Can you use lenders to fund?

Question

I really want to get into real estate.I just don’t have the money to pay for it out of pocket. Is it true that you can get lenders that will pay for the  house, construction and other expenses that goes into the deal and at the end the Leander gets ther money back w/ interest as well as the people who do the open houses/ anyone else involved? At the end I’ll collect all the money that’s leftover. I really want know and hope it true and if so how can I get this started.

Joe Villeneuve · Answer

Yes,...and please don't take offense to this, but if that's the first question you have, you are a long, long way from starting.  I would suggest you spend a lot of time online getting info and a lot of time joining as many RE investment groups as you can find (do an internet search) in your area...and join them, attend all the meetings you can, sit back, listen, and then ask a lot of questions after you've attended many meetings.

Joseph Harris III · Answer

@Curtis Starck yes it is true, but like @Joe Villeneuve stated, you need to study real estate investing more before you get started. You should try to partner with a wholesaler first before you try to raise money for a deal that you dont even know how to evaluate yet. Go on youtube and follow Pace Morby and Brent Daniels to learn about wholesaling

Branden Yang · Answer

You can't get lenders to fund, you can get partners that are lenders, but banks usually don't want to give more than 80% of the appraised value of a house or a property. For first time flipper on hard money loaner, they'll usually look at your credit score if you're BRRRR (Buy, renovate, rent, refinance, repeat), they'll look at the deal if it's worth a flip, and look at the market. Today's market, it would be hard to refinance because of interest rates and DTI, unless your cashflow is absolutely good.

Tim Ryan · Answer

Yes, there are lenders for this! And their name is.... "Family".  No one else will know you enough or trust you enough to give you money.  Depending on who you are, maybe they won't either - ouch!  But really this is the best place to start until you prove yourself in this business. Use your uncle's IRA which is probably starting to lose money now. He funds 100% and gets 50% of the deal. You are the sweat equity and get 50%. Uncle is fortunate for you making such a great offer (that's the way to see it).  Does it work? I've done many especially early in my career.

Alex Breshears · Answer

Hi Curtis!

My take is going to be a bit different from others that have commented.  First, there are a lot more ways to be involved in real estate without owning the property. For example, you could do STR arbitrage where you rent a property with the understanding you will be running it as a short term rental.  That could potentially be very little out of pocket for you (basically security deposit, and first/last months rent) and then you could put the furnishings etc on a credit card or line of credit with a furniture store etc.  Is that potentially the most prudent thing to do, maybe not, but it is an example of thinking out of the box.  You can also potentially look at trying to round up some subject-to deals where an owner just wants to walk away from the home and the problems associated with it and you take over the payments. You could become a loan broker and learn the lending side of the house with little financial output as well. You could broker other people's capital for private loans.  Like I said, the options are endless.  It is a matter of not keeping that limiting belief that investing in real estate is solely about ownership, it is about the control of the cash flow! Learn that lesson early and repeat it often.  Look for situations you can control the cash flow.  Maybe you start out as a real estate agent, work towards managing properties as long term rentals. That will give you a TON of insight into the rental market in your area, in addition to the best practices and laws, and then possibly open your own management company.

Now as far as the lending piece goes, I will agree with a lot of the other commenters here. Finding an institutional lender to fund 100% of everything is not likely going to happen. Even if they did, they will also likely employ a refund draw model, so you would need to pay for at least some portion of the renovations first and then submit documentation and proof those renovations were completed and the contractor has been fully paid. You would need some measure of capital to get that process going. In addition, let's ignore the fact about purchasing the property and the capital required, but what happens when you own it? There are going to be holding costs involved (the payment on the loan you are seeking). And that's just for starters! You will need money for closing costs and insurance for the property. So even if the lender is providing 100% of purchase price plus rehab, AND giving you money upfront for the renovations, how are you paying the monthly interest payment?  I'm just sharing how a lender would view this situation.  Assess what your strengths are, what skills do you have, where do you want to go, and then start looking for people to help you get there. For example if you know you are great at hustling and finding a deal, then team up with someone who has capital or credit.

Sean Beksinski · Answer

Love what Joe said I would add that I would consider looking for a good Loan Officer in your area that can draw you a road map for acquiring your first property. Keep in mind what he said as well though because you need to make sure your are investing and not gambling.

Richard Loniewski · Answer

Start learning and most important start networking, I did my first deal 6 years ago with $1,000 of my money. Through networking I found a mentor who helped get me pre qualified for a hard money loan. I also partnered with him for his experience, and my barber who had money to invest came in with the gap funds (money needed that the loan does not cover) and I just put down the 1k deposit. I had to give away 60% of my return but got the first one in the bag and never looked back

Mike Klarman · Answer

If it was that simple, we’d all do it.  Right? Find a house. Find a lender for 80% debt then also lend you the 20% down plus transactional costs.  Fix it up.  Then sell it and the lender gets all money back plus some interest and you gets what left.  What would you care?  You were in for nothing.

No hard money lender will do that.  It is possible to get 100% financing on Fix n Flip if you have really good experience. Like 30+ properties held or sold last three years.Is there such a thing as transactional financing? Short Answer is yes.  Some people use equity in their primary home and borrow it from there.

Most times you see transactional funding on large scale deals.  Project costs 50 million.  Their getting 85% LTC so they need 7.5 M to close on 43.5 M debt.  They’ll shop an equity position around.  Put up transactional funds and either get a certain rate of return on Capital or take an equity position in the building’s net operating income.

On small residential deals you do not see transactional funding from a lender. Investors borrow from family, friends, credit cards, HELOC, or personal savings accounts.

I always tell new investors this: Since you cannot come with experience, you must come with the two other essentials - Cash and Credit.  With cash and credit you are fundable. Without it you are not.

So, Save.  Repair/Strengthen credit.  Think of places you can get the money.   For a newbie to close on a 100k house you will need 20% down - 20k. You’ll pay 2 points  - 2k and you’ll pay 1300 in closing costs.  So you’ll need 23,300 cash to close, but then you’ll need to show the bank 9 payments which will be 700 let’s say.  So that’s 6,300 more you need to show at closing.  So you’ll need 30k in an account at closing.  Even though they don’t take the 9 payments out, showing that you can make 9 payments is part of the deal.

Rebecca Knox · Answer

Yes, it's true but some hard money lenders will require you have some skin in the game---many will at the least require interest only payments during the loan. Milwaukee Hard Money, Machi Lending and MGM Capital are just a few of the top HMLs lending on deals in Milwaukee and surrounding areas. There are more and private lenders. My advice if you are brand new is to get out there and start networking ASAP. This is the way :)

Can you use lenders to fund?

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