Real Estate Investing

How to Use Creative Financing to Buy Rental Properties When You Don’t Have Money

If you have been reading real estate books, you may know what private lenders are. For those of you who do not, private lenders are individuals like you and me that have spare money to invest. They can lend money to you at a higher interest rate for a shorter period so that you can buy a property.

If you have read any of my “Here is the Deal” blog series, you may have read that we have acquired most of the properties we have by borrowing all of the money needed to purchase including the down payments. We have been able to accomplish this by using private lenders.

Below I will give you a summary breakdown of the creative financing combinations we have used to buy properties using other people’s money. We still have a lot to learn, but so far, it has been quite a learning experience. To be honest, having so much debt can be stressful at times, but so worth it. 

The Duplexes

Purchase Price: $350,000 for both.

Purchase Funding Strategy- Total Debt $355,000

  • Personal Loan from Sofi.com (Ryan) $85,000 at 13% interest with $1,500 monthly payment
  • Personal Loan from Wells Fargo $15,000 at 11% interest with $300 monthly payment
  • Excess Student Loan $10,000 at 4% interest with no monthly payment (deferred)
  • Private Loan Velocity Mortgage Capital $245,000 at 7.25% interest with $2,600 monthly payment

Little Mermaid (Property No. 3)- March 2020

Purchase Price: $85,000

When we bought this property, we still had the SOFI and the Wells Fargo loan from properties 1 & 2, so we had to get creative to find more funds. 

Purchase Funding Strategy – Total Debt $85,000

  • Wells Fargo Business Line of Credit $20,000 at 10% interest with $400 monthly payment
  • Publix Credit Union Line of Credit $10,000 at 9% interest with $500 monthly payment
  • Personal Loan Sofi.com (Katherine) $50,000 at 15% interest with $1,500 monthly payment
  • Wells Fargo Credit Card Advance $5,000 at 20% advance fee paid back immediately

In June 2020, we refinanced The Duplexes and Little Mermaid and got $58,000 cashback. We used these funds to pay down some of the loans and buy property no. 4.

Big Horn (Property No. 4)- July 2020

Purchase Price: $65,000

Purchase Financing Strategy – Total Debt $40,000

  1. Private Loan from Friend $20,000 at 12% interest with $200 monthly payment
  2. Wells Fargo Line of Credit $20,000 @10% interest with $400 monthly payment
  3. Cash from Refinance of Property 1,2 & 3 $25,000 

In December 2020 and February 2021, we sold the Duplexes at a gain. We got $140,000 cash from the purchases which we used to pay down the debt acquired previously and partially fund the purchase and repair of the next set of properties. 

Magnolia Fourplex (Property No. 5) – February 2021

Purchase Price: $136,000 after credits

Purchase Financing Strategy – Total Debt $140,000

  • Personal Loan Sofi.com (Katherine) $70,000 at 10% interest with $1,400 monthly payment
  • Personal Loan Sofi.com (Ryan) $70,000 at 10% interest with $1,400 monthly payment

2nd Street House (Property No. 6) – March 2021

Purchase Price $ 55,000

Purchase Financing Strategy – Total Debt $10,000

  • Private Loan $10,000 from Dad at 5% interest with $41 monthly payment
  • Cash from Sale of Duplexes $45,000

Skyline (Property No. 7) – March 2021

Purchase Price $45,000

Purchase Financing Strategy – Total Debt $50,000

  • New Private Loan Friend (NP) – $30,000 at 13% interest with $325 monthly payment
  • New Private Loan Friend (ZK) -$20,000 at 13% interest with $167 monthly payment

As you can see, we get into a significant amount of debt to fund these deals. I didn’t include the credit card debt incurred to rehab these properties. We had to max out on several credit cards to make these repairs: $10,000 Home Depot Credit Card, $5,000 Wells Fargo Credit Card, $13,000 Chase Business Credit Card. 

By the way, if you are thinking of getting a Sofi Personal Loan 💸, you can get $310 bonus if you use with my referral code. Link

You may have noticed that we escalated the available credit and reduced the cost of borrowing as we bought new properties. We had to apply to get new credit. We didn’t have all of the lines of credits from the beginning. However, now that we have them, we have more options. 

I’ve spent years trying to get rid of consumer debt that I incurred during my irresponsible years, so the general consensus would say that I should avoid debt at all costs.

However, I knew I wanted to start investing and when I saw the duplexes, I saw a huge money ($$) opportunity and I knew I had to go for it. We had decent credit and consistent income at the time. After running the numbers, we felt capable of taking on that much debt.

I have to be honest. On that first round, we were cutting it close. Our finances were not in the best shape and expenses were really high at the time. Regardless, I am glad that we went through with buying those duplexes.

The first $100,000 of personal loans haunted me for a while, but now that we have gotten through that first one, it somehow feels easier to take on more debt. Once you do it for the first time, it becomes repeatable. 

It’s been two years since the first round of debt. We have not only learned how to manage the debt payments, but we have also become more responsible with our personal finances, enhanced our money management system, and increased our take-home income.

After trial and error, we have become savvier on how to structure our debt as well.

We are working on obtaining more lines of credit so that we have more and more options to finance new property purchases. 

We have also secured a list of individuals willing to lend us money to fund the purchases and earn interest with us. Depending on the terms, we end up paying a bit more interest with these loans, but still worth it because these are interest-only loans. This helps us maintain monthly obligations low while we do rehabs.

We still have a long road ahead of us. There is so much more to learn, but this is a marathon, not a sprint!

As I write this, I realize that I making dreams come true one day at a time.

I had just turned 20 when I first became interested in real estate investing. Little did I know that I would become a real estate investor before turning 30 😊

Before I wrap up, I wanted to make a disclaimer for the sake of full transparency. Ryan and I are high-income-earners with consistent W2 income. This is why Ryan and I are comfortable taking on so much debt. We have gotten our expenses to where we only spend 30% to 40% of our income and together we both bring home roughly $11,000 per month after taxes and deductions. This leaves us with about $7,000 a month free to invest and cover any debt obligations incurred.

Everyone’s journey is different and I am only able to speak to my own.

This doesn’t mean that if you are not a high-income earner, you can’t do any of this.

There are so many options out there. Many successful real estate investors began their journey with a $20,000 salary and $0 in the bank. As the saying goes, where there is a will, there is a way.

If you want to learn more about zero-money-down techniques, I would recommend The Book on Investing in Real Estate with No (and Low) Money Down: Real-Life Strategies for Investing in Real Estate Using Other People’s Money by Brandon Turner.

This post may contain affiliate links. I may get commissions for purchases made through links in this blog.

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