In my opinion, you should work to build reserves over time, but it doesn't mean you have to wait to invest. When I bought my first property I had $0 dollars and not so good credit. But I am good at finding good deals, so I went the private investor route. The true private investor route where you're putting a person's retirement funds or other discretionary funds a person may have, to work for them. I pay my private investors more money for the privilege of putting their money to work for them, but it meant no down payment, no credit check, no tax returns or bank statements and no paying for an appraisal upfront either. A true private investor decides if they want to invest based on the merits of the deal. They may want to talk to you to make sure you know what you're doing, but that's it. I've never had a true private investor ask me for a down payment, credit score, bank statement or tax return. I say true private investor because some people will say they are private investors or work with or broker for private investors, but they are really hard money lenders who do require a down payment, loan costs, pay for an appraisal and bank statements. And if it's a rehab project, a hard money lender will want to see that you have at least 20% of the rehab budget to start. That's where the reserves comes in. But as I said, a true private investor will invest in the project and not ask for any of that other stuff. And there are no loan costs. The only loan costs I've ever paid my private investors is their wire fee.
Now if you go the hard money route, bring a vetted deal to them that you're ready to move forward with and already have under contract. Then you'll fill out their application, they'll pull your credit, ask for your bank statements. The percentage they will lend on the project will be determined by your credit score. For a score 700+ they'll lend 85-90% of the purchase price plus 100% of the rehab. Lower score, that 85-90% can go down to 55-65%. But they do usually still do 100% of the rehab. But since you'll have to come up with the other 10-45% of the purchase price plus their loan costs-which are very expensive usually at least 10% of the loan amount-that's why you'll need the reserves. It's also why they want your bank statements, to verify for themselves if you have the funds necessary. Also, if you have rehab they are paying for, as I said before, they are going to want to see you have at least 20% of the rehab in your account because they will reimburse you for the rehab as you go along. And their interest rates are a little higher as well. They are very good for certain situations because they do have a lot less red tape then a bank, but it will still take 4-6 weeks to close from application to sitting at the closing table most of the time.
As far as how to find the deals, do whatever works for you. I use my realtor. Hope this helps!
