How did you fund your first real estate deal?

Question

Hello everyone I hope all is well, im located out of southeast Louisiana near New orleans . I'm looking to fund my first RE deal . I have been told about Hard money lenders , banks  and credit unions . I'm currently in the stage of rebuilding my credit after bad credit habits as a teen , I was curious on how you all funded your first real estate deal . I saved up cash  but it  still has been very difficult to get a great deal from any lenders due to credit history . Any ideas or advice?

Eric Gerakos · Answer

Paid cash.

Beauford Jefferies · Answer

Jon, nice job on building your credit score back up which is a great first step before jumping  in the real estate game. For me, I started an LLC then deeded the home that we moved from into it. It had a lot of equity so I took out a Heloc to purchase and duplex, SF and renovate. I then put a 20 year mortgage on them with 0 that's write 0 money down at closing and I took 30k out for myself to reinvest. That's just one option. If you haven't started building relationships with banks, brokers, real estate agents now would be a good time to! Once you establish a team and give them your vision you will be well on your way!! Hope this helps.

Mike Klarman · Answer

Be careful of the enthusiasm to get funding.  The most important action is to find the deal.  I see bad deals get funded all the time.  Lenders will let you finance projects with thin margins, they'll just make you put more in up front to lower the loan amount so the loan fits within guidelines, but, the project is not a good project.  If you are investing 70k into a deal and you're trying to make 7k, then that deal will lose 9 times out of ten.  You usually land 30% - 40% south of the projections after all the costs are factored in.  It always costs more money than you think and you never get the end result you penciled in on paper.

REI proves Murphy's Law.  Anything that can go wrong, will go wrong.  Whether you are BRRRRing or flipping, the key is keeping the project cost to ARV % as low as possible.  Books, podcasts, lenders even preach the 70% - 75% number.  I've personally seen projects at those numbers fail once the x factors attack: unreliable contracting, market decline, inventory overload.  Your 25% profit margin is now a -25% loss.  Seen it, close up.

You step in to this arena, without really knowing what a good deal is, and then also do not own the know-how of navigating the investment cycle, or the experience in budgeting for one, you will lose.

Does anyone know the parable of the Chinese Farmer?  It essentially says we do not know the real long term effects of an event perceived as good or bad in the short-term.

I think it's a great thing you can't get funded right now.

Tom S. · Answer

@Jon Lewis  Check seller financing (SF) deals.  My first deal I did buying with SF, I bought a place for $80k and offered 10% down.  So about $9500 out of pocket to close ($8k down and $1500 in closing costs).

Syed Ahmed · Answer

Appreciate you being real about your journey a lot of investors start from exactly where you are. Credit can be rebuilt, and the fact that you’ve already saved cash puts you ahead of many. I’ve seen folks get creative: partnering with someone who has the credit but not the cash, using seller financing, or even doing joint ventures to get that first deal under their belt. Hard money can work if the deal is strong enough, but the terms need to be weighed carefully. I’m in the lending space and always happy to exchange ideas  feel free to connect if you want to talk through what might work in today’s market.

Jules Aton · Answer

30% down owner occupied no-doc loan.

Doug Pretorius · Answer

@Jon Lewis My first deal was financed by the seller. No down payment. No interest. 25% below market value. Had great tenants already in place but rent was way below market.

I took it over on a Lease Purchase. My lease payment was equal to his mortgage payment. My purchase price was equal to his mortgage balance at the time of closing.

I asked the tenants if they would be willing to pay market rent and they agreed so the month after taking control of the property I had a $300/month positive cash flow.

Sold it 2 years later when my second set of tenants moved out.

Jordan Woolf · Answer

I purchased 2 properties on my first deal. I had the seller finance 20% and I went to a local bank and they financed the rest.

I sold the houses a month later for 25% what I purchased them for.

Michael Carbonare · Answer

I funded my first deal, a bank owned foreclosure, with a credit card:https://www.biggerpockets.com/forums/12/topics/1182801-how-i...

How did you fund your first real estate deal?

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