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Looking to start investing with little money


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Hey guys! I’m new to the community and was wondering on what the best way was to finance my first home purchase was. I’ve talked to a friend who is taking out a heloc and paying for the down payment that way, taking out a mortgage with a hard money lender, and then turning around and refinancing at a lower rate. I was also looking into FHA loans that would require a lower down payment. What are your opinions on those to options? And are there other options for someone who is looking to invest with little money?


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Jeremy Pace

Contractor from Pittsburgh, PA

replied almost 4 years ago

@Adam Campbell welcome to BP!

the ‘best way’ is a loaded question, the least terrifying way might be to buy a duplex and live in one side while renting the other.

Your first deal probably isn’t the best time to be initiated into the world of hard money lending … and if you live in your investment, you are eligible for that sweet, sweet, owner occupied FHA financing.


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Adam Campbell

from Redmond, Washington

replied almost 4 years ago

@Jeremy Pace so in comparison to other ways to finance, in particular what about FHA financing makes it a better way to go? And how does FHA financing differ from if your living in the residence or not?


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Jeremy Pace

Contractor from Pittsburgh, PA

replied almost 4 years ago

@Adam Campbell if you live in it: 3.5% down payment.  If you don’t 20% down payment.  That’s a pretty big difference in closing costs.


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Jeremy Pace

Contractor from Pittsburgh, PA

replied almost 4 years ago

also, FHA loans are federally regulated, so they are the least likely to be usurious.


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Greg Enersen

Flipper/Rehabber from Mount Pleasant, SC

replied almost 4 years ago

Hey Adam,

FHA requires that you live in the property for one year. You can use FHA financing for approved properties up to 4 units if you have a 600 credit score and the down payment is 3.5% of the purchase price unless the appraised value comes in lower than the purchase price (rare but it does happen on occasion).

If you don’t want to live in the property, most conventional lenders will require 20 or 25% down.  Also, your credit will be more of a factor with the best terms available for a 740 score or better.  

Hope this helps. 


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Adam Campbell

from Redmond, Washington

replied almost 4 years ago

It helps immensely. I appreciate all the information. So we touched upon some of the positives of going the FHA route. But what are some of the negatives of going through a hard money lender?


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Adam Campbell

from Redmond, Washington

replied almost 4 years ago

@Jeremy Pace  @Greg Enersen and also other then you get acquire the money quickly through a hard money lender what are some of the positives?


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Thomas Franklin

Real Estate Investor from Miami, Florida

replied almost 4 years ago

@Adam Campbell I am not a fan of purchasing a Residential Multifamily Property known as “House Hacking.” If you are looking to owner occupy, you may want to consider starting out, with buying a Duplex, TriPlex, or a Four Plex. Many Realtors will suggest purchasing a property using a FHA Loan, to reduce your out of pocket money. If the property requires rehab, the Realtor and/ or Mortgage Broker will suggest applying, for a 203k Loan. A 203k Loan is where the purchase price and rehab costs are rolled into a single loan.

Assuming you have a respectable FICO you can buy, with a FHA Loan (3-5% down, a 30 year amortization schedule, and a residential loan rate). You live in one unit and let your tenants pay the mortgage and other property expenses. This will give you experience as both a Landlord and Property Manager. The downside is you will need to live there, for a minimum of one year (to satisfy FHA Requirements); AND because you closed personally, you will not have Asset Protection, in the form of closing in the name of a LLC. What happens if one of your tenants has a slip and fall, on your property, or something else happens to them? You are on the hook and can be personally sued, for everything you own. Some people will say, “Take out a quality Insurance Policy and you will be protected.” Ambulance chasing attorneys know their way around and can legally navigate around Insurance Policies. Another downside is you loose on the advantages, of the Federal Tax Code, by not closing in the name of a LLC.

If you want to close in the name of a LLC, Mortgage Lenders will offer you Commercial Loan Terms (25-30% down, a 15-25 year amortization, and a ballon due in 5-7 years). This is what I am encountering, in the current Mortgage Industry.

If you think you will go FHA, 203k, etc. and then Quit Claim the property, to a LLC, or a Land Trust you run the risk of the lender discovering a Title Transfer occurred and activating the “Acceleration Clause” or “Due on Sale Clause” that requires the loan to be paid in full, within ‘x’ number of days. These clauses are contained, in all Promissory Notes nowadays.

Many Realtors and/ or Mortgage Brokers will not tell you this information. Many, but not ALL are only focused on the commissions he/ she will earn and not focused, on your best interests. You many be asking yourself what can I do? Locate a Motivated Seller that will consider Seller Financing. You may have to put more money down (10-15%), but you can close, in a LLC, with no worries about banks. I have a lengthy Legal Opinion, from my seasoned Legal Team regarding this matter.


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Greg Enersen

Flipper/Rehabber from Mount Pleasant, SC

replied almost 4 years ago

Hard money is usually a shorter term loan (6 months to a year is typical).  The primary negatives of hard money (my opinions of course) are that they almost always require multiple points and double digit interest rates, at least for first time borrowers.  In a word, hard money is expensive.  If you are looking to buy and hold a property, hard money will not make sense because it will end up being too expensive unless you have a specific, short term exit plan.  Hard money is much better suited for rehabs.   


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Lane Kawaoka

Rental Property Investor from Honolulu, HAWAII (HI)

replied almost 4 years ago

@Adam Campbell

There are a lot of books like @Brandon Turner book on investing with no and low money down which is a good list that gets you thinking creatively.. The only issue I see is that these require making your situation work which takes time and effort.. In this game we call real estate there are three resources 1) Money 2) time 3) experience.. I would first evaluate what you have and tailor you strategy to what you are working with.. You mentioned a Heloc therefore you have a home and I am guessing you have a job.. If you have a good professional job (a lot of doctors I met) your time would be better spent just turning and burning buying rentals with conventional 20-25% down loans.. In the converse, if you have no job and no money you going to need to use you time to source the deal and terms.


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Adam Campbell

from Redmond, Washington

replied almost 4 years ago

After some of the things you guys have mentioned I think starting an LLC would be the best option to protect myself and acquire a multi family residence through auction. But if that is what I end up doing do you guys believe borrowing from a bank or private lenders would be a viable option? Or since I am purchasing through an auction is going through a hard money lender the best option?


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Adam Campbell

from Redmond, Washington

replied almost 4 years ago

I would love to be able to finance with an FHA to reduce my out of pocket expenses but from what I have heard elsewhere you should go through a hard money lender if you plan on purchasing through an auction. If I go through a hard money lender I already have a exit strategy in place but they do require 10% down which kind of deters me from going down that avenue


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Ed Emmons

Specialist from Milford, ME

replied almost 4 years ago

if you have a good reputation, you may be able to find a person who knows you to put up the funds in exchange for generous return upon sale or perhaps a percentage of interest. You record their interest for their security. That is how I started. Then I delivered as promised and he told a couple other people and was able to do bigger deals. Many times a small flip will work best at first so they can have a return on their investment in a few months and you can build your reputation. Just be prepared to work your butt off to make the first ones happy.

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