The Basics of Capital
This one word stops more people from RE investing than any other. Where will I get the money to buy property? How will I pay it back? What if I can’t pay it back? This one word is a deal killer for most, at least at first glance. I’m going to talk about all these questions and some so buckle the f#%$^ up.
There are a number of ways to finance your property. You can find a private lender (hard money guy), they call it hard because that shits gonna be hard to pay back when they get done with their big fee’s and high interest. If your deal is good enough and you’re desperate enough you can make it work. Just remember your probably dealing with a shark!
You can go to your local bank and get a conventional loan. There is fixed rate and variable rate along with some others. The bank will walk you through it, just find a reputable dude (or dudet) and read the fine print. Biggest consideration here is you will probably need somewhat good credit and probably 20 percent down at least. Owner occupied loans are much better terms and easier to qualify for such as a FHA loan which is guaranteed by the Federal Housing Administration. You can score as little as 3% down on these but as with any government program its a pain in the ass.
You can get a loan from family and friends, if you can pull that one off your better than me.
You could play the lottery. Don’t play the lottery, in fact if you have ever played the lottery stab yourself in the eye! More on that here.
You could convince a seller to do a land contract, which is when the seller finances you just like he was a bank. This can be a great way to get started if you can pull it off. Most sellers run the other way when they hear seller financing.
No matter what you do you need to work on having good credit. SO PAY YOUR BILLS YO!!! Ok, if its too late for that you will need to work on fixing your credit. Long story short you will need to get a copy of your credit report and pay your old delinquencies. You can offer to pay monthly installments as long as they will report “paid as agreed’ on your report. If you have some cash you can contact them and ask to settle the debt, start by offering them maybe 50 cents on the dollar.
You need to have a financial presence so make sure you have a checking account and a credit card. I have even used cash advances from a credit card for the down payment on a property. Just be aware of very high interest unless you can score a deal with a year of free interest. They’re out there because I have done that also.
You don’t have to worry about paying the bank back, your tenants are going to do that for you. Part of assessing each deal is making sure that cash flows. Provided you did that correctly you don’t have to worry about the monthly payment because your tenants are going to make you rich.
What if I can’t pay it back? If you get a loan from a bank they will make sure that’s not going to be a problem. There not in business to loan money that people can’t afford to pay back. In fact bankers are not risk takers, they will only loan you money if they think you are a sure thing. In this way they are going to be part of your team and will help you in these situations. What if your investment burns down and you can’t make the payments? Thats what God made insurance for, no worries.
Disclaimer: obviously shit can go wrong and properties do get foreclosed on. You will be personally responsible in this event and your other assets can be taken from you to satisfy your debt. These are real risks so be aware I’m not gonna tell you this is risk free because its not. The more you research the less risk you will have. When I started I had nothing to lose so I said “Where do I sign?”. If I failed I was right back where I started so I was all in. Thankfully, I didn’t fail.
My first house was my personal residence when I was 17. I moved to Milwaukee and I refused to rent since I was in a hurry to be the next
Donald Trump (I didn’t say that). I found a bad house in a bad area owned by a nice guy. He wanted out and wanted to help me so he said yes to a land contract. When I negotiated and signed the purchase contract I didn’t have the money. I went out on a limb and said if you rent to me for 6 months and credit that toward my down payment I’ll come up with the rest and wham. I bought it cheap and saved enough to move in a year or two into my second house. Thats when I had my first rental which was right around my 20th birthday.
Most of my capital has come from Banks since thats the cheapest interest available to me. I’ve done 2 land contracts and I have used a private lender several times. I put large down payments on most of my houses. Which forced me to make a lot of money and save it. To make enough money, I ran my own little academy of side hustles and called it a business. Most importantly I didn’t spend money, I even slept on an air mattress for years. I had no stove or refrigerator for awhile and no furniture. I didn’t live like most people because I was on a mission to get gangstafied.
P.S.- This is a brief synopsis and by no means complete, to be complete would take a whole book of writing. My intent here is to give you an idea of the basics and trust me this is a very brief explanation of the word- Capital. You will have to do your due diligence which means you have to research. Or in other words, “Just Google That Shit”.