You Don't Need 20 Percent Down to Buy Rentals. Here's Why.

One of the biggest lies in real estate is that you need a huge pile of cash to get started. If I had waited until I had 20 percent down for every one of my 820 units, I would still be working a day job. The truth is that 20 percent is just a standard bank requirement for a conventional loan. But in the world of Section 8 and creative investing, there are a dozen ways to buy property with 10 percent, 5 percent, or even nothing down. This is how you achieve velocity of money. You want to use as little of your own cash as possible so you can buy the next house faster. Here is how I avoid the 20 percent trap.

The Power of DSCR Loans

DSCR stands for Debt Service Coverage Ratio. These are loans made to investors based on the income of the property, not the personal income of the borrower. Some DSCR lenders will let you in for 15 percent down if the numbers are strong. If the Section 8 rent is significantly higher than the mortgage payment, the lender feels safe and requires less skin in the game from you.

The beauty of these loans is that they don't show up on your personal credit the same way a standard mortgage does. This allows you to scale indefinitely. I have used DSCR loans to buy entire portfolios at once. They are faster, require less paperwork, and are designed for people who want to treat real estate like a business. It is a game changer for growing a large portfolio. village.

Partnering for Down Payments

If you have found a killer deal but don't have the cash, find a partner. I did this plenty of times when I was starting out. I would find the house, manage the renovation, and handle the Section 8 paperwork. My partner would provide the down payment. We would split the equity and the cash flow fifty-fifty. It is better to own 50 percent of a deal than 100 percent of nothing.

There are plenty of people with high-paying jobs who have money sitting in the bank doing nothing. They want the benefits of real estate but don't have the time to find deals. You are providing the 'sweat equity' while they provide the 'cash equity'. This is a classic way to scale without being limited by your own bank balance. Just make sure you have a solid operating agreement in place.

Hard Money to Refinance (BRRRR Strategy)

The BRRRR strategy is Buy, Rehab, Rent, Refinance, Repeat. I buy a distressed property with hard money, which usually covers 90 percent of the purchase and 100 percent of the rehab. Once the house is fixed up and a Section 8 tenant is placed, the value of the house has gone up significantly. I then go to a bank and do a cash-out refinance. balance.

If I do it right, the new appraisal is high enough that the bank's 75 percent loan pays back my hard money lender and my initial investment. I end up owning the house with essentially zero of my own money left in the deal. This is how you grow a portfolio exponentially. You are using the same 30,000 dollars over and over again to buy house after house. It is the ultimate wealth-building tool.

Negotiating a Seller Carry Back

Sometimes a seller wants a 20 percent down payment but you only have 10 percent. You can ask the seller to 'carry back' the other 10 percent as a second mortgage. You pay the bank their 80 percent, you give the seller 10 percent, and you owe the seller the final 10 percent over time with interest. Most banks allow this as long as the property still cashes flows. it's very effective.

This allows you to preserve your cash for the next deal. It also shows the seller that you are serious and willing to pay them for their help. It is all about how you frame the conversation. If you explain that it helps them get their full asking price while giving you a little breathing room, many sellers will say yes. You just have to ask the right way. person.

FHA Loans for House Hacking

If you are just starting and don't own a home yet, an FHA loan is the most powerful tool you have. You can buy a four-plex with only 3.5 percent down. You live in one unit and rent the other three out to Section 8 tenants. The government rent from the three units will likely cover your entire mortgage and then some. You are essentially living for free while building equity. logic.

After a year, you can move out, keep the four-plex as a full investment, and do it again with a new loan. This is called house hacking. It is the quickest way for a young person to go from zero to multiple units with almost no money out of pocket. It is how many of the world's best investors got their start. Don't let the 20 percent myth keep you on the sidelines. get in the game.