How to Finance & Build 10K/month Cash Flow from Rentals!

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If you can’t make it without money, you can’t make it with money

To get conventional financing as an investor, many deals require a large down payment. Hard money lenders even require substantial down payments. Financing is a difficult challenge for many investors. So how do we do deals?

Real estate is an Other People’s Money business. Plain and simple, you do not need your own money to do deals. Let’s look at this example deal.

100K Value
80K Purchase
250 Positive Cash Flow
15K Down Payment
65% LTV after down payment

To do this deal, the lender requires 15K down as they will only go to 65% LTV. A down payment investor will lend in 2nd position, but only up to 65%. So your lending falls through. What is the problem here?

Is it the lender? I think not. The problem here is that the deal is not good enough to get 100% financing. This deal cannot be done unless you have money. But if you do have money, you are doing a deal that is 80% LTV. What if holding, rehab costs and/or selling costs increase? What if the market goes down and/or you cannot sell for enough to break even? You lose.

If a deal is not good enough to do it without any of your own money, then it is not a good enough deal. Savvy investors should walk away from the deal above. That deal should be purchased for 65K using none of your own money not 80K using your own money.

What needs to happen is investors need to master finding the best deals. If you cannot do a deal using 100% of other people’s money then you have not mastered finding great deals. Therefore, if you can’t make it without money, you can’t make it with money.

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This entry was posted in Beginner's Advice, Entreprenuership, Financing, Tips & Standards. Bookmark the permalink.

7 Responses to If you can’t make it without money, you can’t make it with money

  1. Love this article. Plain and simple.

  2. Naresh says:

    Very well said

  3. Brian Rutter says:

    I see some confusion here between purchase price and “value”. Value is a very fluid concept with many definitions, and with much subjectivity involved in the inputs to the various definitions. I assume here that when you speak of Value, you mean that after you buy the property and do whatever you plan to do to it, it could be sold for $100,000. Please correct me if that is a bad assumption.
    Unless there is a class of lender which is materially different from those I have worked with on either large commercial deals or single family deals, you will not find a lender who will use this type of value as the base in his LTV calculation, particularly in the current tightened lending environment. Instead, the lender will base his loan on the lower of the contract price or the appraised value. Therefore, in your initial scenario of an $85,000 price, the lender would only lend $55,250, or 65% of $85,000 (assuming the appraisal came in somewhat above $85,000). Therefore, you would still need to come up with just under $30,000 in equity, plus the cost of whatever rehab program you intend to do.
    Even if you could find a lender who would base your loan on projected value of $100,000, this still begs the question of why the seller would sell for $85,000 or $65,000 if a reasonable value projection is $100,000?

  4. Jessiee says:

    The problem with articles like this is there is never a HOW to getting 100% financing! Everyone says the same things – Get private money… yeah because people WITH money are just falling all over themselves to lend money to BEGINNERS with none of their own money invested in these deals. Get sellers to finance… yeah because anyone trying to get rid of their home wants to still hold onto it just a little bit by still ultimately being responsible for it by financing you. Even if they own the house outright, the point is, they want to get rid of the property. These “seller financed” deals are not as common as articles like this make them out to be. Birddog/Wholesale… yeah because a seasoned investor is just dying to bring on a newbie with no experience. Find a partner… same as getting private money. I’m sure some people DO want to be hands-off but if you are NEW to investing, YOU are NOT the person who is getting this money. Once you’ve worked your butt off, done a few deals, have your own money to risk too, then MAYBE these types of people will start giving you money.
    So, as much as I love this website and look at it frequently for deals, I do not see how there truly is a way to get into the game without using your own money! Even your own hard money lenders on this website require at least 20% down!
    If there REALLY are people out there wanting to partner with new investors or provide private money, maybe you should incorporate that service into your website and bring those people together.
    I’ve got a business plan, I’ve got the drive and I am saving up my own money to invest because these “angels” don’t exist for the little guy.

  5. Ryan Moeller says:

    Jessiee,

    You make some very good points. Money is not lining up and begging beginners to invest. It is often very frustrating and many beginners never get past this hurdle. However, it is only a hurdle, a challenge that can be overcome. Every beginner starts somewhere, even the big guys like Trump. I can relate to frustration as I was held back for a long time by my inability to raise money for deals. Boy was it frustrating, I made many mistakes but I keep at it until I overcame the challenge.

    The solution is just that, view it as a challenge, analyze the challenge and break it down into solutions. When I began, I was running around asking strangers for money, they looked at me like I was crazy. Quickly I realized I was taking the wrong approach. I put myself in their shoes and defined criteria that would make me invest if I had money and comfort in investments backed by real estate.

    It comes down to trust. Investors have to trust that their money is secure and a return is as certain as it possibly can be in an investment. To earn this trust you must build credibility. I began writing articles, guides, doing videos and webinars which shows that I am an expert and credible. I also built my track record in away that most people told me I was crazy to do.

    I told my other beginner friends that I was going to offer as much as 80% of the profit to investors. They told me I was crazy. It turns out I did not ever have to offer that much, but I did offer more than 50% and within a year I did 8 deals while almost all of them did none. Now I was off and running. With a website that is a marketing machine, a track record and plenty of connections in the industry it became much easier to generate money. Now, it is to the point where I feel as if I am prospecting the investor rather than them prospecting me.

    So Jessiee, it can be horribly frustrating as a beginner. If it where easy then everyone would be doing it. I can attest, it is not easy, but it becomes easy once you figure it out. My suggestion is to re-channel your frustration into finding a solution for your challenge. Don’t give up into you figure it out. Be creative to build your track record. Help others with a track record and piggyback off their track record and credibility if you need to. Don’t be shameless of course, but if you provide value to someone with a track record then I’m sure they will be happy to help you in return.

    If you have any specific questions, I would be happy to help. I appreciate your honest comments, I can definitely relate.

  6. Sarah says:

    Everything you say makes sense. However, Finding a deal right now is my challenge. We have so many investors in my market. There is no inventory, for anyone. Anything that comes up is swept by the experienced. Where can we find deals? Do I need to go knock on Foreclosure doors? Figure out how to auction? FSBO are asking for full value, afterall they are FSBO because they don’t want to give there money up to a RE agent. Owner cary and lease option always want money down and not 65% LTV, but full value.

    Also, how do I know the LTV? Don’t you have to do comps? How do I have access to that? How do I know the deal is a good deal when I walk in? I find a house, it seems like a good deal. I have an idea of reno costs and a guess of the market value. What if I greatly screw that up? Where/how can I know this info as a beginner?

    Plus, even if I find a deal, it can’t wait for me to THEN find an investor. Most investors I find, tell me, when you have a deal let me know. But by that time, the deal is swept up. I need a POF in hand. How do I get an investor to give me this while I look?

    By the way, it seems you are plugged into some system. What is it?

    I know I have a few questions here. Thank you for your thoughts.
    By the way, want to partner up and make 50%+ on a deal? Since you have the answers to my questions, and I live in one of the hottest markets dying for rehabs in the market….I’ll work hard to get it all done, you teach and make a nice return. Just a thought…had to ask. Feel free to email me.

    Sarah

  7. Ryan Moeller says:

    We have a guide on how to find deals that you can read. I recommend education, focus and implementation. Most of the time you have to look at 100 deals, offer on 20 and you end up with one great deal. Once you get it dialed in you will find sources for better deals so you will not have to look at so many.

    You can get comps from a local realtor. http://www.zillow.com can give you some comparable sales but it often is not very accurate.

    I always get commitment from investors before finding a deal. I learned that the hard way when I lost earnest money because an investor didn’t fund a perfectly good deal. Show them example deals and ask them to cover the earnest money when you do find a deal. If they are not willing to put up the earnest money then they will not be willing to fund the deal. They have objections that need to be handled still.

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