Using your own money or someone elses?

[Francisco Hernandez]

Hello BP Tide (Podcast #240),

I am new to investing and just got into my first buy and hold deal on an mfh, in Puerto Rico at $65k. I am using a conventional nonconforming loan at 5.625%, with 25% down (which I'm able to come up with).  I am looking to continue to grow my RE portfolio, however with a limited amount of capital, at some point I won't be able to come up with the 25% down.  So, here's the question:

1) Is it a good idea to use my own capital to fund RE deals?

2) How would it be possible to start a buy and hold deal without putting any of my own capital into the game?

Thanks in advance for any insight!

Francisco

[Cortney Jones]

@Francisco Hernandez - First off, congratulations on your first deal!  SO MANY people learn and learn and wait for the right time and never take action.  You DID IT!  

Secondly, it's your life, your business and your wealth, so you get to make the rules that you want to follow.  

Using other people's money (OPM) provides you a greater leverage, therefore, higher returns.  That is one of the beauties of real estate.  However, with leverage comes obligation to others, whether that be private individuals who invest with you or a bank. 

You need to think through and clearly decide what your investing plan is.  What do you want to accomplish? (leave a j-o-b; own 5 free & clear doors by retirement, etc.)  What goals are you trying to achieve? (increase wealth, cash flow, etc.)  Once you know that then you can look at various business models and which ones are right for you and your goals.  

As an example, being a landlord can be fairly hands off if you hire a GOOD property manager, it can generate small cash flow usually and increases wealth. You can gain appreciation and cash upon sale, etc. However, if you do it with SFH then it usually isn't a great cash flow vehicle. So trying to make a living from it can be difficult.

On the other hand, wholesaling and/or rehabbing is pretty much a j-o-b.  Yes, you work for yourself and yes, you can eventually hire others to do a lot of the work, but you have to put in the work to create the systems and processes to make that happen, then you have to manage it. 

There are plenty of ways to buy real estate with no to little money down.  They are not traditional such as going to the bank.  You can take over properties subject-to the existing financing or use owner financing.  You can also get money partners and private lenders to work with you on deals. You can use a master lease option to control a property and then release it or sell it to make cash flow or cash, depending on your exit.  

Figure out what you want from the business.  Then, analyze the different business models and decide which one fits you and your goals.  Then, learn everything you can while continuing to take action. The best learning comes from doing. 

Best of luck to you and congrats again!