So, investing. There are as many ways to do a deal as you can think of. You’re interested in creating passive income buying and holding properties, possibly increasing value/rent by adding value to the property in the way of repairs over time (or quickly). Whatever your plan is, you’ve probably wondered about some of the low and no money down possiblities.
Cash is almost always king (sometimes not – usually a tax move). But there are lots of ways, as the old saying goes, to skin a real estate transaction.
So here is a list of ideas. These vary as to where they’ll be most effective or effective at all – the more creativity you put into things, the fewer properties and/or sellers there are who will be willing to do it, for a number of reasons. And there is not a magic bullet – some trick that exists that you can’t imagine. But knowing options and understanding how to put them to effective use makes us ‘luckier’. Combinations of methods can be used as well. It’s all (as long as it’s within the law) allowable and negotiable.
There are varying degrees of risk here and people also have their own thresholds – some folks will absolutely not use their personal residence for anything else and are only content once it’s free-and-clear. Others will leverage everything as far as it can be to invest and make more. Obviously only you can know this.
Do a flip or two and raise money to buy rentals. The initial purchase of Flip #1 could use a partner or a hard money loan, etc. Once you’ve finished one or two, hopefully you have enough money to begin ‘going it alone’.
Not sure how much you do or don’t know about wholesaling. It’s doable and it’s legal (for now, anyhow), but it does require some time and effort (and possibly some relatively assertive personality traits).
Need properties with lots of equity – typically look at the collateral and the deal itself although these days they will probably want some information on the borrower as well. (True hard money is based on the collateral of a hard asset, e.g. real estate). Short term, interest only, typically. Difficult in this market – nothing that’s on the RMLS is probably a candidate for hard money because they don’t make it to there if they’re such a good deal.
Will look at the whole picture – credit, collateral (the property itself), your capacity to repay and your capital – how much you show on paper – banks, retirements, etc. (Most hard money lenders do this too, these days.)
If you can find sellers willing to do this, that’s great. The problem, in a market like ours now, is that there’s not a lot of reason for seller’s to do this: money is easy to come by and there is huge competition for properties. But they’re still out there, especially on properties that might be hard to finance conventionally.
Can be done in many ways and with varying degrees of formality. Including combining methods.
Joint ventures, where you and whomever form a business, typically based on a percentage (determined by risk (which is directly tied to how much money each party has in the deal – from zero to 100%) and contribution to the project). Everything is split up by the pre-determined partnership. Typically you might form this partnership and then begin to find properties versus finding a property and then forming a partnership.
Borrowing money that you pay a percentage on. This is basically a strict loan, like a bank might provide (real estate or other): “Here’s $50,000 at 8%, interest-only, with a balloon payment in 5-years. (A balloon payment is when you are required to pay off the loan ($50,000 in this case because you’ve only paid interest, no principal, for 5 years), often by refinancing into a favorable conventional loan, made possible by increased equity (from paydown, market appreciation, improving the property, improving the income from the property by getting rents up to market, etc.)
2nd on your existing house (HELOC)
HELOC’s can be great tools – you don’t need to fuss with the 1st which, in your case, is going to be locked into a long-term, great rate. HELOC’s payments also decrease as you pay on them (unlike a conventional first).
IRA – self-directed IRA’s
Retirement funds (existing IRA’s and 401(k)’s can be put into self-directed IRA’s which offer the account holder to invest in real estate (or pretty much anything else – e.g. you can loan money to others to do their deals. This is something I can’t advise on and that you would definitely want someone familiar with the vehicle to look at (regarding tax ramifications, etc.) – it is an IRS code and therefore has very strict guidelines – my favorite is that you cannot invest in rugs. (Rug investors must be the super wealthy bored people of the world!) These IRA’s are only available with certain companies (Schwab is not going to offer them, for example). But it could be a very good way to get money and choose your own investments (versus the vagaries of stocks, often picked by someone else).
May not be something you’re interested in, but an ideal house hack has you moving once per year, using owner-occupied financing each time. E.g. you keep you current home at @ 2.25% as a rental and go buy a house with FHA @ 3.5%. This allows you lower down payments and better rates than investment property loans. Typically in a house hack, you would have roommates, but you can do a hybrid house hack where you’re alone in the house while you’re living in it (or only have roommates in completely separate living quarters).