a down payment in many cases. How you aquire these funds is up to you. You could borrow from relatives, they would have a measure of assurance that the money would be safer so long as you run your numbers right and never have to tap it. Heck you could put it into a high yield savings account so that the Interest on that helps pay some of what you offer as interest on the loan. Point is to find deals where you really don't have to touch it, but you can if needed.

Long story short, one of the things they say you should do when entering market is make a list of banks, agents, contractors, and property managers and give each a call to see how they can with with you. Maybe you find a lender with something similar.

I did say that I am new to the game so it is likely that there are better ways of doing this that the experienced among us will point to, but to me, at this point, this seems like a great deal. I am hoping it allows for me to work on more deals in a shorter period of time with minimal cash on hand.

Taylor L. · Answer

You need to raise money from investors. The good news is you're in one of the best places to do it. The bad news is it's hard to do without a track record. Hard, but in not impossible!

The thing to do is to learn about raising money and get out there to build relationships!

Another method of investing might be a better fit for you than standard cash flow investing. Your average triplex bought with 20% down and no value add probably will not make enough money to pay you and an investor. You might need to look into flipping.