How to Buy Rental Properties Without Bank Loans or Hard Money Loans
Today I have a very specific and important topic I want to cover. The question I’m dealing with today is…
How To Obtain Funding To Buy Rentals Without Relying On Banks Or Hard Money Loans.
The Problem
First of all, let’s talk about why bank loans and hard money loans present a problem. In both of these scenarios, we’re not in control; we’re playing by somebody else’s rules. And the deck is stacked against us.
Hard Money Loans
So, let’s talk about hard money loans. For those of you who don’t know, hard money loans are rehab loans, the type of loans that people typically get to rehab or renovate a property. They are commonly used for flipping houses.
This money is typically short-term money, because ideally, it’s going to be used to fix and flip a house quickly. And consequently, the hard money loans are going to have high interest rates and higher fees.
Bank Loans
You can get bank loans long-term to buy a rental property, so that’s a plus. However, the number one problem is that they have a lot of hoops for you to jump through. And a lot of people simply aren’t even going to qualify to jump through the hoops.
Alright, so that’s problem number one with bank loans.
Problem number two, even if you can qualify, is that you can only get a limited number of bank loans before they cut you off. Because they’re going to say you’re only allowed to have four total properties on your credit report, or 10 only 10 mortgages on your credit report, or something like that.
The Solution
In the world that I live in, I want to teach you how to create a business model that is not limited by bank funding or by hard money lending.
The question really shouldn’t be, “how do I obtain funding?” The fact is, we really don’t care about the funding!
But how can this be if we need funding to buy these houses? Well, if I can show you how to buy houses “without” that funding, then you don’t really “need” the funding. Right?
We’ve discussed the problem, so now let’s talk about the solution. We need solutions where we’re in control, we make the rules, and the odds are stacked in our favor.
Actually, let’s take this a step further. We don’t only want the odds stacked in “our” favor, but we want to set up rules and a game where all parties involved in the transaction can win by getting what they want!
What’s Our Goal with Rental Property?
So, what’s our goal with rental property? We want to get long term monthly cash flow, aka passive income or residual income, right? We want to get some money that’s coming into our bank accounts whether we get out of bed in the morning or not.
Obviously, everybody knows about the recent situation with Covid-19. A lot of people can’t or couldn’t go to work. And things were a little sketchy for many of these people until their unemployment checks kicked in.
But let’s say you were in a situation where unemployment might “never” kick in. In this case, wouldn’t it be nice to have some passive income coming in?
That’s our goal with rental property. And we want to make sure we create a positive cash flow even after accounting for a 25% “Murphy’s Law” factor (Murphys Law = Anything that “can” go wrong “will” go wrong).
I specialize in purchasing single-family homes and 2-family homes (duplexes). In my area of Columbus, Ohio, the 2-family homes are often called “doubles”. My personal preference is side-by-side doubles, rather than up-and-down doubles.
Alright, so those are my favorite properties to purchase. But now we’ve got to deal with that 25% Murphy’s Law factor, right?
Because in the real world things break down or you have to do maintenance. Sometimes people get evicted, or people just move out for whatever reason. So, you have to have some money built in there as a cushion to allow for these interruptions in cash flow.
For example, let’s say you can rent a property for a thousand dollars; you want to make sure that includes a 25% cushion. In other words, you want to know that this property can still cash flow even if you’re only netting $750 after factoring in 25% for maintenance, repairs, evictions, vacancy, etc. ($1,000 x 75% = $750).
That’s the case with a straight rental property. However if you’re doing a Rent-To-Own (RTO), then you may be able to bump up that cash flow factor from 75% (i.e. 100% – 25% = 75%) up to 80% or 90%, because in an RTO you can structure it so that the tenants will be responsible for most, or all, of the repairs and maintenance.
Of course, in order to rent the home profitably, don’t forget that you have to be properly trained. A lot of landlords go out of business because they don’t know how to manage their property, or they try to run their business like a hobby. Being a landlord is just like any other profession, i.e. in order to succeed in it, you have to be skilled and qualified and know what you’re doing. But that is a blog post for another day!
Creating Deals By Solving Problems
So how can we accomplish our goal of having long-term cash flow with enough cushion in there so that we have money for expenses?
The big key to all this is that we can create deals, deals where everybody wins, by finding a seller that has a problem we can solve.
Most investors just look for houses that they want. Instead of looking for houses that I want, I first look for sellers who have a problem that I can solve… that’s how deals are created.
Most investors are not successful or get burned out because they’re chasing houses. I’m not chasing houses. I’m chasing sellers with problems that I can solve.
It’s not all about the math; it doesn’t just come down to the numbers. It’s about life situations, because every business is a people business, especially real estate investing.
Four Solutions to the Funding Dilemma
Alright, so we’ve got four solutions to deal with this funding dilemma.
Number one is Lease Options.
Number two is “Subject To”.
Number three is Seller Financing.
And number four is Private Money.
And the answer is “no”, it probably won’t work… but if you move away it’ll probably start working! LOL
But seriously, if there are houses where you live, then yes, the methods that I teach of buying property without cash or credit will definitely work in the area that you live!
That little joke comes from the fact that most people are always looking for an excuse to talk themselves out of their own success… Whereas successful people are always looking to be the exception to the rules of mediocrity, that others choose to live by.
Anywhere there are houses, there’s always a demand for real estate investing, because everybody’s gotta live somewhere.
And the situations that allow us to buy houses without cash or credit occur to everybody, in every area.
People are having job transfers, people are losing their jobs, people are getting promoted, people are getting demoted.
People are dying, people are being born. As the family expands, the family may need to get a bigger house, and eventually they may need to move to a different school district.
When there’s a death in the family and the deceased owned real estate, that often creates probate and estate settlement situations.
I understand that these examples may not work for you. Maybe you’ve got kids or other family members who aren’t on board with cutting out cable TV. My point is, seek out those expenses that you CAN cut. Every little bit will help you reach your financial goals that much faster.
If you’re just not in a position to make any lifestyle changes right now, that’s fine too. The point is that you need to find out what your expenses are, and know that that’s what you need to cover with real estate investing to support your current lifestyle.
Bestselling author Robert Kiyosaki in Rich Dad, Poor Dad, was one of the people that popularized the idea of passive income.
If you have enough passive income coming in from your business or investments to cover all your expenses, then you don’t even have to get out of bed to pay your bills.
That’s the definition of getting out of the rat race and obtaining financial freedom.
So your first objective should be to have a consistent cash flow coming in from your real estate business through whichever strategy, or strategies, you’re focusing on.
If you’re using my methods, then you’re going to focusing on one or more of the following:
✅ 1. Wholesaling
✅ 2. Rentals
✅ 3. Lease Options
✅ 4. Getting the Deed (aka Subject To)
✅ 5. Seller Financing
✅ 6. Maybe even some Fixing and Flipping
For the record, Wholesaling and Fixing and Flipping don’t typically lend themselves to “passive income”, but profits from those deals CAN be used to reduce or eliminate debt on other properties that you’re making payments on.
Also, even though those 2 methods may not generate passive income by themselves, you can still use those methods to “actively” create a fortune, and be in control of your own time, and work on your own terms.
Whichever strategies you use, you want enough money coming in to cover your expenses, at the very least, and then your income.
Maybe your income is greater than your expenses. That’s ideal. Or maybe your expenses are greater than your income. In that case, your real estate investing HAS to succeed so you can have a less stressful life.
Either way, what you need to do now is put a plan together and get a consistent deal flow going.
But you may be wondering, “What about you, Todd? How did you quit your job with real estate investing?”
As some of you may know, I started my real estate investing business as a broke sophomore in college. I listened to Brian Tracy, who was a business/sales trainer, and Brian Tracy said to work in corporate America for five years before you start your own business.
After graduation, I worked as a software engineer, while running my real estate business from my desk in corporate America. My plan was to walk away from that lucrative engineering career after five years, so that I could focus full-time on the real estate investing business which I had started in college.
Fortunately, I was blessed that everything worked out exactly that way. 😊🙏
After four and a half years I walked away from my engineering career. I remember having to explain this decision to my dad. He knew I was a real estate investor, but he had no clue at all how all that worked!
My dad rose from abject poverty to become a financially stable, blue-collar worker in a major corporation, and he was highly respected in his field. In fact my dad was so poor growing up as a child, that he often had to go rummaging through the city dump for food.
He had a strong work ethic, learned a trade as an upholsterer, and it definitely paid off for him financially.
But when it came to entrepreneurship and investing, my dad had no clue. So, I just had to sit down with him and show him all my closing statements from these deals I had done.
I showed him the title company closing statements from deal after deal… $5k profit on this deal, $7k profits on another deal, $10k profits on another, $20k profit on several others, etc. ,etc., etc.
Many of these profits were made by buying and selling the properties on the same day!
He never quite fully understood how this was possible, but he was always supportive of what I was doing.
Well, is it time for you to quit?
I can’t answer that question for you, but I can tell you that ideally you want to put yourself in the same position that I did. You want to have enough money coming in from your real estate investing business to surpass your income and/or your expenses and, ultimately, support the lifestyle that you want.
But you’ve got to start somewhere! So start educating yourself and get some deals under your belt.
Eventually, you’ll find that getting rid of your job will free up even more time for you to focus on building the life of your dreams for yourself and your family.
Ready to step up your game?
Check out my step-by-step real estate investing courses for both beginner and advanced investors.
Are you looking for a 1-On-1 real estate investing mentor?
Check out my Monthly Coaching and/or Hourly Consulting Programs.
One question I get from people all the time is:
“How soon can I quit my job with real estate investing?”
Before you walk out the door…
So many times, people come to me and they just hate their jobs, and they’re ready to quit right now.
In my opinion, if you’re ready to quit because you hate your job, that’s actually when you’re in the most powerful position!
Think about if for a second… if you hate your job enough to quit anyway, then the worst they can do to you is fire you, right? The threat of that becomes a non-factor since you were ready to walk out the door anyway.
This puts you in a position to take advantage of this situation, to buy yourself some time to think about if quitting is what you really want to do.
Now for the record, I was always a highly rated employee the 4.5 years that I worked as an engineer in corporate America. So to be clear, I’m not telling you to become a bad employee, or not to be productive on your job.
However, if you REALLY hate your job, anyway, then you could start coming in late and leaving early. You could take long lunches. You could start using some of your job time to focus on real estate investing.
Remember, the worst they can do is fire you! And if they do, you’ll still have a little extra money in your pocket and you’ll be in a better position to collect unemployment.
As previously mentioned, this approach gives you more time to make sure you’re “really” ready to quit, so that you’re not making a rash decision.
Or perhaps it’s “not” that you hate your job. Maybe you actually like or love your job. Maybe you get along with your co-workers, and your boss treats you fine, and the work is even kind of interesting… but you’d just rather be a real estate investor and not have to report to someone else every day.
Either way, whether you’re ready to quit your job tomorrow (or this afternoon), or if you’re comfortable staying put for a while, you’ll obviously need to have enough money coming in from real estate investing to cover either your expenses or your income.
Many people jump to the conclusion that they need to replace their income.
That may not necessarily be the case. If you are currently out-earning your expenses, then maybe you can get away with earning less for a while. Or maybe you could consider lowering your expenses by adjusting your lifestyle.
I know that may sound rough, but if your main goal is to ditch that job so you can have more control of your time AND your earning potential, then it may be worth it to temporarily lower your standard of living. It may be worth it to free up your time and your budget now, so you can live the life of your dreams and enjoy the kind of financial freedom that you really want!
You’re gonna want to take a long, hard look at your expenses.
For example: say you find that every day you get a morning coffee. Does it just “have” to be Starbucks? You can save some money by making your coffee at home and bringing it with you.
Or how about cable TV? Do you really need it? First of all, if you’re trying to get rich with real estate investing – or any other business – should you really be wasting your valuable time watching TV in the first place?
I understand that these examples may not work for you. Maybe you’ve got kids or other family members who aren’t on board with cutting out cable TV. My point is, seek out those expenses that you CAN cut. Every little bit will help you reach your financial goals that much faster.
If you’re just not in a position to make any lifestyle changes right now, that’s fine too. The point is that you need to find out what your expenses are, and know that that’s what you need to cover with real estate investing to support your current lifestyle.
Bestselling author Robert Kiyosaki in Rich Dad, Poor Dad, was one of the people that popularized the idea of passive income.
If you have enough passive income coming in from your business or investments to cover all your expenses, then you don’t even have to get out of bed to pay your bills.
That’s the definition of getting out of the rat race and obtaining financial freedom.
So your first objective should be to have a consistent cash flow coming in from your real estate business through whichever strategy, or strategies, you’re focusing on.
If you’re using my methods, then you’re going to focusing on one or more of the following:
✅ 1. Wholesaling
✅ 2. Rentals
✅ 3. Lease Options
✅ 4. Getting the Deed (aka Subject To)
✅ 5. Seller Financing
✅ 6. Maybe even some Fixing and Flipping
For the record, Wholesaling and Fixing and Flipping don’t typically lend themselves to “passive income”, but profits from those deals CAN be used to reduce or eliminate debt on other properties that you’re making payments on.
Also, even though those 2 methods may not generate passive income by themselves, you can still use those methods to “actively” create a fortune, and be in control of your own time, and work on your own terms.
Whichever strategies you use, you want enough money coming in to cover your expenses, at the very least, and then your income.
Maybe your income is greater than your expenses. That’s ideal. Or maybe your expenses are greater than your income. In that case, your real estate investing HAS to succeed so you can have a less stressful life.
Either way, what you need to do now is put a plan together and get a consistent deal flow going.
But you may be wondering, “What about you, Todd? How did you quit your job with real estate investing?”
As some of you may know, I started my real estate investing business as a broke sophomore in college. I listened to Brian Tracy, who was a business/sales trainer, and Brian Tracy said to work in corporate America for five years before you start your own business.
After graduation, I worked as a software engineer, while running my real estate business from my desk in corporate America. My plan was to walk away from that lucrative engineering career after five years, so that I could focus full-time on the real estate investing business which I had started in college.
Fortunately, I was blessed that everything worked out exactly that way. 😊🙏
After four and a half years I walked away from my engineering career. I remember having to explain this decision to my dad. He knew I was a real estate investor, but he had no clue at all how all that worked!
My dad rose from abject poverty to become a financially stable, blue-collar worker in a major corporation, and he was highly respected in his field. In fact my dad was so poor growing up as a child, that he often had to go rummaging through the city dump for food.
He had a strong work ethic, learned a trade as an upholsterer, and it definitely paid off for him financially.
But when it came to entrepreneurship and investing, my dad had no clue. So, I just had to sit down with him and show him all my closing statements from these deals I had done.
I showed him the title company closing statements from deal after deal… $5k profit on this deal, $7k profits on another deal, $10k profits on another, $20k profit on several others, etc. ,etc., etc.
Many of these profits were made by buying and selling the properties on the same day!
He never quite fully understood how this was possible, but he was always supportive of what I was doing.
Well, is it time for you to quit?
I can’t answer that question for you, but I can tell you that ideally you want to put yourself in the same position that I did. You want to have enough money coming in from your real estate investing business to surpass your income and/or your expenses and, ultimately, support the lifestyle that you want.
But you’ve got to start somewhere! So start educating yourself and get some deals under your belt.
Eventually you’ll find that getting rid of your job will free up even more time for you to focus on building the life of your dreams for yourself and your family.
Ready to step up your game?
Check out my step-by-step real estate investing courses for both beginner and advanced investors.
Are you looking for a 1-On-1 real estate investing mentor?
Check out my Monthly Coaching and/or Hourly Consulting Programs.