Help needed with buy and hold?

[Krystyna Fennelly]

I've been doing a lot of reading and researching on this but wanted to ask for help directly as well.

I'm located in the Galveston Bay Area/SE Houston; my husband and I own 2 rental properties and are closing on #3 this coming week. I'm in a position right now where I am ok taking some risk and very interested in taking our investing to the next level. I am looking at flip deals as well as buy and hold. My question is for advise in building capital for buy and hold, or knowledge of fair private lenders?

We buy everything on 15 year terms, I like the idea of putting 20% down but we are running out of available funds (and reserves) to do so on multiple properties at a time. I am a real estate broker and have my eye on a few different properties if I can get them for the right price but we only have another 20% down payment for 1 additional property right now and would like to have the opportunity for picking up more.

Any advice or ideas of how to buy for hold without a lot of available funds on hand is greatly appreciated!!! Thank you for taking a moment to read and give your thoughts!

[David Beard]

@Krystyna Fennelly You're in the same boat as untold numbers of RE investors. As many do, you will likely need to use your remaining cash as down payments on flips, likely financing with hard money or private money (possibly a bank), generating profits for down payments on rentals. Target profit of 20% of sale price, minimum $20k per deal.

You can buy distressed property using hard or private money on a 9 mth term, then cash-out refinance it in six months using a new appraisal that will reflect the "forced equity" from the rehab work. It's possible to find a bank that will do the fix/flip loan on the front end, but only a handful these days will do them. Check with your local REIA group or other fix/flip investors on their money sources. Banks will be a fraction of the cost of using hard money.

You also need to cultivate lending relationships with local banks and credit unions. Call them (talking dozens of calls) and find out which, if any, do fix/flip lending, as note above. Also find out which do in-house rental property lending, and how they underwrite borrowers. Then manage your financial results on an ongoing basis to ensure that you'll pass their underwriting standards. Take steps to beef up your credit scores if need be.

Put together a nice portfolio of your rentals, demonstrating your expertise in finding cash flowing property and managing them profitably. This will be helpful when talking to banks. Make it a point to talk to lots of bankers, learn how they think! Bank money will always be far cheaper than other sources, and a deep reservoir of cash if you know how to play their game.

For additional down payment money on fix/flip loans, considering taking a loan from a 401(k) if available, or take a loan from Lending Club or Prosper (they'll lend up to $30-35k or so, with your credit score and other factors determining the max amount and the interest rate).