How did you finance your second deal?

Question

Hello  all - I'm in a spot where I'm getting ready to pull the trigger on my first deal within the next 60-90 days if all goes to plan. I've been saving up for a long time and I'll be spending a good chunk of my savings on this first investment. I'm already thinking about my second deal though, and my long-term plan.

My question to everyone here: do you have any suggestions on how I would finance my second deal? I expect my first deal to cashflow, obviously. But I do not think it will return enough to give me an incredibly substantial income boost. My main source of income currently is my salaried job, and I have a few side hustles in the works that I expect will generate some additional income. It will take me some time to save back up to where I can throw down 20-25% on a downpayment for a second property (especially in Southern California), so I was wondering how most folks finance their second, third, fourth, etc. deals.

Andrew Postell · Answer

Account Closed I guess it would depend on what loan type you are receiving but if you received a Fannie/Freddie type of loan using business funds is 100% allowable.  If a lender does not permit this then try seeking a different lender.  Just in case this comes up again in the future for you.

Joseph Back · Answer

Account Closed I recently was able to negotiate with a seller to provide seller financing with only 5% down and a 30 year amortization. Have found when negotiating with elderly investors who own their property free and clear, seller financing can be very attractive given the tax benefits and ability to earn a decent return on their money. As far as planning for the future and a sustainable funding source going forward, I would recommend to start networking with as many hard money lenders in your area as possible. The best funding system we have been able to use is to purchase using 100% hard money and then going to a bank to get a cash our refinancing. The stipulation here obviously being you need to find properties at 70-75% of appraised value given the hard money costs and the bank only offering loans at a max of 85% LTV. Feel free to DM me if you have any questions.

Jonathan Taylor Smith · Answer

Hello Account Closed - My first 3 properties were purchased in my personal name along with my wife with 20% to 25% down. Thankfully, I was in a position of my wife working and our being able to live on her salary. I also had my own Internet business, which brought in consistent income, so it did not take long for me to save for the down-payment on the next property.

However, the problem I encountered was that lenders would not allow me to use business funds (non-W2 income) as down-payment. I therefore had to take a loan from my wife's TSP (Military 401K) to use as down-payment. Then after the purchase was completed, I paid off the TSP loan with the business funds.

After that I obtained a series of properties using creative methods (Lease-Options); and I started using money from private lenders. And after the first 3, I started doing everything in an LLC.

Justin Kane · Answer

always invest for short term or long term return and have a strategic non speculative plan of action. It sounds like you need to find better deals or renegotiate this one

Christian Bachelder · Answer

@Andy S.

Private money, seller financing, etc.

As for the qualifying, as long as the property cash flows after taking off 25% of the gross income, it does not hurt your ratios.

So say you rent it for 1,000 a month. 75% is 750. If your PITI payments are 700, the lender will basically treat it like you got a 50 dollar raise a month at work. Goes straight towards your income. Obviously, to qualify for a larger house is not an easy task with an extra 50 bucks, so that’s where private money, hard money, or other creative financing comes into play.

The saving up the 20-25% is another story. I’d recommend partnering with someone who can provide that value, or you could take equity out of your first project if it’s there.

How did you finance your second deal?

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