is there a way out of paying 20% down payment?

[Kevin Scott]

The 20% downpayment on my first multi-family is holding me back.  The money is there but with additional money to be spent fixing the place up it is going to shrink my savings quite a bit.  I'm curious to hear what others have done to get around paying that much money up front.  

[Ramsey Blankenship]

Originally posted by @Kevin Scott:

Thanks for the suggestions. Living in it isn't an option.  The hard money lender option keeps coming to mind but I don't know a lot about them.  Does anyone have any thoughts on that option?

Hard money is not a good option for long term financing. You may find someone who will take a lower down payment with Hard Money (its possible) however the interest rate will be nearly double and they will not lend to you for a long term hold. Hard money is a great option for flippers and/or the BRRRR Strategy. The money is available quick and they understand purchasing properties with the intent of fixing them up - where as banks are built for the 95% of people out there simply wanting to buy a property which is livable at its current state. As an investor, you are only allowed to have so many mortgages in your name until the doors to the bank begin to close for government backed lending. This is precisely why hard money exists. Hard money lenders understand that in order for a flipper/investor to grow his business, he needs capital to purchase and repair inventory. They will supply the funds for the purchase price and repairs at a high interest rate, and a short period (often 6-12 months) with a balloon payment at the end or the term. This gives the flipper time to purchase the fixer upper, complete all repairs, sell it for an increased value, and pay off the hard money loan + interest in less than a year. If you intend to perform a BRRRR, you can use hard money to get to the point of refinance in which you would refinance with a convention loan from a bank. The reason this is so crucial, is because with the BRRRR strategy, you can use hard money to Buy a property for cheap, Repair it up nicely, Re tenant it quickly, and Refinance with a bank (often times pulling out cash from your equity if you do it right), and be in the proper zero out of pocket.

If you go with a conventional loan up front, they will require 20% down payment of the "cost" (not to be confused with value). If you refinance with a bank and you have purchased the property with hard or private money, the bank will require you have 20% equity (value) remaining in the property. Example - buy a $100k property for $80k with a conventional loan - Bank requires $16,000 DP

Buy a house for $60k, put $20K in repairs, it appraises for $100K when complete-  you refinance with the bank and they will lend you 80% of the value. The bank gives you an $80k mortgage for a $100k house - you pay off your $80k in hard debt and the house is yours with no out of pocket.   These are very rough numbers and there are fees and interest rates you will have to pay but you get the idea.

lastly, Hard money lenders will want to see a track record. If you don't have one, partner with someone who does and be their boots on the ground. Pay them more than you pay yourself for their mentorship and knowledge. Once you figure it out HMLs will lend to you with your newly developed experience.

Ramsey