Ideas for funding my first investment??

Question

I've reached the conclusion that I can't really learn anything further from just reading books and watching videos. The rest can really only be learned through "on the job training" I've got the fundamentals relatively down and I'm ready to begin analyzing properties and finally getting some skin in the game! With that said my main roadblock (no surprise) is initial funding for whichever investment I may end up choosing. I believe that my best avenue would be a private lender for the down payment on a mortgage. Does anyone have any pointers on finding private lenders? Would I be better off simply continuing to save until I can afford 20% down?

Andrew Syrios · Answer

Finding private lenders can be a challenge. You should start with your family, friends and colleagues. Try to make a list of 10 people that might be interested. If 10, can you write down 20? 30? Then put together a business plan and resume with anything that shows experience (even if not in real estate; college, previous job, RE books read, etc.). Then be up front and ask those people if they might be interested and if so, you take them to lunch to see if they're interested. Also, make sure you are always telling people what you do and that you offer opportunities for private lenders. (You should be regularly attending networking events and the like.)

But to be honest, generally it's hard to get private lenders onboard (other than close friends or family) early on in your investing career. People don't want to be first and are generally risk adverse, especially with private loans. That's why I generally recommend house hacking, FHA loans and renting out your first home and moving to a second home as the best was to start.

But to be honest, generally it's hard to get private lenders onboard (other than close friends or family) early on in your investing career. People don't want to be first and are generally risk adverse, especially with private loans. That's why I generally recommend house hacking, FHA loans and renting out your first home and moving to a second home as the best was to start.

Brian Kantor · Answer

I agree with @Kevin Sobilo and @Andrew Syrios..

For your first investment property, you shouldn't "get cute" and get yourself highly leveraged with Private Money lenders who charge high interest rates. Almost everyone, myself included, makes/made a ton of mistakes on their first property. Assume that you'll be in the same boat. With that in mind, you're putting yourself at an exponentially higher risk with that extra leverage

In my humble opinion, consider these following alternatives:

1) Save up more money (as you suggested) to cover the 20% down + an emergency reserve

2) Look into another, less expensive market (as Kevin suggested). For example, I bought my first investment property for $20k (total!) + $25k in renovations in Detroit, MI.

3) If you need help on a down-payment, take a loan from or offer an equity stake to a friend or family member. Yes there are risks here mixing money and family, but search the forums for some advice on this.

Good luck!

Kevin Sobilo · Answer

@Justin Mabry, I'll give you a few thoughts.

What strategy are you planning to use? Buy & Hold? BRRRR? Fix & Flip? Something else?

Have you looked at cheaper markets? Maybe a duplex in your market is $350k, but a duplex in a cheaper cash flowing market might only be $80k.

Have you considered any kind of value add strategy like BRRRR to get houses for free or almost free? Use hard money loans to purchase and rehab, then refinance ending up with the property for free after the refi.

Leo R. · Answer

@Justin Mabry why put 20% down when you can get a 30 yr fixed mortgage with excellent terms for 5% or even 3% down? Do that on a single fam or small multifam property, house hack it (the best strategy for beginning investors), find a way to force cashflow and appreciation, rinse and repeat until you've hit the limit for owner occupant mortgages, and you'll be sitting pretty!

Good luck out there!

Bradley Dosch · Answer

Hey Justin, great attitude about wanting to get started and learning by doing. I don't know much about your personal situation but the best way to start for most people is almost always house hacking. Save up a 3-5% down payment and get started that way. Keep it simple!

Drew Sygit · Answer

Would recommend better defining your target market, property type and price range, so we can offer better advice.

Jenine Maggio · Answer

I did my first deal and it was a house hack. I got a conventional loan with only 5% down ( I was originally going to do an FHA with 3.5% down but my lender offered the 5% conventional so I took it). I rent out the 2nd bedroom in my home which pays my mortgage completely.

Looking into my 2nd property now using a HELOC loan. I started with very little money and like you, trying to be as smart as possible with what I do have. Best wishes!

Nicholas L. · Answer

@Justin Mabry

Step 1: save up enough of your own money to house hack

Step 2: house hack

you need money for closing costs and reserves. it's just not possible to borrow every single penny you need to own and manage real estate.

Eliott Elias · Answer

Money should never be the issue. If you have a good deal the money will

Brett Deas · Answer

I was just in your situation on my first property and here is what I did.

I found partners on the unit we split all profits and expenses 50-50 (As I have later learned a very generous split for me). This allowed me to continue saving up for my own down payment while earning money and more importantly gaining experience while managing the first place. All in all, I think it is the best thing for a beginner investor to do because you learn the lesson without being overleveraged, and you can make money while not doing too much work until you can get your own.

Ideas for funding my first investment??

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