Week 6: How to buy with less of your own cash
Buying with less cash is not a strategy that is reserved for beginners just starting out. The more money you can borrow at decent rates, the more money you can make in real estate. When I am completing 10 flips at once, there is no way I could do it paying all cash. There is no way I could do it with just bank financing. I use a mix of bank financing, private money and my own cash to buy flips and rentals. This module is going to be all about using other people’s money to increase your returns on real estate. Remember, borrowing just to borrow doesn’t make sense. You have to make sure the investment is good and the money is not so expensive that borrowing it makes no sense.
Goals for this module:
- Learn how to use conventional loans to build up a rental property portfolio.
- Learn how to use conventional refinances to put little or no money down on rental properties.
- Learn how to find, structure and acquire private money
- Learn how to use partnerships if they make sense.
1. How can you invest with little money down?
Investing with less money down is the goal of many beginner investors. They see the wonderful benefits of real estate and they want to part in it, but have no money. There are hundreds of websites and books about buying with less money down. In my experience most of those strategies involve un-achievable strategies that will not make much money. The more money you borrow above 80 percent loan to value, the more that money will cost you. Seller financing is an option as well, but again there are usually reasons the seller is offering financing. They probably can’t sell the property for the price they want without incentives or there are major problems with the property. In the following video and article I go over the most common ways to buy with less money down.
Article: How to invest with little money down
Task for this section is to look at your current investing strategy and see if there are any of these techniques you can implement to increase your buying power and returns.
2. How to find a private money lender or partner
Private money is one of the best ways to buy rentals or flips with less of your own money. Private money can be expensive, but boy is it easy to use! There are many hard money lenders out there that claim to be private money lenders. I am not going to talk about companies that offer private money, because that is not true private money. True private money is from friends, family, coworkers or any individual that wants to give you money so you can buy more real estate.
Private money can be a gold mine and make investing do much easier. Even if you have to pay a little more for the money, the extra cost can be worth it. Task for this module is to make a list of every person you know who has money and may be interested in investing with you.
3. How to use a conventional loan to buy rentals with less money down
I wish I would have known about this technique when I first started. The hard money or private money refinance into a conventional loan. If done correctly this can get you into a rental property with no money down, including making repairs. It is risky and you need to know what you are doing to pull it off.
4. How to use refinancing techniques to invest with less cash
Refinancing properties can be an excellent way to get more cash for more rentals or flips. You can use conventional loans or portfolio lenders to refinance properties. The major roadblock most investors run into when trying to refinance is getting cash out. Conventional loans will not allow a cash out refinance after you have four mortgages. Portfolio lenders will be much more flexible all allow cash out refinances in many cases. The national portfolio lenders will also do cash out refinances. Here are a couple of articles with more information on refinancing.
5. How to use lines of credit and home equity loans to invest with less cash
Using a line of credit can be another amazing tool to get more cash so you can buy more properties. I have lines of credit on two properties. One of them is a line of credit on my personal house and one of them is on an investment property. The rates and terms will vary based on the bank and the type of property you are lending on. The great thing about a line of credit is you can use it when you need it and pay it off when you don’t need it. But, it will still be available to borrow from once you pay it off, unlike a mortgage.
The final task for this module is to review all your real estate holdings. Do you have equity you can tap into? if you were to be able to get a line of credit or complete a cash out refinance what would it do to your bottom line? Could you buy more rentals or buy more flips and make more money?