The other day I received a question from one of my podcast listeners, and I’ll call him Larry. Larry’s question is not uncommon, by the way. It comes to me frequently in many variations, but here’s the gist…
Larry, recently started building his wealth and passive income in real estate. Today he holds a few cash flowing rental properties, and he has $100,000 liquid to invest.
“How should I best use $100,000 to build my portfolio the fastest?” was Larry’s specific question.
Click here to access my private source of funding.
While I’m happy to share how I’d use $100,000 to build a portfolio quickly, you first have to find the cheapest hundred grand you can get your hands on. And whenever possible, don’t use your own money!
To build wealth fast, you need to find and pursue the cheapest funds available and leave as much in the bank or in your pocket as you can. You’ll need it.
This is true no matter how far along you are in the wealth building process.
Even at this stage of my personal investing career, I use other people’s money as much as possible. In fact, I’ll share the cheapest source I’ve been able to find as of late, later on in this post.
But let’s look at Larry’s situation and see how he can employ this strategy …
The most important detail of this scenario is that Larry is currently in the wealth building phase of his real estate career. In the building phase you want to get control of as much real estate as possible, and responsibly leverage as much as you can by using other people’s money.
The basic “rule o’ thumb” in getting wealthy quickly is to
1) maximize leverage while building; and
2) eliminate leverage to sustain the wealth you built.
Other people’s money can mean banks, it can mean hard money, private money, the existing financing on a property, seller financing or credit lines.
Simply put, it’s whatever is not coming out of your pocket.
You see, just because you have money doesn’t mean you have to use it to acquire property.
Personally, if I were Larry, I’d probably hold on to the majority of that $100,000 and use it to 1) manage the properties that I do acquire, and 2) hold it for the perfect opportunity where I need more than what “other people’s money” can provide.
[Tweet “When #BuildingWealth use #Leverage as much as possible, then eliminate it to sustain your wealth”]
So… if you’re not going to dip into your own disposable cash, whose money are you going to use?
Here are 6 places to find money to quickly build your real estate portfolio:
This is obvious, I know. But, I’ve got to mention it because right now, as I write this, the cheapest money available is through the banks.
It’s pretty tough to beat the low rates that they’re currently offering. If I were you (or Larry), I’d take as much of their money as they’d give me, and I’d take it right away and put it to use.
The point I really want to make here, especially if bank loans are not an option for you, is you want to prioritize your financing options by the cost which accompanies your financing. This is why I put banks first. It’s the cheapest money available.
Maybe next month that won’t be the case, but for now, it is.
Actually, I have stumbled upon an even cheaper source of financing, but it’s a little unorthodox… but still works, and it’s cheap. I’ll share that with you in just a bit.
Let’s cover the more common orthodox sources first …
2. Seller Financing
If banks are not an option for you (and even if they are, at some point based on the amount of business you conduct with the banks, they will not be), I’d start looking for seller financed deals.
Look on Craigslist, or ask Realtors.
Search on Craigslist for terms like “seller financing,” “seller carryback,” or “seller will carry.”
Also, ask every Realtor you come in contact with this question: “Do you know of any listings where the seller is willing to carry back financing?” It’s a very powerful question for finding other people’s money to use for building your portfolio.
Not only is it less difficult to qualify for than bank’s money, but the terms are flexible.
In fact, the sky is the limit when it comes to your creativity in crafting your terms of financing with the Seller. Inside the Epic Pro Academy, I teach people how to use tools like:
- balloon payments,
- interest only loans,
- principle only loans,
- subject-to financing,
- lease options,
- private money, and
- various institutional money
all in order to access seller financing.
3. Friends and Family
Another place to look is amongst your friends, your family, and your associates who are dissatisfied with the current returns on their investments.
Now, I’m not saying to go to your friends and family and ask them to loan you money for your real estate deals, No! What I’m suggesting is that you offer your friends and family a better opportunity to put their money to work than what they’re currently doing.
For example… Don’t you think Aunt Sally, who is earning 0.7% on her CD right now, would be very interested in an 8% return? Or even a 6% or 4% return, for that matter?
Yeah, I think she might.
These types of loans are good enough for the banks, so why wouldn’t they be good enough for Aunt Sally? Where do you think the banks get their money in order to pay Aunt Sally the 0.7% on her CD?
Yep, they lend out Aunt Sally’s CD money to others at 4% or 5% and then pay Aunt Sally back 0.7%.
Perhaps, they even lend Aunt Sally’s money right back to her at that higher rate than what she’s receiving? Doesn’t seem fair, does it?
But it is fair.
It’s so fair that you and Aunt Sally can do this, too. But, you’ll never get to utilize this strategy unless you tell Aunt Sally about it.
4. Assets and Liabilities
Let’s not forget your own assets and liabilities as a source of money.
Do you have any assets that are underperforming? Do you have an old 401K that you forgot about, or an IRA?
How about some gold or silver lying around?
Maybe you have a couple jet skis in the garage that don’t get used anymore?
Anything you have of value that’s no longer serving you, or not serving you as well as it should, utilize that.
For example: Sell your boat, take a portion of that cash and buy into fractional ownership of a new boat and then put what’s left over to work in your portfolio. It wouldn’t be that difficult to generate a return with that left over portion to actually pay for your new boat.
Always be negotiating.
Your negotiating skill has actual monetary value. Turn your intellectual currency into actual currency.
I mean, if you ask a seller a very simple question like “What’s your bottom line?” And they respond back with $10,000 less than what they originally asked for, that’s $10,000 you don’t have to leverage. And you could follow that question up with something to the effect of, “Is that the lowest you can realistically go?”
Maybe another $5,000 price reduction?
And the negotiating doesn’t stop after you’ve shaken hands on a deal. No, you can keep negotiating.
Sure, the Seller can always say, “No,” but there’s no harm in asking for another concession or two during the due diligence process. In fact, you may find something during your due diligence that will make it so you will have to ask for another concession.
With that being the case, why not ask whether you need the concession, or not?
There’s a saying, perhaps you’ve heard it before…
“It never hurts to ask.”
6. Your Creativity
I have fallen in love with the saying “You don’t have a money problem, you have an idea problem.”
I love this saying because it’s so true. Money is merely the end result of a good idea put into action and followed through.
[Tweet “You don’t have a #Money problem, you have an #Idea problem. Creative #Investors don’t need money!”]
For example, couldn’t you get creative and combine all of the above? Sure you could, and the combinations of price and terms you pay for your real estate are endless.
Let’s say, for example, Larry goes out and finds a single family home with an owner who’s willing to seller finance at 60%.
If he negotiates that up to 70%, then he sells the jet skis for an additional 10% of the home’s purchase price, and then Aunt Sally decides to step in and finance the remaining 20%, Joe’s now got 100% financing and control of another cash flowing property in his portfolio, doesn’t he?
Yes! Plus, he still has his $100,000 in the bank!
Now Larry might use a couple grand of his money to improve the place a bit, and then he might put another $3,000 into a separate bank account for incidentals. That’s only $5,000 out of his pocket, he’s sleeping very well at night knowing everything’s taken care of and he’s got ownership of another property.
Then, tomorrow, he can get up and go do it all over again.
A second example of creativity that my students, clients and I have recently tapped into for the purpose of conducting our real estate business and building our portfolios is by using the unorthodox money source I mentioned earlier, business credit.
The special source of business credit we’re using is pretty simple to get. There’s a 60-second application to fill out, then you simply state your credit score and income, and in as little as 7 days many of us are getting access to $100,000 to $150,000 at 0% interest for the first 12 to 18 months.
Like all sources of financing, there’s a cost, but when considering the amount of money available to each individual through this particular source, the initial term of 0% interest and the absence of the piles of paperwork banks require, it is the cheapest and easiest money I currently know of… and so my advice for this source of money is the same as it is for accessing banks’ money…
When it’s this cheap, get as much of it as you can and put it to work!
It’s uncertain how long it will be available, but it’s available now.
Click here to access my private source of funding.
If nothing else, I hope you get this …
If you’re building wealth, you want to get your hands on as much property as possible, using as little of your own money as possible, and keep a good chunk of cash in the bank to support the properties that you do acquire.
You’ll rest easier knowing that your assets are covered, and you’ll continue to build your wealth until it’s time for Phase 2, which is preservation of the wealth that you’ve created (that’s a subject for another time).
Anyway, that’s what I would do if I were in Larry’s shoes.
Actually, it’s what I’ve done.
The more important question is…
What will YOU do?
To quickly build your wealth you will want to utilize other people’s money as much as possible, and then get started by pursuing the cheapest money you can find.
Do that first.
Check back later when I’ll cover different strategies of preserving the wealth you build. But, first thing’s first… build your wealth.
Through a survey of my students and clients, the cheapest and easiest source of “other people’s money” they’ve found is here. I will keep this link updated as the market changes, but unless bank’s start giving money away, I don’t know how it could get any lower than this.
To your success!