The majority of the deals I do are no-money down. Really. Not the type of no-money down deals that somehow cost $5,000 out of pocket. I’m talking about wholesale deals or subject-to deals where I negotiate for the seller to pay all closing costs and other fees so at the very most the only money coming out of my pocket is $265 for the home inspection.
However, I’m a conservative investor who doesn’t like to take big risks. I always believe in having an emergency cash cushion which is especially necessary if you own several rental properties. So although I’m not doing rehabs or writing big $50,000 checks when closing a deal, I believe in having a hefty emergency savings account in case disaster strikes or you need a lot of money for some other reason.
So, if you’re new and flat broke and don’t have an account for emergencies what should you do?
Well, get one. It’s easy and all it takes is a little creativity. We’re in the creative real estate investing business and it constantly amazes me how people lack creativity these days. (If you’re a lawyer you can’t help this, because I know they remove the creative part of your brain in law school – my wife is living proof.)
But for us normal people who can think outside the box there are plenty of ways to come up with cash quickly. First off, your immediate friends and family should be the first people you go to. You should try and set up an arrangement ahead of time where they’ll agree to lend you a few thousand. Decide on an interest rate and have a document all ready to sign in a moments notice.
If you’re family doesn’t have the money or refuses to lend it to you then look to your real estate network. What I’ve discovered over the years is that there are plenty of people who attend REIA meetings yet never have the courage to invest in property themselves. These people will be more than happy to lend money so they can feel like they’re “investing” and a part of the business.
If you’re credit is good you can go to the bank and easily get a $25,000 signature loan.
And of course, depending on the type of deal you could go to a hard money lender. However, in my opinion, a hard money lender should be your last choice because they charge several “points” upfront (such as 5 points which is 5% of your loan amount) and the interest rate is outrageous.
Also, if nobody will just outright lend you the money, there’s always the possibility of partnering with somebody. For instance, if an incredible deal came up and you needed $20,000, the other person could put up the money and they’d get 50% of the profits for helping you. But, like hard money, this is another situation I’d try to avoid. If you have to do it though, make sure and screen the potential investor. Make sure you lay down the rules so you maintain control and they can’t cause too many problems.
The bottom line is, I realize we’re living in tough times and that a lot of people are short on funds. However, if you’re creative you can quickly and easily build up (or have access to) an emergency fund.