Advice on Investors.

Buying & Selling Real Estate
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Advice on Investors.

Josh Cordle
Exeter, NH · Member since 2013 · 20 posts · 0 votes

As i have been told in any business, its always better to use someone elses money to invest even if you have your own. I recently bought my first property, and it has a positive cash flow. I'm looking at buying my 2nd property which is a place for me to live in. I've been told even though i bought an investment property, i can still buy a place for me with an FHA. Now because the FHA is smaller than the normal 25% investment DP I was debating on having someone invest, the down payment so I can keep my capital, add more too it eventually buy my 3rd property. I'll be using an FHA to buy a 4 unit. I wanted to get advice on whether if people ever do this. If so what do they offer in return? I'm still new to the real estate world, however right now, I feel like growth is more important than income at the moment. My job supplies me with enough income so I don't have to depend on my investments yet. However I don't want to write a huge DP check every time I buy a property. Thanks!

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  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    What do you mean "having someone invest, the down payment so I can keep my capital"? Too many commas in that sentence so I'm not sure what you mean. Are you wanting to borrow the down payment? FHA only requires 3.5% down. If you buy a property with only 3.5% own you're underwater from the moment you close. And you will be for four years. That's because of the costs of selling.

    When you over leverage a property you are giving up returns for the higher leverage. It may sound impressive to say you have 100% cash on cash returns. But if that's on a miniscule amount of money its still a miniscule return.

    Buying income producing property is a cash on cash investment. You MUST expect to have to "write a huge DP check every time I buy a property". That is the way it works. You would have to write a 100% down payment check if you were buying stocks, bonds, bank CDs, precious metals, collectables or almost any other investment. Leverage can improve your returns and real estate is one of the few leveragable investments. But it unrealisitc to think you can "invest" in real estate with none of your own money into the investment.

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  • Josh Cordle
    OP
    Exeter, NH · Member since 2013 · 20 posts · 0 votes
    13y

    Sorry for the confusion. What I meant was, I know a few people who want to invest in real estate. Because an FHA is only 3.5 % I use their money for a DP. Pay them off as the terms state in the future. So I would get a 4 unit house, even though I wouldn't get any profits for a while. After they are paid, I would still have the money I would have spent on a down payment + the house. Since I used the income from the house, it didn't cost me anything.

    If i have to write a huge check every time I want to buy a property I wouldn't be able to buy that may. So giving up profits for a year on a house that i didn't pay for anyways would be no loss to me. It gives me the opportunity to grow with out any cost. Then in the future it would be as you said 100% cash on cash return. But like I said I'm not dependent on the income from my properties. Buy the time I would be I would have paid back the DP.

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  • Jackie Lange
    Investor · Central America, Panama · Member since 2010 · 423 posts · 293 votes
    13y

    Wow Jon, I must be doing something wrong. AT my high water mark, I owned 72 cash flow investment properties, and still own many...

    but i never,ever

    "You MUST expect to have to "write a huge DP check every time I buy a property". That is the way it works."

    It's NOT the way it works when you do not get bank financing! When you buy with creative financing, you don't need much money at all to acquire the property. I've even had sellers pay ME to take their house.

    I have never bought a house with bank financing and never would. Only 2 times did I get a private money loan to buy a rehab house, and even those did not require a down payment.

    Let's see, write a big check for a down payment every time I want to buy a house VS. learning creative financing. Which one sounds like more fun? And more profitable?

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  • Josh Cordle
    OP
    Exeter, NH · Member since 2013 · 20 posts · 0 votes
    13y

    Teach me!

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