How to Buy Your First Rental With No (or Low) Money Down

Ashley Kehr:
That is Actual Property Rookie, episode 180. My identify is Ashley Kehr, and I’m right here with my co-host Tony Robinson.

Tony Robinson:
And welcome to the Actual Property Rookie podcast, the place we deal with these buyers originally of their journey. Perhaps you haven’t performed a deal. Perhaps you’ve performed a deal or two, and also you’re seeking to scale. Both approach, that is the podcast for you. Ashley Kehr, my co-host, what’s happening?

Ashley Kehr:
Not a lot. I’ve my little assistant, Remington James, right here subsequent to me. Should you’re watching on YouTube, you possibly can see a bit little bit of his cute little face, however he’s patiently ready till it’s time to go to the flicks tonight to see Sonic 2.

Tony Robinson:
Oh, okay. I like that. Sonic 2, I haven’t seen that. No. Is that with Jim Carrey is it? Isn’t he in Sonic?

Ashley Kehr:
He’s in it. Yeah, he’s within the first one so he’s most likely in the second. Yeah.

Tony Robinson:
Oh, okay. All proper. Cool. Cool. I like that. Effectively, yeah. What else is happening, Ash? What you bought? What’s happening within the enterprise? What’s new?

Ashley Kehr:
Yeah, I don’t know.

Tony Robinson:
How’s the MCL? How’s the ACL?

Ashley Kehr:
It’s doing good. I bought it straightened out proper now. Attempting to get it straighter over time. Been going to bodily remedy so much. My bodily therapist has develop into my greatest buddy, is the one individual I see on daily basis. However yeah, it’s going gradual, however going good. I’ve another week left on crutches after which I can not less than ditch the crutches and go on, simply have my brace on. And I’ll have that on for about one other 4 weeks.

Tony Robinson:
All proper. Effectively, there you go. Progress.

Ashley Kehr:
Yeah. Yeah, yeah. And what about you? Are you doing properly after getting over your competitors? Are you splurging?

Tony Robinson:
I’m. I’ve been-

Ashley Kehr:
What’s your weight loss plan appear like lately?

Tony Robinson:
My weight loss plan has actually been every little thing although, really. I’m consuming pizza, cereal. I’m rebounding actual arduous and heavy, however we bought one other present deliberate for August. I bought a pair weeks off and I’ll begin ramping up for that subsequent present. Should you guys wish to comply with alongside on that journey, you should definitely comply with me on Instagram, @tonyjrobinson. And if you wish to comply with Ashley alongside on her restoration, she’s @wealthfromrentals on Instagram as properly.
However talking of Instagram, at the moment’s query really comes from our DMs. Should you guys wish to get your query featured on the present, you will get energetic within the Actual Property Rookie Fb group, get energetic within the BiggerPockets boards, or you possibly can slide into the DMs. Perhaps Ash and I’ll decide your query.
At present’s query comes from Rodney Hill. And Rodney’s query is, “There’s one query that stumps me. Individuals say you are able to do your first cope with no cash down. But others say you want 20% down fee. I reside in Tampa and a 20% down fee is between 30 to $60,000. However an investor gave me recommendation. Stated simply get $25,000 saved up after which I ought to have the ability to do my first deal. I don’t know if that is sensible or if it’s gibberish, however my query is, ought to I save 25 to 60K for a down fee on my first rental? Or is there a approach I can get right into a rental with lower than 25% down?” What are your ideas, Ash?

Ashley Kehr:
Effectively, I feel this can be a nice query for you simply speaking concerning the trip mortgage. If he desires to do lengthy distance investing. Or what’s the rule on that, 10? Or not 10, two hours away out of your major?

Tony Robinson:
Yeah, typically-

Ashley Kehr:
I feel go into that first, as a result of I feel that’s the very first thing that pops into my head is that trip mortgage mortgage and you understand that higher than I do.

Tony Robinson:
Yeah, completely. It’s yeah, the second residence or trip residence mortgage, it’s a ten% down fee. There are some restrictions. It’s a must to be, or the property that you simply’re shopping for, the second residence needs to be, I feel usually 60 ish miles not less than away out of your major residence. You can’t have a couple of in the identical geographic space. Should you purchase one in Tampa, you possibly can’t purchase your second one in Tampa.
After which it’s important to use the property for private use usually for not less than 14 days out of the yr. So long as you’re capable of examine these containers, you’re capable of then hire that property out on websites like Airbnb and Vrbo if you’re not utilizing it.
Now, rates of interest on these loans was virtually in lockstep with major residences. Now, we’re seeing them to be a couple of level increased. There’s been some adjustments in how the federal government is regulating these. However we’ve scaled a variety of our portfolio utilizing the ten% down second residence loans in numerous markets.

Ashley Kehr:
Yeah. The second factor that may come to thoughts for that is vendor financing. Speaking with a vendor the place you don’t need to put down an enormous down fee and you may put down a smaller down fee. And it’s not like they should hold that mortgage for you or maintain that mortgage for you for 30 years. You may make a balloon fee or make it callable in a yr, a pair years. Sufficient time you could add some worth to the property after which go to a financial institution and refinance your whole cash out, simply doing the BRRRR technique. However as a substitute of bringing your individual money or cash from a private line of credit score, you’re having the vendor maintain the mortgage for you.
A pair methods to really strategy that with a vendor is to say to them, “I do know, have you ever talked to your CPA or accountant in any respect about vendor financing and infrequently they’ll say, “No, I haven’t.” And you’ll say, “Oh, okay. I simply didn’t know due to all of the tax benefits. Should you wished to possibly discuss to them, I’d be considering doing that too.”
And that normally not less than will get the wheels turning on the vendor to have that dialog with their CPA as a result of their CPA goes to be your greatest buddy, as a result of they will say, “Sure, it is a bonus. As a result of as a substitute of taking this lump sum of $200,000 in a single tax yr, the sum of money you’re taxed on goes to be unfold out over these funds that you simply’re getting over three years or nonetheless lengthy they’re going to carry the vendor financing.”
Should you take a look at the revenue tax brackets, as you improve your revenue annually, you’re taxed at the next price. Should you’re taxed, in the event that they’re solely getting 50,000 of that within the first yr, they could solely be taxed 15%. In the event that they get that entire 200,000, then possibly they’re going to be taxed, I don’t know. I don’t even know what the tax brackets are proper now. 35% or no matter.
I’m winging it. I really was on a name the opposite day. I had somebody look it up whereas I used to be speaking about the identical factor, however so you will have their account or CPA sit down with them and discuss to them concerning the tax benefits of doing vendor financing. I feel that’s a second nice choice too.

Tony Robinson:
Yeah. I feel a 3rd choice, I imply, there’s so many choices. And I feel that’s the great thing about actual property, however a 3rd choice is discover a associate that does have the capital. And I do know the preliminary rebuttal to discover a associate is, “Effectively, I don’t know anyone.”
And by chance for you, it prices nothing to exit and meet folks. Rodney, in case you go to your native actual property meetup, in case you get energetic on the BiggerPockets boards, in case you get energetic within the BiggerPockets Actual Property Rookie Fb group, and also you begin networking with folks and saying, “Hey, listed here are the form of offers that I’m on the lookout for.” And also you begin discovering out if there may be anybody that may be considering these offers, however they don’t have the time, want and skill to handle that property. Or possibly if it’s a rehab, to handle the rehab. Establish what worth you possibly can convey to that individual after which possibly there’s a approach that you simply guys can work collectively.
We’ve got interviewed visitor after visitor, after visitor that has performed one thing comparable the place there’s somebody that has the capital, however they don’t have the time, want and skill to seek out the deal, handle the rehab, handle the tenants, do all of the issues that come together with really turning that property right into a stable funding. Construct your community, discover good offers and see in case you can present worth in that approach.

Ashley Kehr:
I feel that’s the way you’ve constructed a variety of your small business is profiting from that, the place you’re the expertise. You possibly can handle the properties, you will get the properties, you understand every little thing. After which your companions are those which can be coming with the cash and leaning on you for all of these qualities, all these traits, all that entire skillset.
And for my first property, and even for the primary a number of properties, I took on a cash associate. And that was how I bought began was simply partnering with somebody. And we really did an LLC collectively the place we have been companions. And I feel that scares lots of people, is like, “Oh, I don’t wish to be tied right into a enterprise with somebody.”
However Tony, you construction your partnerships with a three way partnership settlement the place there’s so much much less legal responsibility. I feel that’s another choice too, to have a look at is you’re not having to open a checking account with this individual. And also you’re not having to file a tax return collectively, all these various things. You are able to do the three way partnership settlement, which retains you much more separate. And also you don’t have that, you’re not tied collectively a lot, particularly when it’s your first deal you’re doing collectively.

Tony Robinson:
Yeah. Rodney, there are such a lot of methods you could go about getting that first funding with out having to give you the capital your self. Hopefully, a number of the issues that Ash and I identified at the moment is a few actionable recommendation for you and for all the opposite rookies which can be listening. However begin taking motion, man. Construct that community, begin networking and seeing who you could find that may have the opportunity that will help you and also you have the ability to assist them.

Ashley Kehr:
Effectively, thanks guys a lot for listening. Don’t neglect to go away us a evaluate in your favourite podcast platform. I’m Ashley @wealthfromrentals, and he’s Tony, @tonyjrobinson. And we’ll see you guys subsequent time.