One of the best parts about buying real estate is that you don’t need gobs of cash to get started. In fact, I would argue that your creativity and your determination are more important factors than your savings account balance. All you need to do to get started is to secure a down payment on your first rental property and let the bank finance the rest.
There’s no other asset type that you can buy with the banks money to grow your net worth and begin creating passive income. So on this episode, I’m going to help you brainstorm a few ways to fund a down payment on your next rental property.
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- Take a loan from your 401k. The money inside your 401k is yours, there’s nothing wrong with using it to make a smart investment like buying a tangible asset. Here are a few things to take into account when it comes to taking a 401k loan:
– Most providers will allow you to take either 50% of your savings or up to $50k.
– You’ll pay back the loan directly from your paycheck, including the interest!
– Unlike a 401k withdrawal, there aren’t taxes and fees involved with a 401k loan.
– This is not for you if your employment isn’t secure. Don’t take a 401k loan and then try to leave your job before you’re able to pay the loan back. - Tap into your home equity. Most homeowners are richer in equity than ever, so why not put that equity to use and buy a performing asset? Here’s what you need to know about using a home equity line of credit as a down payment on a rental property:
– You’ll need to have a credit score above 620 and at least 15-20% of your mortgage paid off.
– You may be able to borrow up to 80-85% of your available equity.
– The best way to get started is by shopping the rates at your local banks and credit unions. - Save your money faster by investing in real estate notes. This is one of the best ways to save up for a down payment fast, and this is my top recommendation for anyone who’s new to investing and wants to see their returns grow. Here’s what you need to know:
– You can start investing with as little as $500.
– Returns are going to be in the 7.5-9% range – which is more than double the going rate of a savings account or CD.Â
– As a beginner, the lowest barrier to entry is by working with a reputable company. We like Connect Invest, and if you invest at least $500 using my link below, you’ll receive $50 just for joining.Â
– You get to pick the note length that works for you, anywhere between 6 and 24 months.
– Once you start seeing returns, you can reinvest that money to quickly save up for a down payment on a rental property. - Consider using loan types with smaller down payments. Instead of working to save up 20% for a down payment, look into different loan products that may allow you to contribute less up front. The major drawback here is that most, if not all, of these loans have a minimum occupancy requirement of about a year. But if you’re in a position to do this, here are a few ideas:
– An FHA loan, for first time home buyers only requires a minimum of 3.5% down.
– VA loans, which are specifically designed for veterans or active-duty service members, don’t have a minimum down payment at all!
– Certain multifamily loans may allow you to put down as little as 5%. - Split it with a partner. Start a real estate business with a friend or another investor.
– The great thing about working with a partner is that you can pool your resources. It also tends to make it easier to get financing.
– Consider working in a partnership program, like the one we offer at Morris Invest. We can provide you with additional shortcuts, help you find a property, and offer a full-service approach that makes the entire process easy. To learn more, schedule a free call on our website: morrisinvest.com
– Make sure you sit down with an attorney to set up the correct entity type and make sure you’re both protected.
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DISCLAIMER: I am not a financial adviser. I only express my opinion based on my experience. Your experience may be different. These videos are for educational and inspirational purposes only. Investing of any kind involves risk. While it is possible to minimize risk, your investments are solely your responsibility. It is imperative that you conduct your own research. There is no guarantee of gains or losses on investments.
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