What would you do if the best real estate investment deal you have ever seen came available at a time when you didn’t have the cash for a down payment? Typically banks require 20-25% down on investment properties. But what if you don’t have enough cash available when that deal comes along? What would you do then? Would you just let it pass by, hoping for another phenomenal deal to come along at exactly the time when you do have the cash ready?
I hate to burst your bubble, but once-in-a-lifetime deals exist and unfortunately, they rarely align with your cash availability. The universe doesn’t doesn’t really give a shit about what timing is best for you. You have to be prepared to get creative in order to seize the moment. So, if that absolute steal of a deal with incredible returns comes along you have to do what you can. Even when you don’t have the cash there are still ways to get the deal done. To use my personal business mantra; Fortune favors the bold! You are only limited here by your creativity, drive to get a deal done, and comfort level. When that awesome deal comes along, at least consider getting creative. Explore all options to see if there is a way to get that deal.
How can you still make a deal happen when you don’t have the cash on hand to do it? Let’s get creative! When the right deal presents itself, do whatever you can to get it. I have had to get creative multiple times.
LINES OF CREDIT
The method I’ve used the most is pulling money from a line of credit. I recommend getting as large of a line of credit from your bank as you possibly can. Do so long before you need the money because banks like to lend money when you have no need for it. A line of credit is not only a great additional buffer for unexpected expenses (see Protect Your Ass…ets), but you can also use it when you’re short on cash to purchase that incredible deal. I set up my LOC long ago and have used it multiple times to purchase new properties. LOCs generally have very reasonable interest rates too. So if the investment opportunity provided killer returns, the returns can be used to immediately and quickly pay back the LOC.
OTHER SOURCES OF CASH
There was also a time the LOC wasn’t enough for a deal I wanted. At that time, I took out a loan on my paid off car for additional funds. Another time I used credit card cash advance. Often times your credit card will allow you to take a cash advance for a small one-time fee. Then it is interest free if paid off by a certain date. I’ve done that too. On some value add properties with a big rehab project, I have also just put as much of the materials and work as I could on my credit card. I knew that when the work was done I could refinance the property and use those proceeds to pay off the card. So even though it was high interest, I knew it would only be for a couple months.
PERSONAL LOANS & INVESTORS
If you don’t have access to enough through those means there are still more ways. Consider working out a win-win deal with family or friends, bringing them in as investors. If you use family or friends for a loan, make sure everything is spelled out clearly. Make sure that it’s a good deal for them too, and make sure you follow through on your end. No deal is worth losing relationships over, but if structured properly it can be a win-win.
Perhaps as opposed to a loan with family or friends you could consider partnering with them as an equity investor. Instead of a payments, they get an percentage ownership for putting up the cash. Then you get a percentage for working the deal. You could do this with outside investors as well if you network.
You could also use a hard money loan or see if the seller would be willing to do a seller carry-back for the down payment amount. There are endless options and combinations of options if you are willing to get creative. If it’s the right deal, don’t let it just pass by without at least exploring all options.
DON’T RISK EVERYTHING!!
Of course, I would be remise to give this advice without stating the obvious: Get creative only within the bounds of responsibility and your own personal comfort. Do not use the strategies outlined above if doing so could sink you. You still the means to cover unexpected expenses such as an HVAC system needing replaced or another major repair arising. If the only way to get a deal done leaves you in a spot like that it’s not worth the risk. No deal is worth risking having everything you have worked for come crumbling down around you and leaving you in financial ruin.
Crunch your numbers – KNOW your numbers – be smart and be prepared. That way when the right deal comes along at the wrong time, you will know exactly how far you should go in order to secure it. You can’t control exactly when the right deal comes along. You can control your preparedness to take advantage of the best deals, even if the timing isn’t perfect. Again, the universe doesn’t give a shit about your timing. The only break anyone can rely upon is a self-made break. If a steal of a deal comes along, you can either get creative and find a way to make it happen, or you can let an amazing opportunity pass you by. Your choice.