What should I do to build capital?

Question

Account Closed · Answer

You might start by getting @Brandon Turner's book on Investing with No (and Low) Money Down available right here on BP.  You should also start listening to the podcasts (if you are not already) and surfing the forums for info on how other people pulled it off.

As for me, I did both:  I have a career with the Navy and used that money, plus some borrowed from family, to start off flipping houses with my wife.  We used the proceeds from several houses we did in 2014 as the down payment for a rental that is cash flowing and appreciating.  Now we have three rentals and are dipping our toes in property development.

Do your homework, get creative, and you too can get the snowball rolling--and growing.

Logan Sherwood · Answer

hmmm you got me thinking differently now.... I am still going to pursue getting my license because I know for a fact it is a great help when doing/finding real estate deals. But maybe I dont have to act as a real estate agent, because I heard it from multiple investors(and you), and even a broker that is difficult to build enough capital to invest. Like you said I can go get another job and save up as much as possible. Keep reading and learning about investing and finding creative ways to finance deals. Also was thinking about partnering up with my dad. Ill let the forums know how things go! I know one day Ill be a success story on here! David Toler

Don Konipol · Answer

The standard in investing in SFR is for the investor to contribute 25% of the purchase price (30% for commercial property) and borrower the remaining 75% (70% for commercial). This is if (1) the financing is conventional (2) the borrower has good credit (3) the debt coverage ratio is at least 1.2

Utilizing private financing, the borrower may be able to come to the table with as little as 10% if (1) he has experience, knowledge, and a good reputation (2) the property net income is able to service the debt (3) he can convince the seller to carry back a small second lien.

There are numerous strategies and techniques out there theoretically enabling the buyer to buy a property with no capital contribution on his part.  I say theoretically because the techniques either rarely work or are illegal.  Most of the illegal ones involve convincing a lender either (1) you are coming up with a down payment from your own capital when you are not (2) you are paying a higher price for the property than you really are (3) you are buying the property in an arms length transaction when you are not or (4) your income is greater than it really is.  This is called mortgage fraud.

The legal techniques used to acquire a property for no out of pocket capital contribution consist of (1) convincing a seller that it is in his best interest to sell to you for nothing down by financing the entire purchase price (2) bringing in a capital partner (3) obtaining a lien on another piece of property you own that has equity in it or (4) taking over an existing mortgage on a property with little or no equity

Two caveats, first, many deals structured to be purchased with no or minimal capital investment and large debt will have a large negative cash flow.  Often the financing will be at interest rates significantly higher than conventional rates, further exacerbating the negative cash flow.  Second, the price paid for the property with owner financing is often higher than what a property would sell for as cash to the seller.

Many of the techniques we used 30 years ago to achieve this end have been determined to be illegal, or made much more difficult by the inclusion of due on sale clauses in every mortgage or deed of trust.

Account Closed · Answer

@Logan Sherwood Getting your RE license to learn and earn is a great idea.  Traditional RE such as listing homes etc. is pretty tough but the experience invaluable even if it only teaches you that you don't want to be a traditional RE agent.

You seem really determined -- go after it my friend.  Keep us updated.

Account Closed · Answer

@Don Konipol Concise & valuable posts like this are why I keep coming back to this forum.

@Logan Sherwood you need some juice.  Get another job and save as much as you can.  Read the Millionaire Real Estate Investor and others like it.  Low down strategies are possible, but you will never regret having a cash cushion to help with the many unexpected situations that arise with real estate.

Consider your state's pre-licensing courses (you don't have to take the exam if you don't want to be licensed) or just complete some free courses at @Bill Gulley's website (search for his name...I can't link it) Good luck!

Account Closed · Answer

@Logan Sherwood

I'm trying to learn how to wholesale to build capital. I think learning the direct marketing part of wholesaling will also help me to get more rentals at the lowest price, which means more cash flow and more equity.

Logan Sherwood · Answer

David Toler And I have already read that book. It is one of the first i've ever read! I believe in low money down, but like you said Its nice to have a cash cushion when investing in real estate. And if I become licensed and act as an agent I would be getting some first hands education. Actually being in the game. I just feel; like this is a good route to go, if you feel there are better ways to get where I want to be. Please let me know I am all ears

Logan Sherwood · Answer

David Toler The thing is I do want to become licensed. I hear it is actually really helpful in the real estate investing game. And I want to jump into the game of real estate before I start investing, get my feet wet ya know? While building some capital. You think this a good idea? Cause I would way rather work in force that I am going to be in than go get a full time job. I want to get a taste of real estate( even though its not investing) before I invest if that makes sense.

Andrew Fielder · Answer

@Logan Sherwood if you want to build capital

1) Get more revenue (income)

2) Reduce expenses

You can only reduce expenses so much, eventually you need to increase your income/revenue. There's tons of books that you can consult that will lead you in the right direction. At the end of the day it all comes down to how hard work you want to work to get where you want to be.

Good luck!

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