How do you fund your deals?

Question

How do you fund your deals for buying and holding? What is the best way to find private lenders, and do private lenders generally to long term loans?

Tiffany Plovie · Answer

@Ashley Pittman In general, private lenders are avoided for long-term buy-and-hold properties. If they are used, it should be for no more than a year while your property is 'seasoned' and you are establishing a rent history. The next move is to re-finance into a traditional mortgage.Most investors use traditional conventional mortgages to get started, and then use properties they have purchased to use as leverage to finance later deals. BP contains a wealth of information about creative financing, basically how to finance your investments with little to no money down. You might want to check out this link. It includes a case-study (including financing details) done by @Brandon Turner on a property he later bought:http://www.biggerpockets.com/renewsblog/2013/04/09...He is also hosting a webinar this upcoming Wednesday about how to find, analyze and fund a deal:http://www.biggerpockets.com/pages/webinarThe Podcast below includes details about Peer-to-Peer Lending, which charges 5-6% less than most hard money lenders. (However, they provide less funding, generally capping around 35k per deal):http://www.biggerpockets.com/renewsblog/2013/08/01...Seller Financing should also be considered. I know someone in my area who was driving by a FSBO for what they thought was one townhouse in a complex of six. She gave the owner a call and ended up buying the entire complex for no money down and at an interest rate of 5%. It was a steal. All from one phone call!

Terry Hershberger · Answer

@Ashley Pittman I have used conventional loans (20% down 15 year fixed rate) and portfolio loans/ commercial loans (20%-25% down, 5year fixed ammortized over 15 years). I work with a local or regional banks that do not sell the loans. They keep them in house and can do more loans for you that way. Generally, it is much cheaper to go this route than private lenders or hard money lenders. I have found 15 year fixed rates as low as 6% and 5 year fixed amortized over 15 as low as 4.10%.They will look at your credit score and debt to income ratio for these loans.Hope this helps ya!Happy Investing!

Craig McKenna · Answer

@Tiffany PlovieYour blog links seem broken. Can you point me in the right direction?

Wendell De Guzman · Answer

Here's a forum thread that provides tons of answers to your question:http://www.biggerpockets.com/forums/12/topics/1166...

Rocky V. · Answer

I have a private lender that funds through a self directed IRA. He will not do short term loans. My cost is 10-12% and 1 point. I feel that as long as I buy right it is a win-win for everyone.

Nathan Brooks · Answer

@Ashley Pittman I think one of the things to consider here, although buying with no money down is exciting and awesome, it's also more dangerous. Keep in mind you need reserves, you need to be able to pay the mortgage, and you need to be able to sleep at night.Don't be afraid to keep doing homework, looking at properties you will buy, and saving a few more bucks. I have worked with the same private lender for almost 4 years now. I was turned down by so many people for funding before I found this one. But it made me hungrier ... It made me want it more, and it made me keep working.Keep your head up, work through more and more deals, and keep asking for people to fund deals. They can always say no, but they can also say yes. Have a reason for them not to turn you down! :) Good luck!

Tiffany Plovie · Answer

@Ashley Pittman It is okay to go slow, and figure out what you are comfortable with. Educate yourself before making any big decisions. It is all about the deal. It is about the numbers, take the emotion out of it and focus on the numbers. BP has excellent tools and calculators to help you decide if a property is going to cash flow or not. I strongly encourage you to check out Brandon's case study because it shows how to invest with little to no money down. Also, checkout Homepath. They require only 5% down and usually provide an option to get a Rehab loan.We have all been where you are. We all had to begin somewhere!

Ashley Pittman · Answer

A wealth of information. Thank you so much. My husband and I can do another mortgage on a new property but after it's all said and done paying mortgage and other expensespaying taxes, income taxes and etc is it really worth it?I guess now I feel alittle over whelmed by all this info and not sure if buying and holding is the best strategy. What is the best strategy for low to no money down? I know I'm all over but just trying to get a grasp on some of this. I am def listening to podcasts and reading as much as I can here on bigger pocket.

Nilesh Makhija · Answer

@Ashley Pittman - There are so many ways to fund a property and you would not know until you start. As suggested here, there are ways which has worked for few but that may not work with you. What kind of strategy are you interested in? And from there you can have a big picture of how much cash flow you need.Route 1: Hard money lendersRoute 2: Conventional MortgagesRoute 3: Portfolio LendersRoute 4: Private investorsRoute 5: Cash AdvancesI can keep sugegsting but the point is where you are today, what skin you have in the game, what's your goal and how are you thinking to achieve the goal

Mike H. · Answer

I use hard money to fund my purchase and rehab and then do rate and term refi's into conventional (I'm at 8 spots now so technically have 2 left) and portfolio loans.If you can buy right, you will limit your out of pocket to about 5% to 6% (i.e. the cost of the hard money lender's fees/points).