Best Down Payment Method

[KJ D'Costa]

Our long term strategy is to buy and hold multiple four-plexes. And 20-25% down seems to be the standard down payment required to buy a 1-4 unit property. Our thoughts are to rehab/flip homes to accumulate the funds needed for the down payments, as we don't want to touch our current capital (about 75k). 

Is there some other financing method that I'm not aware of?  I want to make sure I've uncovered all the possibilities, before we put our energies into rehabs?

Thanks for any guidance. (We're in Central Texas, btw).

[Dylan Jennings]

@KJ D'Costa Just from a simple Austin loopnet search you're going to be looking at 300k+ for a lot of those fourplexes. 60k for a downpayment? You're correct in thinking that kind of money sink is going to ruin your capital. No capital means more time spent to invest in the future. 

There is a wide variety of creative financing at your disposal. As @Jassem A. stated, you could use a FHA loan on the property to only have a 3.5-4% downpayment. You'd have to live in one of the units for at least a year until you could refinance, and you'd have to calculate in the mortgage insurance payment that comes with that loan to your cashflow analysis.

Another option you'd have with fourplex rentals is finding owners who have a lot of equity built up. Let's say you found a fourplex that is worth 300k and the owner has 275k in equity. The place cashflows for 4800/month. You negotiate with the owner that you'll buy his property though seller financing. You'll give him the 25k to pay off the bank if they have a due on sale clause and another 5k for him. He then carries the note on the property for 30 years at 7% interest. 

In this scenario the previous owner gets a check from you every month for $1,829.58, which he now has to do nothing for. You have a property that you bought with 10% (30k) down and have $2,976.42 coming in every month (minus repairs, vacancy, taxes, etc.). 

That was a very, VERY simplified version of a deal you can get. The real thing is much more complicated, but just as possible.

Brandon Turner's book The Book on Investing in Real Estate with No (and Low) Money Down here goes over creative financing and how you can use your time and brain power to save you capital when buying real estate. There are so many options out there for you to combine and create that I wouldn't settle for a 20% downpayment either.