How to make my first purchase?

Question

Hello,I've finally come to the conclusion that I'm not going to have enough money to retire comfortably. I'm still somewhat young at 48 but my first child is heading off to college this fall and I'm not getting any younger. I work in Boston and my wife and I bought our home a few years ago. I am very motivated to buy rental properties in the area where I live but the one thing I have working against me is not having 20-25% down. I could draw from my retirement but I'd lose half in taxes and I'm not sure that is the best solution. I'm learning through this website as well as reading other stories throughout the web but I still come back to the same question: How can I make my first purchase with little or no money down? Any ideas or suggestions are appreciated.Thank you for your insights!Chris

Curt Davis · Answer

@Chris HarrisonI am in a completely different market then you but I have purchased all of my rental property with little out of pocket. I actually put together a short YouTube video giving a simple example with figures on how I do it. If you can locate property that can meet the formula you might be able to do the same thing. Good luck

Chris Harrison · Answer

Thank you all for your responses and insight. I will most definitely research borrowing from my self-directed IRA and weighing the risk vs. return if I decide to do that. I also like the idea of the seller carrying a second mortgage. I am motivated but also cautious about making the right decision for me and my family. Like I said, have a daughter going off to college with two more following her out the door over the next few years. Thanks again!

Elizabeth Colegrove · Answer

Look into a self directed IRA. Also there are lots of way if there is a will, there is a way. We got started at 23 through living frugally and turning personal into a rental. As we grew, we started buying pure rentals and I am proud to say in 3 months if all goes well. Our rentals will self fund their own pure rental.

Kerry Baird · Answer

There are other ways to buy with little cash: make a trade for something else of value, ask the owner to carry the entire loan, ask the seller to carry back a second mortgage so that you only come in with 10% obtaining a bank loan for the balance (called an 80/10/10, buy with a lease option and sublease to your tenant, buy subject to the existing loan, partner with someone who has the funds and you do the work to find the deal or fix or manage or whatever, move into another owner-occupied property to obtain low down-payment financing and turn original house into a rental...repeat.

Bryce Jamison · Answer

So if you don't have 20% to put down on a house plus money for closing, repairs, and reserve what can you do?Like @Andy V. said you can get a multi unit home with an FHA loan for little down. But if you already have a home you can't do that.What you could do is use a hard money lender. They will have a short term like a year or two and have higher interest and maybe an origination fee. After their term hopefully you'll have some equity and you can refinance to pay the lender.But that's if you absolutely can't wait to buy real estate. I don't have the cash to buy right now either. I could try to find a hard money lender, but instead I'll save for around a year to put 20k or so away. Then I'll get a 50-60k house. During that time I'm going to learn as much as I can, see as many houses as I can, and meet as many people in the industry as I can, so when I do have the money to invest I'll be ready.Good luck!

Crystal Smith · Answer

@Chris Harrison Study your retirement program & see if you can roll it in to a Self Directed IRA. Most employee programs won't allow you to do that, but some will. If you're one of the luck few then you can use your IRA to start purchasing properties. There are some ways to partner w/ your IRA, but I won't go in to that here.Another strategy you may consider to get the downpayment is to purchase distressed property, renovate it, sell it then use the proceeds for the downpayment on a rental property. Then repeat the process.

Andy V. · Answer

Chris Harrison That's a great question. I'm in pretty much the same situation as you in the Chicago market and have been wondering the same thing. I keep hearing and reading that it's easy to get started with little or no money down. All you have to do is buy a multi-family home with an FHA loan and live in one unit while renting the rest. Sadly, that doesn't work when you're already a home-owner and aren't in a position to uproot your family. I look forward to seeing the responses you get to this post.