One of the most popular questions I get from our Inner Circle members is: “How do you have the funds to continue to invest after buying a few deals? It takes so much time to save up for the down payment.”
Never running out of capital was one of those lessons I had to learn the hard way: through time and experience. I, too, use to subscribe to the idea that you had to follow this formula of investing:
Work → save all your money → buy a rental property →
be broke for a while until you save up again
It wasn’t until the fourth rental property purchase that I realized we must be doing it wrong. Having to save so much would take too long for us to achieve our goals, and I had big goals. I wanted to earn $10,000 per month in passive(ish) income ASAP.
My husband and I sat down, listed out all of the resources we had available to us to invest. To our surprise, there were so many different ways that we could find the funds to invest.
Now, I can confidently tell you that we have unlimited funding sources. This doesn’t mean we have unlimited funds, but I know that if we found a good deal that we wanted to buy, we have the means to buy it even if that means sharing a piece of the pie with others.
My mission is to help 1,000 families achieve financial freedom through real estate investing, and that starts by helping you to think strategically.
Can you invest with zero money down? Certainly. But you’re going to be doing it with partners, and you better have some skills to bring to the table.
When I was just getting started with investing, I had the skill set of project managing new construction homes, knowing how much it cost to build, what they would sell for, and how to get permits. Plus, I understood what consumers wanted.
I found a four townhouse project, but I didn’t have the money to do the deal. But, because I had the skills to oversee the project, and I could run an easy-to-understand analysis, I pitched the deal to friends and family, and it worked.
Moving forward, we decided that we would leave partnering on deals as our last option because we preferred to have controlling interest in our properties.
Using the tax benefits of the 1031 exchange is another creative way to find funds for your next purchase. Two of our Inner Circle members found deals on the Agents Invest Deal List and are using the equity in their Washington properties to scale their portfolio using this strategy. This strategy allowed one investor to sell one condo and purchase four units, using the equity from her condo! She bought a cash flowing four-plex off our Deal List in Clarksville, Tennessee.
Another Inner Circle member is selling one single-family home to purchase eight units—EIGHT! He is selling his single-family home in Washington to buy two duplexes (that’s four units) in Chattanooga, Tennessee and one four-plex in Clarksville, Tennessee. Finding deals on the Deal List and using the 1031 exchange. Now, that’s a great way to use leverage!
Here is another example of a creative way to find the funds. A client of mine had the money to invest, but where he was buying, one purchase would have used up all of his savings, which he didn’t really want to do. He asked for my advice, and I casually said, “do you happen to have any friends or family earning zero in the bank that would be a lender for you?”
He said he would make a few calls and get back to me. Sure enough, the next day he shared that he called his dad who happened to have a significant amount of money-losing money due to inflation with a CD in the bank. His dad was thrilled to earn 6% interest on his money as a private lender to his son.
The only challenge was my client wanted to refinance after a year and take advantage of the low-interest rates. His dad was disappointed to not be earning 6% anymore.
Here are ten ways that you can find the funds to invest and create your own limitless funding of deals:
- Save your own money
- Owner-occupy for a lower down payment
- Use a home equity line of credit
- Cash-out refinance equity in existing properties
- Sell using the IRS 1031 exchange to defer capital gains
- Use your retirement account
- Recycle capital using the BRRR strategy
- Private Lenders
- JV Partners
- Raising capital through syndication
It’s worth pointing out that three of the ten on this list require that you already own properties. I can also tell you that every year you own a property, it gets better, assuming you purchased in a market with strong demographics.
My first three deals were not good, all were underwater and cash flow negative within months of purchasing, thanks to the great recession of 2008. But, through good operations, I was able to improve NOI and ultimately sell when the market had recovered. Moral of the story, just get started. Buy something. You likely will not hit a home run on your first one, but you will create momentum and gain experience which will prove invaluable on future deals.
If you’re an overachiever like Pete, you’re going to want to start hanging out with people who can help you along the way. Pete is an investor in our community who first came to one of our meetups in February 2019 with no rentals. Then only 17 months later, Pete owned 12 properties. They were all BRRR deals, all out of state, all found through Agents Invest teams.
Next week, we’ll talk more about why you should hang out with cool people, like Pete, if you want to grow your portfolio faster.