The Top 3 Creative Sources of Capital For Investing in Real Estate


It is amazing how fast time goes.

I came across this realization as I recover from my ACL replacement surgery over the past few weeks.  During the course of my recovery over the course of the past 5 weeks, I realized that 2014 marks my fifth year investing in real estate assets and my tenth year in the real estate business.  This reflection brought me to a key question that I asked myself when I started:

“How do I become successful investing in real estate with a limited amount money?”

I started my real estate investment career trying to answer that question and work around that issue. A  mentor of mine told me “Never Let Capital Stand in Your Way.”

I took those words to heart and as I worked my way through my first few transactions and used some creative techniques to locate downpayment and/or construction capital in my early investment days. I want to share my top three ideas:

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Idea 1: Cash Advance Credit Cards

The idea of utilizing credit card cash advance for downpayment funds came to me while I was reading arbitrage theory during my MBA days.

I used to get offers from credit card companies to borrow funds at 0% for 12 to 14 months with a small processing fee. I thought why not use this to my advantage to gander my initial downpayment funds. I remember opening up a United Card and getting a $15,000 credit limit. I borrowed $12,000 from that card to put the downpayment on a sheriff sale deal that I was able to wholesale within 30  days for a net profit of $5,000.

Related: How to Buy Real Estate with Your Credit Card

The deal generated a 50% profit yield and with less a 1% processing charge yielded me a 49% return on borrowed cash.  Now this idea has the risk that the credit card teaser rate would expire and reset to 18% before the asset that I purchased with it would not be sold.

This is called a liability mismatch and is an important risk to understand  for this type of arbitrage fund borrowing methodology. You can mitigate this risk by refinancing the asset with a mortgage company or getting capital from a syndicate capital investor.

Idea 2: Cash Value Life Insurance Policies

This is not an original idea from noggin rather I got the light bulb moment when I saw a buddy of mine borrowing against the cash value of his life insurance policy to pay for a new kitchen in his home.

I thought mhmm why can’t I do the same for real estate investments as I had a whole life insurance policy and it had built up a decent cash value. This idea only works if you have a whole life insurance policy that has built up cash value.

Life insurance policies that build cash value, such as whole or universal life, are more costly than pure insurance term policies because part of that additional cost goes into building cash value. Understanding cash value is vital to making an informed, effective decision on using this creative borrowing methodology.

Cash value is a portion of your policy’s death benefit which has become liquid. It grows at different rates for different insurers. This is referred to as the rate of accumulation – the ROA.

Unlike a bank loan, you are not obligated to pay back a loan against your cash value; the risk here is that the lack of a requirement to repay the loan means the loan never gets paid back. Interest on borrowed cash value will continue to accrue and eat away your death benefit, further reducing what will be there for your loved ones when you are gone.

Borrowing from the cash value of your life insurance does have some upsides, the biggest of which is the tax advantage. Withdrawals of any amount from the accumulated cash value of your whole or universal life policy is tax free up to the amount of the premiums you have paid. As a rule, withdrawals generally includes loans.

Idea 3: Borrowing Against Stock Portfolio Equity

The rally in the stock market for the past few years has created a unique situation where investors  have excess “equity” over their stock basis value and want to pull out the capital but not take the tax hit.

The typical way investors access the equity has been to sell the stock, realize the gain,pay the tax and pocket the excess cash. This was the scenario I ran across when I was working with an investment partner.

I was scratching my head on how to solve this dilemma until I came across the Stock Secured Loan by Interactive Brokers which allow stock holder with a minimum stock capital balance typically $50,000 in securities to borrow a portion of their stock equity at a loan rate of 1.99%.

This became a creative solution for me when I worked with investment partner as the investor was able to continue exposure to the stock market and yet  diversify in dividend yielding real estate investments without incurring a tax event through the sale of stock securities.  

Related: How to Buy Multiplex with $0 Out of Pocket – An In-depth Look at Creative Finance

I hope to learn more arbitrage real estate capital ideas and I hope to share with everyone as I continue further down my real estate investment journey.

Do you have any to share?

Happy Investing!

Be sure to leave your comments below!

About Author

Ankit Duggal

Ankit Duggal(G+) is the Investment Director of a New Jersey Income Operating & Consulting Company . Ankit is a seasoned value investor who enjoys achieving a zen through surfing, hot yoga, and snowboarding.


  1. dorothy smith on

    thank you for those light bulb ideas. Another way to borrow your own money, is borrowing from your 401k. I dont think there are any penalties, but we were only allowed to borrow up to half of the amt in the 401k. We also had to pay it back weekly from our paycheck to slowly replenish the funds. Hope this can help.

  2. William Murrell on

    Thanks for a great article, Ankit. I knew about the arbitrage play on credit cards, but wasn’t aware you could borrow against the equity in your stock portfolio. That could be a powerful way to get things moving faster!

  3. Make sure that you check out the processing fees that YOUR credit card is charging. All three of my credit cards are currently offering 0% until December 2015 on balance transfers. The Caviat is that all are charging a 3% processing fee. Money isn’t as cheap as before, but for the right deal it can still work.

  4. Ankit, this is a great article and I have used each of these to fund my deals. As Dorothy points out, I have borrowed from my 401k and repaid it back over a period of five years. The interest rate is relatively low, I believe 4% but the payments are sometimes higher because the maximum period you can borrow the money is 5 years and you are repaying it via an automatic deduction from your payroll check. So make sure that you are able to take the hit in your take home pay before using your 401k money.

  5. Corey Pascuzzi on

    Great article, ditto on the 401k loan. I borrowed $15k from my 401k to pay for the reno costs on my first buy and hold. The loan was for 5 years, 4.25%, and there was a $75 processing fee. Payments were taken out of my check bi-weekly. I did a commercial hold back loan, so I knew I would get the money back quickly to pay back my 401k, which I did after about 2 months. I would definately do this again. I do get a lot of those credit card offers, so maybe I’ll check out that option for the next deal.

  6. Great article. I have a TSP of over $100,000 that I can borrow against at any time. The interst rate is low and all interest paid actually goes back into my account. I really want to get in to multi-property invetsment. Do you think it would be a good idea to borrow from this source for a downpayment and should I limit my invetsment to something small(2-4 units) and then expand from there?

  7. Clayton Camper on

    In regards to utilizing cash value life insurance: I was a life insurance rep for multiple years. A loan borrowed against your existing cash valued can be pulled out without tax impact above the premiums paid (technically the cash value remains in your policy, you are being loaned against it as collateral). However…Should you decide to actually withdraw the cash value itself…not just take a loan against it, then you must be aware of your cost basis (premiums already paid into the policy) and be aware that amounts withdrawn above your cost basis will be taxable.

    Prior to Roth IRA’s, Universal life policies were often touted for their tax advantages not provided elsewhere. Pull out your cost basis then borrow against your gains without paying taxes.

    As mentioned above, borrowing & withdrawing from your policy can severely impact the policies health.

    Obvious disclosure: the above should not be taken as legal, tax, or accounting advice. Always consult with the relevant professionals before making this type of decision.

  8. HI Ankit,

    good article on creative ways to get into real estate investment. I do at times get credit card offers, maybe i’ll look at them now and see what type of incentive is being offered by them.

    Thank you.

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