As a real estate investor without a ton of liquid capital, I am always on the hunt for funding options. Those options are usually more of the creative persuasion, due to the fact that traditional financing is really difficult to come by. That being said, I have been asked by other real estate investors more times than I can count what funding options I have found—and what has worked?
How to Purchase Real Estate With No (or Low) Money!
One of the biggest struggles that many new investors have is in coming up with the money to purchase their first real estate properties. Well, BiggerPockets can help with that too. The Book on Investing in Real Estate with No (and Low) Money Down can give you the tools you need to get started in real estate, even if you don’t have tons of cash lying around.
Different Funding Options
After we purchased our first buy-and-hold property with a HELOC, I was immediately on the hunt for more funding for a second one. This posed to be easier in my head than it was in reality.
I tried multiple banks, and that ended up being a huge waste of time. The reason for this is that we purchase properties in our LLC — not in our personal names. It appears that banks simply have no tolerance to lend money into LLCs for buy-and-hold real estate. They seemed like they’d be more amenable to do so if we put the properties in our personal names. But we are simply not willing to do that — for both liability and tax reasons.
I went to our banks first. But none of the banks I visited were interested in lending to real estate investors. They say the risk is too high.
Then I tried another tactic. I started looking for out-of-state banks that were a bit larger, but not the big guys. Still, I got nowhere.
The last thing I tried was working with off-market sellers in other states. These sellers had their own financing through their own local banks, so we figured that it wouldn’t be an issue for the bank to lend to us, since they already had the note.
No dice. None of these banks were willing to lend to out-of-state investors, even if we created a new LLC in that state.
I tried everything that I can think of regarding traditional financing, but we still just could not get it worked out.
After I spent countless hours working on applications for different banks to no avail, I decided to try the hard money route. This process was much simpler — except the fact that they still needed an ungodly amount of documentation to provide the initial approval.
I first got approved through Lima One Capital (there is a local branch here in Raleigh) and then got approved through Longhorn Investments out of Tennessee. Both companies were very similar in how they handled potential investors, and both were friendly. However, I felt that I got more personal attention from Longhorn and decided to go with them.
However, while I was able to get the initial approvals, it hit me that the interest rates and points were pretty darn high! Even so, we started looking for a second property, and we found a few that we were interested in that were within our price point. I reached out to one of the hard money lenders about these properties to see if they would qualify and to ask what could be lent on them.
Ultimately, the numbers just did not work out in our favor on any of them because the interest rate was just too high. Not only that, but they are very particular about what property they lend on. They have to perform their own appraisal for market value in order for them to even consider releasing funds. The process was just too difficult, and the rates were too high for buy-and-hold. This avenue might make better sense for a fix-and-flipper, especially because the terms are also so short.
The Fund&Grow Alternative
While all of this was going on, I had actually found a third funding option. Fund&Grow is a longer process than bank loans or hard money, so I signed up for the program in December of last year.
Initially, I was told that once I signed up, it would be a pretty easy process — as they do most of the legwork. The way it was presented to me was as follows:
- They would apply for multiple business credit cards for me. Once we got them, they would then negotiate a higher credit limit for each one to maximize the amount of credit available.
- Once the appeal process was complete (which could take a few months) then I could get the cash off the cards to use for purchasing real estate.
- The cards they get us are 0 percent interest for anywhere from 12 to 15 months.
- The process to get the cash off the cards is easy, and they said they would walk me through it once the appeals were completed.
- The membership was for a year, and during that time they could potentially do this process multiple times to continually get us more money for real estate.
The way it actually went down for us was not that simple, unfortunately.
By the time they were done with the appeals, they had gotten us $43,ooo in funding. However, the bulk of that was on an American Express card, and the company refused to let us get cash out of it. I spoke to my Fund&Grow rep, who then sent me documentation as to how I could easily get the money out.
What I was sent did not make me happy at all. The way I was told to get the money out, besides a basic balance transfer, was through buying and selling gold.
That was not what I had signed up for at all. Nor did I have the time to even try to figure that out. Time is, simply, my most precious commodity. I just don’t have enough of it most days.
Needless to say, I was pretty ticked off. After all, I was never told anything about buying and selling gold before I signed up, and I spent $3,000 on their services.
Getting a Refund
At this point I was frustrated, and I didn’t have the time to deal with it. I let it drop for a few weeks before reaching back out to voice my displeasure. My rep was very professional and did her best to try and get me to reconsider when I asked for a refund. Ultimately, she agreed to submit the request for a refund. I received a call from senior level personnel the next day to discuss everything.
She wanted to go over everything that I was told and figure out why what I had been given wasn’t working for me. The long and short of this is that if our buy-in for a property is $50,000 and I only got funding for $43,000, then I still couldn’t buy anything. Not only that, but I couldn’t even get the money from almost half of that. So this was money that was just sitting there, not helping us in our quest to purchase more properties at all. And we paid $3,000 for it!
To her credit, she worked her tail off to try and find a solution to get us more funding and make the money work. But in the end, she just couldn’t satisfy our needs and sent us a refund check.
But It’s Not the End
While we still don’t have the funding to get another property, this story doesn’t end here. I was asked on my last call with Fund&Grow if I would be willing to speak with the CEO and the COO. They were interested in my feedback, but they also wanted to potentially clarify some things that may have been miscommunicated.
I was more than happy to do that, and I was actually very impressed that the company was willing to hear what I had to say in hopes of creating a better experience for all of their clients and potential clients.
Basically, funding is a lot more difficult than a lot of us are led to believe. But because I have been digging in the funding trenches, I have run across some different twists on traditional funding. In my next article, I want to discuss how the calls went with the CEO and COO of Fund&Grow, and pass along information on how their program is actually intended to work. Stay tuned!
Have you run into funding issues like these?
What have you found has worked—and what hasn’t worked? Share your own experiences below!