Real Estate Investor · Chicago, IL · Member since 2016 · 48 posts · 8 votes
Hi. My name is Maggie, I am a new to Biggerpockets. I heard few podcasts on Biggerpockets website about starting out to invest with refinancing with cash out over and over again to buy one house after another house . Few investors recommended to buy house then refi with cash out all money down and buy another house, so my question is: " How can you refi with cash out to get all your money if bank will only give 80% of your equity"? How can you get all equity out to buy another home??, I just dont understand how does it work, can anybody explain the process for me??
I bought my single family home a year ago , I put 20% down, how can I get that 20% out to buy another investemnet home? Is it possible> What are these investors talking about?
Investor · Los Altos, CA · Member since 2014 · 942 posts · 1k+ votes
9y
@Maggie G. there is nothing out there that will give you a step by step process to do well in REI. This is because books about strategies are written for "general consumption" not specific application. On the other hand, books written about "specific events" are basically a historical recounting of a specific deal. So it is important for you to understand that the way that people do the "cash out refi" or use the BRRR strategy probably does not fit your particular situation. Over time, you might be able to change your current situation to more closely match the examples in the books, but right now there are a key points that don't match up. I believe that is why you are frustrated with the idea of "getting your money out" strategy.
In every one of the cases I have read about or done myself there was an appreciation aspect to each deal. This could be through the market rising, or more likely through "forced appreciation". In your case, you have your primary residence. However, you live in a market where there has been no appreciation and it sounds like you might have negative appreciation. This is the key to why your current situation does not align with what you are reading. The books talk about tapping your "equity" in the property. This is how you get your money out to invest in another property. However, if your home is worth less then what you paid for it a few years ago, then there is no equity to tap.
This is actually one of the corner stones of the appreciation vs cash flow debates that rages on BP. I don't intend to sound mean, but you are in the unfortunate position that many hopeful investors fall into; you have a home, but it is actually a liability and not an asset. It is basically acting like a financial sea anchor and keeping you from making some forward progress.
You are 100% right, "You have to have some money to invest!" However, it does not need to be your money... Without knowing the details of your financial situation, besides selling your house, you have 3 basic options to TRY and get money:
Refinance: I have no idea what your rate is, but if you can get your payments down you can eventually save some money to invest. If your house is worth less than what you paid for it, then you will probably not be able to get any immediate cash out.
HELOC: Depending on your credit situation you could try to get a home equity line of credit. I personally like this method for myself, BUT I am in a high appreciation market. You must have a lot of fiscal discipline to use this strategy. If you are not careful you can lose everything.
Other peoples money: This could come in the form or loans from friends/family, investors or a "hard money" lender. This strategy has obvious down sides and could also be disastrous
@John Kesner has some very good advice, but you have decided you cannot follow it because your house, the sea anchor, is a "home" not a "property" in your current mindset. Perhaps what you need to consider is to make your current home the rental and moving into the next property as your primary residence. If you make this mind shift you will open yourself up to the ability of getting a property for a lower down payment. I don't know your family situation or how many people are in your immediate household, but you could potentially get a small multi unit as John has suggested and add to your income. This is the "house hacking" strategy: buy a property as a "primary" residence live in it for awhile and then get another "primary" residence and move. After awhile you naturally fall into the BRRR strategy.
As a starting point, house hacking takes longer to achieve financial independence but it is an easier place to start if you already own your primary residence.
On refinance mortgages six or more months following the purchase, we ignore the of purchase price and go off of the appraiser's opinion of currentvalue.
So if you do a bunch of solid upgrades to the property right after you buy it...
If you've owned your primary residence for a year, hopefully its appreciated a bit. You should be able to refinance and get a nice chunk to get your business started!!!
Rental Property Investor · Hummelstown, PA · Member since 2015 · 638 posts · 653 votes
9y
@Maggie G. how to start with little or no money down? This is going to sound funny but do a search for that and you'll find a book with the same title written by....guess who.... Brandon Turner!
It's definitely a worthwhile read. And no, I am not affiliated with Brandon turner in any way :)
Real Estate Investor · Chicago, IL · Member since 2016 · 48 posts · 8 votes
9y
Really?? Great .! I have that book on my shelf ,however I havent start reading yet because I am reading now another Brandon's book " Rental property Investing"
Thank you . I will get to that one soon. I am new to investing and new to Biggerpockets but so far I love it, I learn a lot for past 2 weeks. Thank you guys.you are awesome!!!!
Real Estate Investor · Chicago, IL · Member since 2016 · 48 posts · 8 votes
9y
Thank you John.............. In my city of Bridgeview, IL , after owning a property over a year , it didnt appreciate much if any .........so I need to find other option for money down. thank you.
Real Estate Investor · Chicago, IL · Member since 2016 · 48 posts · 8 votes
9y
I read BRRR , it is basically buy, rehab , rent and refinance , but this method takes some cash and some time.in some cases doesn't work because property doesn't need any renovation at all.......
I heard few investors on bigger pockets podcasts saying that they buy and refinance by taking ALL Money out -100% which is NOT possible, because bank won't let you do that..Also other investor they say they buy large investment building with no cash down which is not possible either.. What are they talking about ? this is a crap!!! this is not true!
Mesa, AZ · Member since 2015 · 74 posts · 47 votes
9y
The BRRR strategy only works if you get an amazing deal on the BUY portion. Essentially you have to purchase a property at or below 70% of market value (which is done all the time - you have to know where to look). When they say "100%" of their money out - they mean the money they directly invested in the property, the down payment and rehab costs.
Investor · Dallas, TX · Member since 2016 · 60 posts · 65 votes
9y
Here's an easy picture: Buy a property that's abandoned or really delapitated. More than likely no one is living in the property since it's so run down. You get it for a good price. Get a contractor and fix it up. Once fixed up it's market price (ARV). Will be more than what your total outlay was. In theory 125% more. Then finance the property and pull your money out. There are books on this subject and lots of post on this method. We all start somewhere. The best start is education!!!
Good luck.. cut once, measure twice.
Real Estate Investor · Chicago, IL · Member since 2016 · 48 posts · 8 votes
9y
Thank you. I am currently looking for such property with no luck. Usually investors buy these homes and they buy them with CASH or you can buy one at auction. I bought about 30 books on investing and YES I started reading books and listen Biggerpockets, and Yes I have a lot to learn , it is going to take me years to learn it all probably.......
thank you so much Edwin for your post. and Yes I will need a Luck also, so thanks !
Northern, CA · Member since 2014 · 674 posts · 444 votes
9y
@Maggie G. it's really not that complicated. Yes, you will need some money to make it happen but the key is learning how to buy houses cheap. Read up on wholesaling, I'm not advising you to wholesale necessarily but to learn the methods that wholesalers use to find below market value properties. I've never wholesalerf but have done exactly what your asking about by buying at a deep discount and rehabbing then refinancing all my money out. I found my houses using direct mail marketing.
Learn the basic pieces and get to work, if you wait years to read and learn you will never take action. You will never know everything, I know I don't but I'm not fearful of learning while I move forward.
I also recommend every investor get their license but this is debated frequently on BP.
Real Estate Investor · Chicago, IL · Member since 2016 · 48 posts · 8 votes
9y
Lee,thank you so much for your response. Maybe it is not so complicated but it is not easy either. I bought so many books I don't know where to start, I just read ABC of real estate by Ken McElroy, and yes I learn some but the people are rich , they don't tell you how to start with no money or little money. once you are rich it is easy because you get loan with no money down, you buy home with no money down because they know you because you are rich but me? I called few banks and the won't borrow mw any money without 25% down ...no way!! no way around it........unfortunately.
Pearland, TX · Member since 2016 · 30 posts · 12 votes
9y
Maggie Gandera , I'm brand new to investing too. But I recently learned about a method that needs no money down called buying subject to the existing mortgage. The way I understand it is that if you find someone who needs to sell very quickly (maybe facing foreclosure), and find someone else who has a down payment but doesn't qualify for bank financing, you can arrange for the buyer to take over the seller's existing mortgage. The buyer's down payment would be used to get the mortgage and/or taxes current and to pay your fee. This is a win-win-win for everyone, since the seller avoids foreclosure, the buyer can get a house without going through a bank, and the investor gets paid for arranging the deal. If I didn't get that exactly right, I'd appreciate feedback from some experienced investors. Thanks!
I know this is off topic from your refi question but,
Getting started with $5K isn't as bad as it sounds. You could find a 2-4 unit property, live in one unit, that opens the door for owner occupied financing, maybe an FHA loan with 3.5% down ($5K/3.5%=$145K). Your in Illinois, there has to be some thing you can get for $145K. If you buy right you might be able to live for free (house hacking) or even make a little each month. Use the extra money (from living for free) and fix up the property over time. Once you have some equity (possibly right from the time of purchase if you paid less than it was worth), you can refi, pull some cash and buy another. You could rent the unit you live in and move into the next property (owner occupied is great for financing).
The other option is a private loan from friend or family. Many folks start that way. You just need to brush up on your deal analyzing skills so you can, a: recognize a deal when you see it and B: Sell your investor (Mom, Uncle, whoever) on the numbers and be convincing enough that they believe you can pull it off.
Your just getting started so have an open mind. It IS possible, many have done it with no money and no credit. You just have to be creative and know your numbers (takes time looking at lots of properties)!
Real Estate Investor · Chicago, IL · Member since 2016 · 48 posts · 8 votes
9y
Yes, this is a great advice for first time buyers .However I have my single family home already. Home prices in illinois went down since I bought my home , and my home is not worth the money I paid years ago, so I can't sell it because I would lose money on this deal instead of making it. In order to buy next home which would be investment property I would need 25% down.I do have an open mind. and I am trying to stay positive.
Investor · Chicago, IL · Member since 2010 · 504 posts · 191 votes
9y
Maybe find a partner with resources and work with them. You can find property, just need to find your niche. We are not far (south suburbs) and there are for sure deals in the south and south west burbs. Maybe burbank or chicago ridge. Also check across multiple asset classes. I know condos in La Grange can work so maybe try them or 3-4 units. Deals are out there in your area, just gotta find what model works and if that fits with what you want to do. Good Luck!!
Pearland, TX · Member since 2016 · 30 posts · 12 votes
9y
Maggie, the strategy I mentioned can be used to sell your own house as well. Since buyers who can't get mortgages just want to get a home, they're willing to pay above market value for a house. They're more concerned with the monthly payment amount, not the loan balance. You could sell your home subject to the existing mortgage, and then use the down payment they give you to invest in a duplex.