3 Ways Using Conventional Loans Saved This Real Estate Newbie From Disaster

by | BiggerPockets.com

Creative financing gets a lot of attention from new investors, and rightfully so. It’s flipping awesome!

Who wouldn’t want to buy properties for next to nothing? Especially when you are just starting out and have very little disposable income. However, I’m here to play the devils advocate for the sake of newbies out there.

So far I have acquired three properties by way of 20% down conventional mortgages. And you guessed it, I found them all on the MLS.

Sexy huh? ::crickets:: I know… it’s pretty boring. But let me explain.

I’m not very smart. But I’m smart enough to know that I don’t know what I don’t know… y’know?

Real estate can be overwhelming for a new investor. It definitely was for me when I first got started. Despite having read a ton of books and having done the math on a ton of properties, I still made a ton of mistakes. This is where that whole 20% down conventional loan thing saved my buttocks.

Related: Your First Investment: How to Use Future Rental Income to Qualify for a Duplex Loan

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3 Ways Using Conventional Loans Saved Me From Disaster

1. It helped me build my team organically.

All I had to do was find a real estate agent — and the rest of the pieces fell into place from there. Once we found a property, my real estate agent put me in contact with a great bank. The bank hired the inspector, the bank hired the appraiser, and the bank coordinated with the Title Company. Once the sale was finalized, the real estate agent recommended a property manager, and the property manager recommended a contractor. Everything was accomplished without me having to track down and interview a dozen team members.

2. It uncovered problems and saved me a lot of money

I fixed a house with my dad when I was growing up, so naturally I though I was an expert. After walking through the property once, I felt it was in great condition and would require about $2,000 in minor cosmetic repairs (HA!). Had I done this on my own, I probably would have foregone the inspection to save money and just bought the place “as-is.” Luckily, the bank was smarter than me and required an inspection to be accomplished. What did this delightful inspection reveal?

  • Needed a new roof ($8,000)
  • Dead tree in the back ($3,000 + huge liability)
  • Lots of deferred maintenance ($5,000)

As Lloyd Christmas from Dumb & Dumber would say, “Samsonite…I was WAYY off.”

Had I been doing this on my own, I probably would have given up at this point. There’s no way I was going to foot the bill for a new roof this soon. Luckily for me, my real estate agent was able to get the seller to pay for the roof through his insurance during the Treatment, Repairs & Replacements (TRR) period of negotiation. This was huge, and I would never have thought to suggest it myself.

3. Finally, it provided me with a financial safety buffer.

Mistakes are going to happen when you first start investing in real estate. Maybe you forgot to factor in vacancy. Maybe your insurance was higher than expected. Maybe the rent you can get is $100 less than you thought.

Now, would you rather have those mistakes happen when you’ve leveraged 100% of the property and need to self-manage in order to break even? Or would you rather have those mistakes happen when you’ve put equity into the property already and have considerably lower monthly mortgage payments allowing for cash flow?

Long Story (Kinda) Short…

I won’t lie to you and say that it doesn’t sting to sign a check for 20% down on a property that you’ll never live in.

It definitely stings the nostrils.

However, over the last 10 months I have purchased three properties and have been able to see how the process works hands-on. Now (and only now) do I feel comfortable enough with the ins and outs of buying property to pursue a creative strategy.

Related: The Loan Application: A Complete Checklist of Documentation Investors Need for Approval

As we speak, I’m trying to work out a seller financing deal with someone who is liquidating his properties. I’m sure I’ll make mistakes, but at least I won’t make the same ones that I did on properties #1, #2 and #3.

Creative financing is amazing and should always be something to strive for. Buying a property with OPM (Other People’s Money) is the holy grail of real estate investing. However, if you are a new to real estate and have the capital available… don’t rule out a conventional mortgage.

It might just save YOUR butt, too.

  • Newbies: Have you utilized conventional financing for your initial investment property purchases?
  • Experienced investors: How would you suggest making the transition into creative financing?

Leave your comments below!

About Author

Tyler Flagg

Tyler is a pilot by day and aspiring entrepreneur by night. He started investing in April of 2014 and acquired three properties in the first 8 months. His goal is to become financially independent through real estate in order to free up time for travel and starting businesses.


  1. Uyenchi Ho

    Glad you posted this article. My husband and I also bought our first properties using conventional loan with 20% down. Now 1 property is completely paid off (almost $2,000 a month in positive cash flow!) and the other has very low loan balance. After having read many books and articles on purchasing properties with creative financing (a concept I am still entertaining and also hope to utilize someday), I like the idea of being safe and careful. We’re looking to purchase a multifamily property next, and for this one we’re also looking at conventional financing. We may have to liquidate some of our stock, but at least we can sleep better at night knowing we’re not taking on too much risk that can burn us in a worst-case-scenario disaster. Please do keep us posted once you do make the transition from conventional to creative financing.

  2. Kwamena Odum

    Hello Tyler,
    Truth is, this was one great article and I am glad you wrote it. Though I am not yet at the point of going the conventional route, I know when the time comes, it will definitely be considered. I had some great advice from a fellow “Biggerpocketician” and the advice paid off.

    I am looking forward to the day I can post an article with great ‘meat’ that can help another newbie. Paying it forward is real. You never know when the success stories of your trials will make solid advice for someone else.
    Thanks Tyler. All the best.

  3. Terrence Arth

    Tyler, NICE! I also used a plain old fashioned conventional for my first property. I had those nagging doubts about all the people using non conventional methods. However, my gut told me that for my personal situation, I felt I needed to go through the process again (I’ve moved about 10 times for business) but actually paying attention to the mechanics of the purchase, asking the process questions that would never come up for just a personal move, (for me at least) and to have equity in the deal seemed the right method. Personally, I’m glad I did. I realize that my ROI is lower than the astronomical numbers to be gained by creative financing but I would have one thing I wouldn’t have otherwise, peace of mind on this property. I certainly didn’t want this to be a “one and done” kinda deal.

    • Tyler Flagg

      I couldn’t agree more Terrence! There is definitely something to be said for learning the process before moving on to the varsity level stuff haha. Thanks very much for the feedback and best of luck to you.

  4. Daniel Ryu

    Great post.
    I went with a fairly conventional method with my first purchase only it was cheap enough that me and my partners could pay all cash for it.

    Hoping to get more creative with experience and knowledge.

  5. Sharon Tzib

    Love that you wrote this article. It really is a topic that seems to not be “sexy” enough for BP, but in all honesty, is probably how the majority of investors get started (myself included). In my case, I was a realtor, but was buying out-of-state (lived in Calif, bought in Indiana), and as you say, once I found my Indy realtor, everything else just fell into place.

    Now I’m in Texas and getting my real estate license here, and did you know that a realtor can also help you with creative financing as well? Seller financing and mortgage assumption are right on our standard 1-4 unit purchase contract. So people should definitely find an agent comfortable with negotiating those deals for you if you prefer to look on the MLS and use an agent.

    There’s more than one way to skin a cat 🙂

    • Tyler Flagg

      Thanks Ayodeji. To answer your question, I formed an LLC. If you haven’t already, listed to BP Podcast #109 with Scott Smith. He is a lawyer and talks about that topic extensively…it’s an amazing program with tons of great information. Best of luck to you!

      • Ayodeji Kuponiyi

        I did listened to that podcast. Very insightful & informative. I’ll be talking to real estate attorney soon on asset protection. I also like your real estate goals and how you broke it down on your profile. I’m going to model after it because I have similar goals. I have a duplex that I plan to refi soon after I close on a SFH my wife and I are buying as personal residence. Best of luck to you and I’ll definitely keep in touch. I’ll send you a colleague request.

  6. Sarah Rune

    Great article! I completely agree that conventional financing is the way to go in many cases. Why get creative when you don’t have to? Especially since rates are still so low right now. However I would say that shopping around for the best mortgage product and provider is important, not just taking the first bank suggested by the agent, though that may end up being the best choice. Many times credit unions and smaller, local banks offer better rates and more customer service. On my first SFR, which was REO, we had a closing of 30 days with per diem fees of $100 per day beyond that. We selected a credit union which was .01% higher than another bank, but guaranteed closing in 25 days or else paid $2,000. Well we closed on day 28 so we got the $2k and didn’t have to pay any per diems!

    • Tyler Flagg

      Sarah. Thanks for the comment and I love you feedback. I definitely plan to shop around for some smaller banks in the near future. That’s a pretty neat deal you found there with the $2k back…I’ve never heard of that before. Keep up the good work!

  7. Brian Gibbons


    I write about seller financing as an acquisition strategy.

    Seller Financing means anyway the seller can help a buyer buy their property.

    Real estate investors that do not have the credit rating or cash to do a 20% down conventional are not able to be successful in acquiring rentals.

    Same to the 1 to 4 Family Home Mortgage 203b investments.

    Now being an “investor” vs “entrepreneur” is a good conversation.

    An investor buys and holds. Traditional Financing.

    An entrepreneur does some buy and holds, some traditional (I like private financing) some sub2, lease options, wraps, master leases etc. A full toolbox.

    You make your profit at the purchase, price or terms or both. Paying full price, cash, with traditional financing, YUK!

    See https://www.biggerpockets.com/forums/12/topics/180137-starting-out—get-a-quick-start-this-spring-doing-terms-deals

    Now to your article’s point, if you are working 60 hours a week, turn key rental purchases might be a good idea if the numbers work and the promoter is honest.

    • Tyler Flagg

      Great points Brian, thanks for the feedback. I definitely agree that conventional mortgages aren’t scalable and look forward to getting creative here in the near future. I’ll definitely check out your article. Thanks!

  8. Jason Mittenzwey

    Excellent article Tyler,
    Thank you for posting this. As a newbie I have really looked into the creative financing side of investing but cant seem to find deals that will work out for the long run as of yet. I think I too am going to look into purchasing my first multifamily with a conventional loan to help avoid some headaches that I have found along the way. Now it is just coming up with the capital and convincing my wife that the sting as you called it is worth the initial pain. Articles like this help keep newbies motivated. Good luck with your future transitions to creative financing

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