I get asked a lot, “How do you continue to invest in deals when you have to put 25% down each time?”
The answer… I don’t use my own capital. And you shouldn’t either.
See, there are actually 4 ways to invest in real estate:
- Using your own money
- Using someone else’s money (such as private lenders)
- Joint Venture with 1-5 other partners
- Syndication — a pooling of many investors together
While it’s great to start out with a pre-approval and available funds on residential properties, that’s nearly impossible to scale.
My go-to strategy? Private lenders.
What does a typical lending structure look like?
I pitch lending opportunities to my shortlist of investors.
My pitch is simple: I offer 8% interest on a 12-24 month term. There are no points, no prepayment penalty, and often 90 LTC.
Check out this real-life example:
I purchased a 6-unit for $415,000. One of my private lenders loaned me $385,000. My only out-of-pocket expenses were $30,000 at closing and $30,000 for the renovation.
I renovated 3 units, stabilized the property, then went to a local bank to refinance the PML. The new appraised value came to be $530,000 and they offered 80% LTV.
My new loan was $424,000.
I then paid off the PML, put $39,000 back in my pocket, and my new investment came out to be $21,000 on this 1990 brick 6-unit.
It’s not about what you can afford. It’s about who you can partner with to help fund the deals you want to buy.
If you want my support on how to think bigger, next week we’ll talk all about the joint venture partnerships.
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