Finding the Money: How to Finance Your First Investment Property

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Investment properties can serve as the foundation for future financial stability, but there’s a widespread perspective that you need to be fairly wealthy to start investing in the first place. But how much money do you really need to take the first step? If you play your cards right, a few thousand dollars can help you throw open the doors to your first tenants.

Focus on the Flip

When working on the low-budget end of the investment spectrum, your best bet is to look for distressed properties or affordable houses that need a little work. In the wake of the sub-prime mortgage crisis, these homes are plentiful and many are in foreclosure. Buy them from the bank at auction and get to work.

Related: Why You Should Consider Private Lending for Your Financing Needs

Smaller cities and rural areas have a particularly abundant supply of rehab-ready houses available for rock-bottom prices. Maybe it’s not the location you would choose, but long-distance management of D-list properties will help you make the money you need to move into more established, expensive areas.

Expand Your Funding Horizons

Most of the time, when young investors say they don’t have enough money to buy property, what they mean is that they don’t have enough cash. And of course they don’t—very few people do. As it turns out, you don’t have to be equipped with cash. You just need to think more expansively about where you get your funding.

The most common way to finance an investment property is by taking out a loan, but this is different from applying for a private mortgage. Many mortgage applicants are financially ill-equipped for homeownership and make poor candidates, meaning they pay high interest rates and have little room to negotiate. When you seek an investment loan, though, you’re more likely to be viewed as responsible and financially stable, meaning lenders will be competing for your account.

Another option you can avail yourself of in order to pay for an investment property is equity or other assets. If you already own a home, for example, you can take out an equity loan on that property. Similarly, if you have supplemental assets such as a second car, stocks, or even jewelry, those things can be converted into cash to be used towards an investment property.

Think Income

One reason it’s easier to get a loan for an investment property rather than a private home is because investment properties produce an income stream. When you’re buying, then you need to consider how much income a property can provide and how reliable that cash flow will be.

Related: What Newbies Should Know About Financing Investment Properties (Versus Homes)

If you want to maximize your potential income and achieve more consistency, one option is to invest in a multifamily home. Though single-family properties appreciate more rapidly, with multifamily properties, you have multiple cash streams. You can also renovate one apartment while leasing out the others, allowing to keep making money while also making capital improvements.

Investment properties are a source of countless opportunities, providing a consistent source of income that can fund future education, retirement, or travel among other possibilities—but you need to start early. So look at your savings and see where it can take you. With a little financial ingenuity, a few thousands dollars can be transformed into great prosperity.

How do you plan to finance your first real estate deals?

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.