Down payments are the most important part of getting started in real estate investing. Most lenders will not lend you 100% of the purchase price. Instead, they expect a down payment.
I recommend buying a property with 10% down, but there are some lenders that will let you have only 5% down. Regardless, how do you raise a down payment for real estate investing?
There are two simple ways to raise a down payment.
#1 – Through liquid assets such as cash, stocks, bonds or insurance. Having money in a bank account or cashing out stocks and bonds makes the finances liquid and available.
#2 – By asking your friends or relatives.
So, if those are not good options for you, here are some less simple but more practical ways to raise a down payment.
How to Raise a Down Payment
1. Home Equity Refinance or Home Equity Line of Credit
One of the greatest stagnant assets in America is home equity.
As you learn how to invest in real estate, you will realize that this is not a risk. You can pull money from the equity you have in your home by doing a cash out refinance loan where you actually cash out your house. You do this by getting an appraisal of the new value of the home. Because it’s appreciated over time and you have some equity, you can have the bank loan you 80-90% on the new value of the home.
Then, you can take that money and invest it in real estate.
2. Retirement Accounts
Some people do not know, but you can now use your IRA to purchase a second home or buy an investment property. The property needs to be in your retirement accounts. But mortgage companies are okay with this.
You can go get a mortgage on the property using your IRA to make the down payment and/or to make the monthly mortgage payments. Just remember that the payments must be made on the plan. You can also just borrow against your plan if that suits you better.
Most people don’t realize this is an option. Just keep in mind that you’ll need to check with the company that holds your retirement accounts.
3. Lines of Credit
With a true line of credit, you can write a check for anything you want – a pair of shoes or a house. Quite often, I have used lines of credit for rehabbing properties and the property is not connected to the line of credit. The secondary line of credit is where the property is connected to what you are borrowing.
Ask your attorney, CPA or real estate agents to help you find lenders that give lines of credit.
4. Credit Cards/Cash Advances
To be completely honest, I am not a big fan of this method. But I know investors that make this plan work. That said, I would only recommend this if you really understand how to invest in real estate. Personally, I prefer to build relationships with a local bank.
You can get cash advances on your credit card depending on what your interest rate is. If that is something you are prepared to manage carefully, it might be worth a try.
5. Partners
Another way to raise a down payment is to find a partner. A lot of real estate investors miss this one. While you handle the real estate part, your partner puts the money up. Put the mortgage in your name or your partner’s and split the profits.
Basically, you bring the knowledge in how to invest and oversee the rehab. You also set up the manager if you buy and hold, or you handle selling the property. And your partner is the one that is making it all possible by financing this endeavor.
Raising a down payment is necessary for purchasing real estate. You will be in a stronger negotiating position when you bring some money to the table.
If you are interested in learning more about Real Estate Investing, check out the Real Estate Workshop in Denver this October. You’ll learn actionable, valuable information from Colorado’s top real estate experts. Come out and join us!
Thanks for the all info always helpful to keep me knowledgeable God bless Hollis
Hi Hollis, thank you for your comment! I am glad to know that you enjoy my blog and think it’s helpful. Blessings, Billy
Hello Billy,
My wife and I just bought a house in Woodland Park Co. June so my daughter and her can go to Charis. We would like to get more involved in buying more property out there.
I thought On a second home you need 20% down?
Would it make sense to start an LLC and if so being that it’s a business can you put 5% down then.
Thank you
Hans
Hi, Hans! Thank you for your question. It would not be necessary to put this second home into an LLC. There ARE tax and financing BENEFITS for purchasing as a second home. As an example, you still receive a good capital gains exemption and you receive more favorable financing when purchasing as a home instead of an investment propriety. The more favorable financing on a second home also shows up in the form of a lower down payment in better terms. Blessings, Billy
Do you know where one may find a list of ready made “partners” are they the same as private investors?
Thank you for sharing, your blogs are always good.
Hi, Valerie! Thank you for your question.
Thank you. It sounds like what are you are referring to is called angel investors, whenever you are looking for partners. I am assuming you are looking for a financial investment. Financial Partners usually begins with family and friends. So if you have any family and friends that are willing to invest in you that is the best place to begin. If you do not, then you can look in your geographical area for angels investing groups, just simply google the term “angel investment” with your city name and see what pops up. I hope I was able to help. Blessings, Billy
When considering a Partner for a down payment you say split the profits? What if the purchase is a bit more complicated like buying a business, where splitting profit may not be so clear if it’s a business that only one of the partners will be operating and doing that indefinitely and perhaps even as a Non-profit church. Any suggestions?
Hi, Kurt! Thank you for your question. In your situation, it might be better just simply to try to get a loan from friends or family at a good interest rate. If a loan is not possible, then you will have to give then ownership of the business. If you want investment capital you have to give them some percentage of ownership of the business. If it’s a nonprofit, as you asked, then it cannot take ownership of the business. If it is a for-profit business, then there are two ways to share in the benefits of the business 1- is an equity stake 2- profit sharing. As an example, some people give a lower equity stake and a higher profit share. In other cases, the percentage of equity stake and the percentage of profit sharing is the same. So as an example, if someone owns an equity stake of 20% then they will get 20% of the profit share. Blessings, Billy
wow that is a very good lesson thank you for sharing..
Hi Kizito, thank you for your comment! I am glad to know that you enjoy the blog. Blessings, Billy
about founding witch would be the best way to go for founding in buying investment property. hard money, privet investors, conventional money thanks looking forward to here from you.
Hi Andres! Thanks for your comment! Hard money costs the most, usually running an annual percentage rate of about 16%. Most of the time, hard money gets two points up front and then you’ll be charged somewhere between 12 and 14% annually for the money. If you’re just starting out investing in real estate, or even buying real estate, you need to start out by buying your own home and then start looking for investment property. On the first four properties at least, including your home, normal or conventional financing might be the best. In our real estate program and in our blogs we talk about ten steps to financing for real estate investors. You can look at that and learn a lot about conventional financing and conventional money. God bless you!
Hi Billy,
I just finished your book Money Mastery and I made a list of goals for myself. I have always LOVED the idea of real estate investing but have been overseas for the last 7 years, mostly in Uganda, btw.
We are back now. We have no debt. But, we also have no car. We are renting one from an awesome ministry for $300/mo which includes Insurance. We also do not own a house.
I have saved up $6500 and I really want it to go towards an asset and not a liability. But, we will need a car soon. The car rental will last through May if we want.
What do you think the first smart thing to do would be?
I am looking at perhaps starting an Etsy shop with my paintings to bring in more income. My husband is writing a book on the 7 mountains and using Daniel, specifically, as an example to show how character and godliness helped him climb the mountain of government.
And what is the best way to find houses below market? Foreclosures?
Marjorie Broce
Hi Marjorie! Thanks for you comment! That is great to hear about your service in Uganda. To answer your question, finding houses below market depends on where you’re physically located in the country. We have several blogs addressing how to find the best markets to buy in. If you study the four or five things we give you in those blogs it will tell you how to find houses below market value or houses that would be good for an investment. Here are a few of our real estate blogs that may be helpful to you:
https://billyepperhart.com/blog/2017/09/28/focus-real-estate/
https://billyepperhart.com/blog/2017/09/21/resilient-learner/
https://billyepperhart.com/blog/2017/08/31/real-estate-markets/