Finding the Money: How to Finance Your First Investment Property

by | BiggerPockets.com

Investment properties can serve as the foundation for future financial stability, but there’s a widespread perspective that you need to be fairly wealthy to start investing in the first place. But how much money do you really need to take the first step? If you play your cards right, a few thousand dollars can help you throw open the doors to your first tenants.

Focus on the Flip

When working on the low-budget end of the investment spectrum, your best bet is to look for distressed properties or affordable houses that need a little work. In the wake of the sub-prime mortgage crisis, these homes are plentiful and many are in foreclosure. Buy them from the bank at auction and get to work.

Related: Why You Should Consider Private Lending for Your Financing Needs

Smaller cities and rural areas have a particularly abundant supply of rehab-ready houses available for rock-bottom prices. Maybe it’s not the location you would choose, but long-distance management of D-list properties will help you make the money you need to move into more established, expensive areas.

Expand Your Funding Horizons

Most of the time, when young investors say they don’t have enough money to buy property, what they mean is that they don’t have enough cash. And of course they don’t—very few people do. As it turns out, you don’t have to be equipped with cash. You just need to think more expansively about where you get your funding.

The most common way to finance an investment property is by taking out a loan, but this is different from applying for a private mortgage. Many mortgage applicants are financially ill-equipped for homeownership and make poor candidates, meaning they pay high interest rates and have little room to negotiate. When you seek an investment loan, though, you’re more likely to be viewed as responsible and financially stable, meaning lenders will be competing for your account.

low-income-vs-bad

Another option you can avail yourself of in order to pay for an investment property is equity or other assets. If you already own a home, for example, you can take out an equity loan on that property. Similarly, if you have supplemental assets such as a second car, stocks, or even jewelry, those things can be converted into cash to be used towards an investment property.

Think Income

One reason it’s easier to get a loan for an investment property rather than a private home is because investment properties produce an income stream. When you’re buying, then you need to consider how much income a property can provide and how reliable that cash flow will be.

Related: What Newbies Should Know About Financing Investment Properties (Versus Homes)

If you want to maximize your potential income and achieve more consistency, one option is to invest in a multifamily home. Though single-family properties appreciate more rapidly, with multifamily properties, you have multiple cash streams. You can also renovate one apartment while leasing out the others, allowing to keep making money while also making capital improvements.

Investment properties are a source of countless opportunities, providing a consistent source of income that can fund future education, retirement, or travel among other possibilities—but you need to start early. So look at your savings and see where it can take you. With a little financial ingenuity, a few thousands dollars can be transformed into great prosperity.

How do you plan to finance your first real estate deals?

Comment below!

About Author

Larry Alton

Larry Alton is a professional blogger, writer and researcher who contributes to online media outlets and news sources. A graduate of Des Moines University, he still lives in Iowa as a full-time freelance writer and avid news hound. In addition to journalism, technical writing and in-depth research, he’s also active in his community and spends weekends volunteering with a local non-profit literacy organization and rock climbing.

9 Comments

  1. David Krulac

    Larry,
    Couldn’t agree more. the first 11 properties that i bought were 100% financed in one way or another. I needed extreme financing because I had a low paying entry level job and no savings. I literally started with nothing and 900 deals later, don’t have the same problems that I had when I started. As that great real estate investor, Phil Knight says, “Just do it.”
    David Krulac

  2. Olga Marquez

    I need 100% financing for a Non-owner occupied duplex that will turn a profit. I just don’t know anyone who’s willing to do seller financing or private mortgage. Everyone talks about it but I would like to see a list of Lenders who are interested. Why aren’t they in here looking for a business From people like us. I’m ready when you’re ready.

    • Benjamin Ulloa

      There are lenders out there who are willing to do that, you just have to be willing to put in the work, time, and take action to find them. If you can find the deal, then you can find the deal just have to have faith and put in the work! Lenders are out there!

  3. Olga Marquez

    Thank you for your reply. I just don’t understand why they are not in here looking for business. I.e.: They should be a part of this conversation.

    I’ve been looking, but it seems many want to take advantage of a newbie, or ask for money upfront for their seminars like $3k. If it’s profit for them, wouldn’t they be in here looking for business?

    Playing Devil’s Advocate. If that were my business, I’d be combing through here for profitable business.

    Thanks again!

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