Making Payments On Loans Before You're Making Any Money?!!!

[Amanda Scully]

Hello Everyone! 

I'll try and be quick and to the point: I am ready to start looking for my first deal. I have literally no money of my own so I have obtained a capital loan through a combo of business and personal credit (to cover down payment, closing costs, and potential rehab), as well as plan to use a HML for the purchase price (I will most likely get 100% financing for the rehab as well, so won't have to use the credit for that, but rather just the down payment and closing costs). Just curious of a few things:

1. Has anyone else done this as well and what was your experience?

2. What kind of deal did you do first? Fix and flip or buy and hold rental? (Or do you recommend one over the other?)

3. How do you manage to make payments on the capital loan (credit), as well as the hard money loan, while still in the rehab process and before you've (hopefully!) made your money?

I don't know if I'm overcomplicating things, but here is what I really don't understand...if I purchase a property and rehab it to either BRRRR or flip, and I have no money in the bank, how am I making payments to my HML as well as on the balance of line of credit I used to gain the capital to get started, while the job is still in progress and I haven't made any money yet (through flip profit, refinance, cash flow, etc.)? Am I missing something here? I imagine that as soon as you take out the loans (both HML and line of credit), you have to start making payments in the next month - these are part of the holding costs, right? But where is the money coming from? I'm so confused. Thanks in advance!

[Shiloh Lundahl]

@Amanda Scully it is possible to do real estate with little or no money of your own. That is how we invest most of the time. However, that was not how it was at the beginning. We needed to use our own money and money from a HELOC at first to get started. Then after a few years of experience, people started to notice our success and they started to ask us if they could fund our deals in order to learn from us. So today we use mostly hard money and private money for our deals but we still use our business operating account to pay for all of the carrying costs and monthly financing payments.

So, in other words, real estate can be an awesome and very lucrative business, however it is not the answer to people’s money problems that many people think it is. I am going to say something that I have said before and it is not directed at you but it is directed at people in general who want to get into real estate in order to change their financial situation. If you are an adult, and you don’t have any money to invest in real estate, then investing in real estate is not the answer to your money problem. You must first learn and live the principles of financial success which begin with the first law of wealth which is: Pay yourself first and don’t let it be less than ten percent of what you make. If you do not live by this principle than it does not matter how much money you make at real estate or anything else, you will likely go broke at some point.

If you do not have enough money to pay for the holding costs and monthly payments and for unexpected costs that arise (and they always arise) then you may not be in a position to start investing in real estate. A good place to start would be to adjust your finances so that you are saving every month and add to your investing account until you could pay for the holding costs for a property for probably 8 months or more (meanwhile networking and continuing to learn from others about successfully investing). And then you would be more ready to begin investing and you would have the disciplined practice of spending less than you make. Then, over time, with more experience, you could attract money to use to invest and you could do it with little to none of your own money.